Butler Propco, LLC v. CJ Auto. Ind.

Decision Date21 April 2022
Docket Number21-cv-12013
PartiesBUTLER PROPCO, LLC, Plaintiff, v. CJ AUTOMOTIVE INDIANA, LLC, Defendant.
CourtU.S. District Court — Eastern District of Michigan

OPINION & ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS (DKT. 8)

Mark A. Goldsmith United States District Judge

Plaintiff Butler Propco, LLC brought this action to enforce a contract to purchase real property from Defendant CJ Automotive Indiana, LLC. CJ, no longer willing to sell, filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) which is now before the Court (Dkt. 8). For the reasons that follow, the Court grants in part and denies in part CJ's motion to dismiss.[1]

I. BACKGROUND

On June 25, 2021, Butler and CJ signed the contract at issue in this case: an agreement labeled “Contract of Purchase and Sale” providing for Butler's purchase of certain real property located in Butler, Indiana, including various appurtenances and improvements located on or pertaining to the property. Compl. ¶¶ 6-7, 12 (Dkt. 1) (citing Contract (Dkt. 1-2)).

Section 5.1 of the agreement granted Butler a 30-day inspection period during which it was permitted to examine the property and various documents, including CJ's title policy. Contract at PageID.21-22. Section 5.2 gave Butler the right to terminate the contract by delivering written notice of termination to CJ at any time before the end of the inspection period. Id. at PageID.22. Section 3.1 of the contract required that-if Butler elected not to terminate the contract-it pay an additional $50, 000 in earnest money within one business day after close of the inspection period. Id. at PageID.19. Per Section 3.2, this money was to be held in escrow and applied to the purchase price at closing if the purchase and sale were consummated. Id.

CJ alleges that Butler did not deliver written notice of termination during the inspection period and never paid the $50, 000 deposit due at the close of the inspection period. Mot. at 3-4. Butler does not deny these allegations.

Additionally, Section 4.1 allowed Butler to notify CJ of any objections to matters relating to the property's title and surveys. Id. at PageID.20. Butler sent CJ a title and survey objection letter on July 26, 2021, listing issues to be addressed prior to closing. Compl. ¶ 21 (citing Objection Letter (Dkt. 1-3)). In part due to these issues, the parties amended the contract to extend Butler's inspection period to August 6, 2021, and they established a closing date of August 16, 2021. Compl. ¶¶ 22-23 (citing Amendment to Contract (Dkt. 1-4)).

Butler raised additional concerns as the closing date approached. Butler represents that its counsel contacted the City of Butler to attempt to obtain an easement needed to service the land, and that CJ communicated to Butler that it was working to resolve this issue. Id. ¶¶ 26-27. Butler also states that it had identified issues with leakage from the property's roof, and that CJ acknowledged that roof repairs would be needed as part of the sale and purchase. Id. ¶¶ 28-29.

Butler submits that it sent CJ copies of the closing documents on August 13, 2021. Id. ¶ 32. However, a representative of CJ responded: [W]e do not accept any changes from the agreement and have now missed the possibility to close ....” 8/13/21 Email (Dkt. 1-5). On August 16, a representative of Butler emailed CJ, stating: “As we discussed, our side was prepared to close today and would like to ensure that a closing happens as soon as possible.” 1st 8/16/ Email at 1 (Dkt. 1-6). Butler identified pending issues but emphasized its willingness to close, stating in part:

We can close under the current terms however, [sic] leaving the roof as is will only cost us both more in the long run....Closing under the current conditions may cost CJ more over the course of the lease term. Our interest is for CJ to be in the best position possible and we are not insisting upon a $1M roof repair-it seems like this has been lost in translation....I also want to reemphasize that we are ok with legal issues such as neighboring easements be resolved [sic] post-closing in order to make sure that you are accessing liquidity as soon as possible. Our priority has always been to close with you promptly under terms that you feel are fair and reasonable.”

Id. at 1-2.

CJ's representative responded that CJ would “need a day or so.” 2d 8/16/21 Email (Dkt. 1-7). The closing did not occur on August 16, 2021. Compl. ¶ 34. On August 18, CJ sent Butler a notice of termination based on Butler's failure to “timely deliver to [CJ] written notice of termination during the Inspection Period.” Notice of Termination (Dkt. 1-9).

Butler brought the present action seeking (i) declaratory relief, including a determination that the contract is valid and enforceable; (ii) specific performance of the contract; and (iii) a finding that CJ breached the contract. Compl. ¶¶ 49-63.[2] In its motion to dismiss now before the Court, CJ argues that the Court should dismiss Butler's claims. Mot.

II. ANALYSIS[3]

Pursuant to Section 13.2 of the contract, Indiana law governs this dispute. See Contract at PageID.33. In Indiana, questions regarding the enforceability of contracts for the sale and purchase of real property are governed by generally applicable principles of contract construction. See, e.g., Wolvos v. Meyer, 668 N.E.2d 671, 674-677 (Ind. 1996); UFG, LLC v. Sw. Corp., 784 N.E.2d 536, 543-545 (Ind.Ct.App. 2003)[4]

The Court addresses each of CJ's arguments in turn and finds that only its challenge to Butler's claims based on the mortgage have merit at this stage of the proceedings.

A. Whether Butler Terminated the Contract

The parties' dispute over whether Butler terminated the contract rests on an interpretation of Section 5.2, labeled “Approval of Inspections, ” which states in its entirety:

If Purchaser determines at any time prior to the expiration of the Inspection Period that the Property is not satisfactory to Purchaser for any reason or for no reason whatsoever in Purchaser's sole and absolute discretion, then Purchaser may terminate this Contract by delivering written notice of termination to Seller prior to the end of such Inspection Period. If Purchaser properly terminates this Contract pursuant to this Section 5.2, then this Contract shall be terminated, the Title Company shall return the Earnest Money Deposit to Purchaser upon the unilateral direction of Purchaser and notwithstanding any contrary direction from Seller, and neither party shall have any further rights, duties or obligations hereunder except with respect to the provisions of this Contract which expressly survive the termination of this Contract. If Purchaser does not timely deliver to Seller written notice of termination during the Inspection Period, the conditions of this Section 5.2 shall not be deemed satisfied, and Purchaser shall be deemed to terminate this Contract pursuant to this Section 5.2.

Id. at PageID.22 (emphasis added).

CJ insists that Butler cannot maintain its contract-based claims because Butler terminated the contract at the end of the inspection period when it failed to provide the written notice of termination referenced in Section 5.2. Mot. at 7. In CJ's view, Section 5.2 is self-executing, and because the required notice was not provided, the contract terminated when Butler failed to provide the notice. Id. at 6-7. In contrast, Butler argues that it is “plainly an illogical conclusion” that Butler's decision not to notify CJ in writing that it was terminating the contract meant that the sale was cancelled. Resp. at 11. Butler submits that Section 5.2 “existed to protect Plaintiff and allowed Butler ‘absolute discretion' in deciding whether or not to terminate the contract. Id. at 12 (quoting Contract at PageID.22). Butler further contends that, at the very least, Section 5.2 is ambiguous. Id. at 15 n.7 (citing Johnson, 920 N.E.2d at 256).

The Court agrees with Butler that Section 5.2 is ambiguous because “it is susceptible to more than one interpretation and reasonably intelligent persons would honestly differ as to its meaning.” Abbey Villas, 716 N.E.2d at 100. One reading of Section 5.2 accords with CJ's view- that is, Butler “shall be deemed to terminate this Contract” if a specific condition is met: Butler “does not timely deliver to Seller written notice of termination during the Inspection Period.” Contract at PageID.22. This interpretation creates tension within Section 5.2, however, because it appears to leave Butler with no choice but to terminate the contract. That is, Butler either (i) “terminate[s] this Contract by delivering written notice of termination to Seller prior to the end of such Inspection Period, ” or (ii) “does not timely deliver to Seller written notice of termination during the Inspection Period” and then is “deemed to terminate this Contract.” Id. This conclusion-seemingly at odds with the parties' intent-leads the Court to suspect that this section of the contract contains a typo, reinforcing the appropriateness of discovery.

An alternative reading of the contract may focus on the other stated result of Butler's failure to timely deliver written notice of termination-that is, “the conditions of this Section 5.2 shall not be deemed satisfied” Id. The “conditions” not satisfied in such a case refer to the statements listed at the beginning of the section, (i) [i]f Purchaser determines prior to the expiration of the Inspection Period that the Property is not satisfactory . . .” and (ii)[i]f Purchaser properly terminates this Contract pursuant to this Section 5.2 . . . ”. Id. Under this reading, the result of Butler's failure to timely deliver a notice of termination is that Butler has forsaken its...

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