Windsor I, LLC v. Cwcapital Asset Mgmt. LLC

• Decision Date: 31 July 2017
• Docket Number: Civil Action No. 12977-CB
• Citation: Windsor I, LLC v. CWCapital Asset Mgmt. LLC, Civil Action No. 12977-CB (Del. Ch. Jul 31, 2017)
• Parties: RE: Windsor I, LLC v. CWCapital Asset Management LLC
• Court: Court of Chancery of Delaware

RE: Windsor I, LLC v. CWCapital Asset Management LLC

Civil Action No. 12977-CB

COURT OF CHANCERY OF THE STATE OF DELAWARE

Date Submitted: July 25, 2017

July 31, 2017

ANDRE G. BOUCHARD CHANCELLOR

Michael C. Hochman, Esquire

Monzack Mersky McLaughlin

and Browder, P.A.

1201 N. Orange Street, Suite 400

Wilmington, DE 19801

Daniel A. O'Brien, Esquire

Venable LLP

1201 N. Market Street, Suite 1400

Wilmington, DE 19801

Dear Counsel:

This letter constitutes the Court's decision on the motion of defendant CWCapital Asset Management LLC ("CWCAM") to dismiss the Complaint for Specific Performance, Injunctive, and Other Equitable Relief (the "Complaint") filed by plaintiff Windsor I, LLC ("Windsor"). For the reasons explained below, the motion to dismiss is granted.

I. Background¹

Windsor is the owner of a commercial property located at 2201 Farrand Drive, Wilmington, Delaware (the "Property"). CWCAM is a special servicer that handles the default side of loan servicing for its affiliate, CWCapital LLC.

On or about December 27, 2006, Windsor and CWCapital entered into a Mortgage and Security Agreement in the principal amount of $7.4 million (the "Loan") to refinance the existing debt on the Property. The maturity date of the Loan was January 1, 2017.

On July 20, 2015, Windsor sent a letter to CWCapital, requesting that the Loan be transferred to special servicing because "Windsor is currently facing imminent default and will be unable to support its own debt service requirements."² Windsor was anticipating a default because the sole tenant for the Property for the past twenty years, a Best Buy store, was expected to leave the Property. On August 31, 2015, Windsor was notified that the Loan had been transferred to CWCAM as special servicer.³

From November 21, 2015, to February 9, 2016, Windsor and CWCAM negotiated the terms of a pre-negotiation agreement, the final version of which is dated February 9, 2016, and which was fully executed by March 23, 2016 (the "Pre-Negotiation Agreement").⁴ From March to November 2016, Windsor and CWCAM engaged in a series of email exchanges, during which CWCAM requested certain information from Windsor and Windsor made two offers topurchase the Loan.⁵ On November 28, 2016, CWCAM rejected Windsor's most recent offer and made a counter-offer.⁶

On December 12, 2016, Windsor filed the Complaint asserting two claims. Count I seeks specific performance of the Pre-Negotiation Agreement. Count II seeks injunctive relief to enjoin CWCAM from foreclosing on the Property "until after meaningful, good faith negotiations" occur under the Pre-Negotiation Agreement.⁷

On February 3, 2017, CWCAM filed a motion to dismiss the Complaint in its entirety under Court of Chancery Rule 12(b)(6) for failure to state a claim for relief. Oral argument was held on July 25, 2017.

II. Analysis

The standards governing a motion to dismiss for failure to state a claim for relief are well settled:

(i) all well-pleaded factual allegations are accepted as true; (ii) even vague allegations are "well-pleaded" if they give the opposing party notice of the claim; (iii) the Court must draw all reasonable inferences in favor of the non-moving party; and (iv) dismissal is inappropriateunless the "plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof.⁸

The Court is not required, however, to accept mere conclusory allegations as true or make inferences unsupported by well-pleaded factual allegations.⁹ The Court also "is not required to accept every strained interpretation of the allegations proposed by the plaintiff."¹⁰

The Pre-Negotiation Agreement contains a Maryland choice of law provision.¹¹ Accordingly, as the parties agree, Maryland law governs the substantive aspects of the claims in this case.¹²

"Maryland courts follow the law of objective interpretation of contracts, giving effect to the clear terms of the contract regardless of what the parties to the contract may have believed those terms to mean."¹³ As the Court of Appeals of Maryland has stated:

A court construing an agreement under [the objective theory] must first determine from the language of the agreement itself what a reasonable person in the position of the parties would have meant at the time it was effectuated. In addition, when the language of the contract is plain and unambiguous there is no room for construction, and a court must presume that the parties meant what they expressed. In these circumstances, the true test of what is meant is not what the parties to the contract intended it to mean, but what a reasonable person in the position of the parties would have thought it meant.¹⁴

Count I fails to state a claim for relief for three separate reasons.

First, contrary to Windsor's contention, there is no "obligation to negotiate" under the Pre-Negotiation Agreement, and thus no obligation for CWCAM to specifically perform. Windsor identifies the following provision in the Pre-Negotiation Agreement as support for the alleged binding obligation to negotiate:

The Parties acknowledge that they are about to commence negotiations (the "Negotiations") concerning the obligations owed to Holder by the Borrower and that they intend to discuss various courses of action which will include those that they believe may be in their mutual interests, with a view to a compromise and settlement by the parties.¹⁵

The plain and unambiguous meaning of the provision quoted above does not support the existence of a binding obligation to negotiate.

The parties' intention not to create a binding obligation to negotiate is made even more clear when the Pre-Negotiation Agreement is read in its entirety in accordance with Maryland law.¹⁶ In particular, paragraphs 4, 6, and 8 of the Pre-Negotiation Agreement provide, in relevant part, that:

Borrower specifically acknowledges and agrees that Holder has made no promise, commitment, or representation whatsoever, nor has Holder any obligation to Borrower to modify the terms of the Loan, offer any discounted payoff of the Loan, refinance the Loan, grant any forbearances, extend the payment terms of the Loan or extend any other financial accommodation to Borrower.

. . .

Since the Parties recognize that these Negotiations may not produce a mutually acceptable resolution of the overall problem, Borrower must be and is responsible for operating its business in a manner it deems appropriate. . . . Borrower acknowledges and agrees that Borrower may not in any way rely on, or claim reliance on, the Negotiations.

. . .

Any party shall have the right to terminate the Negotiations at any time upon written notice to the other party, without obligation or liability by virtue of the commencement or termination of Negotiations hereunder or the passage of time associated therewith and upon such termination, the Parties' respective obligations to oneanother shall be only as set forth in the Loan Documents, except that the provisions of this letter agreement shall survive.¹⁷

Thus, when read as a whole, the Pre-Negotiation Agreement is a document that simply establishes rules to govern any discussions that may take place.¹⁸ It does not obligate any party to negotiate or forbear from exercising remedies otherwise available.

Windsor's argument under the implied covenant of good faith and fair dealing is equally unavailing. "While it is true that a contract in Maryland gives rise to an implied duty of good faith and fair dealing," that duty

does not obligate a [party] to take affirmative actions that the [party] is clearly not required to take under [the contract]. Rather, the duty simply prohibits one party to a contract from acting in such a manner as to prevent the other party from performing his obligations under the contract. In short, while the implied duty of good faith and fair dealing recognized in Maryland requires that one party to a contract not frustrate the other party's performance, it is not understood to interpose new obligations about which the contract is silent, even if inclusion of the obligation is thought to be logical and wise.¹⁹

Because CWCAM clearly is not obligated to negotiate under the express terms of the Pre-Negotiation Agreement, Windsor cannot seek to impose such an obligation on CWCAM by invoking the implied covenant of good faith and fair dealing.

Second, even assuming, for argument's sake, that the Pre-Negotiation Agreement created some kind of obligation on CWCAM to negotiate in good faith, as Windsor asserts, such an obligation would be so inherently vague as to be unenforceable. Courts in Maryland have held that "[o]rdinarily, commercial agreements to negotiate upon terms and conditions to be decided are unenforceable."²⁰ After surveying numerous authorities, the Court of Special Appeals of Maryland determined that the "overwhelming weight of authority holds that courts will not enforce an agreement to negotiate a contract."²¹ One of those authorities, a decision from Southern District of New York, is particularly apt here:

While the power of the Court to fashion in appropriate cases an equitable remedy is great, it does not encompass the right to make an agreement for the parties. To decree . . . as plaintiff requests, would require the Court to enter into the realm of the conjectural. An agreement to negotiate in good faith is even more vague than an agreement to agree. An agreement to negotiate is amorphous and nebulous, since it implicates so many factors that are themselvesindefinite and uncertain that the intent of the parties can only be fathomed by conjecture and surmise.²²

Although Maryland courts have acknowledged that in some "limited situations, an agreement to negotiate in good faith may be upheld," such as where "the provision for good faith negotiations is part of an otherwise enforceable contract which itself provides terms or a frame of reference by which the duty to negotiate may be evaluated,"²³ this is not one of them. The Pre-Negotiation Agreement does not contain...