In re Summit II, LLC

1

In re: Summit II, LLC, Debtor.

No. 8:22-bk-03844-RCT

United States Bankruptcy Court, M.D. Florida, Tampa Division

May 4, 2023

Chapter 11, Subchapter V

MEMORANDUM DECISION AND ORDER GRANTING MOTION TO ASSUME LAND PURCHASE CONTRACT AS MODIFIED

Before the Court, following a two-day joint trial, are Debtor Summit II, LLC's Motion to Approve and Assume the Land Purchase Contract as Modified by the First and Second Amendments By and Between the Debtor and Harry and Janet Denlinger (Doc. 20) (the "Motion to Assume") the opposition to the Motion to Assume (Doc. 35) filed by Janet L. and Harry R. Denlinger (the "Denlingers") the Denlingers' adversary complaint seeking declaratory relief (Adv. No. 8:22-ap-00193-RCT (the "Adversary"), Doc. 3-4) (the "Complaint");^[1] and the Answer, Affirmative Defenses and Counterclaim filed by Debtor (Adversary Doc. 12) and the Answer, Affirmative Defenses and Counterclaim filed by D.R Horton, Inc. ("D.R. Horton") (Adversary Doc. 3-18) (together, the "Counterclaims"). At the start of the joint trial, the Court granted the Denlingers' ore tenus motion to bifurcate issues of Debtor's damages, if any. Accordingly, trial proceeded on the factual questions central to resolution of the Motion to Assume, the Complaint, and the Counterclaims, namely:

(1)whether the Land Purchase Contract Between the Denlingers and D.R. Horton dated November 18, 2020, as modified by the first amendment dated January 12, 2021, and second amendment dated May 3, 2021 (collectively, the "Land Contract")^[2] remains valid and enforceable or whether it expired according to its terms;

(2)if the Land Contract remains valid and is executory, whether it was properly assigned to Debtor such that Debtor might assume the Land Contract in its Subchapter V case;^[3] and

(3)which party breached the Land Contract in failing to close on the real property.

At trial, the Court heard testimony from Dr. Douglas Weiland, Debtor's managing member, Mr. John Snyder, D.R. Horton's Vice President of Land, Jacob T. Cremer, Esq., Debtor's land use attorney, and Dr. J. Michael Shea, the Denlingers' attorney. The Court also received into evidence numerous documents^[4] and had before it the parties' Amended Joint Stipulation of Undisputed Facts.^[5] The parties submitted their closing arguments by written brief.^[6]

Having considered the parties' closing briefs together with the record and the evidence adduced at trial, the Court sets forth below its findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.^[7]

Jurisdiction

This Court has jurisdiction over these matters pursuant to 28 U.S.C. §§ 157(a), 1334(b) and 1452. The Motion to Assume is a "core" proceeding pursuant to § 157(b)(2)(A) and (O).

Facts

Debtor Summit II, LLC, which was formed in early February 2021, is in the business of buying and developing real estate. Debtor was formed specifically to purchase and thereafter develop an approximate 170-acre property in Pasco County, Florida, now annexed into Dade City, Florida, from Harry and Janet Denlinger (the "Denlinger Property").^[8] Debtor seeks to acquire the Denlinger Property to develop it into a 418-lot residential subdivision and to sell the developed lots to D.R. Horton, who will then construct homes on the lots.

On November 18, 2020, the Denlingers and D.R. Horton executed a Land Purchase Contract for the sale of the Denlinger Property to D.R. Horton for $2,856,000 (the "Main Contract").^[9] The Main Contract was negotiated by and between the Denlingers, through counsel, and D.R. Horton and was based upon basic terms set forth in a Letter of Intent dated September 18, 2020 (the "LOI"). The LOI provides that D.R. Horton would have the right to assign the contemplated purchase agreement; no restrictions upon that right are indicated.^[10] Paragraph 18(k) of the Main Contract affirms this unqualified right providing, in relevant part:

This Contract shall be binding upon and shall inure to the benefit of Seller and Buyer, their respective heirs successors, legal representatives and permitted assigns. Buyer may assign its rights and obligations hereunder. . . . Seller may not assign its rights and obligations hereunder without the prior written consent of Buyer, which shall not be unreasonably withheld. . . .^[11]

The Main Contract also grants D.R. Horton the right, in its sole and absolute discretion, to pursue governmental land use entitlements for the Denlinger Property, such as rezoning, annexation, and site plan approvals.^[12] The Denlingers are obligated to execute applications and to cooperate with D.R. Horton's efforts to obtain any such governmental approvals for the property preclosing.^[13] Additionally, the Main Contract contains a separate mutual cooperation clause.^[14] The full text of these provisions is as follows:

[5]b. Pursuit of Approvals. Buyer shall have the right to pursue from all applicable governmental authorities having jurisdiction over the Property, including, without limitation, Pasco County, Florida and the State of Florida (and their respective agencies) (collectively and as applicable, the "Governing Jurisdiction") all final, non-appealable site plan approvals, annexation approvals (including, without limitation, the annexation of the Property into Dade City, Florida), construction plan approvals, zoning approvals, variances, land disturbance permits, building permits, wetland permits, curb cut approvals, and other Federal, State and municipal approvals and permits that Buyer deems, in its sole absolute discretion, necessary or desirable for the development of the Property as intended by Buyer (collectively the "Approvals"). In connection with Buyer's applications for and efforts to obtain the Approvals, Seller shall cooperate with Buyer's effort and shall execute such applications and take such actions as are reasonably requested by Buyer. Buyer's pursuit of the Approvals shall be at Buyer's sole cost and expense.

[5]c. Mutual Cooperation. Seller and Buyer will each cooperate with each other, their employees, and agents, in a reasonable and timely fashion in the execution of such documents and instruments as may be required to effectuate the transaction herein envisioned and to facilitate the purpose and intent of this Contract.

The Main Contract provides for notice and cure rights in the event of a default.^[15]Specifically, the non-defaulting party is obligated to provide the defaulting party notice "specifying in reasonable detail the nature of the default."^[16] The defaulting party thereafter has forty-five days to cure. A timely cure assures the defaulting party that it will not incur liability to the non-defaulting party for the default. Echoing the mutual cooperation provision above, the notice and cure provision requires that "[e]ach party shall reasonably cooperate with any and all attempts by the other to cure any default with the Cure Period."^[17] The notice and cure provision does not carve out any particular default from falling within its scope.

The Main Contract also includes a "time is of the essence" provision. The provision applies "in the occurrence of all events, the satisfaction of all conditions and the performance of all obligations hereunder."^[18]

The Denlingers and D.R. Horton subsequently executed two amendments to the Main Contract: a First Amendment to Land Purchase Contract, dated January 12, 2021 (the "First Amendment") and a Second Amendment to Land Purchase Contract, dated May 3, 2021 (the "Second Amendment").^[19] The First Amendment provides, inter alia, for changes to the provisions governing the earnest money deposit and extends the timeline for closing. The Second Amendment increases the purchase price to $2,906,000 and further alters the timeline for closing. With regard to the closing, the Second Amendment provides:

Closing shall be held on or before the date that is five (5) business days after Buyer has secured final, non-appealable approvals from the Governing Jurisdiction for Buyer's pending applications for annexation of the Property into Dade City, Florida and a comprehensive plan and rezoning of the Property; provided that Closing must take place on a Tuesday, Wednesday or Thursday that is a business day (a "Permitted Closing Day") and may be extended no more than an additional five (5) days in order to be scheduled on one of those days of the week. Closing shall be held at a time, date and location designated by Buyer.

Both the First and Second Amendments provide that the amendment is not enforceable as to D.R. Horton absent written corporate ratification thereof.^[20] But unlike the Main Contract, which requires corporate ratification by D.R. Horton within thirty days, neither amendment provides a deadline by which corporate ratification is required.^[21]

In both the First and Second Amendments, the Denlingers ratify the Main Contract, as amended, and confirm that the agreement "continue[s] in full force and effect."^[22]

On June 11, 2021, D.R. Horton ratified the First and Second Amendments. On that same date, D.R. Horton also ratified an Assignment and Assumption of Land Purchase Contract, wherein D.R. Horton assigns the Land Contract to the Debtor (the "Assignment"),^[23] and a Lot Purchase Agreement, wherein Debtor contracts to sell 418 residential lots, which it planned to develop on the Denlinger Property, to D.R. Horton for $31,350,000 (before escalations) (the "Lot Sale Contract").^[24] Though it includes mutual indemnification provisions, the Assignment does not purport to extinguish any potential liability of D.R. Horton to the Denlingers on the Land Contract.

On July 13, 2021, at a final public hearing, the Dade City Council i.e., the "Governing Jurisdiction," approved D.R. Horton...