Title: Titan Investment Fun II, LP v. Freedom Mortgage Corp.

State: delaware

Issuer: Delaware Supreme Court

Document:

IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
 
 
§ 
TITAN INVESTMENT FUND II, 
§ 
No. 213, 2012 
LP, 
 
§ 
 
 
§ 
Court Below:  Superior Court of 
 
Plaintiff Below, 
§  
the State of Delaware, in and for 
 
Appellant, 
§  
New Castle County 
 
Cross-Appellee, 
§ 
  
 
 
§ 
C.A. No. 09C-10-259 WCC 
 
v. 
 
§ 
 
 
 
§ 
FREEDOM MORTGAGE 
§ 
CORPORATION, 
§ 
 
 
§ 
 
Defendant Below, 
§ 
 
Appellee, 
§ 
 
Cross-Appellant. 
§ 
 
 
 
Submitted:  November 7, 2012 
 
 
Decided:     December 5, 2012 
 
Before HOLLAND, JACOBS and RIDGELY, Justices. 
 
O R D E R 
 
 
This 5th day of December 2012, upon consideration of the briefs of the 
parties, their contentions in oral argument, and the record in this case, it appears to 
the Court that: 
1. 
Titan Investment Fund II, LP, the plaintiff-below (“Titan”), appeals 
from a Superior Court order and judgment in this breach of contract action.  
Freedom Mortgage Corporation, the defendant-below (“Freedom”), cross-appeals 
 
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from that same order.  We AFFIRM in part, REVERSE in part, and REMAND for 
further proceedings in accordance with this Order. 
2. 
Titan Capital Investment Group (“TCIG”), is a Delaware limited 
partnership that primarily manages real estate investments.  Titan, a subsidiary 
fund of the TCIG and was created to implement the Titan-Freedom investment 
contract at issue in this dispute.  TCIG is owned by William Peruzzi and two other 
partners, all of whom serve as Titan’s managers.   
3. 
Freedom is a mortgage bank that handles residential mortgage financing 
for persons buying new property, and for consumers refinancing an existing 
mortgage.  Freedom does not maintain its necessary capital from any cash reserved 
from its customer deposits.  Instead, Freedom relies upon lines of credit from 
institutional lenders such as J.P. Morgan.  Freedom, which was controlled and 
headed by Mr. Stan Middleman, generates revenue by charging fees to its 
customers and by selling mortgages, mortgage-backed securities, and mortgage 
servicing rights to third parties.   
4. 
By January 2009, in the wake of the national credit crisis, developments 
in the banking industry had significantly reduced the total amount of liquidity 
available for mortgage loans.  But, by then, reduced consumer interest rates had 
also significantly increased demand for both new mortgages and refinancing 
existing mortgages.  Freedom thus faced a potential decrease in its existing capital 
 
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supply, yet stood to gain a competitive advantage if it could access new additional 
capital to satisfy increased consumer demand.   
5. 
On April 7, 2009, Freedom and Titan entered into a Letter Agreement 
and Term Sheet (collectively, the “Titan-Freedom Contract”) that established a 
warehouse credit facility.  The Titan-Freedom Contract obligated Titan to raise at 
least $25 million to be invested in Freedom.  Titan’s contractual obligation was 
“subject to,” among other requirements, the execution of a credit agreement and 
other loan documents that were “mutually acceptable” to both Titan and Freedom. 
6. 
After executing the Titan-Freedom Contract, Titan solicited and secured 
two investors for its contract with Freedom.  The first investor, Context Capital 
Partners (“Context”), agreed to invest $5 million in the Titan-Freedom Contract 
directly through Titan.  The second investor, LBC Credit Partners, Inc. (“LBC”), a 
middle-market financing company, agreed to invest $20 million in Freedom, not 
directly through Titan but instead as a “co-buyer” with Titan.  
7. 
By July 2009, changes in the credit market enabled Freedom to increase 
its ability to secure credit from other lenders independent of its April 2009 
contractual arrangement with Titan.  That changed circumstance caused 
Middleman, on behalf of Freedom, to repudiate the Titan-Freedom Contract on 
July 22, 2009.  In an email to Titan’s principal, Mr. Peruzzi, Middleman stated, “I 
have spent a great deal of time trying to justify this [deal] in my mind (I would like 
 
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to) and can’t seem to make it work for us, the cost is just too high.  Therefore, I 
have instructed my staff to put this project on hold and to do no more work on the 
subject.”  Middleman added that “[s]peed to market was a driving force and we 
were not able to get this [deal] done quickly enough to take advantage of a short 
lived refinance boom that seemingly has run out of steam.”  Peruzzi immediately 
telephoned Middleman to discuss the email.  According to Peruzzi, by the end of 
that discussion, Titan had “agreed to work on the commitment letters and 
[Middleman] would review the repurchase agreement” between Titan and Freedom 
in furtherance of their ongoing deal.   
8. 
Two days later, on July 24, 2009, LBC issued to Titan a letter (the 
“LBC Commitment Letter”) purporting to invest $20 million of LBC’s funds in 
Freedom as a “co-buyer” with Titan in the Titan-Freedom deal.  The LBC 
Commitment Letter stated that LBC’s “proposed commitment” of $20 million was 
“subject to changes we have requested or which we may otherwise approve,” and 
was also “expressly conditioned upon” LBC’s receipt of various documents and 
payments that must all be “acceptable to [LBC] in [its] sole discretion.”  Lastly, the 
LBC Commitment Letter provided that “LBC may terminate its obligations under 
this letter if the foregoing assumptions . . . prove to [be] inaccurate . . . .”  That 
same day, upon receiving both Context’s and LBC’s Commitment Letters from 
Titan, Middleman told a colleague at Freedom that Middleman was “going to 
 
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probably pass on the deal but string [Titan] out for a little while in case [Freedom] 
become[s] desperate.”  
9. 
On August 4, 2009, Freedom’s counsel officially terminated the Titan-
Freedom Contract, based on Context’s and LBC’s nonconforming and nonbinding 
Commitment Letters.  As support for its conclusion that LBC’s Commitment 
Letter was contractually invalid, Freedom’s counsel relied upon, and expressly 
repeated, some of the above-quoted phrases from LBC’s Commitment Letter. 
10. In response, Titan brought a breach of contract action against Freedom 
in the Superior Court on October 28, 2009.  After a bench trial, the Superior Court 
found in its March 27, 2012 order and judgment that: (i) the Contract between 
Titan and Freedom was legally enforceable; (ii) Middleman’s July 22, 2009 email 
to Peruzzi constituted a repudiation by Freedom of that Contract; and (iii) 
Freedom, through its counsel, officially terminated that Contract on August 4, 
2009.1  The court further held, however, that (iv) even if Freedom had not breached 
the Contract, Titan had not presented evidence sufficient to establish that the deal 
would have closed.2  The court cited, among other things, the nonconforming LBC 
Commitment Letter and the Titan-Freedom Contract provision that authorized 
Freedom to nullify the Contract if the credit agreement and other loan documents 
                                                 
1 Titan Inv. Fund II, LP v. Freedom Mortg. Corp., C.A. No. 09C-10-259 WCC, 2012 WL 
1415461, at *6-7, *9 (Del. Super. Mar. 27, 2012). 
2 Id. at *10. 
 
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were not “mutually acceptable” to both Freedom and Titan.3  The Superior Court 
found “it . . . obvious that this was a deal with no momentum which probably 
would not have come to a final conclusion.”4 
11. In calculating Titan’s damages resulting from Freedom’s breach of the 
Titan-Freedom Contract, the court found that Titan’s potential lost profits were too 
speculative to merit an award for “expectation” (i.e., benefit-of-the-bargain) 
damages.5  The Superior Court held that Titan could recover only its “reliance” 
damages, which the court calculated as follows:  
 
 
Titan’s costs and expenses: 
$135,425.68 
 
 
 
Titan’s 1% commitment fee 
 
 
upon closing the deal: 
+ $250,000.00 
 
 
 
Freedom’s deposit to Titan  
 
 
for Titan’s costs and expenses: 
- $80,000.00 
 
 
 
LBC’s share of the 1% 
 
 
commitment fee: 
- $100,000.00 
 
  
______________________________________ 
 
  
 
 
 
Total “Reliance” Damages: 
$205,425.68.6 
 
Titan’s appeal and Freedom’s cross-appeal followed.   
                                                 
3 Id. at *10-11. 
4 Id. at *11. 
5 See id. at *10-11. 
6 See id. at *11-12. 
 
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12. The first issue presented is whether the Superior Court reversibly erred 
by holding that Freedom repudiated, and thereby breached, the Titan-Freedom 
Contract when Middleman sent his email to Peruzzi on July 22, 2009.  If that email 
constituted a breach, the issue then becomes whether Titan is legally entitled to any 
damages as a consequence, and if so, in what amount. 
13. In a bench trial where a trial judge is the factfinder, an appeal from that 
judge’s determination implicates both the facts and the law.7  This Court reviews a 
question of law de novo, and reviews a factual finding under a “clearly erroneous” 
standard.8  If a trial court’s factual findings are sufficiently supported by the record 
and are the product of an orderly and logical reasoning process, we accept those 
findings unless they are “clearly wrong and the doing of justice requires their 
overturn . . . .”9  On the other hand, if there is “sufficient evidence to support the 
findings of the trial judge,” we must affirm.10   
14. On its appeal, Titan claims that it was entitled to an award of its 
recoverable lost profits, based on the benefit-of-the-bargain measure of damages.  
On its cross-appeal, Freedom claims that the trial court erred by holding that 
                                                 
7 Levitt v. Bouvier, 287 A.2d 671, 673 (Del. 1972) (citation omitted). 
8 Bank of N.Y. Mellon Trust Co. v. Liberty Media Corp., 29 A.3d 225, 236 (Del. 2011); Sci. 
Accessories Corp. v. Summagraphics Corp., 425 A.2d 957, 966 (Del. 1980). 
9 Levitt, 287 A.2d at 673. 
10 Brittingham v. Am. Dredging Co., 262 A.2d 255, 257 (Del. 1970). 
 
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Freedom breached the Titan-Freedom Contract, for which reason Freedom should 
not have been held liable to Titan for any contract damages.  Notably, both parties 
argue that the Superior Court incorrectly adjudicated the treatment of one 
component of its damages award—the 1% commitment fee that Titan would have 
received had the Titan-Freedom Contract, in fact, closed.11 
15. We conclude that the Superior Court correctly determined that Freedom 
breached the Titan-Freedom Contract on July 22, 2009 by ceasing to continue 
negotiations with Titan in good faith.  Freedom’s email repudiation (in which 
Middleman informed Titan that Freedom would “do no more work” on the Titan-
Freedom Contract) constituted a breach, and the trial court properly so held.  
Middleman’s later email to a Freedom colleague explaining that Freedom was 
“going to probably pass on the deal but string [Titan] out for a little while” was, as 
the Superior Court properly found, simply a “business ploy” for Freedom to buy 
time to locate a legal escape route from the Titan-Freedom Contract.  Middleman’s 
later email was not, as Freedom argues, a legally valid retraction of Middleman’s 
earlier repudiation of the Titan-Freedom Contract.  That repudiation became final 
on August 2009, when Freedom’s counsel formally terminated the Titan-Freedom 
Contract. 
                                                 
11 See Titan Inv. Fund II, LP v. Freedom Mortg. Corp., C.A. No. 09C-10-259 WCC, 2012 WL 
1415461, at *11 (Del. Super. Mar. 27, 2012). 
 
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16. On the damages issue, we agree with Freedom that the Superior Court 
erred in awarding Titan a 1% commitment fee.  Because the trial court found that 
the contract would not have closed—even absent Freedom’s breach—Titan was 
not entitled to receive the 1% commitment fee that presupposed the opposite 
conclusion, namely, that the deal would have closed.  The court’s finding that the 
deal would not have closed, and its 1% commitment fee award to Titan, were 
fatally inconsistent.  Given Titan’s inability to establish that the Titan-Freedom 
Contract would have closed but for Freedom’s breach, Titan is not entitled to 
damages measured on a “ benefit-of-the-bargain” basis.  Rather, Titan was entitled 
only to its “reliance” damages, measured by its actually-incurred costs and 
expenses. 
17. At this juncture, however, we find it difficult to review the 
determination of Titan’s recoverable costs and expenses.  The Superior Court, 
without citing to the trial record, established Titan’s costs and expenses at 
$135,425.68, presumably by referring to (Trial) Court Exhibit No. 1.  Although 
that document was admitted at trial as a demonstrative court exhibit, it was not, as 
the Superior Court recognized, “an official exhibit of the trial.”  There is an official 
trial exhibit, (Trial) Exhibit 383—which (Trial) Court Exhibit No. 1 cited in a 
footnote—but Exhibit 383 does not facially support the $135,425.68 damages 
figure.  (Trial) Exhibit 383 contains several columns of dollar amounts, none of 
 
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which appear to add up to a damages award of $135,425.68.  Without evidentiary 
support from either an admitted trial exhibit or from explanatory portions of the 
trial transcript, we are unable to discern how the $135,425.68 monetary award was 
derived.  On the evidentiary record currently before us, we must conclude that the 
calculation of Titan’s incurred costs and expenses of $135,425.68 is unsupported, 
and, therefore, clearly erroneous. 
18. Accordingly, we affirm the Superior Court order and judgment insofar 
as it adjudicates that Freedom breached the Titan-Freedom Contract.  We reverse 
outright the trial court’s award of a 1% commitment fee to Titan.  We also reverse 
the remaining damages award and remand for the trial court to determine Titan’s 
actually-incurred costs and expenses based upon the evidence of record. 
NOW, THEREFORE, IT IS ORDERED that the judgment of the Superior 
Court is AFFIRMED in part, REVERSED in part, and REMANDED for 
further proceedings in accordance with this Order. 
 
 
  
 
 
 
 
BY THE COURT: 
 
 
 
  
 
 
 
 
/s/ Jack B. Jacobs 
 
 
  
 
 
 
 
       Justice