Opinion

Storco, LLC v. 851 Alexis, LLC

Court: District Court, N.D. Ohio
Filed: Jul 17, 2024
Cited by: 0 cases
Authority: More cited than 31.7%

“[E]ven if time was not of the essence in a contract for the sale of realty, as originally made, it may be made so by the subsequent conduct of the parties.”

How later courts described this case

“[E]ven if time was not of the essence in a contract for the sale of realty, as originally made, it may be made so by the subsequent conduct of the parties.”

Written by the judges who cited it.

The opinion

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF OHIO

WESTERN DIVISION

STORCO, LLC, CASE NO. 3:23 CV 652

Plaintiff,

v. JUDGE JAMES R. KNEPP II

851 ALEXIS LLC,

MEMORANDUM OPINION AND

Defendant. ORDER

INTRODUCTION

Currently pending before the Court is Defendant 851 Alexis LLC’s Motion for Summary

Judgment (Doc. 15). Defendant moves for judgment in its favor on the breach of contract claim

asserted in its counterclaim (Doc. 8), and the breach of contract claim brought by Plaintiff StorCo,

LLC. (Doc. 1). Plaintiff opposed (Doc. 25), and Defendant replied (Doc. 26). Jurisdiction is proper

under 28 U.S.C. § 1332. For the following reasons, the Court denies 851 Alexis’s Motion.

BACKGROUND

Viewed in the light most favorable to StorCo, the available evidence demonstrates the

following facts.

The Purchase and Sale Agreement

On May 9, 2022, James Reid, the president of StorCo, LLC (“StorCo”), entered into a

Purchase and Sale Agreement (the “PSA”) with 851 Alexis LLC (“851 Alexis”), to purchase 851

West Alexis Road in Toledo, Ohio (the “Property”). (Doc. 25-1, at ¶ 3); see also Doc. 20. StorCo

planned to use the Property as a self-storage facility. (Doc. 25-1, at ¶ 4). During the purchase

process, StorCo primarily dealt with Matthew DeWood, a member of 851 Alexis. (Doc. 17, at ¶

2). The purchase price was $3.2 million with a deposit of $175,000 to be held in escrow with

Midland Title and Escrow Ltd. (Doc. 20, at §§ 3,6). The PSA contained the following language:

3. Deposit:

a. Within five (5) Business Days following the Effective Date, Buyer shall

deposit with Midland Title and Escrow Ltd., 401 Adams Street, Toledo,

Ohio 43604 (the “Title Company”) the sum of One Hundred Seventy Five

Thousand and 00/100 Dollars ($175,000.00) (together with any interest

earned thereon, the “Initial Deposit” and, collectively with any additional

deposits made as contemplated herein, the “Deposit”).

b. Except as otherwise described in this Agreement, the Title Company shall

retain the Deposit until the Closing occurs, in which case the Deposit shall

be applied to the Purchase Price and delivered to Seller. The Deposit is fully

refundable to Buyer if Buyer terminates this Agreement prior to the end of

the Inspection Period. If Buyer does not terminate this Agreement prior to

the end of the Inspection Period, the Deposit shall be deemed non-

refundable and be payable to Seller, except in the event of a Seller default.

Id. at § 3.

4. Inspection Period: Buyer may conduct any and all inspections, investigations,

surveys, studies, testing, analysis, and assessments, all as more particularly

described in this Section 4.

a. Inspection Period Timing: The “Inspection Period” will commence on

the Effective Date and shall end forty five (45) days thereafter unless

otherwise extended as provided herein. If prior to the end of the

Inspection Period Buyer has notified Seller that Buyer is not satisfied

with the Property, for any reason or no reason, this Agreement shall be

deemed terminated as of the expiration of the Inspection Period, or the

date of Buyer’s notification, whichever is earlier, and the Title Company

shall return the Deposit to Buyer. If Buyer has not notified Seller that

Buyer is not satisfied with the Property prior to the end of the Inspection

Period, then Buyer shall be deemed to have found the Property

acceptable, the Deposit shall be deemed non-refundable and be payable

to Seller (except in the event of a Seller default) and the parties shall

proceed to closing.

b. Extension of Inspection Period: Buyer shall have the right to extend

the Inspection Period for an additional 30-day period, by providing

Seller written notice thereof prior to the end of the Inspection Period

and by depositing with the Title Company Twenty Thousand and 00/100

Dollars ($20,000.00) for such extension. Any amount so deposited,

together with the Initial Deposit of $175,000 shall be considered a

portion of the Deposit and shall automatically be deemed non-

refundable and shall either be applied against the Purchase Price at

Closing or be payable to Seller as provided for herein, except in the

event of a Seller default.

Id. at § 4 (emphasis added).

8. Notices: All notices, consents, requests, demands, and other communications

hereunder are to be in writing and are deemed to have been duly given or made: (a)

when delivered in person; (b) three (3) days after deposited in the United States

mail, first class postage prepaid; (c) in the case of overnight courier services, one

(1) Business Day after delivery to the overnight courier service with payment

provided for; or (d) when delivered by electronic mail, in each case addressed to

the recipient at their address set forth in Section 1 or to such other address as any

party may designate by written notice to the other party in accordance with the

terms of this Section[.]

Id. at § 8.

14. Default; Remedies: In the event Buyer or Seller shall become in default of any

material term or condition of this Agreement (other than the failure or refusal to

close upon the Closing Date as to which no notice or cure rights shall exist), then

prior to either party exercising its rights or remedies permitted under this

Agreement, the party claiming such default (“Non-Defaulting Party”), shall notify

the other party (“Defaulting Party”) in writing, setting forth in reasonable detail

the nature of such default. The Defaulting Party shall then have five (5) Business

Days after receipt of such notice in which to cure such default. In the event of an

uncured default by Seller under this Agreement prior to Closing, Buyer may either

(a) terminate this Agreement and receive the return of the Deposit and seek

reimbursement for Buyer’s actual out of pocket due diligence expenses incurred up

to $20,000, or (b) seek specific performance of Seller’s obligations hereunder. In

the event of material breach of Seller’s representations and warranties under

Section 9 of this Agreement after Closing but prior to the expiration of the Survival

Period, then, after five (5) Business Days’ notice to Seller and opportunity to cure,

Buyer may seek an action against Seller for Buyer’s actual, out of pocket losses

incurred as a result of such Seller breach. Said Buyer right of action under the

immediately preceding sentence shall automatically terminate without execution of

any further instruments upon the expiration of the Survival Period.

If Buyer shall default in the payment of the Purchase Price or in the event

of any other uncured default by Buyer hereunder, then, except as otherwise

expressly provided for herein, Seller’s sole and exclusive remedy for Buyer’s

default shall be to retain the Deposit as liquidated damages, it being agreed that the

damages by reason of Buyer’s default are difficult, if not impossible, to ascertain,

and whereupon this Agreement will terminate and Buyer and Seller shall have no

further rights or obligations under this Agreement except for those that are

expressly provided in this Agreement to survive the termination hereof.

Id. at § 14.

The Operation and Easement Agreement Warehouse Prohibition

The property at issue was subject to an Operation and Easement Agreement (“OEA”) that

prohibited the property from being used as a warehouse. Consequently, before StorCo could use

the Property as a storage warehouse, it needed to obtain an amendment from the adjacent property

owners to lift this restriction. (Doc 25-1. at ¶ 5) (the “OEA Amendment”). These owners, as

recorded in the OEA with Lucas County, include Kroger Co. as to Lots 1 & 6, McDonald’s Corp.

as to Lots 2 & 3, Dayton Hudson Corp. (a/k/a Target) as to Lot 4, PDQ Israel Family Northtowne

LLC as to Lot 5, and 851 Alexis LLC (Defendant) as to Lot 7. (Doc. 21, at 4) (hereinafter the

“Owners”).

The First Amendment to the Purchase and Sale Agreement

On June 23, 2022, the parties executed a First Amendment to extend the inspection period

to allow StorCo to continue to seek permission from the Owners to remove the warehouse

prohibition until September 21, 2022, at 5:00 p.m. (Doc. 25-1, at ¶¶ 6-7; Doc. 21, at § 2a). The

First Amendment contains the following clause:

WHEREAS, Buyer has requested to amend the Agreement for Buyer to seek all of

the current parties (i.e., all of the owners of property within the North Towne

Commons Shopping Center listed on attached Exhibit “A” (the “Owners”)) to the

Operation and Easement Agreement recorded as Deed Record 89-0138-A04 in the

Lucas County, Recorders Office. (the “OEA”) to execute a recordable written

amendment to the OEA (the “OEA Amendment”) to remove the “warehouse

operation” prohibition under Section 5.1(B)(ii) and expressly allow for the

operation of the Property for use as a mini-warehouse (self-storage facility)

operation (the “OEA Condition”), and Seller is agreeable to such Buyer action

under the following terms and conditions set forth below.

(Doc. 21, at 1).

2. Amendment. The Agreement is hereby amended as follows:

a. Notwithstanding anything contained in the Agreement to the contrary,

as used in the Agreement and any exhibit thereto, the term “Inspection

Period” shall have the following meaning: a period commencing on the

Effective Date and expiring at 5:00 p.m. Eastern on Wednesday,

September 21, 2022, provided, however, the Inspection Period is

extended for the sole and exclusive purpose for Buyer, at its sole cost

and expense, to seek satisfaction of the OEA Condition from the

Owners. Buyer hereby expressly waives ANY AND ALL OTHER

due diligence rights, conditions and contingencies under the

Agreement, including, without limitation, inspection rights, rights

of investigations, studies and testing, financing contingencies,

zoning maters, other third-party approvals and consents, title

matters, survey matters and environmental matters.

Id. at § 2 (emphasis added). StorCo agreed to release $5,000 from escrow upon executing the

First Amendment. Id. at § 2(b).

The Third Amendment to the Purchase and Sale Agreement1

On September 21, 2022, the parties executed a Third Amendment to the PSA to extend the

Inspection Period to continue to seek permission to remove the warehouse prohibition until

December 20, 2022, at 5:00 p.m. (Doc. 25-1, at ¶ 7; Doc. 23, at 1). It contains the following:

a. Notwithstanding anything contained in the Agreement to the contrary as used in

the Agreement and any exhibit thereto, the term “Inspection Period” shall have

the following meaning: a period commencing on the Effective Date and expiring

at 5:00 o’clock p.m. Eastern on Tuesday, December 20, 2022, provided, however,

the Inspection Period is extended for the sole and exclusive purpose for Buyer, at

its sole cost and expense, to seek satisfaction of the O.E.A. Condition from the

Owners.

***

c. Notwithstanding anything contained in the Agreement to the contrary, as used in

the Agreement, and any exhibit thereto, the term, the term (sic) “Closing Date”

shall mean the date that is the earlier of: (i) fifteen (15) days following the date the

O.E.A. Amendment is recorded in the Office of the Lucas County Recorder of

Deeds; or (ii) Friday, December 30, 2022.

1. On July 21, 2022, the Parties executed a Second Amendment to the PSA to allow 851 Alexis to

temporarily lease the Property to Spirit Halloween prior to the anticipated closing.

d. The O.E.A. Amendment shall be prepared by Buyer, at Buyer’s sole cost, and

submitted to Seller for Seller’s reasonable review and approval. Buyer shall

diligently seek to secure the original, notarized signatures of the parties listed on

the attached Exhibit “A” and keep Seller apprised of its efforts to do the same. Upon

receipt of a fully executed and notarized O.E.A. Amendment, Buyer’s counsel shall

provide the original to Seller’s counsel for recording with the Lucas County

Recorder of Deeds.

(Doc. 23 at § 2).

Similarly to the First Amendment, StorCo agreed to disburse $5,000 to 851 Alexis upon

execution of the Third Amendment. Id. at § 2(b). 851 Alexis asserts it never received this second

payment authorized by the Third Amendment. (Doc. 17, at ¶ 4).

OEA Negotiations

DeWood states StorCo’s broker told him “all of the OEA owners had agreed to the

amendment but that one or two had demanded compensation and the cost to obtain their consent

was around $500,000.00.” (Doc. 26-1, at ¶ 5); (DeWood Depo., at 69).2 The evidence shows

StorCo received financial demands from Target ($400,000) and Kroger ($75,000), and both

demanded a reduction in the parking lot ratio to waive the warehouse prohibition. (Doc. 25-1, at

¶¶ 10-12). Reid, acting on behalf of StorCo, never accepted either proposal. Id. at ¶ 13. 851 Alexis

offered to reduce the purchase price from $3.2 million to $2.7 million to offset the Owners’

demands. Id. at ¶ 15. StorCo offered $2.3 million, which 851 Alexis did not accept. Id. at ¶ 16.

On December 14, 2022, Tim McFarland, StorCo’s real estate agent, emailed Duke

Wheeler, 851 Alexis’s real estate agent, concerning the OEA Amendment. See Doc. 16. In the

email, McFarland attached a copy of the Third Amendment and stated:

Seller has already reviewed and approved the initial draft of the OEA Amendment

so to the extent they no longer have a copy, see attached. The basic terms of the

negotiated concessions are; reduce parking to 3.5 per 1000 sq. ft.; increase Target

2. Matthew DeWood’s deposition is located at ECF Doc. 24.

allowable building size; and allow mini-warehouse use on Lot 7. We can provide

them with a revised draft with those negotiation concessions after a PSA

amendment is executed.

Drafting the amendment won’t take long. We could have that ready in the next day

or two. Circulating may take some time especially for Target and Kroger. To be

safe, I think we’d need about 45-60 days to secure the execution and return of the

OEA Amendment from the various parties, but with the holidays coming up, it

almost would be better if we could get the 45-60 days to start on January 3, it being

the first business day of the new year.

(Doc. 16, at 4).

Termination of the PSA

StorCo attaches an Affidavit of Tim McFarland, StorCo’s real estate agent, that avers:

“Between the evening of December 19, 2022, and 11:45 a.m. on December 20, 2022, I informed

Duke Wheeler over the phone that StorCo was terminating the Purchase and Sale Agreement.”

(Doc. 25-2 at ¶ 10). He further states, “At 5:10 p.m. on December 20, 2022, I emailed a Notice of

Termination to Duke Wheeler, as StorCo could not obtain an agreement from all Owners that were

parties to the OEA to waive the prohibition against warehouses.” Id. at ¶ 11. The email reads:

“This communication represents [StorCo]’s timely notice that [StorCo] hereby exercises its right

to terminate the Agreement. Such termination shall be and hereby is effective immediately.” (Doc.

16, at 6). Wheeler then asked McFarland to forward the contact information for the Owners’

representatives who were parties to the OEA in case DeWood “may decide to finalize the self

storage matter on his own.” (Doc. 25-2, at 4). Wheeler then forwarded McFarland’s email and

notice of cancellation to DeWood at 5:16 p.m. (Doc. 16, at ¶ 5).

STANDARD OF REVIEW

Summary judgment is appropriate where there is “no genuine issue as to any material fact”

and “the moving party is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). When

considering a motion for summary judgment, the Court must draw all inferences from the record

in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio

Corp., 475 U.S. 574, 587 (1986). The Court is not permitted to weigh the evidence or determine

the truth of any matter in dispute; rather, the Court determines only whether the case contains

sufficient evidence from which a jury could reasonably find for the nonmoving party. Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). The moving party bears the burden of proof.

Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).

This burden “may be discharged by ‘showing’ – that is, pointing out to the district court –

that there is an absence of evidence to support the nonmoving party’s case.” Id. The nonmoving

party must go beyond the pleadings and “present affirmative evidence in order to defeat a properly

supported motion for summary judgment.” Anderson, 477 U.S. at 257. Further, the nonmoving

party has an affirmative duty to direct the Court’s attention to those specific portions of the record

upon which it seeks to rely to create a genuine issue of material fact. See Fed R. Civ. P. 56(c)(3)

(noting the court “need consider only the cited materials”).

DISCUSSION

851 Alexis argues it is entitled to summary judgment on two independent grounds: (1)

StorCo’s notice of cancellation was not timely nor in the manner required by the PSA, and (2)

StorCo no longer had a right to terminate at the time of its purported termination. StorCo asserts

851 Alexis’s motion should be denied because (1) StorCo substantially complied with the notice

of termination, (2) StorCo could still terminate for “any reason or no reason”, and (3) the OEA

Amendment was never satisfied. For the reasons below, the Court denies 851 Alexis’s motion for

summary judgment. The Court finds that (1) StorCo substantially complied with the termination

requirements and (2) ambiguity exists regarding StorCo’s termination rights.

Substantial Compliance

851 Alexis asserts StorCo waived any termination right when it sent the cancellation notice

(1) ten to sixteen minutes after the December 20, 2022, 5:00 p.m. deadline set by the Third

Amendment and (2) to 851 Alexis’s real estate agent, rather than to 851 Alexis and its counsel, as

required by the PSA. (Doc. 15, at 13-14). StorCo argues it substantially complied with the notice

requirements when it informed 851 Alexis’s representative of the termination during a phone

conversation prior to the deadline, followed by sending written notice only ten to sixteen minutes

after the deadline. (Doc. 25, at 8). Moreover, StorCo argues that time was not of the essence and

that 851 Alexis did not incur any damages due to the late notice. Id. at 15.

Substantial compliance is a concept that allows a party to enforce a contract where

the party seeking enforcement has substantially complied with its terms. A nominal

or trifling breach is excused. However, where the performance of a term is essential

to the purpose of the contract, a default of that term is not excusable no matter how

trifling.

Sims v. Anderson, 38 N.E.3d 1123, 1129 (Ohio Ct. App. 2015). Where a contract has been

substantially performed, the contract price may be recovered, less damages for failure to perform

strictly in compliance with the contract. Corry v. Campbell, 25 Ohio St. 134 (1874), Creith

Lumber, Inc. v. Cummins, 163 Ohio St. 264 (1955). For the doctrine of substantial performance to

apply, the unperformed duties must not destroy the value or purpose of the contract. Fifth Third

Bank v. Ducru Ltd. Partnership, 2006-Ohio-3944, ¶ 18 (Ohio Ct. App.).3

As to notice, the PSA requires the following:

3. Ohio courts treat substantial compliance and substantial performance synonymously.

“‘[S]ubstantial compliance,’ synonymous with the term ‘substantial performance,’ is defined as,

‘[t]he rule that if a good-faith attempt to perform does not precisely meet the terms of an agreement

or statutory requirements, the performance will still be considered complete if the essential purpose

is accomplished.’” State v. Brooks, 2013 WL 142625, at *6 (Ohio Ct. App.) (quoting Black’s Law

Dictionary, 9th Ed.).