Gateway Towne Centre, LLC v. First United Bank and Trust
Filing
90
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT 70 , AND DENYING DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT 72 . Signed by District Judge Irene M. Keeley on 9/2/2011. (kd)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
GATEWAY TOWNE CENTRE, LLC,
Plaintiff,
v.
//
CIVIL ACTION NO. 1:09CV127
(Judge Keeley)
FIRST UNITED BANK AND TRUST,
Defendant.
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
I.
Pending
judgment
before
filed
by
the
the
INTRODUCTION
Court
are
plaintiff,
cross-motions
Gateway
Towne
for
summary
Centre,
LLC
(“Gateway”), and the defendant, First United Bank and Trust (“First
United”).
The question presented by Gateway’s motion is whether
First United must purchase a parcel of land known as Lot V(b).
First United’s motion seeks to recover both “liquidated damages”
for
Gateway’s
late
delivery
of
a
“pad
ready”
site
and
also
additional construction costs and engineering fees it incurred as
a consequence of Gateway’s wrongful conveyance of a right-of-way
to a public utility.
For the reasons that follow, the Court
GRANTS-IN-PART Gateway’s motion for summary judgment (dkt. no. 70),
and DENIES First United’s motion for partial summary judgment (dkt.
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
no.
72),
concluding
that
First
United
may
not
pursue
its
counterclaim for liquidated damages.
II.
FACTUAL BACKGROUND
This case arises from a contract for the sale of real property
at the Suncrest Towne Centre Development in Morgantown, West
Virginia (“Suncrest”), and the construction by First United of a
branch bank at that site.
First United is a Maryland-chartered
bank with its principal office in Oakland, Maryland.
Gateway is a
commercial real estate developer.
A.
The Purchase Agreement
On March 16, 2004, Gateway and First United entered a Purchase
and Option Agreement (“Purchase Agreement”) under which First
United agreed to purchase a parcel of land known as Lot V.
For
convenience, the parties subdivided Lot V into a 1.19 acre parcel,
Lot V(a), and a smaller parcel of then-unknown dimensions, Lot
V(b). First United also received an option to purchase a 1.12 acre
parcel, Lot U (“the Optioned Property”).1
1
See Purchase Agreement
The purchase price for Lot V(a) was $1,000,000.00 per
acre. The purchase price for Lot V(b) was $22.96 per square foot.
The purchase price for Lot U was $1,250,000.00 per acre. First
United ultimately paid $1,190,000.00 for Lot V(a), and exercised
its option to purchase Lot U for $1,400,000.00. To date, First
United has not tendered payment for Lot V(b).
2
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
(dkt. no. 71-1).
Closing on the lots was originally scheduled for
May 28, 2004; by agreement, however, the parties extended that date
briefly and closed on June 25, 2004.
Under the Purchase Agreement, Gateway initially agreed to
deliver a pad ready site by October 1, 2005, a deadline the parties
later extended to January 1, 2006.
See First Modification and
Extension to Purchase Agreement (dkt. no. 73-4). The Purchase
Agreement defines the term “pad ready” as follows:
Pad Ready shall mean that a specific parcel of
real estate has been brought to a grade,
compacted to a ninety-five percent (95%)
standard proctor, utilities of adequate size
have been extended to the property line of the
parcel and the road providing access has been
constructed to final grade with stone surface
in place.
Id. at ¶ I(k).
It also contains a “liquidated damages” clause
requiring Gateway to pay $15,000.00 “per month or fractional part
thereof” should it fail to deliver a pad ready site by the
January 1, 2006 deadline.
B.
Id. at ¶ VI(1).
The Escrow Agreement and the Closing on Lots V(a) and U
The closing on Lots V(a) and U took place as scheduled on
June 25, 2004.
The parties, however, chose not to close on Lot
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GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
V(b), agreeing instead to determine its dimensions at a later
time.2
At the closing, First United paid Gateway $723,391.50 in net
proceeds and option money, and $181,820.00 for transfer stamps,
attorney fees, release fees, brokerage fees, and real estate
commission escrow fees.
It also paid the remaining $1,685,726.00
See Escrow
of the purchase price into an escrow account.
Agreement (dkt. no. 71-1).
The
parties’
Escrow
Agreement
authorized
escrow
agents,
Stephen Shuman and George Armistead, to disburse funds from the
Escrow
Account
to
Gateway
upon
its
completion
of
certain
milestones, as follows:
One-third (1/3rd) of the Development
Funds upon the Real Property being brought to
grade and the completion being at a ninetyfive percent (95%) standard proctor or better;
One-third (1/3rd) of the Development
Funds upon all utilities being constructed to
the property line of the Real Property at such
locations as are practicable and reasonable
for [First United] to connect thereto, such
2
At the time the parties executed the Purchase Agreement,
they did not know whether the West Virginia Department of
Transportation, Division of Highways (“WVDOH”), would need portions
of the area under Lot V(b) for the entranceway to the Suncrest
Development. Accordingly, they elected to determine the precise
dimensions of Lot V(b) at a later date.
4
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
utilities shall include but not [sic] limited
to
sanitary
sewer,
water,
natural
gas
telephone, TV cable, electric and storm water
disposal system; [and]
One-third (1/3rd) of the Development
Funds upon the installation or placement of
the
binder
coat
of
asphalt
upon
the
entranceway from the Stewartstown Road to lots
as shown upon the Plans of [Gateway’s]
Project.
Id.
To receive these disbursements, Gateway had to provide the
escrow agents and First United with written certification after
completing each milestone. Id. First United then had fourteen
calendar days to “raise any issues or objections to the terms
contained
in
said
certification
distribution of funds.”
Id.
and
to
the
corresponding
The parties’ agreement contemplated
that all objections would be resolved through arbitration. If First
United did not object within the 14-day time frame, the escrow
agents disbursed funds to Gateway without further direction. During
the course of its relationship with Gateway, First United never
objected to Gateway’s certifications regarding completion of its
milestones, and the escrow agents disbursed funds to Gateway as
contemplated.
5
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
C.
The Installation of the Waterline
Gateway hired Triad Engineering, Inc. (“Triad”) and Kanawha
Stone Company, Inc. (“Kanawha Stone”) to develop a pad ready site
for First United on Lot V(a). See Biafora Dep. 15.
On April 12,
2005, however, David Biafora (“Biafora”), a principal of Gateway,
granted the Morgantown Utility Board (“MUB”) a right-of-way and a
448 foot utility easement across Lot V(a) without first obtaining
First United’s consent.
3
After securing the right-of-way, MUB installed a 16-inch
ductile iron waterline across Lot V(a) but mislaid it approximately
30 feet outside its assigned right-of-way. It is unclear precisely
when MUB installed the waterline, although an authorization form
indicates that the project was complete and in service by September
29, 2005.
See MUB Authorization for Expenditure for Property
Additions and Improvements (dkt. no. 73-12).
Gateway paid MUB $363,555.34 to install the waterline but
denies that it oversaw its installation or authorized MUB to lay
the line outside its assigned right-of-way.
3
See Biafora Dep. 44-
Despite the fact that Gateway had conveyed Lots V(a) and U
to First United on June 25, 2004, Biafora testified during his
deposition that he believed he had the right to grant the right-ofway on April 12, 2005 because the site needed access to water. See
Biafora Dep. 43.
6
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
45, 55. Notwithstanding Biafora’s wrongful
conveyance, First
United later recognized MUB’s right-of-way on February 27, 2009.
D.
Gateway’s Obligation to Deliver a “Pad Ready” Site
Despite the agreed extension of the
delivery date for a pad
ready site on Lot V(a), Gateway failed to deliver the site on time.
In fact, several more months elapsed before Karen L. Krabill
(“Krabill”), a Triad Engineer, sent a letter dated June 5, 2006, to
Lloyd
Decker
(“Decker”),
First
United’s
facilities
manager,
advising that Lots U and V had been compacted with “non-pyritic
fill material,” could be considered pad ready, and were “suitable
for building construction.”
See Letter from Karen L. Krabill to
Lloyd A. Decker (June 5, 2006) (dkt. no. 74-7).
Even after that, however, Triad did not officially certify the
lots as “pad ready . . . complete with utilities” until October 27,
2006, ten months after the agreed delivery time.
See Letter from
Karen L. Krabill to David Biafora (Oct. 27, 2006) (dkt. no. 73-8).
Following that, Gateway certified its completion of the third
milestone, and, without objection from First United, the escrow
agents disbursed the final payment from the Escrow Account to
Gateway on November 2, 2006.
7
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
E.
First United’s Construction of a Branch Bank on Lot V(a)
Although Gateway’s delivery of a pad ready site was ten months
late under the terms of the parties’ Purchase Agreement, nearly two
(2) more years elapsed before First United notified the Federal
Deposit Insurance Corporation (“FDIC”) of its intent to locate a
new branch bank at Suncrest. Although, as a state-chartered bank
and member of the FDIC, First United was required to secure
approval from the FDIC to open a new branch bank location, 12
U.S.C. 1828(d)(1), it never attempted to do so until June 5, 2008.
See Letter from Tonya K. Sturm, Vice President and Director of
Finance, First United Bank & Trust, to Elisa Maislin, Regional
Director, Federal Deposit Insurance Corporation, dated June 5,
2008, stating First United’s intent to operate a new branch at the
Suncrest location effective March 31, 2009 (dkt. no. 77-1). After
receiving First United’s application, the FDIC promptly approved
construction effective July 1, 2008. See Letter from Patricia A.M.
Ford, FDIC Field Supervisor, to Board of Directors, First United
Bank & Trust (June 17, 2008) (dkt. no. 74-9). First United then
broke ground on Lot V(a) on July 28, 2008.
Early in August 2008, however, first United became aware,
through
Commercial
Builders,
the
8
general
contractor
hired
to
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
construct the bank building, that MUB had installed a 16-inch iron
ductile waterline beneath the surface of Lot V(a), and that, due to
the placement of that waterline, the grade of the lot did not allow
adequate clearance for the building. See Letter from Cory L.
Kourtsis to Lloyd Decker (Aug. 14, 2008) (dkt. no. 73-15). After
receiving
this
information,
First
United
ordered
Builders to halt construction on August 14, 2008.
Commercial
Id.
Following that, on August 27, 2008, Bob Hare, a Triad engineer
and First United’s agent, met with representatives of MUB to
discuss the feasibility of either relocating the waterline or
revising the grade of Lot V. See Letter from Bob Hare, Triad
Engineering, to Lloyd Decker (Aug. 29, 2008).
After considering
its options, First United decided to raise Lot V’s elevation by one
(1) foot, see email from Lloyd Decker to Cory Kourtsis (Sept. 19,
2008)
(dkt.
no.
73-17),
a
change
that
added
unanticipated
construction costs and engineering fees to the project.
Also
during
this
time,
on
September
15,
2008,
Gateway
presented First United with a survey establishing that the area of
Lot
V(b)
was
3,730.56
square
feet.
Based
on
the
Purchase
Agreement’s set price of $22.96 per square foot, it demanded
9
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
$85,653.66 in payment for Lot V(b). First United, however, refused
to tender payment to Gateway, and still has not done so.
III.
PROCEDURAL HISTORY
Gateway’s complaint seeks a declaration that, pursuant to the
Purchase Agreement, First United is obligated to purchase Lot
V(b).4
First United’s answer includes counterclaims seeking to
recover both liquidated damages for Gateway’s failure to deliver a
pad ready site by January 1, 2006, and costs and fees incurred to
adjust
the
site
grade
of
Lot
V(a).
First
United
also
seeks
unspecified damages for the alleged diminution in the value of Lot
U caused by Gateway.
IV.
LEGAL STANDARD
Under Fed. R. Civ. P. 56, “summary judgment is proper ‘if the
pleadings, depositions, answers to interrogatories, and admissions
on file, together with the affidavits, if any, show that there is
no genuine issue as to any material fact and that the moving party
is entitled to a judgment as a matter of law.’” Celotex Corp. V.
Catrett, 477 U.S. 317, 322 (1986).
When ruling on a motion for
summary judgment, a court reviews all the evidence in the light
4
Gateway has withdrawn a claim for negligence. See Pl.’s
Resp. in Opp. to Def.’s M.S.J. at 15 n.34 (dkt. no. 74).
10
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
most favorable to the nonmoving party.
Matsushita Elec. Indus.
Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986) (on a motion for
summary judgment, “[t]he evidence of nonmovant is to be believed,
and all justifiable inferences must be drawn in his favor.”
(internal quotation mark omitted)).
V.
A.
DISCUSSION
Gateway’s Declaratory Judgment Claim
The Declaratory Judgment Act authorizes district courts to
“declare the rights and other legal relations of any interested
party seeking such declaration.”
28 U.S.C. § 2201.
In the Fourth
Circuit, “a declaratory judgment action is appropriate ‘when the
judgment will serve a useful purpose in clarifying and settling the
legal relations in issue, and . . . when it will terminate and
afford relief from the uncertainty, insecurity, and controversy
giving rise to the proceeding.’”
Centennial Life Ins. Co. v.
Poston, 88 F.3d 255, 256 (4th Cir. 1996) (citing Aetna Cas. & Sur.
Co. v. Quarles, 92 F.2d 321, 324 (4th Cir. 1937) (internal citation
omitted)).
Here, Gateway seeks a declaration that First United is
obligated to purchase Lot V(b) and that its failure to do so
constitutes a breach of contract.
11
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
First United has consistently maintained that its obligation
to purchase Lot V(b) was contingent on Gateway’s satisfaction of
three conditions precedent in the Purchase Agreement: 1) the
WVDOH’s determination of the extent of its need for the area
comprising Lot V(b); 2) Gateway’s preparation of a “Plat of Survey”
identifying the residue of Lot V(b); and 3) Gateway’s delivery of
a deed conveying the property to First United.
Agreement at 5-7, ¶ IV(b).
always
acknowledged
See Purchase
Throughout this litigation, it has
Gateway’s
satisfaction
of
the
first
two
conditions precedent and conceded its obligation to purchase Lot
V(b) upon Gateway’s delivery of a deed for that lot.
See Def.’s
Resp. Pl.’s M.S.J. at 4 (dkt. no. 75).
Gateway finally delivered a deed on March 14, 2011, following
which, during a hearing on June 1, 2011, First United acknowledged
that Gateway had satisfied the third condition precedent in the
Purchase Agreement. Tellingly, however, it asserted a right to
postpone payment for Lot V(b) under the doctrines of setoff or
recoupment.
Given First United’s acknowledgment of its obligation to
purchase Lot V(b), under the terms of the Purchase Agreement it
became obligated to purchase the lot for $85,653.66 within twenty
12
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
days of receiving “the proposed Deed and Plat of Survey” from
Gateway. See Purchase Agreement at 7, ¶ IV(b). Nevertheless, First
United may be entitled to a setoff of some or all of this amount
should it prevail on its counterclaim for damages resulting from
Gateway’s wrongful conveyance of a right-of-way to MUB, as well as
for any diminution in the value of Lot U resulting from that
conveyance.
F.3d
715,
See FDIC v. Marine Midland Realty Credit Corp., 17
722
(4th
Cir.
1994)
(holding
that
“[s]etoff
is
a
counterclaim arising from an independent claim that the defendant
has against the plaintiff.”).
Thus, the total amount that First
United ultimately may owe Gateway for Lot V(b) is uncertain at this
time and cannot be determined on dispositive motion.
B.
First United’s Counterclaim for Liquidated Damages
First United seeks liquidated damages of $150,000.00.
This
claim rests entirely on Gateway’s undisputed late delivery of Lot
V(a) in pad ready condition. Arguing that this delay was a clear
breach of the parties’ Purchase Agreement, First United claims
entitlement to $15,000.00 in damages for each of the ten months
during which Gateway failed to deliver a pad ready site on Lot
V(a).
13
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
Gateway does not dispute that its late delivery of a pad ready
site violated the terms of the Purchase Agreement but argues that
First United waived its claim to liquidated damages by failing to
object
to
the
final
disbursement
from
the
Escrow
Account.
Alternatively, Gateway contends that the liquidated damages clause
in the Purchase Agreement constitutes an unenforceable penalty
under West Virginia law because First United suffered no actual
damages as a result of its late delivery of the pad ready site.
The Court will address each of these arguments in turn.
1.
First United Did Not Waive its Claim to Liquidated
Damages
In support of its contention that First United waived its
claim to liquidated damages, Gateway relies on the language in
paragraph 4 of the Escrow Agreement requiring First United to
object within fourteen days if it disputed Gateway’s milestone
certification.
See Escrow Agreement at ¶ 4 (dkt. no. 71-1).
As
explained earlier, absent timely objection from First United, the
escrow agents simply disbursed funds to Gateway.
While it is undisputed that First United never objected to any
of Gateway’s milestone certifications, those milestones included
only 1) bringing the lots to grade and properly compacting them, 2)
constructing utilities to the property lines of the lots, and 3)
14
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
installing
a
binder
coat
of
asphalt
on
the
entranceway
to
Stewartsdown Road. Notably, late delivery of a pad ready site was
never subject to objection under the Escrow Agreement. Thus,
Gateway’s argument is unpersuasive.
2.
Enforcement of the “Liquidated Damages” Provision Would
Impose a Penalty in this Case
The more difficult question is whether enforcement of the
liquidated damages clause of the Purchase Agreement would impose a
penalty.
Although
Gateway
has
not
counter-moved
for
summary
judgment on First United’s claim for liquidated damages, it has
argued as a defense to that claim that First United suffered no
actual damages due to the late delivery of a pad ready site on Lot
V(a). Because that defense could potentially dispose of First
United’s claim for liquidated damages, the Court may address the
matter sua sponte on summary judgment. See Fed. R. Civ. P. 56(e),
and Celotex Corp. v. Catrett, 477 U.S. 317, 326 (1986) (recognizing
a district court’s inherent power to enter summary judgment sua
sponte upon giving the losing party notice of its obligation “to
come forward with all of [it]s evidence.”).
In support of its counterclaim, First United asserts that
$15,000.00 per month for each of the ten months Gateway failed to
deliver
a
pad
ready
site
represents
15
the
parties’
fair
and
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
reasonable estimate of the probable loss attributable to Gateway’s
delay. It also contends that the late delivery “necessarily”
delayed its notice to the FDIC for approval to construct a new
branch bank. Affidavits filed by First United supporting its
argument assert that Gateway’s delay also caused it to incur
substantially higher construction costs.
Gateway argues that an award of liquidated damages would
constitute an unenforceable penalty under the facts in this case.
It points out that First United inexplicably delayed seeking FDIC
approval to locate a branch bank at Suncrest for almost two years
following Gateway’s delivery of a pad ready site in October 2006.
In further support, it notes that First United never broke ground
on Lot V(a) until July 2008.
Under West Virginia law, parties may contract for liquidated
damages 1) when damages would be difficult to ascertain “by any
known or safe rule,” or 2) when the “nature of the case and tenor
of
the
agreement”
establish
that
the
parties
calculated
the
liquidated damages through “actual fair estimate and adjustment.”
Syl. Pt. 3, Huntington Eye Associates, Inc. v. LoCascio, 553 S.E.2d
773, 774 (W. Va. 2001) (quoting Syl. Pt. 3, Wheeling Clinic v. Van
Pelt, 453 S.E.2d 603 (1994)); see also Charleston Lumber Co. v.
16
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
Friedman, 61 S.E. 815, 816 (W. Va. 1908).
A liquidated damages
clause, however, may not be enforced when a party’s “actual
damages” are “grossly disproportionate” to the “liquidated damages”
it seeks to recover.
See W. Va. Pub. Employees Ins. Bd. v. Blue
Cross Hospital Service Incorporated, 328 S.E.2d 356, 359 (W. Va.
1985); see also Restatement (Second) of Contracts § 356 cmt. b.
(describing a scenario in which “no loss at all has occurred” as an
“extreme case” in which “a provision fixing a substantial sum as
damages is unenforceable.”).
A reviewing court must look retrospectively to determine
whether a disputed liquidated damages clause would impose a penalty
if enforced.
See Guiliano v. Cleo, Inc., 995 S.W.2d 88, 99 (Tenn.
1999) (recognizing West Virginia as a jurisdiction employing a
“retrospective approach” to evaluating liquidated damages clauses
that requires courts to “not only analyze the estimation of damages
at the time of contract formation, but also address whether the
stipulated sum reasonably relates to the amount of actual damages
caused by the breach.”).
In other words, a liquidated damages
clause might be reasonable and enforceable in theory, but penal and
unenforceable in reality.
See Wetzel County Savings and Loan
Company v. Stern Bros., Inc., 195 S.E.2d 732, 737-38 (W. Va. 1973);
17
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
Horn v. Bowen, 67 S.E.2d 737, 739 (W. Va. 1951); accord Restatement
(Second) of Contracts § 356 cmt. a (1981) (providing that “[t]he
central
objective
behind
the
system
of
contract
remedies
is
compensatory, not punitive”).
Significantly, in West Virginia the party seeking to enforce
a liquidated damages clause bears the burden of proving that such
damages are not a penalty.
See Blue Cross, 328 S.E.2d at 359.
Therefore, it is for First United to establish by a preponderance
of the evidence that the liquidated damages provision it seeks to
enforce is not a penalty.
Id.
There are several reasons why First United cannot meet its
burden. At the outset, it has not established that liquidated
damages of $15,000.00 per month reflect a reasonable approximation
of the probable loss attributable to Gateway’s delay. First United
has not disclosed the methodology by which the parties determined
this figure, nor does the Purchase Agreement provide a basis for
the calculation. Further, it has offered no evidence that Gateway’s
delay caused it to suffer any actual damages. Its briefs merely
recite the bare argument that Gateway delivered a pad ready site
ten months late, “necessarily” delaying the construction of its
branch bank, and that, but for this delay, it would have opened its
18
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
Suncrest branch ten months earlier than it did. Accordingly, it
concludes that it was prevented from earning revenues earlier and
also incurred higher construction costs.
In
support
of
its
argument,
First
United
submitted
declarations and affidavits from Karen Krabill, a retired Triad
engineer, George C. Harne (“Harne”), an architect, and Lloyd
Decker, First United’s facilities manager. These sworn statements,
however, fail to explain why Gateway’s ten-month late delivery of
a pad ready site in October 2006 delayed construction at the
Suncrest location for almost two years.
In her declaration, for example, Krabill candidly admits that
she was not personally involved in the decision about when to begin
construction of the branch bank. She merely opines that, in her
experience, Gateway’s delay would have “necessarily delayed all
other
aspects
of
the
construction
“construction costs rise each year.”
process”
and
notes
that
Krabill Dec. at 2, ¶ 6 (dkt.
no. 88-1).
Harne’s declaration is similarly speculative and vague.
Although he was not “involved in First United’s internal decisionmaking process,” he “believe[s]” Gateway’s late delivery of a pad
ready site “necessarily delayed the design and construction of the
19
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
branch bank by roughly ten months” and that it is “more likely than
not that, but for Gateway’s delay, First United would have started
the design and construction process much earlier.” Harne Dec. at 2,
¶ 6.
He also opines that “construction costs tend to rise over
Id. at 2, ¶ 7.
time.”
Finally, Decker’s affidavit establishes,
unsurprisingly, that, in 2008, the construction costs for First
United’s
Suncrest
branch
bank
were
higher
than
those
for
a
structurally identical building First United built in 2005. Decker
Aff. at 2, ¶ 5.
First
United’s
ultimate
argument,
that
Gateway’s
delay
prevented it from providing earlier notice to the FDIC of its
intent to locate a new branch bank at Suncrest, fails for want of
any evidence that First United actually intended to give such
notice prior to June 2008. Very telling is its total silence about
what construction plans were thwarted or delayed between January 1,
2006,
the
delivery
date
under
the
Purchase
Agreement,
and
October 27, 2006, the date when Gateway actually delivered the pad
ready site. It also fails to explain how such late delivery
necessarily delayed First United’s notice to the FDIC until June,
2008, and its construction until July 28, 2008.
20
First United
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
offers no evidence at all of actual damages, much less of a nexus
between Gateway’s delay and such damages.
Despite numerous opportunities to do so, First United has
failed to establish how Gateway’s ten-month delay proximately
caused it to incur actual damages.
Absent such evidence, it would
be mere speculation to conclude that First United planned to notify
the FDIC of its intent to construct a new branch bank at Suncrest
on or around January 1, 2006, or sometime shortly thereafter, and
incurred actual damages due to Gateway’s ten-month delay.
The
declarations of Krabill, Harne, and Decker shed no light at all on
this issue; absent such evidence, the Court is left to speculate as
to why First United delayed FDIC notice and construction until the
summer of 2008.
favorable
to
5
First
Thus,
even
United,
when
there
viewed
is
no
in
the
evidence
light
on
most
which
a
reasonable factfinder could rely to connect Gateway’s ten-month
5
First United provides no evidence that it actually took any
steps to obtain approval to locate a branch bank at Suncrest
between October 26, 2006 and June 2008. At bottom, it asks this
Court to assume not only that it was prepared to seek FDIC approval
on January 1, 2006, but also that Gateway’s ten-month delay
actually prevented it from notifying the FDIC until June, 2008.
Without evidence that it actually had planned to send notice to the
FDIC in January, 2006, and about what actually caused it to delay
providing such notice until June, 2008, First United’s motion
invites rank speculation.
21
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
delay in delivering a pad ready site on Lot V(a) to actual damages
occasioned by that delay. Enforcement of the liquidated damages
clause in the Purchase Agreement would therefore necessarily impose
a penalty under West Virginia law.
See Syl. Pt. 4, LoCascio, 553
S.E.2d at 775.
C.
First United’s Counterclaim
Engineering Fees
for
Construction
Costs
and
First United also seeks summary judgment on its claim to
recover the additional construction costs and engineering fees it
incurred to accommodate MUB’s waterline. It is undisputed that
after
Biafora,
unauthorized
Gateway’s
right-of-way
principal,
to
MUB,
that
wrongly
conveyed
an
utility
mislaid
the
waterline approximately 30 feet outside its right-of-way, facts not
discovered by First United until August 2008, when its building
contractor advised that the location of the waterline created a
problem with the grade of Lot V(a). Confronted with that situation,
First United revised its construction plans, raised Lot V(a)’s
grade, and incurred an additional $79,345.00 in construction costs
and $3,816.75 in engineering fees.
First United’s motion focuses on Gateway’s wrongful conveyance
of the right-of-way to MUB. It argues that the conveyance breached
22
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
paragraph XIII(a)(v) of the Purchase Agreement, which provides in
pertinent part:
[B]eginning on the date of [the Purchase]
Agreement and continuing until the earlier of
the Closing or the termination of this
Agreement, [Gateway] shall not . . . (v) grant
or transfer any easement, right-of-way, and/or
license on, under, over, across, or through
the Real Property or Optioned Property, or any
part or portion thereof[.]
Purchase Agreement at ¶ XIII(a)(v).
Any
damages
First
United
may
recover
for
this
breach
constitute “special damages” that, unlike general damages, are of
the type that “do not always follow a breach of this particular
character.”
24 Williston on Contracts § 64:12 (4th ed. 2010).
Under West Virginia law, a party may recover special damages to the
extent they “‘may fairly and reasonably be considered as arising
naturally . . . from the breach of the contract itself,’” or to the
extent
the
parties
contemplated
such
damages
as
a
probable
consequence of the contract’s breach at the time of its formation.
Kentucky Fried Chicken of Morgantown, Inc. v. Sellaro, 214 S.E.2d
823, 827 (W. Va. 1975) (quoting 22 Am.Jur.2d, Damages § 56 (1965)
(discussing the holding of Hadley v. Baxendale, 9 Exch. 341, 156
Eng. Reprint 145 (1854))). In other words, the damages sought must
flow directly from the contract breach.
23
See Bowen, 67 S.E.2d at
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
739.
A plaintiff must prove these damages “with reasonable
certainty.” Sellaro, 214 S.E.2d at 828 (citing State ex rel. Mundy
v. Andrews, 19 S.E. 385 (W. Va. 1894)).
Gateway does not
dispute that Biafora lacked the authority to convey a right-of-way
to MUB, but contends that First United implicitly consented to the
conveyance. Failing that, it argues that it was MUB’s misplacement
of the waterline that actually damaged First United, and, in any
case, First United failed to adequately mitigate its damages.
As a threshold matter, there can be no dispute that Gateway’s
wrongful conveyance of the right-of-way to MUB was the cause-infact
of
First
engineering fees.
United’s
additional
construction
costs
and
The primary question therefore is whether First
United’s damages arose naturally as a consequence of Gateway’s
breach.
Sellaro, 214 S.E.2d at 828; Horn, 67 S.E.2d at 739.
Based
on the unambiguous prohibition on any grant of easements or rightsof-way after the closing date in the Purchase Agreement, damages
resulting from First United’s need to adjust its construction plans
due to the placement of the utility line were the direct and
probable consequence of Biafora’s unauthorized conveyance and,
thus, a natural consequence of Gateway’s breach. Nevertheless, as
discussed below, questions of material fact exist as to whether
24
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
First United adequately mitigated its damages when it adjusted its
site grade.
1.
First United Did Not Implicitly Consent to Gateway’s
Conveyance
In order to deliver a pad ready site on Lot V(a), Gateway
needed to extend “utilities of adequate size” to the property lines
of Lots V and U.
See Purchase Agreement at ¶ I(k).
Based on this
requirement, Gateway now contends that, as a matter of necessity,
First United implicitly consented to its conveyance of a right-ofway to MUB.
While the Purchase Agreement required Gateway to ensure that
utilities extended to the property line, it explicitly prohibited
Gateway from unilaterally granting easements or rights-of-way. See
Purchase Agreement at ¶ XIII(a). Thus, the Purchase Agreement
contemplated that Gateway would obtain First United’s consent and
authorization
before
granting
rights-of-way to third parties.
necessary
utility
easements
or
Because there is no evidence that
First United ever granted Gateway authority to convey a right-ofway to MUB, Gateway’s “implicit consent” argument fails.
25
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
2.
MUB’s Installation of the Waterline Outside of the Rightof-Way Does Not Discharge Gateway’s Liability
Gateway also argues that it is not liable for the additional
construction costs and engineering fees First United incurred due
to MUB’s installation of the waterline.
See Biafora Dep. 95, 96.
This fact alone, however, does not discharge Gateway’s liability;
Biafora’s wrongful conveyance of a right-of-way in the first place
clearly
breached
the
Purchase
Agreement
and
makes
Gateway
responsible for damages resulting from MUB’s erroneous installation
of the waterline.
3.
This argument therefore is without merit.
Triad Did Not Serve as First United’s Agent During MUB’s
Installation of the Waterline
Gateway further contends that it is not liable for damages
because Triad actually acted as First United’s agent during MUB’s
installation of the waterline. This argument is belied by Biafora’s
deposition testimony that Gateway hired Triad to serve as its site
engineer to ensure that the site was pad ready.
18.
See Biafora Dep.
The record also suggests that First United never hired Triad
as its engineer until sometime in 2008, well after installation of
the waterline in 2005.
26
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
4.
Whether First United Properly Mitigated its Damages is a
Question of Fact Precluding Summary Judgment
Finally, Gateway argues that, even if it is liable to First
United for additional construction costs and engineering fees,
First United is not entitled to summary judgment because there are
genuine questions of material fact as to whether it properly
mitigated its damages.
have
raised
the
Gateway contends that First United could
block
level
of
the
bank’s
structure,
a
significantly cheaper alternative to raising the grade of Lot V.
In support of its argument, Gateway relies on the testimony of both
Biafora and Kourtsis, the Vice-President of Commercial Builders,
that First United could have mitigated its damages more efficiently
and inexpensively by installing courses of block instead of raising
the grade of the site.
See Biafora Dep. 89; Kourstis Dep. 62-63,
79.
Under West Virginia law, a non-breaching party has a duty to
mitigate
its
damages.
See
Middle-West
Concrete
Forming
and
Equipment Co. v. General Ins. Co., 267 S.E.2d 742, 747 n.8 (W. Va.
1980) (quoting jury instructions with approval); Martin v. Board of
Ed. of Lincoln County, 199 S.E. 887, 889 (W. Va. 1938) (citing
Restatement (First) of Contracts § 336 cmt. 1(d) (1932)).
A
breaching party, thus, may raise a non-breaching party’s failure to
27
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
mitigate his damages as an affirmative defense by establishing that
the
non-breaching
damages.”
party
failed
to
diligently
“minimize
his
Martin, 199 S.E. at 889.
While Gateway’s breach of the Purchase Agreement’s provisions
regarding conveyance of an easement and right-of-way to MUB makes
it liable to First United for damages flowing from that breach,
whether
First
United
adequately
mitigated
its
damages
after
learning of the breach is a question of fact precluding summary
judgment.
When the evidence is viewed in the light most favorable
to Gateway, the nonmoving party, the Court concludes that a
reasonable
jury
could
determine
that
First
United
failed
to
reasonably mitigate its damages when, in lieu of installing courses
of block, it raised the grade of Lot V.
Ultimately, it will be for
a jury to determine whether First United could have mitigated its
damages by using a more cost-effective approach.
VI.
CONCLUSION
For the reasons discussed, the Court GRANTS-IN-PART Gateway’s
motion for summary judgment (dkt. no. 70), and
United’s
motion
for
partial
summary
judgment
DENIES
(dkt.
no.
First
72),
concluding that First United may not pursue its counterclaim for
liquidated damages.
Specifically, it:
28
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
•
GRANTS-IN-PART Gateway’s motion for summary judgment on
its declaratory judgment claim, and DECLARES that First
United is obligated to purchase Lot V(b) from Gateway.
Under the doctrines of setoff and recoupment, however, it
concludes that the precise amount First United must pay
Gateway for the lot cannot be determined until after a
jury resolves what amount First United may recover on its
counterclaims
for
additional
construction
costs
and
engineering fees, and for Gateway’s alleged diminution of
the value of Lot U;
•
DENIES First United’s motion for partial summary judgment
on its counterclaim for liquidated damages because such
damages constitute an unenforceable penalty; and
•
DENIES First United’s motion for partial summary judgment
on
its
counterclaim
engineering fees.
It is so ORDERED.
29
for
construction
costs
and
GATEWAY TOWNE CENTRE V. FIRST UNITED BANK AND TRUST
1:09CV127
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT [DKT. NO. 70],AND DENYING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 72]
The Court directs the Clerk to transmit copies of this Order
to counsel of record.
DATED: September 2, 2011
/s/ Irene M. Keeley
IRENE M. KEELEY
UNITED STATES DISTRICT JUDGE
30
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