United States Home Corp. v. Settlers Crossing, LLC

U.S. HOME CORPORATION

v.SETTLERS CROSSING, LLC, et al.

Civil Action No. DKC 08-1863

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

Date: August 14, 2012

MEMORANDUM OPINION

Several motions to amend pleadings are pending, along with subsidiary and related motions. (ECF Nos. 294, 296, 301, 316, 346, 373, 400, 401, 404, 420). The issues have been briefed, and the court now rules, no hearing being deemed necessary. Local Rule 105.6. For the following reasons, the motion for leave to file a first amended counterclaim filed by Defendant/Counter Claimant iStar Financial, Inc. ("iStar"), will be granted, and all other motions will be denied or denied as moot.

I. Background

A. Factual Background

As necessary to resolve these motions, the background facts are as follows. At the heart of this matter is a complex commercial real estate transaction pursuant to which Plaintiff/Counter Defendant U.S. Home Corporation ("U.S. Home") was to acquire all of the ownership interests of Defendant/Counter Claimant Washington Park Estates, LLC ("WPE"),from Defendant/Counter Claimant Settlers Crossing, LLC ("Settlers Crossing"). Settlers Crossing owns 100% of the membership interests in WPE, and WPE owns or controls approximately 1,250 acres of undeveloped land in Prince George's County, Maryland ("the Property"). Thus, via this transaction, U.S. Home would in effect purchase the Property.

On or about November 15, 2005, U.S. Home entered into an agreement of purchase and sale of membership interests ("the Purchase Agreement") with Settlers Crossing and WPE (collectively, "Sellers") to accomplish the transaction. At the same time, U.S. Home entered into a contract for services ("the Contract for Services") with Defendant/Counter Claimant Bevard Development Company ("Bevard") pursuant to which Bevard was obligated to obtain certain approvals and entitlements in connection with the development of the Property. On or about December 2, 2005, Defendant Steven B. Sandler, a principal and member of Settlers Crossing, entered into two guaranties, which established him as the guarantor for any refund of the $16 million and $4 million deposits paid by U.S. Home under the Purchase Agreement and the Contract for Services, respectively.

In a March 29, 2007, letter, Settlers Crossing stated that all conditions precedent in the Purchase Agreement were satisfied. U.S. Home disagreed, and the next day, it sent a "Notice of Termination to Seller" to terminate the PurchaseAgreement based on Sellers' failure to satisfy conditions precedent related to government approvals.¹ Negotiations followed. On or about May 16, 2007, the parties entered into a "Second Amendment" to the Purchase Agreement,² which, among other items, reaffirmed the existing representations and warranties of Sellers, reflected Sellers' new obligations regarding government approvals, evidenced the resolution of certain zoning appeals, and showed a lower purchase price. The Second Amendment also reset the initial settlement date to December 5, 2007, and the outside settlement date to March 15, 2009.

In June 2007, iStar made a $100 million loan to Sellers and Bevard. As security, Sellers and Bevard assigned certain rights under the Purchase Agreement and the Contract for Services to iStar. On or about June 19, 2007, in response to a request by Defendants, U.S. Home executed a consent and estoppel agreement ("the Consent") acknowledging and accepting this assignment of rights.

Shortly before the initial settlement date, U.S. Home sent a letter to Sellers stating that Sellers had again failed to satisfy certain conditions precedent, including but not limitedto certain off-site easements. In response to a request by Sellers to identify the particular off-site easements at issue, U.S. Home sent another letter on November 27, 2007. In that letter, U.S. Home listed the off-site easements in question, and it also demanded that Sellers provide written confirmation and evidence of their satisfaction of all conditions precedent. Sellers did not respond to the November 27, 2007, letter, and settlement did not occur as initially scheduled on December 5, 2007.³

Around January 3, 2008, U.S. Home expressed concerns about the environmental condition of the Property and therefore requested an opportunity to inspect it as provided for under the Purchase Agreement. U.S. Home renewed its request on March 7, 2008. On March 14, 2008, Sellers rejected U.S. Home's request to inspect the Property. In an April 28, 2008, letter, Sellers asserted that all conditions precedent were satisfied and called for settlement to occur at the end of May. On May 16, 2008,U.S. Home informed Sellers that Sellers were in default because Sellers continued to refuse access to the Property for inspection as U.S. Home had previously requested on multiple occasions. U.S. Home followed up a week later with a letter asserting that it was not obligated to proceed with settlement. Because settlement did not occur at the end of May as Sellers requested, Sellers sent a notice of default to U.S. Home. On July 3, 2008, U.S. Home sent a notice of termination to Defendants based upon their failure to permit U.S. Home to access the Property for inspection.

According to U.S. Home, Sellers still failed to satisfy all conditions precedent to the Purchase Agreement as of March 15, 2009, the outside closing date. Subsequent to that date, U.S. Home sent a second notice of termination on April 8, 2009, to make clear that, in the event its earlier notice was not effective or the Purchase Agreement did not expire automatically, Sellers' failure to satisfy the conditions precedent constituted yet another basis for termination.

B. Procedural Background

On July 17, 2008, U.S. Home filed a complaint in this court against Settlers Crossing, WPE, Bevard, Mr. Sandler, and iStar, alleging various claims for breach of contract and declaratory judgment. The parties cross-moved for summary judgment (ECF Nos. 14, 32), and the court denied both motions (ECF Nos. 41,42). After obtaining leave, U.S. Home subsequently filed an amended complaint on May 18, 2009. (ECF No. 52). The amended complaint contains seven counts: (1) breach of contract against Sellers; (2) breach of contract against Bevard; (3) breach of guaranty against Mr. Sandler; (4) fraudulent inducement against Sellers; (5) fraudulent concealment against Sellers; (6) "breach of environmental representations and warranties" against Sellers; and (7) declaratory judgment against all Defendants. On June 30, 2009, all Defendants answered the amended complaint. (ECF Nos. 64, 65). That same day, certain of the Defendants filed a joint three-count counterclaim against U.S. Home and Counter Defendant Lennar Corporation ("Lennar") (collectively, "Plaintiffs/Counter Defendants"),⁴ seeking a declaratory judgment and specific performance. (ECF No. 66).⁵ Plaintiffs/Counter Defendants answered the counterclaim on March 26, 2010. (ECF No. 99).

A scheduling order was entered on July 15, 2009. (ECF No. 69). The scheduling order originally set the deadline for the amendment of pleadings as August 31, 2009, and the deadline for the close of discovery as January 15, 2010. The deadline forthe close of discovery has been extended numerous times. It is currently set for October 1, 2012. (ECF No. 432).

The following motions have now been filed: Plaintiffs/Counter Defendants filed a motion for leave to amend their pleadings (ECF No. 346); a motion for leave to file supplemental memorandum in support of their motion for leave to amend their pleadings (ECF No. 401); and two motions to seal (ECF Nos. 373, 400). iStar filed a motion for sanctions (ECF No. 404), as well as a motion for leave to file first amended counterclaim (ECF No. 294). Plaintiffs/Counter Defendants filed a motion to strike iStar's proposed first amended counterclaim insofar as it incorporates information from a privileged document, to seal the part of a brief filed by iStar that includes such information, to stay resolution of iStar's motion for leave to amend, and to award attorneys' fees and costs ("omnibus motion") (ECF No. 301). The respective parties filed two additional motions to seal related to the counterclaim briefing. (ECF Nos. 296, 316). Finally, U.S. Home filed a motion for extension of time to file objections to the Magistrate Judge's June 18, 2012, order. (ECF No. 420).

II. Motions for Leave to Amend Pleadings

Pursuant to Federal Rule of Civil Procedure 15(a)(2), the court should "freely give leave" to amend pleadings "when justice so requires." Fed.R.Civ.P. 15(a)(2). There is animportant complication here, however: the scheduling order set a deadline of August 31, 2009, for the amendment of pleadings, and that deadline has long since passed. While the scheduling order has been modified numerous times, the deadline for the amendment of pleadings has not been altered. In consequence, the parties must do more than satisfy the liberal standard of Rule 15(a), they must first meet the mandates of Rule 16(b)(4), which calls for "good cause" to change a scheduling order. See Nourison Rug Corp. v. Parvizian, 535 F.3d 295, 298-99 (4th Cir. 2008); see also Wilson v. Appalachian Power Co., No. 3:10-0445, 2011 WL 221656, at *1 (S.D.W.Va. Jan. 24, 2011) (applying two-step test employing Rules 16(b) and 15(a) in analyzing untimely motion for leave to amend); Rassoull v. Maximus, Inc. , 209 F.R.D. 372, 373 (D.Md. 2002) (same).

Rule 16(b) focuses on the timeliness of the proposed amendment and the reasons behind its tardy submission. Rassoull, 209 F.R.D. at 374. In particular, Rule 16(b) requires the movant to show that it acted diligently. Id. The court also considers whether the non-moving party could be prejudiced by the delay, the length of the delay, and whether the movant acted in good faith. Tawwaab v. Va. Linen Serv., Inc. , 729 F.Supp.2d 757, 768-69 (D.Md. 2010). All in all, the dictates of Rule 16(b) are not to be taken lightly. See Potomac...