The Reserve at Winchester I, LLC v. R 150 SPE, LLC
| Docket Number | Civil Action 3:21-cv-00008 |
| Decision Date | 07 February 2022 |
| Parties | THE RESERVE AT WINCHESTER I, LLC and ROBERT B. CATHCART, Plaintiffs, v. R 150 SPE, LLC, Defendant. |
| Court | U.S. District Court — Western District of Virginia |
On July 28, 2017, Plaintiff Robert B. Cathcart and Defendant R 150 SPE, LLC (“R 150”) signed a real estate purchase option agreement (“the Option”). R 150 owns approximately 150 acres of undeveloped land in Frederick County, Virginia (“the Property”). The Option structured the parties' responsibilities and negotiations pertaining to Cathcart's potential future purchase of an approximately 26-acre, to-be-determined piece of that Property. If the parties could agree on that land's exact location-and honored their respective contractual obligations-R 150 would sell it to Cathcart, keeping the remainder for itself.
The deal eventually fell through, partly because R 150 failed to secure local-government permits that it had agreed to obtain. In an effort to realize benefit of his bargain, Cathcart- and the company he'd created to manage the purchased property, The Reserve at Winchester I, LLC (“Reserve”)-sued R 150 for specific performance and filed a memorandum of lis pendens against the Property. R 150 counterclaimed for slander of title and moved to dismiss Plaintiffs' complaint.
At the first hearing on R 150's motion to dismiss, the court expressed doubts about Plaintiffs' specific performance claim. Shortly after the hearing, and while the motion to dismiss still was pending, Plaintiffs moved the court for leave to amend their amended complaint. The motion attached new exhibits and provided additional context to previously filed exhibits. R 150 opposed the motion.
These filings, and related motions, are before the court. For the reasons explained below, the court will grant Plaintiffs' motion for leave to amend their amended complaint (ECF No 78), deny R 150's motion to dismiss (ECF No. 13), deny R 150's motion to quash Plaintiffs' memorandum of lis pendens (ECF No. 45), and deny R 150's motion for sanctions (ECF No. 32).
R 150 owns 150.35 acres of land in Frederick County, Virginia. (See ECF No. 80-2 at 2.)[1] That land is divided between three Tax Map Nos. Tax Map No. 64-A-10 is 29.657 acres, Tax Map No. 63-A-150 is 0.309 acres, and Tax Map No. 64-A-12 is 120.384 acres.[2] (Id.) Each Tax Map No. borders the other two. (ECF No. 80-4, at 3.)
On July 28, 2017, Cathcart and R 150 signed the Option, which outlined the conditions of a potential real-estate deal. (ECF No. 80-2, at 19.) Cathcart intended to build high-end residential apartment units on the land. (Id. at 1.) The details would be finalized in the coming months, but the overarching structure was clear. Cathcart would pay R 150 monthly retainers of between $3, 500 and $5, 000. (Id. at 2-4.) In return, R 150 would not “materially and adversely affect title to any portion of the Property which is or may become subject to” a sale without Cathcart's written consent, along with other commitments. (Id. at 4.) For example, it would not “stockpile dirt or any other materials” on the Property without Cathcart's approval, and it would install the necessary water and sewer utilities. (Id. at 9, 12.)
After the parties fulfilled their mutual obligations under the Option, R 150 would sell “not more than 26.23 acres” of the Property to Cathcart. (Id. at 1.) The Option reserved a Study Period for Cathcart, during which he would evaluate the Property before notifying R 150 of his intention to close. (Id.) If Cathcart ended the Study Period by submitting a Notice of Exercise to Cathcart, the Option would become a contract for the sale of real property. (Id. at 1-5.) A Notice of Exercise is simply a written notice memorializing Cathcart's intent to purchase Parcel 1. (See Id. at 5-6.)
Any sale would occur in two or three stages, whichever Cathcart chose. (See Id. at 1-4.) Each of the three stages would concern a different piece of the conveyance: Parcel 1, Parcel 2, and Parcel 3. (See id.) The parties would not determine precise boundaries of each Parcel until the completion of each stage. (See Id. at 1-4.) The sale price was indexed to the number of units Cathcart intended to build on each Parcel. (Id. at 5.)
In anticipation of taking title to the land, Cathcart created Reserve. (Pls.' Proposed Second Am. Coml. ¶ 26 [ECF No. 80-1].) He organized Reserve “as a special purpose entity to develop and operate the Property.” (Pls. Resp. Opp'n Mot. Dismiss at 2 [ECF No. 15].) Cathcart represents to the court that these “organizational structures are customary in commercial real estate transactions, ” and that he has executed an assignment of the Option to Reserve, which is being “held in escrow to be provided to R 150 in anticipation of closing.” (Id. at 2 n.2.)
The Option also defines the remedies available to either party in the event of a breach. If Cathcart breached, R 150 would be entitled to keep the monthly retainers that Cathcart had paid. (ECF No. 80-2, at 14.) If R 150 breached, Cathcart could either terminate the agreement, or waive the breach and “proceed to purchase the applicable Parcel as provided” in the Option. (Id. at 13.) In the event of a “willful breach” by R 150, Cathcart could “sue for specific performance of [the] Agreement and the right to recover reasonable attorneys' fees” or terminate the agreement and collect from R 150 his “reasonable costs and expenses . . . expended or incurred . . . pursuant to [the] Agreement or in enforcement of [the] Agreement.” (Id. at 13-14.)
Over the life of the project, the parties have amended the Option three times. (See ECF Nos. 80-5, 80-7, 80-14.) The First Amendment postponed the end of the Study Period, effectively giving R 150 additional time to provide engineering materials to Cathcart, which Cathcart would review before deciding whether to exercise his option. (See ECF No. 80-5, at 1-2.) The Second Amendment ended Cathcart's Study Period and set tentative dates for the closings on Parcel 1 and Parcel 2. (See ECF No. 80-7, at 2-3.) In effect, then, the Second Amendment functioned as a Notice of Exercise. It also eliminated any reference to Parcel 3. (Id. at 3.) The Third Amendment postponed the closing on Parcel 1, in part so that R 150 could “design, complete and obtain all necessary approvals for [a] 10-foot asphalt pedestrian and bicycle trail . . . account[ing] for the layout presently shown on Purchaser's site plans, dated April 30, 2020 with a November 20, 2020 revision date.” (ECF No. 80-14, at 2.) R 150 refused to sign a proposed Fourth Amendment, which would have further postponed the closing on Parcel 1. (See ECF No. 80-19, at 6-12.)
Instead, R 150 sent Cathcart a letter explaining that it had terminated the Option, effective immediately, because the parties had not met certain conditions precedent. (ECF No. 80-20.) One of these conditions was R 150's obligation to subdivide Parcel 1 from the remainder of the Property. (See ECF No. 80-2, at 8.) Although R 150 had previously circulated a draft subdivision plat and Cathcart had confirmed that plat's accuracy, R 150 had never filed the plat with Frederick County for approval. (See ECF No. 80-12, at 1, 53-56; ECF No. 80-13, at 2.) R 150 returned the monthly retainers Cathcart had paid to-date, as required by the termination provision. (ECF No. 80-21; see ECF No. 80-2, at 9.)
Plaintiffs responded to this purported termination by filing the instant lawsuit in the Circuit Court of Albemarle County. Their complaint alleges that R 150 has willfully breached its contractual duties and argues that they are entitled to specific performance of the contract. (Pls.' Proposed Second Am. Compl. ¶¶ 61-80.) Specifically, Plaintiffs allege that R 150 breached its contractual duties to not encumber the Property's title, to keep it free from detritus, and to acquire certain government permits. (Id. ¶¶ 45-50.) They also filed a lis pendens on the Property. (Countercl. at 10-13 [ECF No. 29].)
R 150 removed the complaint to this court and filed a counterclaim for slander of title. (Countercl. ¶¶ 29-37.)
The matter is before the court on Plaintiffs' motion for leave to amend their amended complaint (ECF No. 78), R 150's motion to dismiss (ECF No. 13), R 150's motion to quash Reserve's memorandum of lis pendens (ECF No. 45), and R 150's motion for sanctions (ECF No. 32).
Motions to dismiss under Rule 12(b)(6) test the legal sufficiency of a complaint. Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999). To survive a Rule 12(b)(6) motion the complaint “must contain sufficient factual matter, accepted as true, to ‘state a claim for relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547 (2007)). A claim is facially plausible when the plaintiff's allegations “allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. While a complaint does not need “detailed factual allegations, ” complaints merely offering “labels and conclusions, ” “naked assertion[s] devoid of ‘further factual enhancement, '” or “a formulaic recitation of the elements of a cause of action will not do.” Id. (alteration in original) (internal quotation marks omitted) (quoting Twombly, 550 U.S. at 555, 557). Courts ruling on 12(b)(6) motions can consider documents attached to the complaint as exhibits. Goines v. Valley Cmty. Servs. Bd., 822 F.3d 159, 166 (4th Cir. 2016) (...
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