Ideal Structures Corp. v. Levine Huntsville Develop. Corp., Civ. A. No. 65-498.

• Decision Date: 16 February 1966
• Docket Number: Civ. A. No. 65-498.
• Citation: 251 F. Supp. 3
• Parties: IDEAL STRUCTURES CORP., a corporation, Plaintiff, v. LEVINE HUNTSVILLE DEVELOPMENT CORPORATION, a corporation, et al., Defendants.
• Court: U.S. District Court — Northern District of Alabama

251 F. Supp. 3

IDEAL STRUCTURES CORP., a corporation, Plaintiff, v. LEVINE HUNTSVILLE DEVELOPMENT CORPORATION, a corporation, et al., Defendants.

Civ. A. No. 65-498.

United States District Court N. D. Alabama, Northeastern Division.

February 16, 1966.

J. Robert Miller, Culver & Miller, Huntsville, Ala., for plaintiff.

Ernest L. Potter, Jr., Bell, Richardson, Cleary, McLain & Tucker, Huntsville, Ala., for defendant.

LYNNE, Chief Judge.

This is an action primarily seeking specific performance of a joint venture agreement allegedly entered into between plaintiff and defendant. With any claim for damages for breach of an enforceable express or implied contract, the court is not presently concerned. Defendant has filed a motion for partial summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure on the grounds that the alleged joint venture agreement is void under the statute of frauds. For the purpose of this motion, the following are the relevant facts.

Plaintiff, Ideal Structures Corp., is a corporation organized under the laws of Delaware. It is a wholly-owned subsidiary of Transcontinental Investing Corporation (TIC), a corporation which has extensive experience in the financing and building of real estate projects. Defendant, Levine Huntsville Development Corporation, is an Alabama corporation presently engaged in the development of a large shopping center in Huntsville, Alabama, which is to be known as Madison Mall Shopping Center (the mall).

In the complaint and in affidavits submitted by the plaintiff the following facts are alleged:

(1) In February, 1965, defendant was engaged in the organization, development, and construction of the mall, which upon completion was to occupy approximately forty-four acres. At that time, the defendant did not own any of this acreage; it had, however, entered into long-term ground leases with the owners of about forty acres. A number of subleases with so-called major national tenants had been signed, and these tenants were to begin renting upon completion of the mall. Thus, the primary assets of the defendant were long-term land leases and subleases of building space to be constructed.

(2) In the latter part of February, 1965, the defendant approached the plaintiff and solicited its services for the purpose of securing financial aid for the development of the mall. At that time, the mall was still in the early stages of development, and the defendant needed financial aid to continue its gradual growth. After lengthy negotiations which took place in the State of New York, the plaintiff and the defendant entered into a joint venture agreement whereby the defendant assigned its interest in the existing ground leases and subleases to the joint venture. Profits and losses of the venture were to be shared equally by the plaintiff and defendant. In return for receiving a one-half interest in the assets of the mall, the plaintiff was to perform the following services:

(a) The plaintiff was to obtain a loan commitment of $1,500,000 from the Israel Discount Bank Ltd. in New York, and

(b) The plaintiff was to obtain a construction loan commitment of $6,100,000.

The plaintiff also agreed that the joint venture was to pay Lawrence E. Levine, the president of the defendant, a sum of money not exceeding $150,000 for services rendered and to be rendered.

(3) With respect to performance of these services, the plaintiff obtained a loan commitment of $2,000,000 on May 4, 1965, from the Israel Discount Bank Ltd. of New York. The loan commitment became effective on May 14, 1965, when it was accepted by the defendant and plaintiff, through their respective presidents, as members of a joint venture having the name of Huntsville Associates. The commitment was secured by, among other things, the unconditional guaranty of payment by the plaintiff's parent, TIC. The plaintiff also obtained on behalf of the joint venture a loan commitment of $6,100,000 from the Chase Manhattan Bank of New York. The commitment letter dated May 18, 1965, refers to a joint venture consisting of the defendant and plaintiff. The commitment was accepted by the plaintiff's parent, TIC.

(4) In addition to the services performed above, plaintff's attorneys negotiated and secured amendments to some of the defendant's ground leases to facilitate the securing of financial aid for the mall. Plaintiff also fulfilled the terms and conditions of a sales contract whereby Huntsville Nursing Home, Inc. had agreed to sell to defendant a certain tract of land that was a part of the shopping center complex, by advancing the sum of $81,924.54 to the defendant to purchase the land. This advancement was pursuant to the provisions of a letter agreement dated May 13, 1965, signed by the presidents of the defendant and plaintiff. In accordance with the letter agreement, after the money was paid to the seller, a deed was issued naming defendant as grantee. This deed was recorded and immediately turned over to the plaintiff. Plaintiff agreed not to record the deed for forty-five days. Within that period of time the defendant had the option to repurchase the property by paying the original sum plus interest at eight per cent. The defendant did, in fact, exercise such an option, and the plaintiff acquiesced in such a demand. Nevertheless, the plaintiff requested that the property be conveyed to the joint venture. The defendant did not comply with this request.

(5) The loan from the Israel Discount Bank was conditioned upon the issuance of title insurance. Lawyers Title Insurance Corp., the title company, would not insure title against mechanics' liens without a payment and performance bond from the general contractor. The defendant attempted to make arrangements for bonding for its general contractor but was unable to do so. Thereafter, on May 25, 1965, the plaintiff's parent, TIC, guaranteed the title company that all materialmen and laborers would be paid. To compensate for this additional risk, the plaintiff and defendant agreed that the original division of profits on the joint venture should be changed. Accordingly, the plaintiff's share was increased sixteen per cent so that the plaintiff would receive sixty-six per cent of the profits and the defendant thirty-four per cent. This also meant that the plaintiff's interest in the leases would be sixty-six per cent and the defendant's, thirty-four per cent.

(6) That part of the joint venture agreement in which the plaintiff was to receive a fifty per cent interest in the assets of the mall was an oral agreement. That part of the joint venture agreement in which the plaintiff's interest was to be increased to sixty-six per cent was an oral agreement.

The foregoing subparagraphs represent a brief summation of the relevant facts alleged by the plaintiff. For the purpose of this motion for partial summary judgment, the defendant admits these facts. More specifically, it admits the existence of the oral agreement and the performance of certain acts on the part of the plaintiff in pursuance of the oral agreement. The defendant, however, contends that the alleged oral agreement is void under the applicable statute of frauds, and that the defendant, therefore, is entitled to judgment as a matter of law.

Since the transactions in this case are related to two jurisdictions, New York and Alabama, it is necessary first to determine the law to be applied by this court. Thereafter, the court will proceed to the question of whether the applicable statute of frauds bars a recovery.

THE APPLICABLE LAW

In diversity of citizenship cases, federal courts are governed by the conflict of laws rules of the courts of the state in which they sit. Klaxon Co. v. Stentor Electric Mfg. Co., Inc., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). The general conflict rule that the Alabama courts have applied in determining the validity of a contract is that,

"The nature, obligation, validity and interpretation of a contract are according to the laws of the state where made, or where performance begins, unless it is apparent that the parties manifest a mutual intention to the contrary, or unless it is to be performed in some other place, in which case the law of the other place and of performance will govern."

J. R. Watkins Co. v. Hill, 214 Ala. 507, 509, 108 So. 244, 245 (1926). This also appears to be the rule that the courts have adopted in considering the validity of a contract involving a conveyance of an interest in land. See Coral Gables, Inc. v. Patterson, 236 Ala. 201, 181 So. 236 (1938), Swink's Adm'r v. Dechard, 41 Ala. 258 (1867).

Nevertheless, the last time a case arose in Alabama which involved the application of this rule was in 1955. See New Hampshire Fire Ins. Co. v. Curtis, 264 Ala. 137, 142, 85 So.2d 441, 446 (1955) (per curiam) (dictum).¹ At that time, the "place of contracting" conflict rule was generally followed by all the states. Moreover, the Restatement of Conflict of Laws gave recognition to the correctness of the rule. Restatement, Conflict of Laws §§ 332, 334 (1934) (place of contracting determines the validity of contract and formalities for contracting), Restatement, Conflict of Laws § 340 (1934) (place of contracting determines the validity of promise to convey land).

In recent years, however, the principle that the law of the place of contracting must govern has been widely criticized.² For as one might expect, it frequently happens that the place of making the contract is merely fortuitous. Under these circumstances, the mechanical application of such a rule gives recognition to the law of a state that has no real interest in the subject matter of or the parties to the contract. For these reasons, several courts have recently abandoned the rigidity of the rule of lex loci contractus in favor of a more flexible choice of law rule.³ The rule that these courts have adopted places emphasis upon the law of the state which has the most significant...