WSC/2005 LLC v. Trio Venture Assocs.
| Decision Date | 05 October 2017 |
| Docket Number | No. 1531,No. 946,No. 1784,946,1531,1784 |
| Parties | WSC/2005 LLC, ET AL. v. TRIO VENTURE ASSOCIATES, ET AL. |
| Court | Court of Special Appeals of Maryland |
Circuit Court for Montgomery County
Case No.: 414402V
UNREPORTED
Eyler, Deborah S., Beachley, Shaw Geter JJ.
Opinion by Shaw Geter, J.
*This is an unreported opinion, and it may not be cited in any paper, brief, motion, or other document filed in this Court or any other Maryland Court as either precedent within the rule of stare decisis or as persuasive authority. Md. Rule 1-104.
This consolidated appeal involves an arbitration settlement agreement that was reached between the parties in the midst of a multi-week jury trial in April 2005. Under the terms of a Purchase and Sale Agreement (PSA), appellants bought appellees' interest in a joint venture that owns commercial office buildings at 6011 and 6100 Executive Boulevard in Rockville, Maryland. A clause in the PSA specified that contingency payments were to be made on the occurrence of enumerated leasing conditions. In August 2006, appellants sold 6100 Executive Boulevard to a third party; appellees later filed a demand for arbitration, arguing that the sale constituted a breach of the PSA. After holding a hearing, the arbitrator found that, because of the sale, appellants did not exercise good faith or commercially reasonable efforts in leasing 6100 Executive Boulevard, and he awarded appellees $3.5 million, as well as interest to run from the date of the breach.
The parties collectively raise three issues arising from the arbitrator's award and ensuing petition to vacate in the Circuit Court for Montgomery County that we have reworded as follows1:
For the reasons described below, we shall affirm in part and vacate in part.
In April 2005, the parties entered into a settlement agreement in the midst of a multi-week jury trial in the Circuit Court for Montgomery County, the terms of which are contained in the PSA underlying this dispute. As appellants put it in the proceedings below, "it was a separation, a settlement, between parties that didn't like each other much, certainly didn't trust each other much, and had been involved in fighting with each other for the four-plus, five-plus years before this agreement was signed." Under the PSA, appellees transferred their 58-1/3% interest in the Washington Science Center Joint Venture (WSCJV)—which owns commercial office buildings at 6011 and 6100 Executive Boulevard in Rockville, Maryland—to appellants. Pursuant to Paragraphs 3.A through 3.C of the PSA, appellants paid appellees $10 million in 2005:
Paragraphs 3.D and 3.E include two additional future payments of $3.5 million, contingent on one of the following conditions:
In the event that payment is not made under Paragraph 3.D or 3.E, the method by which interest would accrue is set forth in Paragraph 3.F:
F. The parties agree that with reference to the contingent payments set forth in Sections D and E above, that the payment(s) to be made shall be allocated between principal and interest in accordance with the rules and Regulations of the Internal Revenue Service regarding the use of Applicable Federal Rates ["AFR"] for instruments with unstated interest (the total payment to be made shall not be affected by this allocation). The interest rates to be applied in arriving at the appropriate allocation between principal and interest shall be as follows: (1) to the extent payment is not made within nine years, 4.33 percent, the annual AFR provided for long-term instruments executed during August 2005 with a term of nine years or longer; (2) to the extent payment is made more than three years after August, 2005, but less than nine years after August, 2005, 3.92 percent, the AFR provided for mid-term instrumentsexecuted during August 2005 with a term of more than three years and less than nine years; and (3) to the extent payment is made in three years or less, 3.58 percent, the AFR provided for short-term instruments executed during August 2005 with a term of less than three years. The purpose of this provision is to apply an interest rate that complies with the AFR Regulations so as to use an applied interest rate and avoid having interest imputed. Accordingly, should it be finally determined that an incorrect rate was chosen, the parties agree to adjust the rates provided in this Paragraph, if needed to fully comply with the AFR Regulations.
On August 31, 2006, approximately eighteen months after the parties signed the PSA, appellants sold 6100 Executive Boulevard to a third party for $32.5 million. The sale was recorded in the land records of Montgomery County, but no other notice was provided to appellees, who believed that appellant WSCJV remained the owner of both buildings. Following appellees' inquiry in 2010 into the contingency payments under Paragraphs 3.D and 3.E, Richard Cohen sent appellee Lawrence Guss the following letter on April 7, 2010:
Appellees did not learn about the sale until they ran a title search in January 2014. Three months later, on March 13, 2014, appellees sent appellants a letter requesting a meeting. Appellees claimed that the sale of 6100 Executive Boulevard triggered the $7 million contingency payments under Paragraph 3.D and 3.E of the PSA, and that the meeting would provide a good way to start the "45-day cooling off period," which is defined in the PSA as follows:
The Parties agree that, to the extent a dispute arises under this Agreement, the Parties shall attempt to resolve such dispute. If after a 45 day "cooling off" period (which 45 day period shall commence by any Party setting forth, in writing, his, or her or its position with respect to such dispute, and providing such writing to the other Parties), the Parties are not able to resolve any such dispute, the Parties, within 15 days of the end of such "cooling off" period, shall submit their dispute to binding and final arbitration.
Both parties believed that the March 2014 letter triggered the cooling off period, although it was not sent to all individuals designated for notice under the PSA. The parties met one month later, but no settlement was reached. On February 10, 2015, appellees sent appellants a "CORRECTED-45 Day Letter." The February 2015 letter narrowed the scope of the dispute by eliminating the Paragraph 3.D claim; it also added specificity to the 3.E claim: appellees stated that a breach occurred when appellants sold 6100 Executive Boulevard, and appellants were obligated to pay the $3.5 million contingency set forth in Paragraph 3.E as of the date of the sale—August 31, 2006. All parties designated for notice received a copy of the February 2015 letter.
After a period of unsuccessful negotiation, appellees filed a demand for arbitration on April 6, 2015, raising two claims of breach of the PSA, fraud, unjust enrichment, and failure to provide information. Appellants subsequently filed a motion to dismiss or, in the alternative, for summary judgment; and appellees contemporaneously filed an opposition, as well as a motion for summary judgment as to the breach and failure to provide information claims. The Honorable Paul A....
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