Court Opinion

ID: 4522797
Source: CourtListenerOpinion
Date Created: 2020-04-06 17:00:35.825092+00
Date Added: 2024-06-11T12:07:33.977972
License: Public Domain

NOT RECOMMENDED FOR PUBLICATION
                                File Name: 20a0195n.06

                                         No. 19-3533

                           UNITED STATES COURT OF APPEALS
                                FOR THE SIXTH CIRCUIT

 HEALTH AND WELLNESS                       )                                       FILED
 LIFESTYLE CLUBS, LLC,                     )                                  Apr 06, 2020
                                           )                             DEBORAH S. HUNT, Clerk
        Plaintiff - Appellant,             )
                                           )
 v.                                        )      ON APPEAL FROM THE UNITED
                                           )      STATES DISTRICT COURT FOR THE
 RAINTREE GOLF, LLC and JOHN               )      NORTHERN DISTRICT OF OHIO
 RAINIERI,                                 )
                                           )
        Defendants - Appellees.            )

BEFORE: SILER, GIBBONS, and READLER, Circuit Judges.

       JULIA SMITH GIBBONS, Circuit Judge. Health and Wellness Lifestyle Clubs, LLC

(“H&W”) brings this breach of contract action against Raintree Golf, LLC and its owner John

Rainieri (collectively, “Raintree”). H&W entered into an agreement with Raintree for the planned

purchase of Prestwick Country Club (“Prestwick”). Despite nearly closing the sale on several

occasions, the parties ultimately failed to complete the transaction before their agreed-upon

deadline. H&W argues that Raintree breached the purchase agreement by withholding and

misrepresenting adverse information about Prestwick’s financial health.      The district court

disagreed and granted summary judgment to Raintree. H&W now appeals. Because the disclosure

of complete and accurate financial information was a condition precedent to H&W’s duty to

perform under the contract—not a stand-alone promise by Raintree—the non-occurrence of that
Case No. 19-3533, Health and Wellness Lifestyle Clubs, LLC v. Raintree Golf, LLC

condition was not a breach. And even if it was a breach, the breach did not cause the deal to fail,

as required by the contract’s right-to-sue clause. We therefore affirm.

                                                       I.

        In August 2015, H&W entered into an agreement for the planned purchase of Prestwick

(“Prestwick Agreement”).1 The Prestwick Agreement provided that the parties would complete

their transaction by the end of an approximately three-month closing period. During that period,

the parties resolved to, among other things, conduct due diligence and procure the financing

necessary to complete the transaction.

        The closing period was structured to provide each party with ample opportunity to abort

the transaction with little or no penalty. H&W was only required to perform under the contract if

it could secure “third party financing” and if, “in its sole and absolute discretion,” it was satisfied

with the production and substance of Prestwick’s business and financial records. DE 43-2,

Prestwick Agreement, Page ID 1055–57. Raintree would even refund H&W’s deposit if H&W

was not satisfied with the disclosures. Similarly, the agreement only required Raintree to sell

Prestwick if H&W “obtain[ed] and deliver[ed] to [Raintree] a written unconditional commitment”

for “third party financing,” as well as “the release of such funds into Escrow.” Id. at 1056–57.

        At the end of the closing period, H&W had yet to complete its due diligence or secure

unconditional third-party financing; as a result, the agreement lapsed without consummation of the

transaction. The parties nevertheless agreed to extend the closing period. They did so a total of

three times. The last of these extensions expired on May 31, 2017, still without a completed deal.

1
  The parties also entered into a virtually identical agreement for the planned purchase of Raintree Country Club
(“Raintree Agreement”). That transaction, which was conditioned on completion of the Prestwick transaction, also
failed to close. Although the parties vigorously dispute aspects of this second transaction—namely, whether
extensions to the closing deadline for the Prestwick Agreement applied equally to the Raintree Agreement—H&W’s
only contractual claim is for breach of the Prestwick Agreement. Still, even if H&W had alleged a breach of the
Raintree Agreement, its claim would fail for the same reasons as those outlined in our analysis of the Prestwick
Agreement.

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Case No. 19-3533, Health and Wellness Lifestyle Clubs, LLC v. Raintree Golf, LLC

         H&W contends that, shortly after the final extension lapsed, it discovered several adverse

facts about Prestwick’s financial health. These included: (1) significantly lower than previously

reported income; (2) a steep drop in event bookings over the previous ten months; and (3)

Raintree’s default on a loan used to finance its own acquisition of the property. All of these facts,

according to H&W, were withheld or misrepresented by Raintree during the life of the Prestwick

Agreement.

         H&W filed suit on October 17, 2017, alleging that Raintree breached the Prestwick

Agreement by withholding and misrepresenting adverse information about Prestwick’s financial

health.2 These misrepresentations and omissions, it maintains, violated Raintree’s stand-alone

promises to provide complete and accurate financial information. After more than a year of

fruitless settlement discussions, Raintree moved for summary judgment. H&W opposed the

motion, arguing in relevant part that there remained a genuine dispute of fact as to whether Raintree

had misrepresented Prestwick’s financial health. It also moved, in the alternative, for further

discovery pursuant to Fed. R. Civ. P. 56(d).

         The district court granted summary judgment to Raintree and denied as moot H&W’s

motion for further discovery. In granting Raintree’s motion for summary judgment, the district

court reasoned that Raintree could not have breached the Prestwick Agreement because it had no

duty to sell Prestwick unless H&W first obtained unconditional financing. It also found that

H&W’s claim was barred by Section 5.3 of the contract, which provides that no breach of “any

representation or warranty” is actionable if the underlying information was known to H&W “prior

to Closing.” Shortly thereafter, H&W moved for the district court to issue a scheduling order, but

2
 H&W also brought claims for negligence, misrepresentation, fraudulent concealment, fraudulent inducement, and
common law fraud and deceit. The parties stipulated to dismissal of those claims shortly after the district court entered
summary judgment on H&W’s breach of contract claim. Only the breach of contract claim is at issue on appeal.

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Case No. 19-3533, Health and Wellness Lifestyle Clubs, LLC v. Raintree Golf, LLC

the parties stipulated to dismissal of the remaining claims before the court could resolve the

motion. H&W timely appealed.

                                                II.

        We review de novo a district court’s grant of summary judgment, Doe v. City of Memphis,

928 F.3d 481, 486 (6th Cir. 2019), and “may affirm on any grounds supported by the record[,]

even if different from the reasons of the district court,” Abercrombie & Fitch Stores, Inc. v. Am.

Eagle Outfitters, Inc., 280 F.3d 619, 629 (6th Cir. 2002). Summary judgment is proper only if

“there is no genuine dispute as to any material fact and the movant is entitled to judgment as a

matter of law.” Fed. R. Civ. P. 56(a). In considering a motion for summary judgment, we view

the evidence in the light most favorable to the nonmovant and draw all reasonable inferences in

her favor. Blackmore v. Kalamazoo Cty., 390 F.3d 890, 895 (6th Cir. 2004).

                                                III.

        H&W argues that the district court erred in three ways. First, H&W argues that the district

court erred in granting summary judgment to Raintree because there remain several disputes of

material fact. Second, H&W argues that the district court abused its discretion in denying its Fed.

R. Civ. P. 56(d) motion for further discovery. Finally, H&W argues that the district court erred in

failing to issue a formal scheduling order as required by Fed. R. Civ. P. 16(b). We address each

issue in turn.

                                                A.

        H&W first argues that the district court erred in granting summary judgment to Raintree.

In doing so, H&W maintains that Raintree, separate from its promise to sell Prestwick, made an

enforceable promise to provide H&W with complete and accurate financial information about

Prestwick. That promise, H&W contends, imposed an additional obligation on Raintree that was

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Case No. 19-3533, Health and Wellness Lifestyle Clubs, LLC v. Raintree Golf, LLC

independent of the parties’ underlying real estate transaction. H&W thus argues that summary

judgment was unwarranted because there remain genuine disputes of fact as to whether Raintree—

separate from any promise to sell Prestwick—misrepresented the club’s financial health.

                                                           1.

         As an initial matter, we note that the district court misconstrued H&W’s claim. The district

court held that Raintree could not have breached the Prestwick Agreement because it was under

no obligation to sell Prestwick once H&W failed to obtain unconditional financing. But H&W’s

claim is unrelated to Raintree’s obligation to sell Prestwick; instead, H&W argues that, regardless

of whether Raintree had an obligation to sell Prestwick, Raintree breached a stand-alone promise

to provide H&W with complete and accurate financial information. Similarly, the district court’s

reliance on Section 5.3 was misplaced. As we describe below, Section 5.3 only governs claims

for misrepresentations discovered after the closing period—that is, if the deal closed. But the

parties never closed their transaction.

         We may, nevertheless, affirm the district court based on any reason supported by the

record. Abercrombie, 280 F.3d at 629. Here, the fatal flaw in H&W’s claim is that it never

bargained for a stand-alone promise to receive complete and accurate financial information; rather,

H&W bargained to receive such information as a condition of its own performance under the

Prestwick Agreement. Delaware law distinguishes between promises and conditions.3 See Summit

3
  Although H&W filed suit in Ohio, it is a Delaware corporation, and the Prestwick Agreement contains a Delaware
choice-of-law provision. Under Ohio law, a choice-of-law provision is binding on the parties unless (1) “there is no
other reasonable basis for the parties’ choice,” or (2) application of the chosen law would violate a “fundamental
policy” of the state which (a) has a “materially greater interest . . . in the determination of the particular issue,” and
(b) is the state whose law would apply in the “absence of an effective choice of law by the parties.” Wise v. Zwicker
& Assocs., P.C., 780 F.3d 710, 715 (6th Cir. 2015) (quoting Restatement (Second) of Conflict of Laws § 187(2) (Am.
Law Inst. 1971)); Sekeres v. Arbaugh, 508 N.E.2d 941, 942 (Ohio 1987); see also Tele-Save Merch. Co. v. Consumers
Distrib. Co., 814 F.2d 1120, 1122 (6th Cir. 1987) (“Ohio choice-of-law principles strongly favor upholding the chosen
law of the contracting parties.”). Here, neither party argues that Ohio law should apply, and no discernable conflict
exists between the applicable laws of Ohio and Delaware such that applying Delaware law would jeopardize a
“fundamental policy” of Ohio. We therefore give effect to the parties’ agreement and apply Delaware law.

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Case No. 19-3533, Health and Wellness Lifestyle Clubs, LLC v. Raintree Golf, LLC

Inv’rs II, L.P. v. Sechrist Indus., Inc., No. Civ.A. 19400, 2002 WL 31260989, at *7 (Del. Ch. Sep.

20, 2002). While a promise “give[s] rise to a duty to perform,” a condition is an act or event that

“must occur before a party is obligated to perform.” TravelCenters of Am. LLC v. Brog, Civil

Action No. 3751-CC, 2008 WL 5272861, at *3 (Del. Ch. Dec. 5, 2008) (citing Restatement

(Second) of Contracts § 224 (Am. Law Inst. 1981)). As relevant here, “the non-performance of a

promise . . . can result in a breach of contract,” but “the non-occurrence of a condition is not

considered a breach unless the party promised that the condition would occur.” Id.

         Under Article IV of the Prestwick Agreement, Raintree’s provision of complete and

accurate financial information was a condition precedent to H&W’s performance, not a stand-

alone promise. Section 4.1(b), which expressly outlines the “[g]eneral conditions precedent to

closing of Escrow,” provides that “all” of H&W’s obligations are “subject to [H&W] determining

in its sole and absolute discretion that all of the conditions set forth in this [section] have been

satisfied or waived in writing.” DE 43-2, Prestwick Agreement, Page ID 1055–56. The same

section then proceeds to describe those “conditions” which must be satisfied before H&W is

“obligat[ed]” to perform under the contract. Id. at 1055. Notably, the “conditions” include

Raintree providing H&W with (1) unfettered access to Prestwick’s business and property records,

(2) a description of “any material adverse condition,” (3) “accurate” financial statements, and (4)

“true and correct” representations and warranties.4 Id. at 1056, 1059–64.

         Section 4.7 is equally unambiguous in its characterization of the same acts and events as

conditions rather than promises. That section, helpfully titled “Conditions Precedent to Obligation

of Purchaser,” likewise provides that “the obligation of [H&W] to consummate the transaction[] .

. . shall be subject to the fulfillment on or before the date of Closing of all of the following

4
 The specific representations and warranties, including those relating to Raintree’s financial statements and records,
are outlined in Section 5.1 of the Prestwick Agreement.

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Case No. 19-3533, Health and Wellness Lifestyle Clubs, LLC v. Raintree Golf, LLC

conditions.” Id. at 1079. It then goes on to again define those “conditions” as, among other acts

and events, Raintree providing H&W with (1) “all of the items required to be delivered pursuant

to the terms of this Agreement,” and (2) “true and correct” representations and warranties. Id.

Thus, as the plain and unambiguous language of Sections 4.1 and 4.7 makes clear, the parties

intended the omissions and misrepresentations complained of by H&W to be “conditions” of

H&W’s performance under the Prestwick Agreement, not enforceable promises. Id. at 1055, 1079;

see also Brog, 2008 WL 5272861, at *3, *3 n.21 (holding that the use of mandatory words like

“must” and shall” to define how a condition is satisfied does not create a “promise”).

       Indeed, the parties expressly agreed in Section 6.2 that, “[i]n the event the [planned] sale .

. . is not consummated,” H&W would not sue Raintree for “failure to satisfy a closing condition.”

DE 43-2, Prestwick Agreement, Page ID 1094 (emphasis added). As repeated throughout the

contract, the remedy for non-occurrence of such conditions is for H&W to “terminate” the

agreement and escape any obligations or liability under the same. Id. at 1053–54, 1056, 1059,

1064. That remedy stands in stark contrast to the one provided in Section 5.3 of the contract for

misrepresentations discovered after the deal closed. In such a situation, H&W would expect to

receive the country club described to it, and the parties agreed that, if H&W did not, it could bring

suit to recoup the expected benefit of its bargain. That makes sense: H&W “did not bargain to

receive [Prestwick’s financial information] as an end in itself”—rather, it bargained for such

information as a means to help facilitate the desired transaction and protect itself from having to

perform absent certain assurances. Summit Inv’rs II, 2002 WL 31260989, at *7.

       H&W nevertheless suggests that we should disregard the above provisions and read

Section 9.1 as authorizing suit based on the same conduct detailed throughout Articles IV and V.

Section 9.1, which is housed in an article purporting to govern “Disclaimers and Waivers,” states

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Case No. 19-3533, Health and Wellness Lifestyle Clubs, LLC v. Raintree Golf, LLC

in language virtually identical to Sections 4.1, 4.7, and 5.1 that Raintree “warrants” that its

“financial statements” and other records “reflect the true and accurate position of the business . . .

and that no known material adverse condition exits [sic] that would affect the financing of the

transaction . . . [or] adversely impact the business operations.” DE 43-2, Prestwick Agreement,

Page ID 1099. As raised for the first time at oral argument, H&W contends that the statement in

Section 9.1 should override the more specific provisions in Articles IV and V because of the so-

called survival clause in Section 9.3. That subsection, which is titled “Survival of Disclaimers,”

states that “[t]he provisions of this Article IX shall survive Closing or any termination of this

Agreement.” Id. at 1101. In turn, because the warranty in Section 9.1 is part of Article IX, H&W

maintains that Section 9.3 must create an enforceable promise.

       There are two problems with H&W’s reading of Sections 9.1 and 9.3. First, Article IX

would be a strange place to hide unique warranties when the Articles IV, V, and VI contain a

specific and detailed scheme expressly governing the same assurances. As outlined above,

Sections 4.1, 4.7, 5.3, and 6.2 work together to provide that Raintree’s representations and

warranties relating to its financial statements and records are unenforceable conditions precedent

unless the parties’ transaction is consummated. It would make little sense to include such a

carefully drawn distinction between pre- and post-closing suits to enforce these warranties if the

parties intended to abrogate that same scheme by implication in a boilerplate provision titled

“Disclaimers and Waivers.” Id. at 1099. In effect, H&W’s proposed interpretation would allow a

general, miscellaneous provision to control the more specific provisions of Articles IV, V, and

VI—a result at odds with long-settled principles of contract interpretation in Delaware. See DCV

Holdings, Inc. v. ConAgra, Inc., 889 A.2d 954, 961 (Del. 2005) (holding that, when contract terms

conflict, more specific terms control over general terms).

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Case No. 19-3533, Health and Wellness Lifestyle Clubs, LLC v. Raintree Golf, LLC

        Second, there is little evidence that the parties intended Section 9.3 to encompass

warranties. Article IX, by its terms, was meant to govern “Disclaimers and Waivers.” DE 43-2,

Prestwick Agreement, Page ID 1099. Unlike the other provisions of Article IX, Section 9.1 is not

a disclaimer or waiver but rather a warranty. Although Section 9.3 states that it applies to “[t]he

provisions of . . . Article IX,” the header for Section 9.3—separate from the general title of Article

IX—suggests that it applies only to the “Survival of Disclaimers.” Id. at 1101. Indeed, there is

neither a reference to warranties in the body of Section 9.3 nor language reconciling the conflict

H&W’s interpretation would create with Articles IV, V, and VI. See Schwan’s Home Serv., Inc.

v. Microwave Sci., JV, LLC, C.A. No. N11C–11–008, 2013 WL 3350881, at *6 (Del. Super. Ct.

June 24, 2013) (holding that “every part” of a contract “should be interpreted with reference to the

whole” and “in a manner that makes [it] internally consistent”); see also GMG Capital Invs., LLC

v. Athenian Venture Partners I, L.P., 36 A.3d 776, 779 (Del. 2012) (“The meaning inferred from

a particular provision cannot control the meaning of the entire agreement if such an inference

conflicts with the agreement’s overall scheme or plan.”). Accordingly, regardless of whether

Raintree misrepresented Prestwick’s financial health, it did not breach the Prestwick Agreement.

                                                   2.

        H&W’s claim fails for a second reason. As it did in the district court, H&W argues that,

because the parties’ transaction never closed, Section 6.2 creates a right to sue and seek damages

for any default by Raintree. Under that right-to-sue clause, however, H&W is only authorized to

bring suit if the transaction failed “due to [Raintree’s] default.” DE 43-2, Prestwick Agreement,

Page ID 1094 (emphasis added). Thus, even assuming that Raintree breached the Prestwick

Agreement by hiding or misrepresenting Prestwick’s financial health, the breach would only be

actionable if it caused the transaction to fail. It did not.

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Case No. 19-3533, Health and Wellness Lifestyle Clubs, LLC v. Raintree Golf, LLC

         As the district court found, the deal fell through because H&W was unable to secure

unconditional third-party financing before the closing period expired—a condition precedent to

Raintree’s obligation to sell Prestwick. It is less likely—not more likely—that H&W would have

satisfied this financing condition if lenders had known of Prestwick’s true financial position.5

Indeed, H&W continued to apply for financing up until Raintree moved for summary judgment

and was still unable to secure a lender’s “written unconditional commitment.” Id. at 1056.

Although H&W now claims that it could have self-financed the deal, nothing in the record shows

that it provided Raintree with a “writing” to “evidence” this ability, as required by Section

4.1(b)(4). Id. at 1058. And the documents submitted by H&W do not reflect liquid assets

exceeding the purchase price. Accordingly, because the transaction did not fail “due to” Raintree’s

conduct, any breach is not actionable.

                                                         B.

         H&W next argues that the district court abused its discretion in denying H&W’s motion

for further discovery under Fed. R. Civ. P. 56(d). We disagree. A district court does not abuse its

discretion when, as here, granting a party’s request for additional discovery “would not have

changed the ultimate result.” Plott v. Gen. Motors Corp., 71 F.3d 1190, 1197 (6th Cir. 1995); see

also Fed. R. Civ. P. 56(b) (allowing parties to move for summary judgment “at any time” before

the close of discovery). Specifically, no amount of discovery would have changed the Prestwick

Agreement’s plain and unambiguous language making Raintree’s financial disclosures a condition

precedent. See United Rentals, Inc. v. RAM Holdings, Inc., 937 A.2d 810, 830 (Del. Ch. 2007)

5
  We do not find, as the district court did, that H&W’s claim necessarily fails because Raintree was excused from
having to sell the property when H&W could not satisfy the financing condition. H&W does not contend that Raintree
breached the Prestwick Agreement by refusing to sell the property; instead, it argues that Raintree breached the
agreement by failing to perform other stand-alone promises contained in the agreement. Still, the district court’s
thorough analysis of the relation between the financing condition and why the parties’ transaction was never completed
remains instructive because of the causation requirement in the right-to-sue clause.

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Case No. 19-3533, Health and Wellness Lifestyle Clubs, LLC v. Raintree Golf, LLC

(“[P]arol evidence cannot be used to manufacture an ambiguity in a contract that facially has only

one reasonable meaning.”). And, even if we agreed that Raintree’s conduct broke a promise in the

Prestwick Agreement, any evidence tending to show that financing was available to H&W—either

before or after the disclosures—would be in H&W’s possession, not Raintree’s. Accordingly, the

district court did not abuse its discretion in denying H&W’s motion for further discovery.

                                                C.

       Finally, H&W argues that the district court erred in failing to enter a scheduling order as

required by Fed. R. Civ. P. 16(b). Under Fed. R. Civ. P. 16(b), a district court “must” enter a

scheduling order “limit[ing] the time to join other parties, amend the pleadings, complete

discovery, and file motions.” H&W is right that the district court erred by failing to enter such an

order. That error, however, is harmless. See Rubin v. Jenkusky, 601 F. App’x 606, 610–11 (10th

Cir. 2015) (finding failure to issue scheduling order harmless error); Muhammed v. Wadley Reg’l

Med. Ctr. Found., No. 98-41216, 1999 WL 1068238, at *2 (5th Cir. Oct. 22, 1999) (same); 1

Steven Gensler, Federal Rules of Civil Procedure, Rules and Commentary, Rule 16 (“[A] judge’s

failure to issue a timely scheduling order does not deprive the judge of the power to take other

actions, including merits dispositions.”).

       Specifically, H&W cites no case, and we can find none, holding that the failure to issue a

scheduling order requires reversal of an otherwise justified award of summary judgment. Nor does

H&W explain how it was prejudiced by the oversight. The district court still closely managed the

litigation—it oversaw the exchange of initial disclosures under Fed. R. Civ. P. 26(a), held four

case management conferences, and even prompted Raintree to move for summary judgment. See

Fed. R. Civ. P. 16 Advisory Committee Note to 1983 Amendment (“Rule 16(b) assures that the

judge will take some early control over the litigation . . . .”). Although H&W argues that the

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Case No. 19-3533, Health and Wellness Lifestyle Clubs, LLC v. Raintree Golf, LLC

absence of a scheduling order deprived it of any opportunity to conduct discovery, it was free to

seek discovery at any point after the parties’ initial discovery conference. See Fed. R. Civ. P.

26(d)(1). And, as discussed above, no amount of discovery would have changed the unambiguous

language of the parties’ contract. Accordingly, the district court’s error was harmless.

                                                IV.

        Based on the foregoing, we affirm.

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