In re Ocean Blue Leasehold Property LLC
| Decision Date | 05 September 2008 |
| Docket Number | No. 07-17999-BKC-AJC.,07-17999-BKC-AJC. |
| Citation | 393 B.R. 792 |
| Parties | In re OCEAN BLUE LEASEHOLD PROPERTY LLC, et al.,<SMALL><SUP>1</SUP></SMALL> Debtors. |
| Court | U.S. Bankruptcy Court — Southern District of Florida |
Arthur Halsey Rice, Rice, Pugatch, Robinson & Schiller, P.A., Ft. Lauderdale, FL, for Debtors.
Lynn Maynard Gollin, Tew Cardenas LLP, Miami, FL, for Creditor.
Harold D. Moorefield, Jr., Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A., Miami, FL, for trustee.
On August 22, 2008, an evidentiary hearing was conducted pursuant to this Court's Order to Show Cause Why Related Investments, Inc. Should Not Forfeit Deposit and Pay Incidental Damages for Breach of Contract to Purchase Estate Property and Refusal to Comply with Court's Order Granting Sale Motion ("Order to Show Cause") (D.E.453) and this Court's Order Continuing Hearing on Order to Show Cause and Related Deadlines and Scheduling Evidentiary Hearing (D.E.497). At the hearing, the Court received into evidence without objection all of the exhibits submitted by both Drew M. Dillworth, Chapter 11 Trustee (Exhibits 1-25 and 27-30)2 and Related Investments, Inc. (Exhibits 1-83), heard the testimony of Drew M. Dillworth, Chapter 11 Trustee ("Trustee"), Michael Cutler, the President of Related Investments, Inc. ("Related") and Owen Harvey, the property manager for the 200 Building who is employed by Transwestern, a third-party management company, and considered Related's Response to the Order to Show Cause ("Related's Response") (D.E.509) and the arguments of counsel.
The principal issues before the Court are (a) whether Related's failure to pay the $250,000 balance of the earnest money deposit required to be paid under the terms of a contract for the sale of certain real estate made with the Trustee constituted a default by Related under that contract entitling the Trustee to recover the paid deposit as liquidated damages; and, (b) if so, in addition to the recovery of the already-paid deposit as liquidated damages, whether the Trustee can recover a judgment against Related for the balance of the deposit Related did not pay.
The facts concerning the contract, the earnest money deposit and Related's failure to pay the balance of the deposit are not disputed. Related and the Trustee entered into a Purchase and Sale Contract on June 19, 2008 ("Contract") pursuant to which the Trustee agreed to sell to Related certain real property owned by the Debtor's bankruptcy estate commonly known as the 200 Building ("Property"). (T-1). The purchase price for the Property in the Contract was $28.6 million. Mr. Cutler executed the Contract as Related's president. Mr. Cutler is a sophisticated Florida real estate broker, familiar with commercial real estate contacts generally, and is familiar with the terms of the Contract.
The Contract was approved by this Court's Order Granting Trustee's Motion to Approve Agreement of Purchase and Sale and for the Entry of an Order Authorizing the Private Sale of Substantially All the Real and Personal Property of the Estates Pursuant to the Joint Consolidated Plan of Reorganization and Free and Clear of All Liens, Claims, Encumbrances, and Interests Pursuant to 11 U.S.C. § 363(f) entered July 3, 2008 ("Order Approving Contract") (D.E.385). In the Contract, Related agreed to pay a total "Earnest Money Deposit" of $500,000 in three installments ("Deposit"). (T-1, at Exhibit A (Contract), ¶¶ 1.1.4 and 3.1).3 Related paid the Trustee the first two installments of the Deposit totaling $250,000. Paragraph 1.1.4 of the Contract required Related to pay the balance of the Deposit in the amount of $250,000 on or before the third business day from the date the Court entered its July 3rd Order Approving Contract, or on or before July 9, 2008. Related did not pay the balance of the Deposit when due.
The next day, on July 10, 2008, the Trustee forwarded to Related a Notice of Default and Termination of the Contract for Related's failure to pay the balance of the Deposit. (T-3). Upon default and termination, the Contract provides that the Trustee's sole remedy is to "recover the Earnest Money Deposit as liquidated damages and not as penalty in full satisfaction of claims against [Related] hereunder." (T-1, Contract, ¶ 10.2) (Brackets supplied).
Related defends its failure to pay the balance of the Deposit by claiming it was excused from payment for two primary reasons. First, Related claims that the Trustee did not provide Related with accurate information concerning the rent roll for the Property and tenant delinquencies, and therefore, Related did not discover the true state of the Property's income until some time after Related executed the Contract. "Related was provided incorrect rent roll information to value the property." Related's Response at p. 11; see also pp. 3-7 and 10-13. Second, Related asserts that subsequent to the entry of Court's Order Approving Contract on July 3, 2008, it learned of "open permits" issued by the City of Miami ("City") relating to various renovation or repairs made to the Property. Although such "open permits" do not appear in the public records of Miami-Dade County where deeds and mortgages in respect of real property are maintained, Related claims that such open permits could "ripen" into "future code violations, which could turn into liens against the Property, render[ing] title to it presently unmarketable." Related's Response at p. 14. (Brackets supplied.)
For the reasons set forth below, the Court rejects Related's defenses as being without merit under the express terms of the Contract and based upon its performance under the Contract. The Court finds that its failure to pay the balance of the Deposit when due constitutes a clear and unequivocal breach of the Contract by Related. The Contract itself contains several provisions which govern the resolution of this issue. Section 1.1.4 of the Contract provides for the payment of the Deposit, and contains no provision conditioning the payment of any portion of the Deposit upon any other event to be performed under the Contract. Further, other than the Trustee's obligation to deliver clear title to the Property at closing and other closing deliveries, the Contract provided Related with no due diligence, financing or other contingencies whereby Related could elect to terminate the Contract and obtain the return of its Deposit. Moreover, Related had not attempted to terminate or declare a default by the Trustee under the Contract prior to July 9th, the date Related was required to pay the final installment of the Deposit. The following are the relevant provisions of the Contract.
1.1.4 Earnest Money Deposit: Initial Deposit: $500,000.00 which shall be due and payable from Purchaser as follows: (I) $200,000.00 upon three business days of execution of Agreement by Trustee, and (ii) $50,000.00 upon 7 business days of execution of the Agreement, and (iii) $250,000.00 upon three business days of court approval of the Agreement. The Earnest Money Deposit shall be held in an interest bearing account for the benefit of the Buyer.
1.1.6 Inspection Period. Purchaser has conducted all required due diligence, requires no further inspection period, and shall purchase the Property AS-IS WHERE-IS as provided for in Section 4.5 below, subject to clear fee simple title.
4.1 Due Diligence Materials. Purchaser acknowledges having (I) previously received various due diligence materials pertaining to the Property which Purchaser further acknowledges represent all of the due diligence materials in the possession of Seller (collectively all such due diligence materials being the "Property Information") and (ii) entered into a confidentiality agreement with Seller with respect to the Property Information, which confidentiality agreement shall remain in full force and effect and is not otherwise modified or amended by this Agreement. Purchaser acknowledges that Seller, as a duly appointed Trustee pursuant to the Appointment Order is acting as the receiver and conservator of the Property and has not owned the Property nor been involved in the ownership, operation or management of the Property and therefore has limited knowledge and information concerning the Property. Seller makes no representation or warranty whatsoever with respect to the completeness or accuracy of the Property Information and Purchaser shall have no claim or charge against Seller for any material inaccuracies, misstatements or other problems with the Property Information.
4.2 Physical Due Diligence. Prior to the date of this Agreement, Purchaser conducted adequate physical due diligence of the Property, Purchaser requires no further inspection or physical due diligence and shall purchase the Property AS-IS WHERE-IS as provided for in section 4.5 below.
4.6 NO REPRESENTATIONS OR WARRANTIES/AS-IS SALE. PURCHASER AGREES AND ACKNOWLEDGES THAT SELLER HAS NOT MADE AND MAKES NO REPRESENTATIONS OR WARRANTIES WHATSOEVER TO PURCHASER OR ANY AGENT, REPRESENTATIVE OR CONTRACTOR OF PURCHASER, WITH RESPECT TO THE CONDITION OF THE PROPERTY, INCLUDING ENVIRONMENTAL MATTERS. PURCHASER AGREES AND ACKNOWLEDGES THAT: (I) PURCHASER SHALL PURCHASE AND ACQUIRE THE PROPERTY IN ITS "AS-IS/ WHERE IS" SHAPE AND CONDITION, WITH ANY AND ALL FAULTS, IF ANY, AND BASED SOLELY ON PURCHASER'S OWN INSPECTION, INVESTIGATION AND EVALUATION OF THE PROPERTY, WITHOUT REPRESENTATION OR WARRANTY, WHETHER EXPRESS OR IMPLIED; AND (ii) NEITHER SELLER NOR ANY AGENT OF SELLER HAS MADE ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, CONCERNING THE PROPERTY, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OR REPRESENTATIONS AS TO HABITABILITY, MERCHANTABILITY, FITNESS OR SUITABILITY FOR A PARTICULAR PURPOSE, OR THE COMPLIANCE OF THE PROPERTY WITH GOVERNMENTAL LAWS. (...
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