Hastings Funeral Home, Inc. v. Hastings
| Decision Date | 14 November 2022 |
| Docket Number | C. A. 2021-0373-PWG |
| Parties | HASTINGS FUNERAL HOME, INC. Plaintiff, v. CHARLES W. HASTINGS, Defendant. |
| Court | Court of Chancery of Delaware |
HASTINGS FUNERAL HOME, INC. Plaintiff,
v.
CHARLES W. HASTINGS, Defendant.
C. A. No. 2021-0373-PWG
Court of Chancery of Delaware
November 14, 2022
Date Submitted: August 22, 2022
Scott G. Wilcox, Esquire, MOORE & RUTT, P.A., Wilmington, Delaware, Attorney for Plaintiff Hastings Funeral Home, Inc.
David C. Hutt, Esquire, Michelle Bounds, Esquire, MORRIS JAMES LLP, Georgetown, Delaware, Attorneys for Defendant Charles W. Hastings
PATRICIA W. GRIFFIN, MASTER
Pending before me is a dispute about a lease purchase agreement for real properties used in the operation of a funeral home business in Selbyville, Delaware. The new owner of a funeral home business sought to exercise the option to purchase the properties from the former owner under the agreement and began the process specified in the agreement for establishing the properties' sale price. Disputes arose between the parties concerning the process and the sale price. In its motion for summary judgment, the new owner seeks specific performance of the agreement to purchase the properties, damages, and attorneys' fees. In his cross-motion for summary judgment, the former owner denies the new owner's entitlement to specific performance or damages, arguing that the new owner is in material breach of the agreement, and seeks indemnification for his attorneys' fees under the agreement. I find that the evidence shows that the new owner is entitled to specific performance of the agreement, and recommend that the Court grant the new owner's motion for summary judgment, deny the former owner's cross-motion for summary judgment, order the sale of the properties and compensatory damages, and deny any award of attorneys' fees. This is a final report.
I. BACKGROUND
A. Factual Background
On May 4, 2014, William Bryan Bishop, Jr. purchased all the shares and assets of Plaintiff Hastings Funeral Home, Inc. ("HFH") from Defendant Charles W. Hastings ("Hastings").[1] On July 1, 2014, the parties entered into a separate lease purchase agreement ("Agreement") for real property owned by Hastings and located at 19 South Main Street and 24 South Main Street, Selbyville, Delaware ("Properties") out of which HFH operates the business.[2] The Agreement's initial five-year term ended on June 30, 2019, with HFH having the option to renew for two additional five-year terms.[3] During the first and second terms, HFH had the option to purchase the Properties.[4] The Agreement stated that HFH will purchase the Properties at their "then fair market value" to be agreed upon by HFH and Hastings.[5] If the parties could not agree on the fair market value price, the Agreement provided a mechanism for determining fair market value ("Pricing Process"):
[T]he fair market value shall be determined by calculating the average fair market value based upon two appraisals commissioned independently by [HFH] and [Hastings] and prepared by MAI, Delaware Licensed Appraisers, provided that any difference between the value does not exceed ten (10%) percent. If such difference is greater than ten (10%), then [HFH] and [Hastings] shall instruct those MAI, Delaware Licensed Appraisers to appoint a third MAI, Delaware Licensed Appraiser to prepare a third appraisal, the cost of which shall be born equally by [HFH] and [Hastings]. If the three MAI, Delaware Licensed Appraisers cannot agree on the fair market value of the [Properties], then [Hastings] and [HFH] shall be bound by the appraisal of the mutually chosen third MAI, Delaware Licensed Appraiser. In the event that [HFH] exercises the option, [HFH] and [Hastings] shall have thirty (30) days after the giving of notice by [HFH] of its intention to exercise the option to obtain the appraisals at their own expense of their own MAI, Delaware Licensed Appraiser. The third appraisal, if necessary, shall be obtained within thirty (30) days thereafter.[6]
If HFH exercised its option to purchase the Properties during one of the renewal terms, it must notify Hastings in writing and the "purchase of the Propert[ies] shall then take place ninety (90) days after the exercise of the option (unless the parties mutually agree to an alternate date)."[7]
The Agreement contains a time is of the essence clause.[8] It also includes a default provision requiring that Hastings provide HFH with written notice of, and the opportunity to cure, any breach of a material term or condition of the Agreement, with HFH having 30 days to cure any default, unless the period was
reasonably extended.[9] The Agreement contains an indemnification clause ("Indemnification Clause") providing that HFH indemnifies Hastings for claims and expenses, including attorneys' fees, in defense of claims or causes of action initiated against Hastings that arise "by, from or through [HFH's] use, occupancy and possession of the Propert[ies]."[10] It also includes a prevailing party provision ("Prevailing Party Provision") requiring that HFH reimburse Hastings for all expenses, including attorneys' fees, arising from or in connection with a default by HFH, if Hastings is the prevailing party in the dispute.[11]
On January 10, 2019, prior to the end of the Agreement's initial term, HFH exercised its option to renew for another five-year term.[12] On May 13, 2019, Hastings responded regarding the rent increase for the second term, provided notice that HFH had breached the Agreement by subletting a portion of the Properties, and asked HFH to pay him the rent collected to cure the default.[13] On September 4, 2019, HFH notified Hastings that it was exercising its option to
purchase the Properties.[14] Hastings responded, on September 12, 2019, that the purchase could not proceed because HFH had not cured the default nearly four months after Hastings provided notice of the default, but that, if HFH paid the rent collected, Hastings "would be glad to discuss the sale of the [Properties]."[15] HFH made the requested payment on September 18, 2019, and indicated that the 30-day appraisal period should begin on that date.[16]
On December 6, 2019, Hastings wrote to HFH, stating that he was "sorry it took so long," but he was ready to sell the Properties for $950,000.00.[17] HFH responded, on December 20, 2019, that it did not agree that $950,000.00 was the fair market value price and that the Pricing Process needed to be followed.[18]
HFH had obtained an appraisal on August 26, 2019 from Harold L. Carmean ("Carmean"), who was a Delaware certified appraiser but not MAI-certified.[19]Carmean appraised the Properties at $637,500.00.[20] HFH provided the Carmean appraisal to Hastings on February 27, 2020, and asked to receive a copy of Hastings' appraisal "as soon as possible," given the 30-day period to obtain
appraisals in the Agreement.[21] On March 3, 2020, Hastings responded that the appraiser he hired, William McCain ("McCain"), had completed his appraisal of the Properties in October 2019 but did not provide a copy of the McCain appraisal to HFH.[22] On March 24, 2020, HFH again asked for a copy of the McCain appraisal, which Hastings mailed to HFH on March 27, 2020.[23] McCain, who was a MAI and Delaware certified appraiser, appraised the Properties at $925,000.00, as of October 3, 2019.[24] HFH communicated with Hastings by email on May 1, 2020, indicating that, since the difference in the appraisals' values exceeded ten percent, the parties' appraisers had agreed to Georgia Nichols ("Nichols"), a MAI and Delaware certified appraiser, as the third appraiser, and sought his approval, and payment of one-half of the cost, to retain the third appraiser.[25] Hastings agreed to retain Nichols and signed the engagement letter on May 15, 2020.[26] Nichols concluded, in her June 16, 2020 appraisal, that the market value of the Properties was $850,000.00 as of June 5, 2020.[27] Hastings sent a June 19, 2020 email to HFH
stating that he will not move forward on the Properties' sale until the other appraisers discuss the Nichols appraisal.[28]
On July 9, 2020, Hastings wrote HFH stating that it has come to his attention that Carmean was not a MAI-certified appraiser as required by the Agreement so HFH was "going to have to start all over and hire an MAI Delaware appraiser to appraise the [Properties]" but, to avoid "gambling on the outcome of a new appraisal," HFH can pay Hastings $900,000.00.[29] HFH then hired a new MAI-certified appraiser, John Crognale ("Crognale"), who valued the properties at $615,000.00, as of October 19, 2020, in an appraisal dated November 2, 2020.[30]On November 9, 2020, HFH sent the Crognale appraisal to Hastings, indicating that, although HFH believed that Hastings had waived his objection to Carmean's lack of MAI certification, it had commissioned the Crognale appraisal and, since the value difference for the Properties still exceeded ten percent, it asked whether Hastings would agree to using the Nichols appraisal as the third appraisal or wanted Crognale and McCain to select a new third appraiser.[31]
After HFH followed up with an email on December 28, 2020, Hastings replied, in a December 29, 2020 email, that he had not seen HFH's November 9,
2020 letter previously, questioned whether HFH was asking to use the Nichols appraisal as the third appraisal, and indicated that he would get back to HFH after consulting with his attorney and appraiser.[32] HFH confirmed that it was asking whether the parties needed to hire a new third appraiser and set a response date of approximately ten days, to which Hastings responded that he will not make a decision by that date.[33] Later on December 29, 2020, HFH responded that, if Hastings preferred, they could get the "the three appraisers [to] talk to see if they can come to a mutually agreed amount."[34] After HFH emailed Hastings on January 20, 2021 regarding his failure to respond to the December 29, 2020 email,[35] Hastings replied, on January...
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