Court Opinion

ID: 9802389
Source: CourtListenerOpinion
Date Created: 2023-08-31 13:05:17.663736+00
Date Added: 2024-06-11T10:01:18.339080
License: Public Domain

COURT OF CHANCERY
                                   OF THE
                             STATE OF DELAWARE
  LORI W. WILL                                                LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR                                                  500 N. KING STREET, SUITE 11400
                                                                WILMINGTON, DELAWARE 19801-3734
                           Date Submitted: May 30, 2023
                           Date Decided: August 30, 2023

 Jeffrey M. Weiner, Esquire                   Charles J. Brown, III, Esquire
 1332 North King Street                       Bradley P. Lehman, Esquire
 Wilmington, DE 19801                         Gellert, Scali, Busenkell & Brown, LLC
                                              1201 North Orange Street, Suite 300
                                              Wilmington, DE 19801

      RE:    Appleby Apartments LP v. Appleby Apartments Associates, L.P.,
             C.A. No. 2022-0325-SEM

Dear Counsel:

      I write regarding the plaintiff’s exceptions to the Magistrate’s Final Report in

this matter. In a well-reasoned Final Report, the Magistrate determined that the

plaintiff failed to plead its entitlement to specific performance and dismissed the

remaining claim for lack of subject matter jurisdiction. She declined to address the

applicability of a New Jersey forum selection provision.

      The plaintiff avers that these conclusions were in error. After conducting a de

novo review, I disagree and overrule the exceptions. The Final Report is adopted

and affirmed, except that the defendant’s request for fees is remanded for the

Magistrate to assess in the first instance.
2022-0325-SEM
August 30, 2023
Page 2 of 14

I.       BACKGROUND

         The factual background of this matter is detailed in the Magistrate’s Final

Report.1 The following summary is limited to the essential facts.

         Defendant Appleby Apartments Associates, L.P. (“Associates”) owns real

property at 401 Bedford Lane in New Castle, Delaware.2               Plaintiff Appleby

Apartments L.P. (“Apartments”) agreed to purchase the property, but the sale never

closed.

         On or about December 10, 2021, the parties entered into an Agreement of

Sale.3 The Agreement contemplated a price of $29.4 million for the property.4 The

Agreement also contained a “time is of the essence” clause, requiring closing to

occur within 90 days—on or before March 10, 2022.5 Apartments had “the one time

right to extend the [c]losing by up to thirty (30) days” if necessary “for approval and

1
  Magistrate’s Final Report Issued on March 31, 2023 (Dkt. 27) (“Final Report”). The
Final Report drew the factual background from the plaintiff’s amended complaint. Id. at 1
n.1; see Am. Verified Compl. for Declaratory J. and Specific Performance (Dkt. 15) (“Am.
Compl.”). Unless noted otherwise, I similarly draw my summary of the facts from the
amended complaint and the documents it incorporates by reference.
2
    Am. Compl. ¶ 3; see Final Report 2.
3
    Am. Compl. ¶ 11.
4
    Am. Compl. Ex. A (“Agreement”) ¶ 2.1.
5
  Id. ¶ 3.1 (“Closing of title for the purchase hereunder (‘Closing’) shall be held on or
before ninety (90) days following Effective Date of this Agreement with time being of the
essence.”).
2022-0325-SEM
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Page 3 of 14

completion of the assignment of and assumption” of the seller’s existing mortgage

loan, provided that Apartments paid an additional $250,000 to the escrow agent.6 If

closing did not “occur on the [c]losing date”—i.e., March 10, 2022—or “the

extended [c]losing date, unless due to a default by [Associates],” all deposits were

to be released to Associates.7

          The Agreement contemplated that Apartments could seek the assignment and

assumption of Associates’ mortgage loan on the property.8 Before finalizing the

Agreement, the parties had exchanged two drafts of the contract referring to

Apartments’ ability to assume the mortgage.9 Associates also gave Apartments

6
  Id. (“Notwithstanding the foregoing, Purchaser shall have the one time right to extend the
Closing by up to thirty (30) days provided that the extension is required for approval and
completion of the assignment of and assumption by the Buyer of Seller’s Mortgage Loan
(as hereinafter defined) and provided Buyer posts a second non-refundable (except as set
forth herein) but applicable deposit of Two Hundred Fifty Thousand Dollars ($250,000.00)
with the Escrow Agent.”).
7
    Id.
8
  Id. ¶ 4 (“In the event that Seller’s Lender does not approve of the assignment and
assumption of the Mortgage Loan by Buyer or the Buyer elects not to proceed with the
assignment and assumption of the Mortgage Loan, then Buyer shall proceed with the
purchase of the Property and Buyer shall be responsible for any and all prepayment fees
related to the Mortgage Loan and Seller shall satisfy the Mortgage Loan from the proceeds
of the sale.”).
9
  Am. Compl. ¶¶ 4, 11; Final Report 2-3; see also Def.’s Answering Br. in Opp. to Pl.’s
Exceptions to [Magistrate’s] Final Report (Dkt. 31) (“Def.’s Answering Exceptions Br.”)
Exs. A & B. The defendant’s motion to dismiss briefing before the Magistrate purported
to attach these drafts. See Def.’s Opening Br. in Supp. of Mot. to Dismiss Am. Compl.
(Dkt. 20) (“Def.’s Opening MTD Br.”) 5 n.1.
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Page 4 of 14

copies of the loan documents associated with the mortgage, including a note, before

the Agreement was signed.10

         The Agreement contained a New Jersey choice of law provision and a forum

selection provision requiring litigation concerning the Agreement to be brought in

New Jersey state court.11

         Two months after the Agreement was executed, on February 11, 2022,

Associates’ mortgage lender told Associates that the mortgage was under a lockout

period, which prevented the prepayment of the loan.             Associates relayed this

information to Apartments on the same day.12 The lockout period ran through

August of 2022.

         Apartments opted not to proceed with the assumption and assignment of the

mortgage loan. Instead, Apartments took the position that it was entitled to wait

until the lockout period expired to close on the property. Apartments desired to

10
  Am. Compl. ¶¶ 6, 10; see also Def.’s Exceptions Answering Br. Ex. C (“Note”). The
note described the terms under which it would be subject to a lockout period. Note ¶ 1(a).
The defendants’ motion to dismiss briefing described and purported to attach the Note.
Def.’s Opening MTD Br. 5 n.1.
11
   Agreement ¶ 17.7 (“This Agreement shall be governed and construed according to the
laws of the State of New Jersey. Any litigation between the parties or otherwise related to
this Agreement must be brought within the Superior Court of New Jersey in Camden
County.”).
12
     Am. Compl. ¶ 14.
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Page 5 of 14

obtain a new loan and pay the defeasance fee for the defendant’s payoff, which

would require a new closing date.13

         Apartments failed to close by the March 10, 2022 closing date specified by

the Agreement.14 On March 18, Associates informed Apartments that the deadline

to close had passed and purported to terminate the Agreement.15 Apartments insisted

that because the mortgage and associated note were subject to a lockout, it was

entitled to extend the closing deadline until after the lockout period expired.16

         Apartments proceeded to file litigation in this court.17 After Associates moved

to dismiss, Apartments filed an Amended Complaint on July 7, 2022 (the

“Complaint”).18         The Complaint includes identical claims seeking specific

performance of the Agreement in Counts I and II and, alternatively, a claim for

breach of contract seeking money damages in Count III.19

13
     Id. ¶ 16; Final Report 5.
14
     Final Report 5; see Am. Compl. Ex. B.
15
     Am. Compl. ¶ 16; see Am. Compl. Ex. B; Final Report 5.
16
     Am. Compl. ¶ 15.
17
     Dkt. 1.
18
     Dkt. 15.
19
     Am. Compl. ¶¶ 18-24.
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Page 6 of 14

         Associates moved to dismiss Counts I and II under Court of Chancery Rule

12(b)(6) for failure to state a claim.20 As to Count III, Associates argued that the

court lacked subject matter jurisdiction absent an available equitable remedy and

that any remaining claims should be heard in New Jersey.21

         After briefing and oral argument, the Magistrate issued her Final Report on

March 31, 2023.22          She concluded that Apartments failed to demonstrate its

entitlement to specific performance and recommended the dismissal of Counts I and

II.23 Absent an equitable claim or available equitable relief, she recommended that

the Amended Complaint be dismissed because this court lacks subject matter

jurisdiction over Count III.24 She declined to address the forum selection clause.25

20
     Def.’s Opening MTD Br. 9-13.
21
  Id. at 13. The defendant asserts that this court and the New Jersey state courts have
concurrent jurisdiction. Def.’s Exceptions Answering Br. 6 (“The Superior Court of
Camden County, New Jersey has concurrent jurisdiction along with the Delaware courts to
hear the dispute.”).
22
     Dkts. 16, 20, 22-23, 26-27.
23
     Final Report 14; see Ct. Ch. R. 12(b)(6).
24
     Final Report 15-16; see Ct. Ch. R. 12(b)(1).
25
     Final Report 16.
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Page 7 of 14

II.       ANALYSIS

          The Court of Chancery applies a de novo standard when reviewing exceptions

to a Magistrate’s final report.26 The exceptions are reviewed “on the record before

the Magistrate, unless the Court determines otherwise for good cause shown.”27

          The plaintiff’s exceptions fall into three categories. First, it argues that it

pleaded facts making it reasonably conceivable that it could establish a right to

specific performance in Counts I and II.28 Second, it argues that—to the extent it

prevails on the first argument—the court should exercise clean up jurisdiction over

Count III.29 Third, it maintains that this court should not enforce the New Jersey

forum selection clause because the action requires the conveyance of real property

in Delaware.30 A new hearing is unnecessary, as none of the exceptions raise issues

requiring credibility determinations.31

26
     See Ct. Ch. R. 144(a); DiGiacobbe v. Sestak, 743 A.2d 180, 184 (Del. 1999).
27
     Ct. Ch. R. 144(a).
28
   Pl.’s Opening Br. in Supp. of its Exceptions (Dkt. 29) (“Pl.’s Opening Exceptions
Br.”) 44.
29
     Id. at 61.
30
     Id. at 65.
31
     DiGiacobbe, 743 A.2d at 184.
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Page 8 of 14

      A.     Specific Performance

      A party seeking specific performance of a contract must establish, by clear

and convincing evidence, that “(1) a valid contract exists, (2) he is ready, willing,

and able to perform, and (3) that the balance of equities tips in favor of the party

seeking performance.”32 At the motion to dismiss stage, the court must consider

whether it is “reasonably conceivable” that the plaintiff could demonstrate these

factors based on the facts alleged.33

      The allegations in the Complaint fail to meet this standard. It is not reasonably

conceivable that the plaintiff could prove its entitlement to the “extraordinary

remedy” of specific performance by clear and convincing evidence.34

      The Agreement includes a “time is of the essence” clause requiring the

plaintiff to close on the property by March 10, 2022. “It is fundamental that where

32
   Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1158 (Del. 2010); see Pulieri v.
Boardwalk Props., LLC, 2015 WL 691449, at *5 (Del. Ch. Feb. 18, 2015) (“Where a party
seeks an award of specific performance . . . the burden of proof is clear and convincing
evidence.”).
33
  Pulieri, 2015 WL 691449, at *5 (citing BAE Sys. Info. & Elec. Sys. Integration, Inc. v.
Lockheed Martin Corp., 2009 WL 264088, at *7 (Del. Ch. Feb. 3, 2009)); see also
PharmAthene, Inc. v. SIGA Techs., Inc., 2008 WL 151855, at *15 (Del. Ch. Jan. 16, 2008);
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002) (setting forth the operative
reasonable conceivability standard).
34
  Pulieri, 2015 WL 691449, at *6 (determining at the pleadings stage that the plaintiff
would be unable to meet the clear and convincing evidence standard to obtain specific
performance).
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Page 9 of 14

the time of performance is expressly made of the essence of a contract, a plaintiff

must have performed his part of the contract within the specified time if he is to be

entitled to specific performance.”35 “When time is of the essence in a contract, a

failure to perform by the time stated is a material breach of the contract that will

discharge the non-breaching party’s obligation to perform its side of the bargain.”36

Yet, Apartments did not close by March 10, in breach of a material term of the

Agreement. Specific performance is therefore unavailable to the plaintiff unless it

is “excused from performance of that obligation.”37

         The plaintiff maintains that its failure to close is excused because Associates

could not deliver a marketable title due to the lockout.38 It avers that the closing date

should be extended until the lockout’s expiration.39           But it is not reasonably

conceivable, based on the allegations in the Complaint, that Associates prevented

Apartments from closing by March 10.

35
     Morgan v. Wells, 80 A.2d 504, 506 (Del. Ch. 1951) (citations omitted).
36
     HFIN, Inc. v. Intel Corp., 2007 WL 1309376, at *9 (Del. Ch. 2007).
37
     Walton v. Beale, 2006 WL 265489, at *3 (Del. Ch. Jan. 30, 2006).
38
  Pl.’s Answering Brief in Opposition to Def.’s Mot. to Dismiss Am. Compl. (Dkt. 22)
(“Pl.’s MTD Br.”) 37-38. Specifically, it invokes the prevention doctrine. Id. Although
Apartments alleges that Associates failed to inform it that a lockout could occur, it
concedes that Associates produced a copy of the note and loan documents before the
Agreement’s execution. Am. Compl. ¶¶ 6, 12.
39
     Pl.’s MTD Br. 37-38; Am. Compl. 35.
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Page 10 of 14

           When the lockup occurred, Apartments was not without a mechanism to

timely close: it had an option to assume the mortgage under Section 4 of the

Agreement.40 There is no indication that Associates prevented Apartments from

assuming the mortgage. Rather, Apartments admittedly opted not to proceed.41 That

choice had a consequence.42 If Apartments “elect[ed] not to proceed with the

assignment and assumption” of the mortgage loan, the Agreement stated that

Apartments “shall proceed with the purchase of the [p]roperty.”43 And if Apartments

defaulted, Associates had the right to terminate the Agreement.44 Given these facts,

I cannot reasonably infer that Associates interfered with Apartments’ ability to close

by March 10 consistent with the time is of the essence clause.45

           Further, Apartments is not seeking specific performance of the Agreement. It

is asking the court to rewrite the contract by extending the closing deadline, and then

40
     Agreement ¶ 4.
41
     Id. ¶ 15.
42
     See id. ¶¶ 4, 10.1.
43
     Id.
44
     Id. ¶ 10.1.
45
  Cf. Morgan, 80 A.2d at 506-07 (refusing to enforce a time is of the essence clause where
the plaintiff appeared on the closing date “with the necessary amount of cash to complete
the purchase price” and the defendant did not cooperate with the plaintiff’s preclosing
requests or appear at closing); Walton, 2006 WL 265489, at *6 (concluding that a defendant
was not entitled to rely on a time is of the essence clause where the defendant prevented
the plaintiff from meeting the closing date).
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enforce that revised contract. The parties did not bargain for an extension of the

closing date beyond a possible 30-day period to accommodate the effectuation of an

assignment of the mortgage, which required the plaintiff to pay an additional deposit

of $250,000. Such circumstances are not alleged to have occurred. The relief sought

by Apartments contravenes the time is of the essence clause and is inconsistent with

the Agreement’s plain terms.

         Accordingly, the Magistrate correctly held that the plaintiff failed to plead

facts making it reasonably conceivable that it could prove—by clear and convincing

evidence—that it was “ready, willing, and able to close.”46 Counts I and II were

appropriately dismissed under Rule 12(b)(6).

         B.     Subject Matter Jurisdiction

         “The Court of Chancery is a court of limited jurisdiction.”47 Subject matter

jurisdiction exists only where “(1) ‘a plaintiff states an equitable claim,’ (2) ‘a

46
   Final Report 11-14. The Magistrate also properly declined to consider facts raised by
the plaintiff in its motion to dismiss briefing that were absent from the Amended
Complaint. Id. at 13 n.49.
47
     Cardinale v. Feingold, 2023 WL 142510, at *2 (Del. Ch. Jan. 10, 2023).
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plaintiff requests equitable relief and there is no adequate remedy at law,’ and (3)

‘jurisdiction exists by statute.’”48

         The remaining claim in the Amended Complaint (Count III) is a breach of

contract claim for money damages.49 This is a legal claim seeking a legal remedy.50

Thus, the Magistrate properly recommended that Count III be dismissed under Rule

12(b)(1) as outside the court’s subject matter jurisdiction.51

         C.    Forum Selection Provision

         The Agreement’s forum selection provision selects a New Jersey state court

to resolve disputes.52 Apartments alleges that the provision is unenforceable because

this action concerns real property in Delaware.53 Associates responds that the matter

48
  Takeda Pharms. U.S.A., Inc. v. Genentech, Inc., 2019 WL 1377221, at *4 (Del. Ch. Mar.
26, 2019) (quoting Delawareans for Educ. Opportunity v. Carney, 2018 WL 4849935, at
*5 (Del. Ch. Oct. 5, 2018)); see Ct. Ch. R. 12(b)(1).
49
     Am. Compl. ¶¶ 23-24.
50
   See Hillsboro Energy, LLC v. Secure Energy, Inc., 2008 WL 4561227, at *2 (Del. Ch.
Oct. 8, 2008) (“A simple contract claim lacking the requisite equitable hooks will not swing
open the doors of equity.”). Any declaratory relief sought in connection with Count III is
also legal in nature. See Diebold Computer Leasing, Inc. v. Commercial Credit Corp., 267
A.2d 586, 591-92 (Del. 1970).
51
  Final Report at 15. Count III was dismissed with leave to transfer under 10 Del. C. §
1902 (and, thus, without prejudice). Id.
52
     Agreement ¶ 17.7.
53
   Am. Compl. ¶ 17; see Pl.’s Opening Exceptions Br. 65; but see In re Doehler Dry
Ingredient Sols., LLC, 2022 WL 4281841, at *4 (Del. Ch. Sept. 15, 2022) (“‘[A]n action
for specific performance of a contract,’ even where it relates to ‘property, is in personam
insofar as it is sought to compel performance by the defendant.’” (quoting 71 Am. Jur. 2d
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is moot because specific performance is unavailable. The defendant further avers

that any remaining disputes should be heard in New Jersey.54

         Because this court lacks subject matter jurisdiction over Count III, it would

be improper to advise on whether the claim should be refiled in New Jersey. I

therefore decline to address it.        The Magistrate likewise (and appropriately)

explained that she could not opine on the defendant’s alternative argument regarding

the forum selection provision.55

         D.     Fees

         Finally, the defendant requests fees as the prevailing party in this litigation.56

Section 17.6 of the Agreement provides that: “In the event of any litigation arising

out of this Agreement, the prevailing party shall be entitled to actual reasonable

attorneys’ fees plus cost of suit from the unsuccessful party.” 57 The matter is

remanded to the Magistrate solely to resolve whether Associates is entitled to fees.

Specific Performance § 196, Westlaw (database updated Aug. 2022)), aff’d, 294 A.3d 64
(Del. 2023).
54
     Def.’s Answering Exceptions Br. 24.
55
     Final Report 16.
56
     Def.’s Opening MTD Br. 19; Def.’s Answering Exceptions Br. 26.
57
     Agreement ¶ 17.6.
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III.   CONCLUSION

       For the reasons set forth above, the plaintiff’s exceptions are overruled. The

Final Report is adopted and affirmed insofar as Counts I and II are dismissed with

prejudice and Count III is dismissed without prejudice. The matter is remanded to

the Magistrate to resolve whether the defendant is entitled to fees. To the extent

necessary for this decision to take effect, IT IS SO ORDERED.

                                             Sincerely yours,

                                             /s/ Lori W. Will

                                             Lori W. Will
                                             Vice Chancellor