Court Opinion

ID: 4090858
Source: CourtListenerOpinion
Date Created: 2016-10-19 19:01:05.08755+00
Date Added: 2024-06-11T14:36:05.146446
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                                No. 15-2335

In Re:    POTOMAC SUPPLY CORPORATION,

                  Debtor.

------------------------------

CHESAPEAKE BAY ENTERPRISE, INC.,

                  Plaintiff - Appellee,

            v.

CHESAPEAKE TRUST,

                  Defendant – Appellant,

            and

REGIONS BANK,

                  Defendant.

Appeal from the United States District Court for the Eastern
District of Virginia, at Richmond.    M. Hannah Lauck, District
Judge. (3:15-cv-00035-MHL; 13-03073-BFK; 12-30347-BFK)

Argued:    September 23, 2016                 Decided:   October 19, 2016

Before DUNCAN, AGEE, and HARRIS, Circuit Judges.

Affirmed by unpublished per curiam opinion.
ARGUED: Patrick John Potter, PILLSBURY WINTHROP SHAW PITTMAN
LLP, Washington, D.C., for Appellant.      Steven Scott Biss,
Charlottesville, Virginia, for Appellee. ON BRIEF: Jack McKay,
Dania Slim, PILLSBURY WINTHROP SHAW PITTMAN LLP, Washington,
D.C., for Appellant.

Unpublished opinions are not binding precedent in this circuit.

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PER CURIAM:

     This is a breach of contract action brought in bankruptcy

court     over     a    $500,000       security         deposit.      Chesapeake       Bay

Enterprise, Inc. (“CBE”) contracted to buy the assets of Potomac

Supply Corporation (“PSC”), a Chapter 11 debtor, and made an

initial security deposit.               But CBE failed to follow through, and

the transaction never closed.                     The bankruptcy court held that

PSC was entitled to the $500,000 deposit, on the theory that it

was CBE that had breached the agreement.                           The district court

reversed, awarding the deposit to CBE because PSC had failed to

provide the written notice of termination required by the plain

terms of the parties’ agreement.                        We agree with the district

court and affirm its decision.

     This     case      arises        out   of     PSC’s    Chapter     11     bankruptcy

proceedings, during which PSC arranged to sell its assets to CBE

for $20.3 million.            On September 21, 2012, PSC and CBE formally

entered     into       an     Asset     Purchase        Agreement     (the     “APA”   or

“Agreement”), which required CBE to make two $500,000 security

deposits.        The        first   deposit       was    due   before    the    APA    was

executed, and the second was due fifteen days after execution of

the Agreement, on October 6, 2012.

     CBE timely posted the first $500,000 security deposit, but

it failed to deliver the second.                    Instead, on October 2, 2012,

CBE informed PSC that its proposed financing had fallen through.

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The parties nevertheless attempted to save their agreement.                       At

CBE’s request, PSC twice extended the deadline for CBE to post

the second deposit:          first until October 10, and then until

October    12.      But   PSC   refused       CBE’s    request   for     a    third

extension, and CBE was unable to deliver the second deposit.

The transaction never closed.

       At no point during this process did PSC provide CBE with

written notice that it was terminating the APA based on CBE’s

breach.    Ultimately, PSC sold its assets to a third party for

$10 million.     The bankruptcy court approved that sale and then

converted PSC’s Chapter 11 bankruptcy proceeding to a Chapter 7

liquidation, transferring PSC’s interest in the security deposit

to Chesapeake Trust (“the Trust”).

       The Trust then brought the present action for breach of

contract   against    CBE,    claiming     that   it    was   entitled       to   the

$500,000 security deposit.        The bankruptcy court agreed, holding

that because CBE breached the Agreement, the deposit should go

to PSC (now, the Trust).          As the bankruptcy court saw it, the

status of the deposit under the Agreement “turns entirely on

which party was the first to commit a material breach” of the

APA.    J.A. 229.     CBE committed a material and un-waived breach

by not posting the second $500,000 deposit.                   It followed, the

bankruptcy   court    held,     that   when    the     transaction     failed     to

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close, the Trust (on behalf of PSC) was entitled to the initial

security deposit.

      CBE appealed, and in a careful and thorough opinion, the

district court reversed.        See Chesapeake Bay Enters., Inc. v.

Chesapeake Trust, No. 3:15CV35, 2015 WL 5786831 (E.D. Va. Sept.

30, 2015).     Under the unambiguous terms of the APA, the district

court concluded, the dispositive question was not whether CBE

had breached the Agreement.         Rather, the fate of the $500,000

hinged on whether PSC had provided written notice of termination

based on CBE’s breach.      Because PSC did not issue written notice

of termination – a fact to which both parties stipulated before

the bankruptcy court – the Agreement required that the deposit

be returned to CBE.

      The district court meticulously parsed the language of the

APA, see 2015 WL 5786831 at *3-*5, and we summarize only briefly

here.   Under Section 2.1.2 of the APA, which party is entitled

to   recover   the   $500,000   security   deposit   depends   on   whether

there has been a “Buyer Default Termination.”          Where, as in this

case, there has been no closing of the underlying transaction,

then Section 2.1.2 directs that the deposit be delivered to PSC

                                     5
if the Agreement has been terminated by way of a Buyer Default

Termination, and to CBE if it has not. *

      Section       2.1.2        defines      “Buyer    Default       Termination”        as

“[PSC’s] termination of this Agreement under Section 4.3.2 as a

result of the failure of a condition to [PSC’s] obligations” –

in other words, as a result of a default or breach by CBE.                              J.A.

21.       Section       4.3.2,    in   turn,    provides       that   a    non-defaulting

party may terminate the Agreement “by delivering to the other

[party]     written        notice      of    termination.”          J.A.    27   (emphasis

added).       In     other       words,      under    the    plain    language     of    the

Agreement,        “in    order     for      Buyer    Default      Termination      to   have

occurred     in     this    case,      PSC    must    have     complied     with   Section

4.3.2, which required that PSC provide to CBE written notice

upon CBE’s breach[.]”               2015 WL 5786831 at *5.                 Absent written

notice by PSC, the district court concluded, there was no Buyer

Default Termination; and absent a Buyer Default Termination, CBE

was entitled to return of its deposit.                      Id.

      * More specifically, Section 2.1.2 provides, inter alia,
that the deposit is to be delivered to PSC “upon the earlier” of
either a “Buyer Default Termination” or a “Closing.”    J.A. 21.
Conversely, the deposit is returned to CBE if “no Closing or
Buyer Default Termination has occurred” as of an “Outside Date”
defined as 45 days after the adoption of the Agreement.     J.A.
21.   Because there was no closing in this case, the status of
the deposit turns entirely on the presence or absence of a Buyer
Default Termination.

                                               6
      On    appeal,      the    Trust    no       longer     contests       the      district

court’s interpretation of the Agreement.                         Instead, it advances

two alternative arguments, both of which were considered and

rejected by the district court.                    First, the Trust argues that

various communications PSC made to CBE in the course of the

parties’ negotiations – notice of a bankruptcy court hearing,

the   APA    amendments        extending          the     deadline    for      the      second

deposit, and a demand for additional information from CBE – were

sufficient       to   satisfy    the    Agreement’s         requirement        of     written

notice of termination.           But as the district court noted, PSC has

waived that argument; instead of presenting it to the bankruptcy

court,     PSC    stipulated     that    it       had     “not   serv[ed]         notice    of

default or termination of any kind on CBE.”                        2015 WL 5786831 at

*5 n.25 (emphasis in original).

      Second, the Trust argues that non-compliance with Section

4.3.2’s notice provision should be excused because notice of

termination would have been “futile and purposeless” in light of

what it characterizes as CBE’s repudiation of the Agreement.

The district court disagreed, holding that notice would not have

been purposeless in light of the parties’ ongoing efforts to

complete     the      transaction,      under       the    terms     of   an      APA    twice

extended by mutual agreement of the parties.                       Id. at *5 n.26.

                                              7
     Having   carefully   considered   the   controlling   law   and   the

parties’ briefs and oral arguments, we affirm on the reasoning

of the opinion of the district court.

                                                                 AFFIRMED

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