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LA Grange Communities, LLC v. Cornell Glasgow, LLC

Supreme Court of Delaware

September 9, 2013

LA GRANGE COMMUNITIES, LLC, and LA GRANGE PROPERTIES, LLC, Defendants Below, Appellant,
v.
CORNELL GLASGOW, LLC, Plaintiff Below, Appellee.

Submitted: July 10, 2013

Court Below: Superior Court of the State of Delaware in and for New Castle County C.A. No. N11C-05-016

Before STEELE, Chief Justice, HOLLAND, and RIDGELY, Justices.

ORDER

Henry duPont Ridgely Justice

On this 9th day of September, 2013, it appears to the Court that:

(1) Defendants-Below/Appellants La Grange Communities, LLC and La Grange Properties, LLC (collectively "La Grange") appeal from a Superior Court denial of their motion for partial summary judgment, and the court's entry of judgment for Plaintiff-Below/Appellee Cornell Glasgow, LLC ("Cornell"). La Grange raises two claims on appeal. First, La Grange claims Cornell breached its real estate development agreement with La Grange and is not entitled to damages based on what it would have received under that agreement. Second, La Grange claims the doctrine of judicial estoppel precludes Cornell from contesting that the agreement establishes a firm sales pace schedule. We find no merit to La Grange's appeal and AFFIRM.

(2) In 2005, La Grange Communities, LLC purchased land in Wilmington for the purpose of developing real estate. In 2009, La Grange began negotiations with Cornell, seeking to engage Cornell to construct residences on the purchased land (the "development"). During negotiations Cornell documented several bullet point goals and expectations in an e-mail. The e-mail emphasized that the contract must include a "notice and cure" provision, and noted that "Cornell [agreed] to perform on timeliness of construction (not necessarily perform with regard to sales pace because profits are as important to pace in a lot of ways and pace is a wildcard in this economy)."[1]

(3) Cornell and La Grange executed a real estate development contract (the "Agreement"). Under the Agreement, La Grange gave Cornell the exclusive right to build, market, and sell 185 of the 227 residences in the development. Residences were town houses, duplexes or single-family homes. La Grange was required to complete all necessary site improvements before Cornell began building on the lots. Cornell was required to design, construct, market and sell the residences. La Grange was required to reimburse Cornell for the costs and expenses thereto. The Agreement contemplated that upon the closing of each sale, Cornell would be paid a fix management fee. The parties would then share profits from the development once sales exceeded a threshold of profitability.

(4) Consistent with the parties' negotiations, the Agreement included a "time is of the essence" provision and a "Sales Projection Schedule" for the residences. The "time is of the essence" provision (the "Time provision") stated, "Time is of the essence as to all matters to be performed by the parties under this Agreement."[2] The Sale Projection Schedule projected the number of each type of residence to be sold every financial quarter for eleven quarters. The Agreement stated, "La Grange hereby grants to Cornell the right to undertake the Construction Project per the timeframe set forth in the Sales Projection Schedule . . . commencing on the date of this Agreement . . . in accordance with the provisions of this Agreement."[3]

(5) The agreement also required that, by November, 2009, each party would independently obtain financing to support their obligations. Cornell obtained a revolving line of credit by the deadline. La Grange did not obtain financing due to federal lending limits and La Grange's existing outstanding debt. This led Cornell and La Grange to negotiate an amendment to the Agreement (the "Amendment"). Under the Amendment, Cornell paid off some of La Grange's debt, which freed La Grange to procure the requisite financing. In exchange, La Grange gave Cornell the exclusive right to design, construct, market, and sell all 227 residences on the development. Deeds to 20 of the residential lots were placed in escrow to be released to third-party buyers upon a sale or to Cornell upon a default by La Grange under the Agreement or the Amendment.

(6) Once the Agreement and Amendment were finalized the parties began performance. By June, 2010, Cornell's sales of town houses and duplexes were ahead of the Sales Projection Schedule, but sales of single-family homes lagged. Even with the low single-family homes sales pace, the development's total profitability was $250, 000 ahead of projections by September, 2010. Around this same time, disputes concerning the reimbursements to Cornell and related accounting practices began.

(7) In January, 2011, La Grange sent an e-mail to Cornell documenting multiple concerns including, inter alia, ongoing accounting disputes. By early February the relationship between the parties had deteriorated to the point that management and counsel from both parties expressed the desire to terminate the business arrangement. An attorney representing Cornell faxed and e-mailed a Notice of Default to La Grange concerning La Grange's refusal to reimburse Cornell for costs and expenses under the Agreement. Later that same day, La Grange's head management official entered Cornell's sales office on the development and informed the Cornell staff that they were to immediately leave and not return. Cornell sent a second Notice of Default to La Grange reiterating the original reimbursement claims and adding ouster from the development as a claim. Cornell then instructed the escrow agent to release a deed to satisfy La Grange's default. The deed Cornell sought was to Lot 206, upon which a model residence with improvements had been constructed by Cornell. Cornell came to learn that La Grange had already drafted a new deed to Lot 206 and had conveyed the model residence to a buyer.

(8) Cornell filed two complaints in the Superior Court, [4] one alleging breach of contract and the other alleging wrongful conveyance of Lot 206 by La Grange. The two complaints were coordinated for trial. La Grange moved for partial summary judgment, arguing that Cornell's failure to sell the single family homes in accordance with the Sales Projection Schedule constituted a breach of the Agreement. The trial court denied La Grange's motion, finding "some ambiguity in the agreement" and determining "that there is need for additional evidence regarding enforcement of the 'time is of the essence' provision."[5] After a trial, the Superior Court found in favor of Cornell on both claims.[6] The trial court found that the Sales Projection Schedule did not create firm deadlines that could be enforced under the time is of the essence" provision.[7] The trial court found also, "As made evident throughout the trial, the parties were focused on pace and profitability, with profitability being the most critical element of the endeavor."[8]Accordingly, the court found the Time provision could not be applied to the Sales Projection Schedule, as the latter was not intended to set periodic deadlines but rather a timeline that, if followed, would make the venture profitable. The trial court concluded that Cornell did not violate the Time provision with its lagging single-family home sales.

(9) On the first claim the court awarded Cornell compensatory damages for reimbursement of costs and expectation damages for the lost future management fees under the Agreement. On the second claim the court found Cornell failed to prove the Lot 206 conveyance by La Grange was actionable under the contract. But the court found Cornell was entitled to be reimbursed for the improvements it made to Lot ...


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