Appeals from the Superior Court of the District of Columbia (CAB-1413-99) (Hon. Leonard Braman, Trial Judge) (Hon. Brook Hedge, Trial Judge)
The opinion of the court was delivered by: Ruiz, Associate Judge:
Before RUIZ, THOMPSON and OBERLY, Associate Judges.
Stanford Hotels Corporation ("Stanford") seeks reversal of the trial court's grant of summary judgment to appellee, Potomac Creek Associates, L.P. (now reincorporated as Potomac Creek, L.L.C., "Potomac Creek"), denying specific performance of an agreement to negotiate for Stanford's purchase of the Loews L'Enfant Plaza Hotel ("Hotel") from Potomac Creek. The trial was bifurcated into two phases: the first for a determination of liability, followed by a determination of remedy. Presiding over the liability phase of the trial, Judge Leonard Braman concluded that Potomac Creek was liable for breach of a preliminary contract which bound the parties to "negotiate in good faith with a view to signing" a final agreement for the sale of the Hotel, and had acted in bad faith by refusing to sign the final agreement they had negotiated. Presiding over the second phase of the trial, Judge Brook Hedge determined that specific performance, the only remedy requested by Stanford, was unavailable as a matter of law and, therefore, granted Potomac Creek's motion for summary judgment. Because we conclude that specific performance was available to enforce the preliminary contract in accordance with its terms, we reverse the judgment and remand the case to the trial court for further proceedings to determine whether specific performance is warranted by the facts of this case.
The negotiations for the sale of the Hotel played out against an intricate background. Because the course of the negotiations and their context are relevant to the legal issues raised in this appeal, we describe them in some detail, based on the facts found by the trial court. Sarakreek Holdings, N.V. (Sarakreek) is a Dutch company that owned several properties in the United States. It is governed by a classic European double board consisting of a Board of Management, made up of company executives, and a Supervisory Board, composed of non-executives, or outside directors. The Board of Management is responsible for the day-to-day operations of the company, including management of Sarakreek's investments. At the times relevant to this case, Sarakreek's Board of Management had between two and three directors and its Supervisory Board had five directors. The "A-Director" of the Board of Management had authority to bind the company unilaterally, while the other Board of Management directors, the "B-Directors," could bind the company only with the ADirector's approval.
In October of 1995, Westbrook Real Estate Fund ("Westbrook"), a U.S. venture capital company, made a participating convertible loan of $22 million to a Sarakreek subsidiary, Hartford Creek Associates, L.P. ("Hartford Creek"). Hartford Creek's assets were pledged as collateral. As part of this deal, Westbrook's Vice President, Jeffrey Rutishauser, became Sarakreek's A-Director, and Westbrook took over three of the five votes on Sarakreek's Supervisory Board.*fn1
In February of 1997, Sarakreek acquired a mixed-use complex, known as L'Enfant Plaza, which included office and retail facilities, as well as the 370-room Loews L'Enfant Plaza Hotel ("the Plaza property").*fn2 Upon acquisition of the Plaza property, Sarakreek formed Potomac Creek (appellee), a wholly-owned subsidiary, for the sole purpose of holding title to the Plaza property. The transaction was partly financed by Paine, Webber & Company ("Paine Webber," now owned by its successor-in-interest UBS) through a loan of more than $50 million. Additionally, to assist in the acquisition of the Plaza property, Westbrook, through a subsidiary, T/W ERIC Funding L.L.C., loaned an additional $15 million to Hartford Creek (as previously indicated, also a Sarakreek subsidiary). This note, referred to as the "C-note" carried a 20% rate of interest. A desire to retire the high rate C-note was one of the reasons for Sarakreek's interest in selling the Hotel separate from the rest of the Plaza property.*fn3
On May 14, 1997, Potomac Creek retained Hodges, Ward, Elliot, Inc., an experienced hotel broker, to sell the Hotel. Stanford, a private California-based company that owns and manages hotel properties in the United States, was the successful bidder, offering $48.75 million, nearly $12 million over the Hotel's appraised value at the time. On October 24, 1997, Laurence Lui, Stanford's president, submitted a proposal to Sarakreek, setting out the offer price, as well as several other major aspects of the offer. Stanford's proposal was to expire by its terms at 12:00 p.m. on October 29. Rutishauser, on behalf of Sarakreek, suggested modifications to the proposal, and signed the letter on October 28; Lui accepted the modified letter on October 30, 1997.
At trial Rutishauser, on behalf of Potomac Creek's corporate parent Sarakreek, conceded that the letter, as modified and signed by both parties, constituted a binding contract ("Preliminary Agreement") that obligated the parties to negotiate in good faith a Definitive Agreement for the purchase and sale of the Hotel on the price and other terms in Stanford's offer. Specifically, Paragraph 5 of the Preliminary Agreement provided:
Definitive Agreement. Buyer and Seller shall negotiate in good faith with a view to signing a Definitive Agreement within ten (10) days after execution of this letter, which agreement shall inter alia, include the terms and conditions set forth in this offer.
Although the Preliminary Agreement provided that the parties would execute a "Definitive Agreement" within ten days, Judge Braman found that "[t]he parties had plainly underestimated the complexities involved," primarily because of the need to separate out -- legally, financially, and in terms of shared costs -- the Hotel from the rest of the Plaza property. Negotiations in furtherance of reaching a Definitive Agreement continued beyond the ten days and lasted several months, into May of 2008. Judge Braman found that the duration of the Preliminary Agreement "was extended through the resumption of negotiations."
The "complexities" of the sale of the Hotel, however, were only partially responsible for the delay in reaching a Definitive Agreement. Concurrent with its efforts to sell the Hotel to Stanford, Sarakreek also pursued a buyout of Westbrook, both to retire the high interest $50 million C-note related to the purchase of the Plaza property in 1997, and to effect a complete purchase of Westbrook's interest in Sarakreek's Hartford Creek subsidiary that served as collateral for the 1995 convertible loan for $22 million (which purchase resulted in the placement of Rutishauser on Sarakreek's Board of Management Directors). Such a buyout would return control of Sarakreek to Dutch hands. As a result, Paine Webber served Sarakreek in dual roles: it was to provide the financing for the buyout of Westbrook and also to bifurcate its mortgage on the Plaza property so as to allow for the separate sale of the Hotel to Stanford. However, whereas Paine Webber proved flexible in providing a deadline within which to complete the bifurcation of the mortgage, Westbrook imposed a non-negotiable deadline of December 15, 1997, within which to effect the buyout of its interest in Hartford Creek and its properties. This tight deadline resulted in Rutishauser's "directing" that Paine Webber work on the Westbrook buyout first. Thus, as a result of prioritizing its focus on effecting the Westbrook buyout, Potomac Creek was not diligent in negotiating with Stanford the terms of the Definitive Agreement for the sale of the Hotel, which, as mentioned, took several months longer than initially contemplated in the Preliminary Agreement. During this time, Rutishauser, on behalf of Westbrook, was the decisive "A-director" on Sarakreek's Board of Management and thus effectively controlled Sarakreek's Potomac Creek subsidiary. However, Rutishauser never informed Stanford of Sarakreek's concurrent effort to effect a buyout of Westbrook's interest in Hartford Creek, an effort that was to take precedence over Potomac Creek's sale of the Hotel to Stanford.
Ultimately, the buyout was never completed because of "a lack of agreement on a few substantive points," which resulted in "plenty of recriminations" among Westbrook, Sarakreek, and Paine Webber. Once the buyout attempt had failed, Rutishauser thought that Paine Webber had become "less cooperative," thus "impact[ing] [Sarakreek's] ability to restructure or bifurcate" the mortgage on the Plaza property, a necessary condition for the sale of the Hotel to Stanford. Consequently, there were no direct communications between Potomac Creek and Stanford from late December of 1997 through late March of 1998.
Despite this lack of communication, Sarakreek remained interested in selling the Hotel and Stanford in acquiring it. On January 16, 1998, Rutishauser addressed a memorandum to the Westbrook representatives on the Sarakreek Supervisory Board providing fourteen reasons why the sale of the Hotel to Stanford ought to proceed. Thereafter, however, apparently still interested in buying out Westbrook, on February 4, 1998, Sarakreek's Supervisory Board met and decided to sell all of Sarakreek's assets, including the Hotel and the rest of the Plaza property. At this meeting, it was also decided to seek reinstatement of Paine Webber's earlier consent to bifurcate the mortgage on the Plaza property. In "[e]arly to mid March," Stanford was notified by Rutishauser that Paine Webber had approved a reinstatement of the bifurcation agreement and negotiations for the sale of the Hotel were renewed.*fn4 On March 26, Stanford received a draft of the Definitive Agreement from Potomac Creek's counsel. The draft responded to comments Stanford's lawyer had made in November, before the lull in negotiations; Stanford received another revised draft on April 17. On May 8, two "execution copies" of the 27-page Definitive Agreement with ten exhibits totaling 100 pages, were sent to Stanford for its approval and signature. Lui, on behalf of Stanford, signed the Definitive Agreement on June 2, 1998. In the cover letter returning the signed agreement to Potomac Creek's counsel, Stanford's lawyer stated that although Stanford was "still uncomfortable" with some of the provisions in the Definitive Agreement, it was "willing to move forward in a spirit of cooperation and desire[d] to consummate the transaction, subject to the terms and conditions" of the Definitive Agreement that Potomac Creek had sent for execution.
Neither Rutishauser, nor any other representative of Potomac Creek,
would ever sign the Definitive Agreement that Potomac Creek's lawyers
had "pressed" Stanford to sign. Judge Braman found that Rutishauser's
actions in delaying and eventually refusing to sign the Definitive
Agreement were disingenuous and unjustifiable in light of the fact that every
major hurdle to the sale of the Hotel had been overcome.*fn5
Judge Braman concluded, "[w]hile Rutishauser wanted
Stanford's signature on the Definitive Agreement, he did not in fact
have any intention to sign it himself unless a more advantageous . .
. alternative failed to materialize."
The "more advantageous" alternative Judge Braman referred to was the refinancing of the entire Plaza property that Sarakreek, unbeknownst to Stanford, had authorized in early February and pursued while it was also in negotiations for the sale of the Hotel to Stanford during March -- June 1998. Refinancing the entire Plaza property would allow Sarakreek to fulfill its earlier frustrated desire to buy out Westbrook's interests in, and regain Dutch control over, Sarakreek's companies. On March 24, Sarakreek's Supervisory Board specifically authorized John Mannix and his partner, Jeffrey Gwin, who had been managing the Plaza property,*fn6 to bid on all assets of the Plaza property, including the Hotel. On August 12, Sarakreek's Supervisory Board approved their proposal, which involved a refinancing of all the Plaza property by Credit Suisse First Boston.
Meanwhile, as Sarakreek was negotiating to complete the refinancing of the Plaza property with Mannix and Gwin, its Potomac Creek subsidiary continued its negotiations with Stanford to effect its purchase of the Hotel. As Judge Braman phrased it, "Sarakreek-Potomac [Creek] covertly kept working both sides of the street." Indeed, following several months of silence between Stanford and Potomac Creek, Rutishauser explicitly reopened negotiations with Stanford for the sale of the Hotel on March 26, two days after the Sarakreek Board had asked Mannix and Gwin to submit a proposal for the entire property. Notwithstanding that the renewed negotiations induced Stanford to "invest further time and money for over five months," it was only on August 17, two months after Stanford had signed the Definitive Agreement at Potomac Creek's urging and five days after Sarakreek's Supervisory Board had approved Mannix and Gwin's proposal with Credit Suisse financing, that Stanford was informed that Potomac Creek was "considering" refinancing the Plaza property instead of ...