September 30, 2014
SIMON-MILLS II, LLC, ARUNDEL MILLS MEZZANINE GP, L.L.C., GRAPEVINE MILLS OPERATING COMPANY, L.L.C., and CONCORD MILLS MALL GP, L.L.C., Plaintiffs/ Counterclaim Defendants,
KAN AM USA XVI LIMITED PARTNERSHIP, KAN AM USA XII LIMITED PARTNERSHIP, KAN AM USA XIV LIMITED PARTNERSHIP, KAN AM USA XIX LIMITED PARTNERSHIP, KAN AM USA XVIII LIMITED PARTNERSHIP, KAN AM USA TIER II LIMITED PARTNERSHIP, and KAN AM USA XV LIMITED PARTNERSHIP, Defendants/ Counterclaim Plaintiffs.
Date Submitted: June 30, 2014
Donald J. Wolfe, Jr., Matthew E. Fischer, Timothy R. Dudderar, J. Matthew Belger, and Jacqueline A. Rogers, of POTTER ANDERSON & CORROON LLP, Wilmington, Delaware, Attorneys for the Plaintiffs and Counterclaim Defendants.
Jon E. Abramczyk and Christopher P. Quinn, of MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; OF COUNSEL: L. Joseph Loveland, Letitia A. McDonald, Emily S. Newton, and Jordan T. Stringer, of KING & SPALDING LLP, Atlanta, Georgia, Attorneys for the Defendants and Counterclaim Plaintiffs.
GLASSCOCK, Vice Chancellor
The year is 1985. Two sophisticated parties enter a joint venture that allows the first party to exercise a call right ten years in the future, and provides for consideration in Soviet Rubles. The contract further provides that these Rubles must satisfy certain criteria, including that they be the official currency of the Soviet Union. However, when that party attempts to exercise the call right in 1995, the Soviet Union has collapsed and Soviet Rubles, while still physically to be found, are no longer an official currency. Russian Rubles—the official currency of the Russian Federation—are, however, at least according to the party making the call, an appropriate substitute for Soviet Rubles. The second party disagrees, and the contract does not address what to do if and when Soviet Rubles satisfying the characteristics of the contract become unavailable.
The scenario above is a fiction, but the matter before me is strikingly similar. The facts, laid out below, are complicated, but the issues presented are as straightforward as those above: The Plaintiffs seek to specifically enforce a call which provides that the currency to be exchanged for the Defendants' interest is shares in a limited partnership, with the number of shares to be determined by market value. The partnership, however, no longer exists. The Plaintiffs have tendered shares in a successor partnership. The Defendants argue that the contract cannot be specifically enforced because the Plaintiffs cannot tender the consideration bargained for, and that in any event shares in the current partnership are less valuable to it than the shares specified in the contract. The matter is before me on cross-motions for summary judgment. As with any contract, the intent of the parties, as expressed in the contract, controls, and where ambiguities exist, I must resort to extrinsic evidence to determine the parties' intent. Because factual questions remain, the cross-motions for summary judgment must be denied.
The Plaintiffs in this matter—Simon-Mills II, LLC; Arundel Mills Mezzanine GP, LLC; Grapevine Mills Operating Company, LLC; and Concord Mills Mall GP, LLC (collectively, the "Simon Parties")—are Delaware limited liability companies either directly or indirectly wholly-owned by Simon Property Group, LP ("Simon Group"). Simon Group is a limited partnership that "owns, develops, and manages retail real estate properties."
Simon Group's sole general partner is Simon Property Group, Inc. ("Simon, Inc."), a real estate investment trust ("REIT"), structured as an umbrella partnership real estate investment trust ("UPREIT"). As an UPREIT, all of Simon Inc.'s assets are owned by Simon Group; Simon, Inc., in turn, owns a majority interest in Simon Group. Simon, Inc. stock trades on the New York Stock Exchange ("NYSE"). Moreover, partnership units of Simon Group ("Simon Group Units") are convertible into cash or the publicly traded stock of Simon, Inc. at the option of Simon, Inc.
The Defendants in this matter are Delaware limited liability companies affiliated with the
Kan.Am Group ("Kan Am"): Kan.Am USA XVI LP; Kan.Am USA XII LP; Kan.Am USA XIV LP;
Kan.Am USA XVIII LP; Kan.Am USA Tier II LP; and Kan.Am USA XV LP (collectively, the "Kan Am Parties"). Through its various real estate funds,
Kan.Am facilitates global investment opportunities for Germany-based private and institutional investors.
Kan.Am's holding company, Munich-based Kan.Am International GmbH, "direct[s] most of the activities connected with the closed-end
Kan.Am real estate funds, " and is responsible for Kan.Am's accounting, data-processing, taxation, personnel, media, and public relations functions.
A. The JV Limited Partnerships
The Simon and Kan.Am Parties, and their affiliates, hold ownership interests in four Delaware limited partnerships relevant to this action, the Orange City Mills Mezzanine II Limited Partnership ("Orange City LP"), Arundel Mills Mezzanine Limited Partnership ("Arundel Mills LP"), Grapevine Mills Limited Partnership ("Grapevine Mills LP"), and Concord Mills Mall Limited Partnership ("Concord Mills LP, " and collectively with the Orange City, Arundel Mills, and Grapevine Mills Limited Partnerships, the "JV Limited Partnerships").
The joint venture relationship among Simon, Inc.,
Kan.Am, and their affiliates dates back to the mid-1990s when The Mills Corporation ("Mills Corp."), a "developer, owner, and manager" of a portfolio of retail properties, "approached [Simon, Inc.] about participating in a series of joint ventures for the purpose of developing and owning various shopping centers in metropolitan areas across the United States." Mills Corp., like Simon, Inc., was a REIT structured as a UPREIT; its operating partnership was The Mills Limited Partnership ("Mills Partnership"). Mills Corp. owned a majority of Mills Partnership and also served as its general partner. Mills Corp. common stock was publicly traded on the NYSE and Mills Partnership units ("Mills Units") were convertible into the publicly traded stock of Mills Corp. or cash, at the option of Mills Corp.
Thereafter, Mills Corp. and Simon, Inc., through affiliates of their respective operating partnerships, and
Kan.Am, through its various funds, began fostering a business relationship that involved the pursuit of real estate joint ventures.Among the joint ventures developed during the mid- to late-1990s were the Grapevine Mills, Arundel Mills, and Concord Mills Limited Partnerships.Grapevine Mills LP, which was formed in July 1996, was the first joint venture where Simon, Inc., Mills Corp., and
Kan.Am were all involved at inception; its governing limited partnership agreement was executed in 1996 (the "Grapevine Mills Agreement"). The Concord Mills LP was formed and the agreement governing the parties' relationship was executed (the "Concord Mills Agreement") in July 1997. In 1999, the Arundel Mills LP was formed and the agreement governing the parties' relationship was executed (the "Arundel Mills Agreement, " and collectively with the Grapevine Mills and Concord Mills Agreements, the "Original JV Agreements"). In each joint venture project, "the managing general partner . . . was an entity co-owned by [Simon Group] and [Mills Partnership] or their respective affiliates."
Under the Original JV Agreements, involved affiliates of Simon Group and Mills Partnership had a call right, while affiliates of
Kan.Am received a put right. The buy/sell provisions, however, could not be invoked until the tenth anniversary date of the "Grand Opening, " as that term was defined in the Agreements.Essentially, this buy/sell right could not be exercised until ten years after each respective project became operational. Each year after the initial ten-year period, and upon proper notice during a specified ten-day window, Simon Group- and Mills Partnership-affiliated entities could purchase the interests of the
Kan.Am affiliates in these partnerships. If the call right was exercised, the consideration to be paid was Mills Units and Simon Group Units pro rata in proportion to Mills Partnership's and Simon Group's respective interests in the relevant partnership's general partner, unless the
Kan.Am affiliate opted to receive all cash, or a portion of its interest in cash and the remainder in pro rata Mills Units and Simon Group Units.
Conversely, the Kan.Am-affiliated entities could require affiliates of Simon Group and Mills Partnership to purchase their interests. If a
Kan.Am entity exercised its put right under the Original JV Agreements, it would receive cash unless the Mills Partnership and Simon Group affiliates elected to pay for its interest entirely in Mills Units and Simon Group Units, in a proportion that Mills Partnership and Simon Group agreed upon, or a combination of cash and an agreed-upon proportion of Mills Units and Simon Group Units.
Under these Agreements, the Mills Units and Simon Group Units were valued at "the gross proceeds which would have been obtained if such units were converted into freely tradeable common stock of Mills Corp. or [Simon, Inc.] as the case may be, and sold at the average closing price of Mills Corp. common stock or [Simon, Inc.] common stock, as the case may be, on the fifteen (15) most recent trading days preceding the date of the Buy/Sell Notice." The Original JV Agreements also outlined the characteristics that Mills Units and Simon Group Units were required to possess. Specifically, these agreements provided that:
Any [Mills Units] received by [Kan Am] pursuant to this [buy/sell provision] shall have substantially the same rights (including redemption, conversion, registration and anti-dilution protection) as attached to units issued in connection with the formation transactions of [Mills Partnership], as more fully described in the Registration Statement for Mills Corp. dated April 14, 1994 and the exhibits thereto, as amended through the date of this Agreement. Any [Simon Group Units] received by [Kan Am] pursuant to this [buy/sell provision] shall have at least the same rights (including redemption, conversion, registration and anti-dilution protection) as are attached to [Simon Group Units] issued to other limited partners of [Simon Group] as of the date of receipt of the [Simon Group Units] by [Kan Am].
Importantly, because both Mills Corp. and Simon, Inc. were structured as UPREITs, under Section 721 of the Internal Revenue Code, "the contribution of real property or interests in a partnership owning real property to the operating partnership solely in exchange for the operating partnership's units may qualify as a tax-deferred transaction." Consequently, contributions of real property or interests to Mills Partnership or Simon Group in exchange for Mills Units or Simon Group Units, respectively, had the potential to qualify as a tax-deferred transaction. The Original JV Agreements evinced the parties' intent to conduct transactions that qualified for tax deferral under Section 721, providing:
In the event that [Kan Am] is to receive [Mills Units] and/or [Simon Group Units], then that portion of the transaction shall be cast as a contribution to [Mills Partnership] and [Simon Group], ratably in accordance with the value of units received from each, of that portion of [Kan Am's] Entire Interest which is being exchanged for [Mills Units] and/or [Simon Group Units], and is intended to be a tax-free transaction under Section 721 of the Code.
The Plaintiffs also contend that the parties intended the buy/sell provisions to serve as a dispute resolution mechanism. The Defendants dispute this contention.
In 2002, Simon, Inc., pursuant to a separate buy/sell arrangement with Mills Corp., "offer[ed] to either sell [its] interests in the relevant joint ventures [including the four at issue here] or buy [Mills Corp.'s] interests in the relevant joint ventures at a stated price." This would mean that either Simon, Inc. or Mills would be exiting the joint partnership, and consequently, that either Simon Group Units or Mills Units, both of which served as buy/sell consideration under the relevant limited partnership agreements, would be rendered unavailable.
On March 4, 2002, Kan.Am executive James Braithwaite sent a letter to Simon, Inc.'s CEO, David Simon, and Mills Corp.'s CEO, Laurence Siegel, communicating that:
The Partnership Agreement for Ontario Mills calls for the purchase price for
Kan.Am's interests to be paid in units of limited partnership in [Mills Corp.] or [Simon, Inc.] in certain circumstances. We would be interested in discussing with you how [the buy/sell provision] of the Ontario Mills Agreement might be implemented if there has been a buy/sell between [Mills Corp.] and [Simon, Inc.] of your interests in Ontario Mills, L.L.C.
At the time, if the Simon Group- or Mills Partnership-affiliates were to exercise their call rights under the Ontario Mills LP Agreement, the
Kan.Am affiliates were to receive two-thirds of their interest in Mills Units and one-third in Simon Group Units, unless they elected to receive cash. On March 5, Simon responded that:
With respect to your question on Ontario, the only impact of our buy/sell with [Mills Corp.] would be that if the buyer between us later decided to call your interest, you would have the right to request OP [Operating Partnership] Units of that entity or cash. If you put your interest, it is the acquirer that elects whether to use cash or its OP Units. In either case, the OP units would be of whichever of [Mills Corp.] or [Simon, Inc.] was your partner.
Braithwaite did not respond to Simon.
In 2002, Simon, Inc. sold its interest to Mills Corp. Thereafter, Mills Corp. continued to operate real estate joint ventures with
Kan.Am. On May 31, 2002, following Simon, Inc.'s exit, the Original JV Agreements were amended to remove all references to Simon, Inc. and its affiliates. The amendment to the Grapevine Mills Limited Partnership Agreement, for example, included the following provision:
References to "[Simon Group]" or its Affiliates in the Partnership Agreement are hereby deleted to the extent no longer operative following transfer of the Simon Interest. References to "[Simon Group]" or its Affiliates in the Partnership Agreement that pertain to rights or obligations of [Simon Group] or its Affiliates that survive the transfer of the Simon Interest shall be deemed to be references to [Mills Partnership],
Kan.Am XV and Kan.Am XXI, severally, in their respective capacities as transferees of the Simon Interest, in accordance with their Allocable Percentages.
The agreements governing the Arundel Mills and Concord Mills Limited Partnerships contained similar provisions.
Orange City LP, the fourth partnership involved here, was formed in February 2004—that is, after Simon, Inc. had exited the partnership—as part of the reorganization of the Orange City Mills Mezzanine LP. The governing partnership agreement was executed in 2004 (the "Orange City Agreement, " and collectively with the Original JV Agreements, the "JV Agreements"). Like the Original JV Agreements, the Orange City Agreement also contains a buy/sell provision whereby the default consideration for a call is Mills Units. Unlike the Original JV Agreements, however, Section 11.2(a) of the Orange City Agreement provides that "for purposes of this Section 11.2 and Section 11.3 [the buy/sell provisions] [Mills Partnership] shall be deemed to include [Orange City Mills Mezzanine II GP, LLC] and any other Mills Partners." The term Mills Partners is defined as "[c]ollectively, [Mills Partnership] and [Orange City Mills Mezzanine II GP, LLC] and their respective Affiliates, successors and/or assigns who or which become Partners in accordance with this Agreement."
B. Trouble at Mills Corp.
In early 2005, Mills Corp. began to experience accounting and liquidity issues. Mills Corp. disclosed that, due to accounting errors, it needed to restate financial results for 2000 through 2004. Thereafter, the SEC began an inquiry into Mills Corp.'s accounting practices and, in March 2006, launched a formal investigation. Around this time, the deadlines for repaying approximately $2 billion in debt were also approaching, and Mills Corp.'s "auditor believed that there was 'substantial doubt' that Mills Corp. could stay in business because of [these] looming deadlines."
On March 17, 2006, Mills Corp. announced that it would be filing its 2005 annual report late. Mills Corp., in fact, never filed this 10-K nor any subsequent quarterly or annual reports, following its 10-Q for the third quarter of 2005. As a result, Mills Corp. became unable to "register any common stock and therefore could not provide stock in the event holders of [Mills Units] sought conversion."
Between October 2005 and January 2007, as these accounting and liquidity issues were unfolding, Mills Corp. common stock "los[t] over half of its market value." In February 2007, Mills Corp. entered into an agreement with SPG-FCM Ventures, LLC ("SPG Ventures"), whereby SPG Ventures would acquire Mills Corp. for approximately $7.9 billion (the "Merger Agreement"). SPG Ventures was a joint venture between a Simon Group subsidiary and funds managed by Farallon Capital Management, LLC (collectively, "Farallon"). The Simon Group subsidiary and Farallon each held a 50% interest in SPG Ventures.
Pursuant to the Merger Agreement, a tender offer was conducted; thereafter, a subsidiary of SPG Ventures merged into Mills Partnership, with Mills Partnership surviving. As a result of this transaction, holders of Mills Units generally received $25.25 in cash, while certain holders received the option of exchanging these Units for Simon Group Units. Holders of 319, 022 Mills Units took advantage of this option.
As a result of this merger, Simon Group "acquired a 50% indirect ownership interest in [Mills Partnership], and thereby acquired an indirect ownership interest in a number of joint venture projects between affiliates of [Mills Partnership] and
Kan.Am, including the JV Limited Partnerships." Mills Corp. was dissolved on August 1, 2007.
C. The Unavailability of Mills Units
Following Mills Corp.'s dissolution, Mills Units no longer satisfied the requirements under the buy/call provisions of the JV Agreements—because Mills Corp. had been dissolved, Mills Units were no longer convertible into Mills Corp. common stock. Though Simon Group Units were convertible into Simon, Inc. common stock, thus preserving the applicability of Section 721 to qualifying transactions, Farallon was a private entity for which this feature was unavailable. The buy/sell provisions of the JV Agreements, however, were not updated to reflect the unavailability of Mills Units, nor did the parties amend these Agreements to indicate the appropriate buy/sell consideration now that Mills Units were unavailable. Nonetheless, the Plaintiffs contend that, after the 2007 merger and Mills Corp.'s dissolution, the Defendants continued to contemplate that the buy/sell provisions remained in effect, and that Simon Group Units were the appropriate—and in fact automatic—substitute for Mills Units.
1. Kan Am Audited Financial Statements
Among other indications of Kan.Am's intent, the Plaintiffs point to several statements contained in
Kan.Am's audited financial statements. For instance, in 2007, after the merger and Mills Corp.'s dissolution,
Kan.Am represented that "[t]here was no impact on the Partnership[s] related to the acquisition." In subsequent audited financial statements, moreover,
Kan.Am recognized that the relevant Kan.Am entities "have agreements that at certain dates and under certain conditions may require the sale of the [Kan Am] Partnership's interest to [Mills Partnership] at fair market value, as defined, at the date of such sale." In its June 25, 2013 audited financial statement for
Kan.Am USA XII LP, one of the Defendants here, Kan.Am noted that "[t]he limited partnership agreements of The Outlets at Orange Entities have provisions that may require the sale of the Partnership's interests . . . at a price based upon the fair market value of the Project as determined by third-party appraisers, for (at the Partnership's option) either cash or [Mills Units]." This statement also discloses that "[t]he Partnership has challenged Simon's ability to perform under the limited partnership agreements."
2. The Denver West Negotiations
Additionally, the Plaintiffs contend that the negotiation of the Denver West joint venture is illustrative of the parties' intent with respect to the four limited partnership agreements at issue here. Following the 2007 merger and Mills Corp.'s dissolution, the parties negotiated the Mills Corp.-Kan Am Denver West LP Agreement (the "Denver West Agreement"). This Agreement was based on the terms of the Mills-Kan Am Colorado Mills LP Agreement (the "Colorado Agreement"), which contained similar terms to the JV Agreements at issue here.
On September 23, 2007, Melissa Breeden, Senior Staff Attorney for Simon, Inc., sent an email to representatives of
Kan.Am, stating that, "Simon and Farallon would like the Buy/Sell Price to be paid in cash only, since upon the dissolution of Mills Corp. payment in [Mills Units] no longer works." She attached to this email a draft version of the Agreement that contained solely cash as buy/sell consideration.
Kan.Am, on the other hand, wanted to retain the right, in connection with the Denver West Agreement, "to receive some form of non-cash consideration." Simon, Inc. General Counsel and Secretary, James M. Barkley, who was involved in the Denver West negotiations, relayed in his affidavit that:
Despite the unavailability of [Mills Units] convertible into [Mills Corp.] common stock at the time the Denver West JV Agreement was negotiated, during the negotiations, representatives of
Kan.Am took the position that the Buy/Sell Provisions of the Denver West JV Agreement should, consistent with the JV Agreements, continue to reference payment of the Buy/Sell Price in [Mills Units]. During these negotiations,
Kan.Am took the position that, as the successor to [Mills Partnership], [Simon Group] had successor liability under the Buy/Sell Provisions such that [Simon Group] would have to provide its operating partnership units in situations where [Mills Units] would otherwise have been required to pay all or a portion of the Buy/Sell Price. My understanding was that
Kan.Am's request to include references to [Mills Units] in the Buy/Sell Provisions of the Denver West JV Agreement was an attempt to preserve
Kan.Am's right to receive the Buy/Sell Price in [Simon Group Units].
Ultimately, the parties agreed that, for Denver West, cash would be the sole buy/sell consideration. Nevertheless, Simon, Inc., Farallon, and
Kan.Am executed a Unifying Side Letter for this project on October 17, 2007. During negotiations of this Letter,
Kan.Am proposed the following language:
[Mills Corp.] and Kan.Am acknowledge that the non-triggering party under the Buy/Sell provision of the [Colorado Agreement] may chose either cash or units of limited partnership interest in [Mills Partnership] ("[Mills Units]") or a combination of both as payment for the sale of
Kan.Am's Entire Interest. The [Colorado Agreement] contemplates that any payment in [Mills Units] would be valued at the gross proceeds obtained if such units were converted into freely tradable common stock of the Mills Corporation ("Mills Corp."). In light of the dissolution of the Mills Corp., Mills and
Kan.Am agree to negotiate in good faith a new valuation for the [Mills Units] that shall entail a conversion into the common stock of [Simon, Inc.], or an affiliated corporate entity approved by
Neither Simon nor Farallon, however, approved of this language. Six days later,
Kan.Am principal Kent Hammond emailed another draft to Brian Warnock of Simon, Inc., which acknowledged that:
[I]n light of the acquisition of the Mills Corporation and [Mills Partnership] (collectively, "Mills"), there is a disagreement as to the form of the non-cash consideration under [the buy/sell provisions] of the Denver West Agreement as well as the Limited Partnership Agreements, i.e., whether the units are to be units of [Simon Group] instead of [Mills Units] as a result of the acquisition of Mills. The parties hereby further acknowledge that, by execution of the Denver West Agreement,
Kan.Am has not waived any of its rights or claims as to the form of non-cash consideration under [the buy/sell provision] of any of the Limited Partnership Agreements or the Denver West Agreement.
The language regarding the parties' "disagreement as to the form of the non-cash consideration under [the buy/sell provisions] of the Denver West Agreement as well as the Limited Partnership Agreements" was not included in the final version, however. The executed Unifying Side Letter instead provides:
Notwithstanding Paragraph 3 hereof, and without waiver of any rights that the parties may have regarding the construction of [the buy/sell provision] of the [Colorado Agreement], [the buy/sell provision] of the [Denver West Agreement] provides that cash shall be the sole form of payment in the event the buy/sell provisions . . . are exercised by either Partner. MLLC, Mills Partnership, Denver West Development Company, LLC and
Kan.Am XX agree that, if the parties agree, or it is later determined, that non-cash consideration may be paid under the payment provisions of [the buy/sell provision] of the [Colorado Agreement], then [the buy/sell provision] of the [Denver West Agreement] shall also be modified to reflect such payment provisions.
In her Affidavit, Breeden expressed that she "understood at the time that the reference to 'non-cash consideration' in the Unifying Side Letter was intended to refer to limited partnership units of [Simon Group]."
3.Refinancing of Grapevine Mills LP
In 2008, the Grapevine Mills LP was refinanced. At that time, Simon, Inc. sought to amend the buy/sell provisions of the Grapevine Mills Agreement such that cash was the sole buy/sell consideration.
Kan.Am was not amenable to this proposal, and no amendment was made.
4. Kan Am Considers Exercising Put Rights
David Simon testified that, in March 2009, "Dietrich von Boetticher, a principal of
Kan.Am and its affiliated entities, called [him] and explained that Kan.Am would like to sell its interest in various joint ventures between [Simon Group] and
Kan.Am, including the JV Limited Partnerships, to [Simon, Inc.] in exchange for [Simon Group Units]." Simon later sent an email to others at Simon, Inc., stating "I got a call from [von Boetticher]. He would like to sell his
Kan.Am positions to us for units."
In September 2009, Gregg Goodman, President of Mills Partnership, traveled to Germany to conduct a presentation for a group of
Kan.Am investors and sales representatives, and to meet with von Boetticher and Franz von Perfall. During lunch one day, von Boetticher
expressed to [Goodman] a strong desire to find an exit strategy for
Kan.Am from the joint venture partnerships between affiliates of [Simon Group] and
Kan.Am, including the JV Limited Partnerships. Mr. von Boetticher indicated that such an exit strategy would involve an exchange of
Kan.Am's ownership interests in the joint venture partnership for equity interests in [Simon, Inc.]. Mr. von Boetticher stated that he had previously spoken with David Simon, Chief Executive Officer and Chairmen of the Board of [Simon, Inc.], about selling
Kan.Am's position in joint ventures between [Simon Group] and Kan.Am, including the JV Limited Partnerships, in exchange for [Simon, Inc.] equity, and he asked that I convey his continued interest in such an exchange to David Simon.
Following his trip, Goodman sent an email to David Simon and Richard Sokolov— Simon, Inc. President, Chief Operating Officer, and director—which conveyed von Boetticher's "strong desire to find an exit strategy from their project ownership, " and noting that "he said he had spoken with you in the past about converting their ownership into shares in [Simon, Inc.]."
Additionally, Kan.Am held three meetings where executives discussed the impact of the 2007 merger, including "the units that would be available upon
Kan.Am's exit from the joint ventures, " with its investors and distributors: an October 2007 meeting in Dusseldorf, Germany, and September 2009 and August 2010 meetings in Munich. Norbert Geisen, who brokers investments in various
Kan.Am funds, attended these meetings, and explained that:
On several occasions during these meetings, I recall Kan.Am executives, including Dietrich von Boetticher and Michael Birnbaum, stating that, because [Mills Units] were no longer available following the acquisition of [Mills Corp.] and [Mills Partnership], if
Kan.Am were to exit the joint ventures pursuant to the Buy/Sell Provisions of the JV Agreements,
Kan.Am would be able and free to choose to receive operating partnership units of [Simon Group], in lieu of [Mills Units]. Messrs. von Boetticher and Birnbaum stated that [Simon Group Units] would provide
Kan.Am and its investors with the same tax advantages as [Mills Units].
Kan Am investors Joerg Dudel, who attended all three meetings, and Reiner Michael Cramer, who attended the 2007 meeting in Dusseldorf, had similar recollections.
D. The 2012 Agreement and Indemnity, and the 2012 Letter Agreements
In 2012, affiliates of Simon, Inc. acquired Farallon's interest in certain Mills Partnership assets, including Mills Partnership's interest in the JV Limited Partnerships. As a result, "Farallon retained only a small indirect capital interest in Simon Mills." Following Farallon's exit, in March 2012, Simon Group and
Kan.Am signed an Agreement and Indemnity, with Simon Group as the Indemnitor and various
Kan.Am parties as the Indemnities. Under that Agreement, these Kan.Am parties consented to the transaction between Simon, Inc. and Farallon, as well as the subsequent restructuring of Mills Partnership, while Simon Group agreed to indemnify these parties for claims arising out of these transactions. This Agreement provides that the
Indemnities agree that any of [the Simon Group]-affiliated entities which are the transferees upon the Closing of the Transaction will be admitted as partners and/or members, as the case may be, of the applicable entities which own any of the [Simon Group]/Kan Am Properties, without any further act or agreement required.
The parties further stipulated that "[t]his Agreement shall not be construed as a modification of such organizational documents, nor be construed to diminish, enlarge or in any way affect such rights, if any, which, to the extent such rights exist, shall remain in full force and effect in accordance with their terms."
By late April 2012, and after the execution of this Agreement and Indemnity, certain disagreements had arisen between
Kan.Am and Simon, Inc. With the ten-day window in which those affiliates could exercise their buy/sell rights quickly approaching, Simon, Inc. was contemplating whether to buy out all or a substantial portion of
Kan.Am's interest. On April 26, 2012, at a meeting between
Kan.Am and Simon, Inc. representatives, Kan.Am communicated that they did not want Simon, Inc. to exercise its call rights. Thereafter, the parties continued to negotiate their disagreements and, in early May 2012, affiliates of Simon Group and
Kan.Am executed a letter agreement that provided:
We have agreed that notwithstanding anything in the Partnership Agreements or Omnibus Amendment to the contrary, for the 2012 calendar year only, either Simon or
Kan.Am may elect to be an Offeror and deliver a Buy/Sell Notice to the Offeree within ten (10) days from and after June 1, 2012 (but not before June 1, 2012), as opposed to the ten (10) day period currently specified in the Partnership Agreements commencing May 1, 2012.
In early June 2012, a second letter agreement was executed, which extended the election period to June 19, 2012. The parties, however, reached a resolution, and no affiliates of Simon Group exercised their call rights at that time.
E. The Simon Parties Seek to Exercise Their Call Rights
In their current iteration, the buy/sell provisions of the four JV Agreements at issue provide that each year, from May 1 and within ten days thereafter, a party may give notice that it is exercising its rights under that provision. If the call right is exercised under the Arundel Mills, Grapevine Mills, and Concord Mills LP Agreements, the consideration to be provided is Mills Units unless the relevant
Kan.Am entity elects to receive all or part of its interest in cash. Under the Orange City Agreement, Mills Units are the proper consideration unless the
Kan.Am affiliate elects to receive the value of its entire interest in cash. Conversely, if a
Kan.Am entity exercises its put right, the buy/sell consideration is cash unless the Simon Group affiliate opts to pay entirely or partially in Mills Units.
As buy/sell consideration, these Mills Units were to be valued
at the gross proceeds which would have been obtained if such common units were converted into freely tradeable common stock of Mills Corp., and sold at the average closing price of Mills Corp. common stock, on the fifteen (15) most recent trading days preceding the date of the Buy/Sell Notice.
Likewise, they are to have substantially the same rights (including redemption, conversion, registration and anti-dilution protection) as attached to units issued in connection with the formation transactions of [Mills Partnership] and Mills Corp., as more fully described in the Registration Statement for Mills Corp. dated April 14, 1994 and the exhibits thereto, as amended through the date of this Agreement.
[i]n the event that the owners of the [Kan Am] Entire Interest are to receive [Mills Units], then that portion of the transaction shall be cast as a contribution to Mills Partnership, of that portion of [Kan Am's] Entire Interest which is being exchanged for [Mills Units], and is intended to be a tax-free transaction under Section 721 of the Code.
Additionally, the buy/sell provisions under the JV Agreements provide that,
if at the time of Closing, either party fails to perform as required, then in such event the non-breaching party shall have the right to void the Buy/Sell Notice attributable thereto or to pursue any rights at law or in equity (including without limitation, instituting a suit for specific performance).
On April 16, 2013, following a meeting at which the buy/sell provisions were discussed, Braithwaite sent a letter to David Simon expressing that no units except Mills Units were acceptable to
Kan.Am. In this letter, Braithwaite conveyed that, "[l]ast year, I expressed our willingness to Steve to negotiate possible amendments to the put-call provisions, and I reiterated that willingness to you in our recent meeting on the 15th of April."
On May 2, 2013, Plaintiffs Simon-Mills II, LLC; Grapevine Mills Operating Company, LLC; and Arundel Mills Mezzanine GP, LLC provided notice that they were exercising their call rights under the Orange City LP, Grapevine Mills LP, and Arundel Mills LP Agreements, respectively. On May 6, the affiliated Defendants disputed the validity of the Plaintiffs' exercises of their call rights.
On May 13, 2013, Plaintiff Concord Mills Mall GP, LLC provided notice under Concord Mills LP Agreement that it was exercising its call right. On May 13, 2013, the affiliated Defendants disputed the validity of this exercise, as well as the timeliness of the notice by Concord Mills Mall GP, LLC.
Because of the unavailability of Mills Units, the Plaintiffs were prepared to provide Simon Group Units, unless the relevant
Kan.Am entities elected to receive cash. The Defendants, however, contend that the Plaintiffs cannot comply with their contractual obligation of providing Mills Units, and have breached the JV Agreements.
II. PROCEDURAL HISTORY
On May 2, 2013, the Plaintiffs filed their Verified Complaint, subsequently amended, seeking declaratory relief and specific performance of the buy/sell provisions under the JV Agreements. On June 10, the Defendants filed their Answer and a Verified Counterclaim for breach of contract, alleging that the Plaintiffs' inability to provide Mills Units as specified in the JV Agreements renders their notice invalid, and that "[t]he failure of the [Plaintiffs] to provide valid Buy/Sell Notices consistent with the provisions of the JV Agreements represents a breach of the Buy/Sell provisions in the JV Agreements."Additionally, the Defendants argue that the May 13, 2013 notice of Plaintiff Concord Mills Mall GP, LLC was untimely.
On June 18, 2013, Kan.Am filed a Motion for Judgment on the Pleadings, for which I heard oral argument on September 24, 2013. At the conclusion of argument, I reserved decision on
Kan.Am's Motion and requested that the parties pursue limited discovery on two discrete issues: first, whether there are material differences between Mills Units and Simon Group Units, and second, whether the 2012 Indemnification Agreement substitutes Simon, Inc. and Simon Group Units for Mills Corp. and Mills Units under the JV Agreements.
On December 9, 2013, the Defendants filed a Motion to Terminate Discovery and Renew Their Motion for Judgment on the Pleadings. After briefing and telephonic oral argument, I denied this Motion. On March 28, 2014, the parties cross-moved for summary judgment. I heard oral argument on the parties' Cross-Motions on June 30, 2014. For the following reasons, I deny both Motions.
III. STANDARD OF REVIEW
The parties have cross-moved for summary judgment pursuant to Court of Chancery Rule 56(c). A motion for summary judgment will be granted "where the record reflects 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." When addressing a motion for summary judgment, "the facts must be viewed in the light most favorable to the nonmoving party and the moving party has the burden of demonstrating that there is no material question of fact." At this juncture, "the court cannot weigh the evidence, decide among competing inferences, or make factual findings."
When addressing cross-motions for summary judgment, I must examine each motion separately, drawing all reasonable inferences and resolving all conflicts in the record in favor of the non-moving party. I may "only grant a motion for summary judgment to one of the parties when there is no disputed issue of material fact and that party is entitled to judgment as a matter of law."
The Defendants urge me to conclude that the language of the JV Agreements unambiguously provides for Mills Units as buy/sell consideration, and to hold the parties to that agreement. The Plaintiffs, conversely, urge me to look to extrinsic evidence to fill the gaps in these agreements—namely, to determine the parties' expectations regarding the unavailability of Mills Units due to restructuring, something left unaddressed by those agreements—and to find that Simon Group Units are not only a contractually-compliant substitute, but one to which the Defendants consented.
There are material disputes of facts in the record that, as described below, prevent me from granting summary judgment to either party here. Further, because the scope of these Motions reached beyond the impact of the 2012 Agreement and Indemnity, and the material differences between Mills Units and Simon Group Units—the only areas into which I allowed discovery pending these motions—it is prudent to allow the development of a more complete record upon which to resolve these important, and heavily disputed, contractual issues.
A. The Defendants' Motion for Summary Judgment
The JV Agreements unambiguously provide that the default consideration when exercising the call is Mills Units meeting certain criteria. However, these Agreements do not address the unavailability of Mills Units due to a change in control or restructuring transaction. Accordingly, I cannot conclude from this unambiguous language whether the parties intended the call right to lapse if and when Mills Units satisfying the contractual criteria became unavailable. Instead, I must resort to extrinsic evidence to determine how the parties intended to proceed in the circumstances in which they now find themselves. Though not fully developed, the record here is not devoid of indications that
Kan.Am considered Simon Group Units an appropriate substitute for Mills Units, and that it had—prior to its April 26, 2013 letter disavowing any consideration but Mills Units—intimated that Simon Group Units, or at least some form of non-cash consideration, would be contractually compliant. Consequently, I cannot conclude that the Defendants intended only to accept Mills Units, and, accordingly, that the call right was meant to lapse when those Units became unavailable. This, among the other issues discussed below, will require further factual development to ascertain the parties' intent.
Further, as the JV Agreements do not address the unavailability of Mills Units, the Plaintiffs' allegation that the Defendants have breached their implied duty of good faith and fair dealing is not precluded by our case law. For those reasons, the Defendants' Motion for Summary Judgment is denied.
B. The Plaintiffs' Motion for Summary Judgment
The Plaintiffs point to record evidence to support their motion; nonetheless, I find the record as currently constituted insufficient to demonstrate as a matter of law that the Plaintiffs are entitled to specific performance or damages. "The court's ultimate goal in contract interpretation is to determine the parties' shared intent." Accordingly, "[w]hen the language of a contract is plain and unambiguous, binding effect should be given to its evident meaning, " and the Court should not resort to extrinsic evidence "to vary the terms of the contract or to create an ambiguity." However, where the contract does not address the matter in dispute, the Court may resort to extrinsic evidence to ascertain the parties' intent, such as "the overt statements and acts of the parties, the business context, prior dealings between the parties, and other business customs and usage in the industry."
After reviewing the record, I cannot conclude as a matter of law that the parties intended that the units of any operating partnership convertible into publicly traded common stock, or that Simon Group Units specifically, were intended to substitute for or actually replaced Mills Units either initially, upon the 2007 merger and subsequent dissolution of Mills Corp., or upon the restructuring that took place in 2012, leading to the parties' execution of the Agreement and Indemnity.
The record requires factual development in several areas, including (1) the parties' negotiations surrounding entry into the JV Agreements, thus informing me whether the Defendants demonstrated a contractual indifference to the type of partnership units it would receive,  (2) Defendants' suggestion of a special relationship between
Kan.Am and Mills Corp., such that Mills Units are unique, and (3) Defendants' contention that Mills Units had certain tax advantages that may not be realized if the currency is Simon Group units.
The remaining evidence Plaintiffs offer, including an exchange between Braithwaite and Simon in 2002, negotiations regarding the Denver West Agreement after Mills Corp.'s dissolution, the 2012 Agreement and Indemnity, and the Orange City Mills Agreement, is insufficient for me to grant the Plaintiffs summary judgment for the reasons discussed below.
1. Braithwaite-Simon Exchange
The Plaintiffs point to an exchange between Braithwaite and Simon in 2002 relating to the buy/sell provisions in the Ontario Mills JV Agreement—an Agreement not at issue here. Though at that time, Simon, a Simon, Inc. executive, communicated his understanding that, upon either Mills Corp. or Simon, Inc.'s exit from the joint venture relationship, the buy/sell consideration for
Kan.Am's interest would be either operating partnership units of whichever entity remained or cash,  Braithwaite did not respond to either confirm or dispute this position. Nonetheless, the Plaintiffs argue that this silence reflects a confirmation, and that this exchange demonstrates a mutual understanding "that, following the buyout transaction, the non-cash currency would be the units of whichever of the two operating partnerships remained as
Kan.Am's partner in the joint venture, " not only under the Ontario Mills LP Agreement, but also under the JV Agreements.Kan Am's silence in response to Simon's communication regarding the impending exit of either Mills Corp. or Simon, Inc.—and the impact of that exit on the buy/sell consideration of an agreement not at issue here—does not compel the conclusion as a matter of law that
Kan.Am was consenting to the substitution, in any JV Agreement and at any time, of Simon Group Units, nor does it resolve the question of the intent of the parties upon entering the JV Agreements.
2. Denver West Agreement and Negotiations
The Plaintiffs contend further that, upon Simon, Inc.'s return into the parties' joint venture relationship, and following Mills Corp.'s dissolution in 2007,
Kan.Am's "explicit position" was "that [Simon Group Units] were the required currency under the Buy/Sell Provisions." Nevertheless, in negotiating the Denver West Agreement, Simon, Inc. itself did not adopt the position that Simon Group Units were the automatic, or even appropriate, substitute for Mills Units; instead, Simon, Inc. and Farallon tried to leverage the unavailability of Mills Units to force
Kan.Am to accept cash as the only buy/sell consideration under that Agreement.
Furthermore, the execution of a Unifying Side Letter in connection with the Denver West project does not demonstrate that
Kan.Am considered Simon Group Units the automatic replacement for Mills Units following Mills Corp.'s dissolution. The first draft of this Letter proposed by
Kan.Am reflected its desire "to negotiate in good faith a new valuation for the [Mills Units] that shall entail a conversion into the common stock of the [Simon, Inc.], or an affiliated corporate entity approved by
Kan.Am." After this language was rejected by Simon, Inc. and Farallon,
Kan.Am sent a draft that reflected its understanding that there existed a "disagreement as to the form of the non-cash consideration under [the buy/sell provision] of the Denver West Agreement as well as the Limited Partnership Agreements, i.e., whether the units are to be units of [Simon Group] instead of units of [Mills Partnership] as a result of the acquisition of [Mills Corp.]" While absent from the executed version of this Letter, this language prevents me from concluding, at the summary judgment stage and based on an incomplete record, that
Kan.Am believed that Simon Group Units were the automatic successor to Mills Units; that it believed a negotiation of its rights unnecessary; or that it was waiving its right to negotiate an appropriate non-cash buy/sell consideration at a future time. Rather than indicating an automatic substitution of Simon Group Units for Mills Units, the executed Unifying Side Letter suggests that further negotiations to determine the appropriate buy/sell provisions to replace Mills Units were contemplated.
Far from demonstrating that Kan.Am "confirmed following the 2007 Mills merger that [Simon Group Units] were the required non-cash currency and the currency that
Kan.Am wanted to receive in exchange for its interests, " the Denver West negotiations demonstrate that, following the 2007 merger, the parties understood that Mills Units satisfying the criteria of the buy/sell provisions were unavailable; that the parties disagreed as to the appropriate substitute; and that at least
Kan.Am contemplated some form of negotiation regarding an appropriate substitute. While it is true that Simon Group Units were "the only non-cash currency that could have been considered at that time, " as Farallon was a private company, the parties specifically deferred a determination that Simon Group Units should be substituted for Mills Units. Based upon the evidence currently of record, neither party, during the Denver West negotiation, evidenced a sufficiently clear belief that Simon Group Units were contractually equivalent to Mills Units under the JV Agreements at issue here, to allow me to find, as a matter of law, that the Plaintiffs are entitled to a judgment.
3. 2012 Agreement and Indemnity
I find that the 2012 Agreement and Indemnity does not unambiguously substitute Simon Group Units for Mills Units as buy/sell consideration in the JV Agreements. That Agreement provides that the
agree that any of [the Simon Group]-affiliated entities which are the transferees upon the Closing of the Transaction will be admitted as partners and/or members, as the case may be, of the applicable entities which own any of the [Simon Group]/Kan Am Properties, without any further act or agreement required.
From this language, the Plaintiffs argue that the Defendants consented to Simon Group as "the agreed-upon successor to [Mills Partnership] in each of the JV Limited Partnerships." As noted by the Plaintiffs, all JV Agreements provide that they are "binding upon and shall inure to the benefit of the parties hereto and their respective . . . successors, and permitted assigns, " which, the Plaintiffs aver, following the 2012 Agreement and Indemnity, includes Simon Group. As a corollary, the Plaintiffs argue, Simon Group inures to all Mills Partnership rights, including the right to buy out Defendants in its own units, Simon Group Units.
I do not find the Plaintiffs' interpretation of the 2012 Agreement and Indemnity to be the only reasonable interpretation of the document. I note that this Agreement does not explicitly reference the buy/sell provisions within the JV Agreements, and that its purpose was to provide indemnification to the
Kan.Am entities in exchange for their consent to the 2012 restructuring. To the extent I may resort to extrinsic evidence to determine the parties' intent in the 2012 Agreement and Indemnity, the record before me is insufficient to demonstrate that the parties intended that Agreement to have any effect on the buy/sell provisions of the JV Agreements.
The Plaintiffs, notably, have not introduced into the record any contemporaneous evidence indicating that either party contemplated that this Agreement would have any impact on the buy/sell provisions, much less work a substitute of Simon Group Units for Mills Units. Instead, the Plaintiffs rely on their contention that they have introduced into the record
uncontradicted evidence that at all relevant times—from when the Buy/Sell Provisions were first negotiated in the 1990s through the execution of the Agreement and Indemnity in 2012—Kan Am understood and agreed that the Buy/Sell Price would be payable in operating partnership units of whichever of [Mills Partnership] or [Simon Group] was
Kan.Am's partner at the time of a Buy/Sell transaction, 
and urge me, in light of that background, to find that Kan.Am consented in the Agreement and Indemnity to Simon Group and Simon Group Units replacing Mills Partnership and Mills Units in the JV Agreements. I have already found this background less clear than do the Plaintiffs. Considering the competing inferences derived from the limited extrinsic evidence I have before me, I cannot conclude as a matter of law that the intent or effect of the 2012 Agreement and Indemnity was to substitute Simon Group Units for Mills Units in the JV Agreements at issue here.
4. Orange City Agreement
Lastly, the Plaintiffs contend that the language of the Orange City Agreement "reflects the understanding that, if [Mills Partnership] was no longer
Kan.Am's partner in that joint venture, Kan.Am would receive operating partnership units of [Mills Partnership's] successor." Section 11.2(a) of that Agreement provides that Mills Partnership, "for purposes of . . . [the buy/sell provisions, ] shall be deemed to include [Orange City Mills Mezzanine II GP, LLC] and any other Mills Partners, " with the term "Mills Partners" being defined as "[c]ollectively, [Mills Partnership] and [Orange City Mills Mezzanine II GP, LLC] and their respective Affiliates, successors and/or assigns who or which become Partners in accordance with this Agreement." Thus, the Plaintiffs argue that:
By defining the term "[Mills Partnership]" as used in the Buy/Sell Provisions to include [Mills Partnership's] successors and assigns, the Orange City Mills Agreement contemplates that [Mills Partnership's] successors would be able to exercise the call right and deliver the Buy/Sell Price in its operating partnership units. The fact that these provisions were included in the only JV Agreement executed after Simon sold its interests in 2002 is further evidence that the parties did not intend, and the JV Agreements do not provide that, the acquisition of [Mills Corp.] would eliminate the call right.
The Orange City Agreement may be evidence of the parties' intent in entering the JV Agreements, but in light of the ambiguities in the record, at this stage I cannot find that it demonstrates, as a matter of law, that the parties' intent in the JV Agreements was that successor's units were contractually equivalent to Mills Units.
For these reasons, I cannot conclude as a matter of law that the parties intended to substitute or did in fact replace Mills Units with Simon Group Units in the buy/sell provisions of the JV Agreements, either initially, at the time of the 2007 merger, when Simon, Inc. bought out Farallon in 2012, or when the parties executed the 2012 Agreement and Indemnity. Additionally, the Plaintiffs argue that the Defendants waived any right they may have had to insist on Mills Units as the sole buy/sell consideration. I cannot find, on the limited record here, that the Defendants have waived their rights to insist on Mills Units as the sole consideration in the event of a call by entering the Orange City Mills Agreement, or otherwise. For the foregoing reasons, the Plaintiffs' Motion for Summary Judgment is denied.
C. Remaining Issues
Having determined that I cannot, at this juncture, conclude as a matter of law that the parties intended to provide and accept only Mills Units, I find it premature to address whether the Plaintiffs were in breach of the JV Agreements. Similarly, consideration of the timeliness of the call notice provided under the Concord Mills Agreement is premature, and should await my decision, post-trial, of whether the Defendants contracted for Simon Group Units as a form of buy/sell consideration.
In light of the complexity of the significant factual development still required, I find it appropriate and desirable to develop the facts more thoroughly at trial.
For the foregoing reasons, I deny the parties' Cross-Motions. An appropriate Order accompanies this Memorandum Opinion.