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Windsor I, LLC v. Cwcapital Asset Management LLC

Superior Court of Delaware

September 27, 2019

WINDSOR I, LLC, Plaintiff,
v.
CWCAPITAL ASSET MANAGEMENT LLC, and U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE, SUCCESSOR-IN-INTEREST TO BANK OF AMERICA, N.A., AS TRUSTEE, SUCCESSOR TO WELLS FARGO, N.A. AS TRUSTEE FOR THE REGISTERED HOLDERS OF COBALT CMBS COMMERCIAL MORTGAGE TRUST 2007-C2, COMMERCIAL MORTGAGE PASS THROUGH CERTIFICATES, SERIES 2007-C2, Defendants.

          Submitted: June 28, 2019

         Upon Defendants' Motion to Dismiss Amended Complaint GRANTED

          Melvyn I. Monzack, Esquire, Michael C. Hochman, Esquire, Monzack Mersky McLaughlin and Browder, P.A., Wilmington, Delaware Attorneys for Plaintiff.

          Jamie L. Edmondson, Esquire, Daniel A. O'Brien, Esquire, Venable LLP, Wilmington, Delaware, Gregory A. Cross, Esquire, Brent W. Procida, Esquire, Venable LLP, Baltimore, Maryland Attorneys for Defendants.

          Eric M. Davis, Judge

         I. INTRODUCTION

         This is an action for quasi-contractual relief assigned to the Complex Commercial Litigation Division of the Court. Plaintiff Windsor I, LLC ("Windsor") brings this action for promissory estoppel and unjust enrichment against Defendants CWCapital Asset Management LLC ("CWCAM") and U.S. Bank National Association as trustee for certain holders of certain certificates ("U.S. Bank" and collectively with CWCAM, the "Defendants"). The Defendants now move to dismiss the case (the "Motion"). For the reasons set forth below, the Court GRANTS the Motion.

         II. BACKGROUND

         A. Factual Background[1]

         Windsor is a Delaware limited liability company[2] that owns a 48, 000 sq. ft. plot of land and building located at 2201 Farrand Drive, Wilmington, Delaware (the "Property").[3] CWCAM is a Delaware limited liability company and is the special servicer for U.S. Bank.[4] CWCAM helps restructure distressed loans on behalf of investors who have purchased the loans.[5] U.S. Bank is a national banking association with its headquarters in Cincinnati, Ohio.[6]

         On December 27, 2006, Windsor and CWCapital, LLC entered into a mortgage and security agreement for a principal amount of $7.4M (the "Loan") to refinance the debt on the Property.[7] Windsor also signed a promissory note (the "Note") for the benefit of CWCapital, LLC.[8] The Note was subsequently assigned from CWCapital, LLC to other banks and finally to U.S. Bank.[9]

         Best Buy, the electronics store, was the sole tenant on the Property for around twenty years. In June 2015, Windsor learned that Best Buy would vacate the Property. Windsor sought to refinance its Loan as a result of its sole tenant vacating the Property. Windsor started working with CWCAM to refinance the Loan. On November 21, 2015, Windsor received a draft "pre-negotiation agreement" ("PNA") from David Smith, a Senior Vice President at CWCAM, discussing the terms under which the parties would negotiate.

         On December 12, 2016, Windsor filed a Complaint for specific performance, injunctive, and other equitable relief in Chancery Court (the "Chancery Action").[10] In the Chancery Action, Windsor sought equitable relief to require CWCAM to negotiate with Windsor in good faith. On February 2, 2017, CWCAM filed a motion to dismiss the Chancery Action. The Chancery Court granted that motion to dismiss on July 31, 2017. In dismissing the action, the Chancery Court noted that the PNA did not impose an enforceable obligation to negotiate, stating "when read as a whole, the Pre-Negotiation Agreement is a document that simply establishes rules to govern any discussions that may take place. It does not obligate any party to negotiate or forbear from exercising remedies otherwise available."[11]

         On April 26, 2017, CWCAM offered to sell the Loan to Windsor for $5, 288, 000 ("$5.3M") by email (the "Offer"). The Offer included the following conditions: "subject to credit committee approval, adequate proof of [Windsor] 's ability to fund, execution of appropriate documentation and closing by May 30." Windsor responded via email accepting the Offer (the "Acceptance"). After accepting the Offer, Windsor drafted a loan acquisition agreement and coordinated with a lender to borrow the money to buy the Loan. Three weeks later, CWCAM notified Windsor that the credit committee had rejected the Acceptance. Windsor claims that the Offer and Acceptance created a valid contract (the "Proposed Transaction").

         On August 28, 2017, CWCAM, on behalf of U.S. Bank, filed an action for foreclosure against Windsor in the Superior Court (the "Foreclosure Action").[12] CWCAM filed a second action in the Federal District Court for the District of Delaware naming Windsor's guarantors, Robert Stella, Constantine Michell, and Theodore Michell as defendants.[13] On February 15, 2018, the Superior Court stayed the Foreclosure Action and ordered the parties to participate in an alternative dispute resolution process by March 15, 2018.

         Between February 13 and February 15, 2018, CWFS-REDS, LLC, an affiliate of CWCAM, held an online auction to sell the Loan. Robert Stella bid in the online auction on behalf of FCS Lending, LLC ("FCS"). Mr. Stella is an equity owner of Windsor. As a condition of bidding, Mr. Stella executed the "ReallNSIGHT Marketplace Auction Sale Terms and

         Conditions/Bidder Confidentiality" (the "terms and conditions"). The terms and conditions contain the following release (the "General Release"):

EACH BIDDER RELEASES CW REDS, RI AND THEIR EMPLOYEES, AGENTS, AFFILIATES, DIRECTORS, AND SUBSIDIARIES ("REPRESENTATIVES") FROM ANY CLAIMS, WHETHER CURRENT OR FUTURE, AGAINST CW REDS, RI OR THEIR REPRESENTATIVES. THIS WAIVER IS INCLUSIVE OF ANY AND ALL CLAIMS OF WHICH BIDDER IS CURRENTLY UNAWARE, REGARDLESS OF WHETHER SUCH CLAIMS WOULD AFFECT BIDDER'S RELEASE OF CW REDS AND/OR RI.[14]

         In order to accept the terms and conditions, the bidder must scroll through the terms and conditions.

         On March 7, 2018, CWCAM sold the Loan to a third-party, WM Capital Partners 66, LLC ("WM Capital"). In the Complaint, Windsor cites the Trepp Report issued on April 1, 2018, which estimated that CWCAM sold the Loan for $4.6M.[15] After the sale of the Loan, Windsor paid $7.4M to WM Capital in order to pay off the principal of the Loan and to avoid paying default interest and other penalties. B. Procedural Background

         On June 15, 2018, Windsor filed the complaint (the "Complaint") against the Defendants for breach of contract. Windsor contended that the Defendants breached an alleged agreement when the creditors' committee refused to consummate the Proposed Transaction.

         The Court held a hearing on December 3, 2018. At this hearing, the Court held that Windsor could not sustain its claims for breach of contract but may plead quasi-contractual claims. On December 12, 2018, the Court entered an order dismissing the Complaint without prejudice.

         On December 21, 2018, Windsor filed an amended complaint (the "Amended Complaint"). The Amended Complaint has two counts. In Count I, Windsor alleges a claim for promissory estoppel. Windsor claims that CWCAM, as an agent for U.S. Bank, promised to sell the Loan to Windsor. Windsor also contends that Windsor reasonably relied on CWCAM's promise to sell and suffered damages as a result of its reliance. In Count II, Windsor brings a claim for unjust enrichment. Windsor asserts that CWCAM gained an enrichment because it accrued ten months of servicing fees after CWCAM should have sold the Loan to Windsor and CWCAM's affiliate got a 5% auction fee. In addition, Windsor alleges that Windsor suffered an impoverishment because Windsor expended time, money and resources in order to timely comply with the closing requirements for the Proposed Transaction.

         On February 1, 2019, the Defendants filed Defendants' Opening Brief in Support of Motion to Dismiss Amended Complaint (the "Motion"). On March 18, 2019, Windsor filed Plaintiffs Answering Brief in Opposition to Defendants' Motion to Dismiss (the "Opposition"). The Defendants filed Defendants' Reply Brief in Support of Motion to Dismiss Amended Complaint (the "Reply") on April 15, 2019. The Court held a hearing on the Motion on June 28, 2019. At the conclusion of the hearing, the Court took the matter under advisement. This is the Court's decision on the Motion.

         III. STANDARD OF REVIEW

         Upon a motion to dismiss, the Court (i) accepts all well-pleaded factual allegations as true, (ii) accepts even vague allegations as well-pleaded if they give the opposing party notice of the claim, (iii) draws all reasonable inferences in favor of the non-moving party, and (iv) only dismisses a case where the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances.[16] However, the Court must "ignore conclusory allegations that lack specific supporting factual allegations."[17]

         IV. DISCUSSION

         A. Windsor's Claims are Barred by the General Release in the Auction

         In the Motion, the Defendants argue that all of Windsor's claims are barred by the General Release contained in the terms and conditions for the online auction.

         1. The General Release Applies to this Case

         Delaware courts recognize the validity of general releases.[18] "It is settled law, in Delaware, that a release must be read as a whole with the intent derived from the entire agreement."[19] Where the language of the release is clear and unambiguous, it will only be set aside "where there is fraud, duress, coercion, or mutual mistake concerning the existence of the party's injuries."[20] The party seeking to nullify the release bears the burden of demonstrating by clear and convincing evidence that the release is invalid.[21]

         Windsor makes a number of arguments against application of the General Release. First, Windsor contends that the terms and conditions do not bar Windsor's claims because Windsor's claims arise from the Proposed Transaction rather than the online auction. Second, Windsor asserts that the General Release does not protect U.S. Bank because the term "Representative" does not include U.S. Bank. Third, Windsor states that CWCAM forwarded a Purchase Release to Windsor after the Proposed Transaction that contained a general release.[22] Windsor contends that if CWCAM believed the General Release applied then CWCAM would not have prepared the Purchase Release. Fourth, Windsor argues that the release is not clear and unambiguous because the phrase "inclusive of any and all claims of which bidder is currently unaware, regardless of whether such claims would affect bidder's release of CW REDA and/or RI" is unintelligible.

         The Court finds that the General Release bars Windsor's claims even though Windsor's claims arise from the Proposed Transaction. As drafted, the General Release is broad and addresses current and future claims of the Bidder. This makes sense under the circumstances. Why would an auctioneer, seller or other entity engage in an auction with someone that would assert legal claims against them-whether current or future claims?

         In Geier v. Mozido, LLC, [23] the Court of Chancery found that claims which arose before the execution of a general release were barred by the general release. In that case, the Court of Chancery reasoned that the plaintiff was aware of its claims at the time the parties signed the release, but the parties did not carve-out an exception to the general release for the plaintiffs claims. Here, as in Geier, Windsor was aware of its claims from the Proposed Transaction before the online auction. Windsor, however, did not carve-out an exception to the General Release for claims arising from the Proposed Transaction. As executed, the General Release bars Windsor's claims arising from the Proposed Transaction. The facts here are more compelling than in Geier given the related nature of the transactions-the Proposed Transaction and the online auction were both sales for the same underlying loan.

         Moreover, Windsor and the Defendants fall within the definitions of who will be governed by the General Release. In the terms and conditions, "Bidder" is broadly defined as the bidding entity together with its "agents, principals and affiliates."[24] As per the terms and conditions, the Bidder releases "CW REDS, RI AND THEIR EMPLOYEES, AGENTS, AFFILIATES, DIRECTORS AND SUBSIDIARIES... "[25] In order to determine the meaning of the word "affiliate, " the Court may look to the Merriam Webster dictionary of "affiliate." The definition includes "an affiliated person or organization, " "being close in connection, allied, associated, or attached as a member or branch, " or "[s]omeone who controls, is controlled by, or under common control with an issuer of a security."[26]

         Factually, Mr. Stella is an owner of Windsor and FCS. Mr. Stella accepted the terms and conditions on behalf of FCS, the bidding entity in the online auction. Windsor is considered a Bidder because Windsor and FCS are affiliated entities as a result of their common ownership. Neither party disputes that CWCAM is an affiliate of CWCS-REDS.

         The Court holds that the General Release applies to and bars claims against U.S. Bank. CWCAM is the servicer of U.S. Bank. CWCAM is the agent of U.S. Bank. Windsor acknowledges this and alleges in the Amended Complaint that "[a]t all times relevant to this Complaint, CWCAM acted as the authorized agent of U.S. Bank, and its predecessor trusts."[27]In the Amended Complaint, Windsor only mentions U.S. Bank by stating that CWCAM is acting on behalf of U.S. Bank and alleges no separate action or conduct by U.S. Bank.

         The Defendants rely upon Anne Arundel Medical Center, Inc. v. Condon[28] to contend that the General Release applies to U.S. Bank even though the term "principal" is not included in the defined term "representative." In Condon, the Maryland Court of Special Appeals released a principal from liability because the lower court had released the agent from liability. In releasing the principal, the Condon Court held that "[a]bsent independent wrongdoing by the principal, the release of an agent will also release the principal as a matter of law[, ]" for, in that scenario, the release of the agent "removes the only basis for imputing liability to the principal."[29] A later Maryland Court of Special Appeals decision, Women First OB/GYN Associates, L.L.C. v. Harris, [30] explained the rationale behind Condon as:

Because common law agency principles dictate that the release of a claim against the employee discharges the employer's vicarious liability for the employee's wrongdoing, the plaintiffs release of her claim against the pathologist discharged her claim against the hospital, as a matter of law, irrespective of her intent. See also Rivera, 102 Md.App. at 466, 649 A.2d 1212 ("[T]he release of an agent automatically release[s] the principal" under the common law, which remains unchanged in Maryland.).[31]

         In this case, the Court finds the reasoning set out in Condon to be persuasive. The Court has explored Delaware law and, while no case specifically addresses this situation, Delaware and Maryland similarly apply the common law of agency.[32] Moreover, Windsor has not alleged any independent basis to hold U.S. Bank liable other than U.S. Bank's involvement as CWCAM's principal. The release of CWCAM under the General Release therefore automatically released U.S. Bank because it removed the only basis for imputing liability to U.S. Bank.

         The existence of the Purchase Release does not affect the Court's decision that the General Release acts as a bar to Windsor's claims against CWCAM and U.S. Bank. The fact that CWCAM prepared the Purchase Release with a general release does not mean that the terms and conditions do not contain a valid general release. Because Mr. Stella acted through FCS, CWCAM likely did not know that this participation would bar Windsor's claims until sued.

         Importantly, the Court finds that the General Release is clear and unambiguous. The terms of the General Release clearly state that the parties agree to disclaim liability for claims of which they are unaware. As presented, the General Release states, in all caps, that:

EACH BIDDER RELEASES CW REDS, RI AND THEIR EMPLOYEES, AGENTS, AFFILIATES, DIRECTORS, AND SUBSIDIARIES ("REPRESENTATIVES") FROM ANY CLAIMS, WHETHER CURRENT OR FUTURE, AGAINST CW REDS, RI OR THEIR REPRESENTATIVES. THIS WAIVER IS INCLUSIVE OF ANY AND ALL CLAIMS OF WHICH BIDDER IS CURRENTLY UNAWARE, REGARDLESS OF WHETHER SUCH CLAIMS WOULD AFFECT BIDDER'S RELEASE OF CW REDS AND/OR RI. (emphasis added).[33]

         The General Release is straightforward and clear-"any claims whether current or future" and "any and all claims of which bidder is currently unaware."[34] Windsor has not provided the Court with any other interpretation of the General Release that is plausible. Moreover, Delaware court have found general releases which disclaim liability for claims of which the parties are unaware to be enforceable.[35]

         2. The Terms of Service Create a Valid Contract

         Next, Windsor asserts that the Defendants have not stated that bidders on the online auction were required to accept the terms and conditions before placing an electronic bid. The Amended Complaint does not mention the terms and conditions. In response, the Defendants present evidence that all bidders, including Mr. Stella, accepted the terms and conditions before entering a bid. In fact, all bidders were required to scroll through the terms and conditions in a pop-up screen before they could accept them. In addition, the Defendants argue that Delaware courts have found electronic agreements, such as the terms and conditions, enforceable in the same manner as conventional contracts.

          The Court finds that the terms and conditions create a valid contract. In Newell Rubbermaid Inc. v. Storm, [36] the Delaware Court of Chancery found that electronic agreements are enforceable as long as "the party who assented online ha[d] reasonable notice, either actual or constructive, of the terms of the putative agreement and [ ] that party manifest[ed] assent to those terms." In that case, the Court of Chancery also held that,

It is not determinative that the 2013 Agreements were part of a lengthy scrolling pop-up. [The employee's] failure to review fully the terms (on a 10-page readily accessible agreement) to which she assented also does not invalidate her assent. A party may assent to an agreement on the internet without reading its terms and still be bound by it if she is on notice that she is modifying her legal rights, just as she may with a physical written contract.[37]

         Here, Mr. Stella, an owner of Windsor, had notice of the terms and conditions. Mr. Stella had the opportunity to read the terms. In addition, Mr. Stella then accepted these terms and conditions. The facts that Windsor may not have read the terms and conditions, understood that the terms and conditions apply to the Proposed Transaction or known that CWCAM and U.S. Bank are affiliated with CWFS-REDS do not make the terms and conditions unenforceable. This is because Mr. Stella was under no obligation or constraint to sign the terms and conditions or participate in the bidding.

         3. The Parties Intended to be Bound by the Terms and Conditions

         Finally, Windsor claims that it did not knowingly waive its claims against CWCAM and U.S. Bank. In Riverbend Community., LLC v. Green Stone Engineering, LLC,[38] this Court found that the plaintiffs' argument that a release of all liabilities was not valid because the plaintiffs believed they had signed a partial release was unavailing. The Court ...


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