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Geringer v. Strong

United States District Court, D. Utah, Central Division

November 7, 2017

D. RAY STRONG, in his capacity as Liquidating Trustee of the Liquidating Trust for the Consolidated Legacy Debtors, the Liquidating Trust for Castle Arch Opportunity Partners I, LLC, and the Liquidating Trust for Castle Arch Opportunity Partners II, LLC, Defendant.



         Plaintiff Robert Geringer alleges that Defendant D. Ray Strong (Trustee) breached a contract to sell Mr. Geringer land in Smyrna, Tennessee. He also brings a claim for breach of the implied covenant of good faith and fair dealing. The Trustee's motion for summary judgment on those claims is now before the court.

         The court agrees with the Trustee that Mr. Geringer's claims rely on a notice provision that is not legally binding. Specifically, that notice provision was set forth in a preliminary agreement that, when merged into an integrated contract, was extinguished and is not enforceable. For this and other reasons set forth below, the court GRANTS the Trustee's motion.


         In October 2011, a state-appointed receiver filed Chapter 11 bankruptcy petitions for Castle Arch Real Estate Investment Company (CAREIC) and its related entities in the District of Utah. In May 2012, the bankruptcy court appointed Mr. Strong as the Chapter 11 Trustee for CAREIC.

         After CAREIC filed for bankruptcy, Mr. Geringer (a former manager of CAREIC) filed an unsecured claim against the estate. In addition, Mr. Geringer filed an objection in the bankruptcy case regarding a settlement agreement between the Trustee and William Warwick. In the meantime, the Trustee filed claims against Mr. Geringer and others for alleged wrongdoing in their capacities as former managers of CAREIC.

         Between January and May 2015, the Trustee and Mr. Geringer engaged in mediation to resolve their differences. The parties contemplated a settlement agreement under which Mr. Geringer would (a) buy one or more pieces of real estate from the Trustee at an above-market price and (b) withdraw the Warwick Objection, all in exchange for the Trustee's release of claims against Mr. Geringer.

         During mediation, Mr. Geringer expressed interest in purchasing a 484-acre parcel of real property located in Smyrna, Tennessee (the Smyrna Property), from the Trustee as part of the settlement. But the Trustee already had a sale and purchase agreement with DSSIII Holding Company, LLC, for the Smyrna Property. (See October 29, 2014 Real Estate Purchase & Sale Agreement (DSSIII Agreement), Trustee App. Doc. 27 at Apx. 285-318, ECF No. 79-27.) In fact, the Bankruptcy Court had already approved the Trustee's sale of the Smyrna Property to DSSIII, including the March 2015 Amendment to the DSSIII Agreement, which extended DSSIII's due diligence period and set forth four milestones that DSSIII was required to pursue “in good faith with commercially reasonable diligence.” (First Am. to DSSIII Agreement, Trustee App. Doc. 29 at Apx. 351-53, ECF No. 79-29.)

         Although the Smyrna Property was under contract, the sale was not yet final because DSSIII was conducting due diligence on the property. During that time, Mr. Geringer offered more money for the property along with more favorable terms. When DSSIII subsequently demanded a one-third reduction in the agreed-upon price, the Trustee seriously considered Mr. Geringer's offer because he felt he had a duty to maximize the estate. Still, in order to sell the property to Mr. Geringer, the Trustee would have to accomplish two things.

         He would have to legitimately free himself of his obligations to DSSIII. To do that, he would have to show that DSSIII was in breach of the contract, for example by failing to pursue the four milestones “in good faith and with commercially reasonable diligence.” (Id.) He would also need bankruptcy court approval for the new settlement and sale agreement with Mr. Geringer. Under Bankruptcy Rule 9019, a settlement agreement with a Trustee is not enforceable until approved by the Bankruptcy Court. Travelers Ins. Co. v. Am. Agcredit Corp. (In re Blehm Land & Cattle Co.), 859 F.2d 137, 141 (10th Cir. 1988). Similarly, under 11 U.S.C. § 363(b)(1), a trustee may sell property of the estate outside of the ordinary course of business only with bankruptcy court approval, “after notice and a hearing.” In other words, without Bankruptcy Court approval of the proposed sale to Mr. Geringer, the Agreement would not be enforceable. See G-K Dev. Co., Inc. v. Broadmoor Place Invs., L.P. (In re Broadmoor Place Invs., L.P., 994 F.2d 744, 745 (10th Cir. 1993); In re Landscape Properties, Inc., 100 B.R. 445, 447 (Bankr. E.D. Ark. 1988) (although competing offers are “denominated ‘real estate contract' there simply is no contract without bankruptcy court approval”) (cited in G-K Dev. Co., 994 F.2d at 745 n.1).

         Recognizing the obstacles to the proposed sale, the parties nevertheless hurriedly entered into a preliminary agreement-the Memorandum of Understanding, referred to in the Trustee's briefs as the “Term Sheet”-to memorialize material points of the agreement reached in mediation and identify the necessary contingencies: “This MOU is subject to the approval of the bankruptcy court, and the Trustee's ability to terminate the current purchase contract” with DSSIII. (May 20, 2015 Mem. of Understanding (“Term Sheet”), Trustee App. Doc. 3 at Apx. 20-22, ECF No. 79-3.)

         The Trustee's alleged breach of the Term Sheet's notice provision is the sole basis for Mr. Geringer's claims. That provision set forth one of the steps the Trustee would have to take to terminate the DSSIII Agreement: “The Trustee will within 5 days provide notice of termination of the contract to sell the Smyna [sic] to DSSIII and will provide notice of this sale and of the motion to approve this sale to DSSIII Holding Co., LLC.”[1] (Term Sheet ¶ 7.)

         But, significantly, approximately one month after signing the Term Sheet, the parties executed the June 30, 2015 Land Purchase Agreement (Agreement).[2] (Trustee App. Doc. 32 at Apx. 423-36, ECF No. 79-32.) That Agreement contains an integration clause:

This Agreement constitutes the sole and entire agreement of the parties and is binding upon and shall inure to the benefit of Seller and Purchaser, their respective heirs, successors, and legal representatives and permitted assigns. . . . All prior discussions, negotiations and agreements are merged herein and have no further force or effect.

(Id. § 19(c).)

         The Agreement also expressly stated that the bankruptcy court's approval and termination of the DSSIII Agreement were necessary conditions of the Agreement. In the section labeled “Contingencies, ” the Agreement sets forth the following caveat:

The Parties agree that this Agreement is conditioned on and is subject to (i) the Liquidating Trustee's ability to terminate the DSSIII Purchase Agreement solely as determined by the Bankruptcy Court and (ii) the Bankruptcy Court's entry of an Order approving this Agreement as to Purchaser or as to a person making a higher and better offer than the Purchaser that is accepted by the Liquidating Trustee. If the Bankruptcy Court does not approve this sale to either the Purchaser or to a person making a higher and better offer for any reason, this Agreement shall be null, void and of no force or effect and the Parties shall be in the same position that they were in as though this Agreement had never been executed.

(Id. § 6(a) (emphasis added).)

         Notably, the Agreement's recitals recognized that the Trustee had already given notice to DSSIII: “On June 30, 2015, the Liquidating Trustee served a Notice of Termination of Real Estate Purchase and Sale Agreement on DSSIII in accordance with its duty as a fiduciary to accept any higher and better offers for the purchase of the Property.” (Recitals in Agreement at 1, Apx. 423.) In that Notice of Termination, the Trustee stated that he was terminating the contract with DSSIII because, among other things, “on or about May 12, 2015 and thereafter, DSSIII indicated that it would require material changes and concessions to the Purchase Agreement including yet further extensions of its Due Diligence Period, ” that “[i]n addition, DSSIII has not met many of the milestones under the Amendment, ” and that “[i]n the meantime, the Seller has received an offer that Seller believes materially higher and better, both in amount and other terms.” (Letter from Peggy Hunt, Dorsey & Whitney LLP, to Tyson J. Reilly, DSSIII Holding Co., LLC (June 30, 2015), Trustee App. Doc. 22 at Apx. 145-46, ECF No. 79-22.)

         On July 6, 2015, as part of his obligations under the Agreement, the Trustee submitted a motion to the Bankruptcy Court seeking approval of the settlement and sale of the Smyrna property to Mr. Geringer (i.e., approval of the Agreement). DSSIII adamantly opposed the motion and did not acquiesce in any of the Trustee's notices of termination. DSSIII objected to the sale and requested an emergency status conference. DSSIII told the Bankruptcy Court that the Trustee was “attempting to sell valuable real property, which is under contract to DSSIII, to another party, ” and that DSSIII “remains ready, willing and able to close immediately . . . but is being prevented from doing so by the trustee.” (DSSIII Emergency Request for Status Conference, Trustee App. Doc. 35 at Apx. 558, ECF No. 79-35.)

         On July 14, 2015, the Bankruptcy Court held a hearing based on DSSIII's emergency request. After hearing from the parties, the Bankruptcy Court continued all further hearings on the Trustee's motion to sell the Smyrna Property, without date, which effectively denied the Trustee's sale motion (the closing date for the sale to DSSIII was apparently scheduled for July 30, 2015, less than two weeks after the court's decision). (See Tr. of July 28, 2015 Bankr. Ct. Hr'g at Apx. 742, Trustee App. Doc. 40, ECF No. 79-40.) The Bankruptcy Court explained its reasons, including the following: “I think parties such as [DSSIII] have a right to rely on orders of this Court approving contracts between fiduciaries that appear before this Court, and I am not going to allow the trustee on the state of the record to sell the property to somebody else when the buyer indicates that it is ready, willing, and able to perform according to the contract that it signed and that I approved.” (Tr. of July 14, 2015 Hr'g in Bankr. Ct. at Apx. 180-82, Trustee App. Doc. 25, ECF No. 79-25 (emphasis added).) The Trustee filed an emergency motion for reconsideration of the court's indefinite continuance of hearings on his motion for approval of the Agreement with Mr. Geringer. (See July 23, 2015 Emergency Mot. for Reconsideration, Trustee App. Doc. No. 39, ECF No. 79-39.) The Bankruptcy Court denied it two days before the scheduled closing with DSSIII. (See Tr. of July 28, 2015 Hr'g at Apx. 742, 752-53.) With lack of Bankruptcy Court approval, [3] the Agreement was, as the integration clause clearly states, “null, void and of no force or effect” and the parties were “in the same position that they were in as though this Agreement had never been executed.” (Agreement § 6(a).)

         The Trustee did not sell the Smyrna property to Mr. Geringer. Mr. Geringer followed up with this suit, alleging breach of contract and breach of the ...

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