Source: http://wakeforestlawreview.com/tag/contracts/
Timestamp: 2019-01-24 12:27:30
Document Index: 129489373

Matched Legal Cases: ['§ 12', '§ 12', '§ 12', '§ 12', '§ 12', '§ 14', '§ 55', '§ 55', '§ 1101']

Contracts Archives - Wake Forest Law Review
Fourth Circuit Holds that Creditors in Maryland “Discover” Violations of Closed End Credit Provisions When They Actually Become Aware of Charging an Improper Interest Rate
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On January 11, 2016, the Fourth Circuit issued a published opinion in the civil case of Askew v. Hampton Roads Finance Company. The District Court for the District of Maryland granted Hampton Roads Finance Company (“HRFC”) summary judgment on all of Dante Askew’s borrower-creditor claims. The Fourth Circuit affirmed the grant of summary judgment as to Askew’s claims that HRFC violated the Maryland Credit Grantor Closed End Credit Provisions (“CLEC”) and was in breach of contract for failing to properly notify him that the interest rate exceeded the statutory maximum within sixty days of when it “should have” known of the error. However, the Court found that genuine issues of material fact existed as to Askew’s claim that HRFC violated the Maryland Consumer Debt Collection Act (“MCDCA”), and reversed and remanded the district court’s grant of summary judgment as to that claim.
The Used Car Contract and Dispute Between Askew and HRFC
In 2008, Askew entered into a contract with a car dealership for financing to purchase a used car. The dealership assigned the contract to HRFC, which discovered in August 2010 that the contract’s interest rate of 26.99% exceeded CLEC’s maximum allowable rate of 24%. The next month, HRFC sent Askew a letter informing him that the interest rate was “not correct” and credited his account $845.40. However, the letter did not specify the new interest rate, which was set at 23.99%.
After receiving the letter, Askew fell behind on his payments and HRFC took steps to collect on the account. Over a period of seventeen months, HRFC contacted Askew five times by letter or telephone to seek repayment. Askew alleged that HRFC made false and threatening statements, including that it had reported him to state authorities for fraud for failing to insure his car and attempting to conceal it from repossession agents, that a replevin warrant had been prepared, and that his complaint in this case had been dismissed.
Askew filed the present suit in state court, alleging violations of CLEC, the MCDCA, and breach of contract based on the alleged failure to comply with CLEC. After HRFC removed the case to federal court, the district court granted HRFC’s motion for summary judgment on all claims.
Askew’s Claim that HRFC Violated CLEC and Accordingly Was in Breach of Contract
Under Maryland’s CLEC, credit grantors can elect to make a loan governed by CLEC that sets a maximum interest rate of 24%, which “must be expressed in the agreement as a simple interest rate.” Md. Code § 12-1013.1. If a creditor violates this provision, it may generally only collect the principal of the loan, but not interest, costs, fees, or other charges. Md. Code § 12-1018(a)(2). However, CLEC, also has two safe harbor provisions. One allows creditors to avoid liability “for any failure to comply with CLEC” through self correction “if, within 60 days after discovering an error . . . the credit grantor notifies the borrower of the error and makes whatever adjustments are necessary to correct the error.” Md. Code § 12-1020. The second safe harbor offers protection from liability where a creditor “unintentionally and in good faith” failed to comply with CLEC. Md. Code § 12-1018(a)(3).
Askew argued that HRFC violated CLEC by failing to expressly disclose in the contract an interest rate below the statutory maximum. The district court rejected the argument, finding that CLEC’s disclosure requirement only mandated that the interest rate be expressed as a simple interest rate. The Fourth Circuit agreed, stating that Askew’s interpretation would create a “meaningless technical requirement while doing little to protect consumers.”
Askew further argued that the “discovery rule” usually applicable in the statute of limitations context should apply to CLEC’s 12-1020 safe harbor, which would mean that HRFC “should have” known of the error when it took assignment of the contract because parties to a contract are presumed to have read and understood its terms. The meaning of “discovery” in § 12-1020 was an issue of first impression, and the Fourth Circuit determined that “discovering an error” means when the creditor actually uncovers the mistake that violated CLEC. The Court reasoned that this reading better comports with CLEC’s text and purpose, as well as public policy. The Fourth Circuit reasoned that Askew’s reading of the safe harbor would give creditors little incentive to self-correct their mistakes and would work “to exacerbate one of the harms CLEC seeks to avoid—the charging of usurious interest.” Because HRFC discovered its error and attempted to cure the mistake within sixty days of that discovery, the Fourth Circuit affirmed the district court’s finding that HRFC is not liable under CLEC.
The Fourth Circuit also rejected Askew’s contention that because the contract incorporated CLEC’s provisions, HRFC is liable for breach of contract for any deviation, regardless of whether HRFC properly cured the violation. The Court found that the contract incorporated all of CLEC’s provisions, safe harbors included, and that to find differently would lead to an anomalous result by nullifying the safe harbor provisions.
Askew’s MCDCA Claim that HRFC Attempted to Collect Debt Through Improper Threats and Harrassment
MCDCA § 14-202(6) provides that a debt collector may not “[c]ommunicate with the debtor or a person related to him . . . in any other manner as reasonably can be expected to abuse or harass the debtor.” Askew contended that HRFC violated the MCDCA by making false representations about legal action it had not actually taken by falsely suggesting it had obtained a replevin warrant, reported a notice of complaint to the Maryland Motor Vehicle Administration fraud division for failure to insure his vehicle and hiding the car from the lien holder, and that the present case had been dismissed when it was still pending.
The Court made a distinction between “truthful or future threats of appropriate legal action,” which would not violate MCDCA, and “false representations that legal action has already been taken.” Based on Askew’s allegations, the Fourth Circuit concluded that a reasonable jury could find that HRFC had engaged in conduct reasonably expected to abuse or harass. Accordingly, The Fourth Circuit reversed and remanded the district court’s grant of summary judgment on Askew’s MCDCA claims.
The Fourth Circuit Affirmed in Part and Reversed and Remanded in Part
Because the Fourth Circuit found that the correct meaning of “discovering an error” in the context of Maryland’s CLEC means when the credit grantor in fact realizes a mistake has been made, the Court affirmed the district court’s grant of summary judgment as to Askew’s claims that HRFC violated CLEC. Similarly, the Court rejected Askew’s breach of contract claim, because to subject a credit grantor to liability for violating CLEC when its conduct falls within a safe harbor of CLEC would be anomalous. However, the Fourth Circuit found that a reasonable jury could find that HRFC engaged in abusive and harassing conduct in violation of MCDCA, and reversed and remanded for further proceedings on that count alone.
Tags: Consumer Protection Contracts Summary Judgment
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Fourth Circuit Affirms Summary Judgment in Case of Pesticide Application to Peanuts
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On December 2, 2015, the Fourth Circuit issued its published opinion in Severn Peanut Co., Inc. v. Industrial Fumigant Co. In this case, appellant Severn Peanut Co. (“Severn”) asked the Fourth Circuit to overturn the lower court’s grant of summary judgment for appellee, Industrial Fumigant Co. (“IFC”) on both the breach of contract and the negligence claim. The Fourth Circuit ultimately affirmed the grant of summary judgment because the consequential damages provision in the contract overcame the breach of contract claim and North Carolina law does not allow a plaintiff to pursue a tort claim under the guise of a contract claim.
Severn entered into an agreement with IFC to apply a pesticide, phosphine, to its peanut storage dome. The parties signed a Pesticide Application Agreement (“PAA”) which detailed that Severn would pay IFC $8,604 for the pesticide services. The contract specified that the sum excluded IFC assuming any risk of “incidental or consequential damages” to Severn’s “property, product, equipment, downtime, or loss of business.” It also stipulated that the pesticide would be applied according to the instructions on its label.
The label on the phosphine requires the user to avoid the pesticide tablets from piling up because this could lead to fire or an explosion. Despite this warning, IFC dumped 49,000 tablets of the pesticide into the peanut dome through a single hatch. The pile up of the tablets caused a fire and an explosion. Severn’s insurer paid to cover Severn’s loss of peanuts, business income, and the damage to the peanut dome. Severn filed against IFC for breach of contract and negligence. The District Court granted partial summary judgment for IFC on the breach of contract claim because it found that the consequential damages clause in the PAA excluded a claim for breach of contract. It also found Severn to be contributorily negligent, and thus granted summary judgment in favor of IFC on the negligence claim.
Thus, the Fourth Circuit affirmed the lower court’s grant of summary judgment for IFC on both the breach of contract and the negligence claim.
Tags: Business Law Civil Litigation Contracts Tort
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Tags: Arbitration Civil Litigation Contracts
Fourth Circuit Upholds Summary Judgment on Time Barred Claims with Insufficient Facts
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On July 7, 2015, the Fourth Circuit issued its published opinion in the civil case Poindexter v. Mercedes-Benz Credit Corp. Ms. Virginia Poindexter appealed the district court grant of Mercedes-Benz Credit Corporation’s (“MBCC”) motion for summary judgment. That court held that all of Poindexter’s claims were time barred and she failed to demonstrate facts that would support all the elements of her claims. The Fourth Circuit agrred and affirmed the district court’s grant of summary judgment because her claims violated the statute of limitations and she did not point to facts that would sufficiently support the elements of her claims.
Lien on House to Help with Car Payments
In April 2001 Poindexter purchased an Audi from HBL Inc., who then assigned her repayment contract to MBCC. Poindexter then voluntarily participated in the Home Owner’s Choice Program, which allowed her to put a lien on her home by a deed of trust for her outstanding car payments. This structure made the interest she paid on the loan tax deductible. Poindexter signed a Servicing Disclosure Statement acknowledging the mortgage loan was covered by Real Estate Settlement Procedures Act (“RESPA”). Poindexter executed the deed of trust, which had a covenant that MBCC would release the lien when all payments were satisfied.
In 2004 Poindexter traded in her Audi to HBL for a Mercedes-Benz sedan, so she was released from further payments on the Audi. However, MBCC did not record a certificate of satisfaction that would release the deed of trust. Thus, when Poindexter went to refinance her mortgage, she found there was still a lien on her home. She wrote to MBCC and demanded it record a certificate of satisfaction, but MBCC did not do so in a timely fashion. Only after Poindexter filed a complaint did MBCC record a certificate of satisfaction. Poindexter alleged six causes of action:(1) breach of contract; (2) slander of title; (3) violation of RESPA; (4) violation of the Virginia Consumer Protection Act (“VCPA”); (5) violation of Virginia Code § 55- 66.3; and (6) declaratory judgment.
Summary Judgment Appropriate for Breach of Contract Claim
The statute of limitation begins to toll when the debt is satisfied. Since the debt was satisfied in 2004 when the car was traded and Poindexter did not file until 2013, her claim was time barred. Poindexter still argued that the court was equitably estopped from pleading the statute of limitations bars her claim. However, the Court found that Poindexter had not satisfied the elements of equitable estoppel because she did not establish facts that showed she did not have a “convenient and available means” of obtaining information about status of the lien on her home. There was also no evidence on the record whether there was a genuine issue of material fact as to whether MBCC tried to conceal anything or falsely misrepresent anything.
Poindexter also claimed that her previous dealings with MBCC made her believe MBCC had filed a certificate of satisfaction. However, she only cited that she traded in her Audi to support this claim. MBCC made no further statements about certificate of satisfaction. MBCC’s March letter was found to only have an accurate statement about the release of a security interest in her first vehicle and did not contain any security information about her Audi.
Also, Poindexter argued that the district court prematurely granted summary judgment because it did not rule on her motion for discovery. But Poindexter did not show how the information she requested would have created a genuine issue of material fact sufficient to overcome summary judgment. The Fourth Circuit found no error in the grant of summary judgment on the breach of contract claim.
Summary Judgment Appropriate for Slander of Title Claim
The Court found that MBCC did not publish false words with malice that disparaged Poindexter’s title to her property. There was no evidence in the record that showed MBCC had acted with malice or reckless disregard and Poindexter only pointed to the fact that MBCC didn’t file a certificate of satisfaction. However, the Court found this to just be an administrative oversight and showed nothing more than negligence. Therefore, Poindexter did not establish the elements for slander of title. The Court also found it was untimely because it was outside of the five year statute of limitations.
Summary Judgment Appropriate for RESPA Claim
A provision of RESPA states that a response to any “qualified written request” was necessary upon receipt. However, the Court did not find that Poindexter had sent a qualified written request that requested “information relating to the servicing of the loan.” First, her oral communications did not qualify as written requests. Second, the letter from Poindexter’s attorney to MBCC did not have a statement of the reasons or sufficient detail related to the servicing of the loan. That letter only referenced the details of another vehicle, which was not the Audi, for which the deed of trust was recorded so it did not properly identify the “account of the borrower” as RESPA requires.
The Court also found that Poindexter’s correspondence did not relate to the servicing of her loan. The Court followed the reasoning of Medrano v. Flagstar Bank, and held that Poindexter’s request related to the terms of the loan and mortgage and an obligation that arose after the loan was satisfied. Therefore, it did not relate to the receipt of making of loan payments and did not satisfy the elements of a RESPA claim.
Summary Judgment Appropriate for VCPA claim
The VCPA protects against deception or fraud in consumer actions but does not apply to mortgage lenders. The Court held that MBCC was a mortgage lender because after HBL transferred the vehicle loan to MBCC, Poindexter agreed to modify the car payment agreement and place a lien on her house. Thus, the vehicle loan was converted into a mortgage loan.
The Court further reasoned that both parties had a clear intent that the payment arrangement be a mortgage loan. Also, Poindexter reaped the benefits in tax deductions from it being classified as a mortgage loan so she could not avoid its consequences from such a classification.
Summary Judgment Appropriate for Va. Code § 55-66.3 Claim
This section states the requirements for the filing of a certificate of satisfaction as ninety days after the debt was paid and the consequences if the certificate is not filed. However, Poindexter’s claim was time barred. Her cause of action accrued on the ninety-first day after her obligations were satisfied in 2004. Since she did not enter a complaint until 2013, her claim was outside of the two-year time limit.
The Fourth Circuit affirmed the district court’s granting of summary judgment for MBCC on each count. The Court held that these claims were either outside of the applicable statute of limitations or that Poindexter had failed to establish all the elements of her claims.
Tags: Civil Litigation Contracts Summary Judgment
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Fourth Circuit Holds No Duty for Insurer to Defend Hunt Club Member Who Accidentally Shot Passing Driver
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In an opinion for the civil case, Marks v. Scottsdale Ins. Co., published June 29, 2015, the Fourth Circuit Court of Appeals held that a general liability insurer for a hunt club had no duty to indemnify or defend a club member who accidentally shot a passing driver while hunting on land the club leased.
Marks Accidentally Hit by Pellets When Deer Hunter Shot Towards Public Road
Plaintiff Timothy B. Johnson (“Johnson”), a member of the Northumberland Hunt Club (“Hunt Club” or “Club”) was hunting deer on land leased by the Club when he took a shot that traveled towards an adjacent public highway. Pellets from Johnson’s gun struck Plaintiff-Appellant Danny Ray Marks, Jr. (“Marks”) in the head as he was driving. Marks filed a negligence claim against Johnson in Virginia state court, alleging that because Johnson was experienced with firearms and the location, he should have known his actions posed a risk to drivers on the highway. Marks also filed a negligence claim against the Hunt Club, alleging they failed to promulgate rules to protect the public. In a second complaint filed in Virginia state court, Marks sought a declaration that the Hunt Club’s insurer, Scottsdale Insurance Company (“Scottsdale”) had a duty to indemnify and defend Johnson due to an endorsement provision in the Club’s insurance policy. Scottsdale removed to federal court based on diversity jurisdiction and filed a counterclaim seeking an endorsement stating it does not have a duty to indemnify or defend Johnson. Johnson joined the district court litigation and the parties agreed to have a magistrate adjudicate the matter. On cross motions for summary judgment, the magistrate held that Scottsdale did not owe a duty to indemnify or defend Johnson, and granted Scottsdale’s motion.
Scottsdale issued a commercial general liability policy to the Hunt Club, establishing its duty to indemnify for “those sums that the insured becomes legally obligated to pay for damages from bodily injury or property damage to which this insurance applies,” and to defend the Club in such suits. The policy also included an endorsement that modified its coverage “to include as an insured any of your members, but only with respect to their liability for your activities or activities they perform on your behalf.” “You” and “your” are defined as “the Named Insured.”
The Court Applied Contract Principles to Determine the Scope of the Policy’s Coverage
To determine whether Johnson was an “insured” under the policy’s endorsement, the Court looked to the plain meaning of the language. Under Virginia common law, ambiguous policy language is to be construed against the insurer. However, a term is only deemed ambiguous if it is “capable of more than one reasonable meaning.” An insurer only owes a duty to indemnify and defend if the allegations in the complaint come within the scope of the policy’s coverage.
Language of the Endorsement is not Ambiguous
The Court analyzed the language of the two clauses in the endorsement to determine the scope the coverage. The first clause insured “any of [the Club’s] members, but only with respect to [member] liability for the Club’s activities.” Johnson argued that the language was clear, and that his actions were covered under this clause because he was hunting at the time of the incident and hunting is one of the Club’s activities. In the alternative, he argued that the language was ambiguous and should be construed in his favor. The Court disagreed, reasoning that the language was clear, and that this clause “restricts coverage to situations involving a member’s alleged vicarious liability for the activities of the Club as an entity, not for torts allegedly committed by members during a Club activity.
Johnson conceded that the second clause in the endorsement, covering “activities [members] perform on [the Club’s] behalf,” did not apply to him in this situation.
The Court reasoned that Johnson’s proposed interpretation of the first clause was flawed when the language of the endorsement was examined as a whole. The court determined that the first clause covered actions taken by the Club that a member might be held vicariously liable for, and the second clause covered actions taken by an individual on behalf of the Club. However, under Johnson’s interpretation, the second clause becomes redundant because all member actions in connection with the Club would be covered under the first clause.
Once the scope of coverage was established, the court looked to Marks’s complaint to determine if the allegations against Johnson came within the scope of the policy’s coverage. The court reasoned that because the complaint only alleged that Johnson was a member of the club and on land leased by the club when he shot Marks, the complaint rested only on “the recreational pursuits indulged in by members,” not on Johnson’s vicarious liability for the Club’s activities.
Scottsdale has No Duty to Indemnify or Defend Johnson
Because Scottsdale was not be liable for any of the allegations against Johnson in the complaint, Scottsdale did not have a duty to indemnify or defend Johnson. The Court affirmed the judgment of the magistrate judge.
Tags: Contracts Tort
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Application of West Virginia’s “Gist of the Action” Doctrine Examined by the Fourth Circuit
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In the civil case of Dan Ryan Builders, Inc. v. Crystal Ridge Development, Inc., Plaintiff, Dan Ryan Builders Inc., (“Ryan”) appealed the decision of the US District Court for the Northern District of West Virginia and sought additional damages from Defendant, Lang Brother’s Inc. (“Lang”). The Fourth Circuit affirmed the decision of the district court, finding that the “gist of the action” doctrine was properly applied and Plaintiff was not entitled to additional damages. The case was argued on December 10, 2014, and the decision was released on April 20, 2015.
The events of this case took place in West Virginia. Lang sought to build a housing development, Crystal Ridge, on a seventy acre tract of land. In 2005, pursuant to a Lot Purchase Agreement (“LPA”), Lang subdivided the land and contracted to sell all 143 lots to Ryan, a Maryland corporation. The LPA detailed the responsibilities of each party. The parties also entered into a number of other written contracts, including a contract to do a “fill of slope.” Lang was responsible for all of the infrastructure, including the fill slope, which was done by an independent contractor. In March 2007, cracks appeared in the basement slab and the foundation walls of a partially constructed house. Ryan contracted an engineering firm to fix the issue – but the relationship between Lang and Ryan had soured after the incident and the parties “divorced.” In December 2007, the slope behind the lot that had exhibited cracks in the foundation began sliding downhill towards a nearby highway. A geotechnical study concluded that the slope had failed due to its natural composition as well as poor construction. Ryan also experienced other difficulties with the development, including the storm water management system, the development permits, and the entrance drive.
In December 2009, Ryan filed a lawsuit against Lang seeking monetary damages. Ryan asserted three causes of action. First, negligence on the part of Lang in connection to the construction of the fill slope. Second, a breach of several contractual duties stated in the LPA and a subsequent amendment to the LPA made after the parties had “divorced.” Third, fraudulent misrepresentation. The third and final cause of action was abandoned at trial. The court held a five-day bench trial and awarded Ryan $175,646.25 in damages and $77,575.50 in pre-judgment interest for breach of contract with respect to repairs of the road leading to Crystal Ridge. Ryan failed to carry its burden of proof with other asserted breaches, including the entrance easement, storm water management, and the erosion control system. Lastly, the court rejected Ryan’s negligence claim because it failed under West Virginia’s “gist of the action” doctrine, which bars recovery in tort when the duty that forms the basis of the asserted tort claim arises solely from a contractual relationship. It requires plaintiffs seeking relief in tort to identify a non-contractual duty breached by the alleged tortfeasor. Ryan appealed.
The Fourth Circuit used a mixed standard of review following a bench trial. Factual findings may only be reversed if clearly erroneous. Conclusions of law, including contract construction, are examined de novo.
Ryan offers two reasons why the district court erred in the “gist of action” holding. The court considered both of them separately.
Reason One – Principles of Party Presentation
Ryan contends that the “principles of party presentation” ought to have prevented the district court from relying on the “gist of the action” doctrine. The party presentation principle cautions a federal court to consider only the claims and contentions raised by the litigants before it – and neither Ryan nor Lang raised the “gist of action” doctrine in district court. The Fourth Circuit rejected this argument, stating that a party’s failure to identify the applicable legal rule does not diminish a court’s responsibility to apply that rule. Additionally, the Supreme Court has long recognized that “a court may consider an issue ‘antecedent’ to … and ultimately ‘dispositive of’ the dispute before it, even an issue the parties fail to identify and brief.” U.S. Nat’l Bank of Or. v. Indep. Ins. Agents of Am., Inc. 508 U.S. 439, 447 (1993). Here, the “gist of the action” doctrine is just such an “antecedent” and “dispositive” issue since it goes to the duty element of any West Virginia tort claim. Therefore, Ryan’s contention that the party presentation principle barred the district court is rejected.
Reason Two – Gist of the Action
The Fourth Circuit found that the district court did not err in its application of the “gist of the action” doctrine. Because Ryan’s tort claim rests on Lang’s asserted negligence in performing the two contracts, the LPA and its Amendment, and not on any duty independent of those contracts, the “gist of action” doctrine bars the claim. The Fourth Circuit found that this is precisely the type of simple breach of contract claim that is masqueraded as a tort claim. Therefore, the court found that Ryan’s negligence claim fails as a matter of law.
Ryan’s New Claim
Alternatively, Ryan sought damages under claims he had not alleged at the district court level. Specifically, he alleges that he should have been awarded damages for the “fill of slope” contract. The Fourth Circuit found that the district court is not responsible for searching through the case in pursuit of potential basis for awarding relief. In fact, The Fourth Circuit stated that the district court did an excellent job of identifying Ryan’s meritorious claims.
The Fourth Circuit affirmed the decision of the district court. The Fourth Circuit did not agree with Ryan on either of his two arguments about the district court’s application of the “gist of the action” doctrine. Additionally, the Fourth Circuit rejected Ryan’s contention that he should have been awarded damages for the “fill of slope” contract. Arguing that Ryan should have been able to recover for the “fill of slope” contract, Circuit Judge Gregory dissented in part.
Tags: Breach Contracts Tort
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Fourth Circuit Reverses and Remands Real Estate Agent’s Breach of Contract Claim
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Today, the Fourth Circuit released an unpublished opinion in the civil case of Jones Lang LaSalle Americas, Inc. v. The Hoffman Family, LLC. The appellate court reversed a decision from the Eastern District of Virginia, where summary judgment had been previously granted to the defendant in this breach of contract claim. While the district court had ruled that an agreement between the parties pertaining to commission to be paid on a real estate deal was unenforceable as a matter of public policy, the Fourth Circuit had a different interpretation of the relevant Virginia law.
The Parties Wanted to Find a Tenant to Lease Hoffman’s Property
Jones Lang LaSalle (“JLL”), the plaintiff in this matter, is a real estate business. Hoffman owns considerable property in Virginia. In 2007, the parties signed an agreement, under which Hoffman retained JLL to act as the exclusive leasing agent for its landholdings in Virginia as Hoffman tried to get the United States government to lease the land. The agreement provided that if JLL’s efforts resulted in the lease of any of the properties in question, JLL would receive a commission equal to two percent of the lease’s base rent.
JLL hired Arthur Turowski, a former member of the U.S. General Services Administration (“GSA”), to advise JLL on matters related to the federal lease procurement process. Turowski was not a licensed Virginia real estate salesperson.
In 2011, the GSA solicited proposals for a lease for a site to house the new headquarters of the National Science Foundation. JLL assisted Hoffman in presenting its property as a candidate, and the GSA selected Hoffman for the lease in 2013. As a result, Hoffman will receive a total base rent of more than $330 million over the 15-year term of the lease.
The parties then began to disagree about the commission; JLL claimed it was owed $6.62 million (two percent of the base rent) while Hoffman asserted it only owed $1 million based on what it claimed were oral agreements reflected in written submissions made to the GSA and elsewhere.
JLL Claimed Hoffman Was In Breach of Contract
JLL ultimately filed an action for breach of contract in 2013, seeking the $6.62 million it claimed it was owed under the agreement between the parties. During discovery, Hoffman learned that Turowski was not a licensed real estate salesperson.
Hoffman moved for summary judgment, arguing that as a matter of public policy, JLL could not recover commission that might have been payable under the agreement because Turowski was critical to JLL’s efforts to lease the property.
The Eastern District of Virginia entered summary judgment in favor of Hoffman. The court concluded Turowski was required to have a real estate salesperson’s license because he was centrally involved in the activities that led to Hoffman’s successful bid for the lease. The court said that there was a public policy which had been declared by Virginia’s courts that such individuals were to be licensed real estate agents.
The Plaintiffs Claimed the District Court Erred On the Public Policy Question
On appeal, JLL argued the district court erred in concluding that a JLL employee involved in the leasing efforts was required to have a Virginia real estate salesperson’s license, and that the consequence of the employee’s failure to be so licensed was a total forfeiture of JLL’s commission.
Essentially, it indicated that the district court was wrong in determining Turowski’s participation in the leasing efforts rendered the agreement between JLL and Hoffman unenforceable on public policy grounds.
The Fourth Circuit Interpreted Relevant Virginia Law Differently than the Eastern District of Virginia
Hoffman did not dispute that the agreement was valid when formed; instead, it argued that JLL performed its obligations in contravention of the Virginia real estate licensing scheme (and, thus, rendered the agreement unenforceable).
But the Fourth Circuit disagreed, saying Hoffman’s position was unsupported in Virginia law. There is no explicit statute or judicial decision the court could point to that would impose a total prohibition of JLL’s commission under Virginia law.
The appellate court did say that Virginia law was clear on two fronts: (1) that a contract made in violation of the real estate licensing statutes is illegal and unenforceable, and (2) that Virginia courts are averse to holding contracts unenforceable on public policy grounds unless their illegality is “clear and certain.” The Fourth Circuit noted that relevant precedent indicates Virginia courts are to be wary of employing public policy concerns to invalidate contracts that were valid when formed.
The Fourth Circuit’s opinion makes clear that its reversal of the summary judgment ruling doesn’t mean that JLL is entitled to the $6.62 million it seeks. Instead, this ruling only clarifies that Turowski’s participation in the leasing efforts did not render the agreement unenforceable as a matter of law. The District Court will receive the case on remand to resolve the remaining issues, including whether the parties agreed to a lesser commission in an oral agreement.
Tags: Breach Contracts Public Policy
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Fourth Circuit Doesn’t Buy Retail Tenant’s Argument, Affirms Decision Allowing Mall Redevelopment to Move Forward
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Today, in a published opinion in the civil case of Lord & Taylor, LLC v. White Flint, L.P., the Fourth Circuit affirmed a ruling from the District of Maryland which refused to stop plans for redevelopment of a now-vacant shopping mall. It did so over the objections of the plaintiff, Lord & Taylor, which had argued the plans were barred by an existing Reciprocal Easement Agreement (“REA”) between the parties.
The Parties Had a Long-Standing Relationship
In 1975, White Flint began discussions with Lord & Taylor about developing a store at a new mall in Maryland. The parties ultimately agreed Lord & Taylor would serve as an anchor tenant in a building detached from the mall itself.
As part of their agreement, they entered into the REA, which bound White Flint to operating a three-story mall on the site. Any changes to the mall were to be approved by Lord & Taylor. The REA was to remain operative until at least 2042, and Lord & Taylor had an option to extend it until 2057 by exercising its final option to renew its lease.
The relationship was initially positive, but business at the mall steadily declined. By 2013, 75 percent of the mall’s tenants had left, and the mall was ultimately shuttered permanently early in 2015.
In October 2012, the local county government approved plans to tear down the mall and redevelop the site into a mixed-use development with apartments, parks, a hotel, and high-rise office buildings. The Lord & Taylor store was to remain in place.
Lord & Taylor Sought Declaratory Judgment and Injunctive Relief
Lord & Taylor filed an action to stop White Flint from going forward with the redevelopment plan, saying the REA promised Lord & Taylor’s store would have a “first class high fashion shopping center” adjacent to it for the duration of its lease. It said the new plans violated the terms of the REA and would negatively affect the store’s business.
Lord & Taylor sought declaratory judgment that the REA barred the plans and a permanent injunction that would prohibit White Flint from replacing the mall with the proposed “town center” development.
White Flint moved for partial summary judgment, arguing it would be infeasible for the courts to enforce an injunction requiring what was, by then, a mostly empty mall to resume operations and then to maintain status as a “first class high fashion shopping center” until 2057. White Flint further argued that halting the redevelopment project was against the public interest given the time and expense already devoted to the project.
The District Court granted White Flint’s motion, concluding an injunction would be unworkable in light of the advanced stage of the project.
Lord & Taylor Appealed On Two Grounds
On appeal to the Fourth Circuit, Lord & Taylor argued two separate issues: (1) that the district court erred by failing to apply the correct Maryland law to its request for injunctive relief, and (2) that the district court erred in judging the injunctive relief it sought would not be feasible.
The Fourth Circuit rejected both arguments, adopting similar reasoning to that of the District of Maryland in choosing to affirm the lower court’s decision.
The District Court Applied the Proper Legal Standards in Rendering Judgment
Lord & Taylor argued a proper application of Maryland law would necessarily mean an injunction should be granted. It indicated Maryland law strongly favors injunctive relief for breaches of restrictive covenants, to the point that other factors such as the public interest or the availability of monetary damages to compensate for a breach aren’t to be considered.
But the Fourth Circuit disagreed. It noted that even the cases cited by Lord & Taylor said that injunctive relief is subject to “sound judicial discretion.” Further, Maryland law makes clear that trial courts may take account of feasibility concerns, such as those cited by the District Court in this case, in considering injunctive relief for breach of a restrictive covenant.
The Fourth Circuit indicated Maryland courts have made clear that injunctions may be denied if they would cause courts to have to engage in “long-continued supervision” or “enforcement of the injunction would be ‘unreasonably difficult.'” Thus, it rejected Lord & Taylor’s argument.
The District Court Correctly Ruled Injunctive Relief Was Infeasible
Lord & Taylor further argued that the District Court incorrectly ruled that injunctive relief in this case would be infeasible. The Fourth Circuit reviewed that decision under an abuse of discretion standard and affirmed the lower court ruling. In making its decision, the Fourth Circuit noted that the practical realities of the situation didn’t weigh in favor of an injunction.
Much of the mall was vacant, so enforcing the REA would have necessitated an affirmative injunction ordering White Flint to transform the mall back into a “first class high fashion shopping center.” Such an order is difficult to draft with specificity, and also difficult to enforce. The court would be left to enforce detailed provisions involving parking and interior access roads, potentially for a protracted period of time, and such enforcement is beyond the level of judicial involvement that is practical.
While Lord & Taylor had indicated a “negative injunction” (which would merely bar the redevelopment plans from going forward) would be acceptable, the Fourth Circuit said that, too, was unrealistic. Such an injunction would freeze in place a vacant mall, and would essentially be a judicially-mandated blight on the area. The court was not prepared to take such a step, doing so would be against the public interest.
Tags: Business Law Contracts Summary Judgment
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