LVH, LLC v. Freeman Inv., LLC
| Decision Date | 14 May 2021 |
| Docket Number | No. M2020-00698-COA-R3-CV,M2020-00698-COA-R3-CV |
| Parties | LVH, LLC v. FREEMAN INVESTMENT, LLC |
| Court | Tennessee Court of Appeals |
Appeal from the Chancery Court for Davidson County
Patricia Head Moskal, Chancellor
A property development company brought suit against a property owner for specific performance to enforce an option agreement entered into between the company and the property owner. The trial court held that the option agreement was enforceable and awarded specific performance and damages to the development company. We have concluded that the option agreement is not sufficiently definite with respect to the option price and, therefore, is not an enforceable contract. We reverse the decision of the trial court and remand for further proceedings regarding the development company's alternative cause of action for unjust enrichment.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Reversed and Remanded
J. Ross Pepper, Lara Elizabeth Boston Ford, and Matt E. Pulle, Nashville, Tennessee, for the appellant, Freeman Investment, LLC.
Thomas T. Pennington and Emma Boyd Elliott, Nashville, Tennessee, for the appellee, LVH, LLC.
OPINIONThis case concerns a twelve-acre parcel of property ("the Property") near the Wedgewood-Houston neighborhood in Nashville. Freeman Investment, LLC ("FI") owns the Property,1 and Lucy Freeman serves as the managing member of FI. LVH, LLC ("LVH") is a company that purchases real estate for development projects.2 LVH identified the Property as a possible site for a multi-family real estate development. Kent Campbell, vice president and corporate representative for LVH, negotiated with Hiram Lewis, FI's real estate broker, about LVH's possible purchase of the property.
In February 2018, LVH and FI entered into an option agreement ("the Agreement") granting LVH an exclusive option to purchase the property. In June 2018, the parties amended the Agreement to extend the option period to March 15, 2019. When LVH and FI entered into the Agreement, FI was owned by the three Freeman siblings—Lucy Freeman, Susan Freeman, and Paul Freeman—in equal shares. In August 2018, Paul transferred his shares to Lucy, who now owns two-thirds of the shares in FI.
The Property lies in a floodplain, and a large part of it lies in a floodway. When the parties signed the Agreement, the Property was zoned for industrial warehousing or distribution ("IWD"). After the Agreement was signed, LVH began its due diligence to determine the development potential of the Property. Contrary to LVH's original understanding, the Adaptive Residential Development standards were not applicable. For LVH to develop the Property as the company envisioned, the Metro planning commission required LVH to seek rezoning of the Property as a Specific Plan-Residential ("SPR") district. According to LVH, the company expended "significant resources" to complete the SPR approval process. LVH's specific plan received approval from the planning commission in August 2018 and from the Metro council in November 2018. The specific plan allowed for the construction of a maximum of 130 units on the Property.
The Freeman family's ownership of the Property dates back to a Revolutionary War grant. In 2000, Lucy Freeman recorded with the register of deeds a survey of the Property with her notarized affidavit, which states in part as follows:
I, Lucy Ann Freeman, partner and administrative manager of Freeman Investment LLC, a Tennessee limited liability corporation, do submit for public record this survey of our property located at 1700 Nolensville Pike and on Moore Av. in Nashville, Davidson Co., Tennessee. This property is owned in full by Freeman Investment LLC and is shown as Tract 3 and Tract 4 of this survey dated July 2000.
As part of its due diligence process, LVH obtained a survey and title searches on the Property. A second title search revealed that there was a 70-foot strip within the Property that was owned by the three Freeman siblings rather than by FI. In a February 19, 2019email to Mr. Campbell, LVH's attorney advised that, "Since all 3 siblings are part of the entity [FI], I don't see a big problem, but if you like we could revise the PSA [purchase and sale agreement] so it is between LVH and both the Freeman entity and all 3 siblings." Lucy Freeman testified that she learned of the siblings' ownership of part of the Property sometime after August 8, 2018.
On February 26, 2019, LVH notified FI by letter that LVH was exercising its option to purchase the property. In a draft contract of sale, LVH set forth a price of $2,500,000 for the Property. According to Mr. Campbell, LVH had determined that, under all applicable zoning and grading requirements, a maximum of 155 parking spaces could be constructed on the Property. Based upon the ratio of one parking space per bedroom and the mix of one-bedroom and two-bedroom units described in the Agreement, LVH calculated that 119 units could be developed on the Property. LVH applied the minimum contract price, based upon the construction of 125 units at a price of $20,000 per unit. In response to LVH's letter of intent to exercise the option, FI informed LVH that it was willing to sell the property at a price of $9,975,000.
LVH filed suit against FI in April 2019 for specific performance and unjust enrichment. In its amended answer, FI took the position that the Agreement was not an enforceable contract and that, if the Agreement was enforceable, LVH breached the contract by refusing to pay the agreed purchase price. After some discovery, both parties moved for summary judgment. In November 2019, the trial court determined that, under the terms of the Agreement, the purchase price was "sufficiently ascertainable to be enforceable" and that FI breached the contract. Therefore, the trial court granted partial summary judgment to LVH on these issues. Finding disputed facts or insufficient proof to determine damages and LVH's entitlement to specific performance, the court denied both parties' motions for summary judgment on those issues. The trial court further denied both parties' motions for summary judgment on the unjust enrichment claim.
The case proceeded to trial in November 2019 on the reserved issues. The court heard testimony from Mr. Campbell and Lucy Freeman. For the first time, FI asserted that specific performance was impossible because it did not own all of the property at issue. Based upon the uniqueness of the property, the trial court determined that compensatory damages were inadequate and that LVH was entitled to specific performance. The court further concluded that FI failed to prove impossibility of performance and that any discrepancy in the ownership or identification of the property was "subject to relatively easy corrective measures through execution of a quitclaim deed by the Freeman siblings to [FI]." The trial court ruled that LVH was entitled to delay damages for lost rental income from the tenant on the property (in the amount of $105,241.28).
FI appealed the trial court's decision and raises the following issues before this court: (1) whether the trial court erred by granting partial summary judgment to LVH that the Agreement was an enforceable contract and in denying summary judgment to FI thatthe Agreement was not an enforceable contract; (2) whether the trial court abused its discretion in awarding LVH specific performance requiring FI to convey the property at issue via a general warranty deed for the price of 2.5 million dollars; and (3) whether the trial court erred in awarding compensatory damages to LVH for the lost rental value of the property.
I. Summary judgment regarding enforceability of option agreement.
We must first determine whether the trial court erred in granting summary judgment to LVH and denying summary judgment to FI on the issue of the enforceability of the Agreement. LVH argues that the trial court properly concluded that the minimum price in the Agreement was "ascertainable" and that the Agreement is enforceable. FI counters that the price remained open to negotiation once the option was exercised and that the Agreement is merely an agreement to agree, which is unenforceable under Tennessee law.
We review a trial court's summary judgment determination de novo, with no presumption of correctness. Rye v. Women's Care Ctr. of Memphis, MPLLC, 477 S.W.3d 235, 250 (Tenn. 2015). This means that "we make a fresh determination of whether the requirements of Rule 56 of the Tennessee Rules of Civil Procedure have been satisfied." Id. We "must view the evidence in the light most favorable to the nonmoving party and must draw all reasonable inferences in that party's favor." Godfrey v. Ruiz, 90 S.W.3d 692, 695 (Tenn. 2002); see also Acute Care Holdings, LLC v. Houston Cnty., No. M2018-01534-COA-R3-CV, 2019 WL 2337434, at *4 (Tenn. Ct. App. June 3, 2019). Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." TENN. R. CIV. P. 56.04.
The proper interpretation of a contract presents a question of law, which we review de novo with no presumption of correctness. Four Eights, LLC v. Salem, 194 S.W.3d 484, 486 (Tenn. Ct. App. 2005). The principles and guidelines of contract interpretation are well-established and include the following:
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