Filed: Oct. 19, 2016
Latest Update: Mar. 03, 2020
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 15-2335 In Re: POTOMAC SUPPLY CORPORATION, Debtor. - CHESAPEAKE BAY ENTERPRISE, INC., Plaintiff - Appellee, v. CHESAPEAKE TRUST, Defendant – Appellant, and REGIONS BANK, Defendant. Appeal from the United States District Court for the Eastern District of Virginia, at Richmond. M. Hannah Lauck, District Judge. (3:15-cv-00035-MHL; 13-03073-BFK; 12-30347-BFK) Argued: September 23, 2016 Decided: October 19, 2016 Before DUNCAN, AGEE
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 15-2335 In Re: POTOMAC SUPPLY CORPORATION, Debtor. - CHESAPEAKE BAY ENTERPRISE, INC., Plaintiff - Appellee, v. CHESAPEAKE TRUST, Defendant – Appellant, and REGIONS BANK, Defendant. Appeal from the United States District Court for the Eastern District of Virginia, at Richmond. M. Hannah Lauck, District Judge. (3:15-cv-00035-MHL; 13-03073-BFK; 12-30347-BFK) Argued: September 23, 2016 Decided: October 19, 2016 Before DUNCAN, AGEE,..
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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 15-2335
In Re: POTOMAC SUPPLY CORPORATION,
Debtor.
------------------------------
CHESAPEAKE BAY ENTERPRISE, INC.,
Plaintiff - Appellee,
v.
CHESAPEAKE TRUST,
Defendant – Appellant,
and
REGIONS BANK,
Defendant.
Appeal from the United States District Court for the Eastern
District of Virginia, at Richmond. M. Hannah Lauck, District
Judge. (3:15-cv-00035-MHL; 13-03073-BFK; 12-30347-BFK)
Argued: September 23, 2016 Decided: October 19, 2016
Before DUNCAN, AGEE, and HARRIS, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Patrick John Potter, PILLSBURY WINTHROP SHAW PITTMAN
LLP, Washington, D.C., for Appellant. Steven Scott Biss,
Charlottesville, Virginia, for Appellee. ON BRIEF: Jack McKay,
Dania Slim, PILLSBURY WINTHROP SHAW PITTMAN LLP, Washington,
D.C., for Appellant.
Unpublished opinions are not binding precedent in this circuit.
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PER CURIAM:
This is a breach of contract action brought in bankruptcy
court over a $500,000 security deposit. Chesapeake Bay
Enterprise, Inc. (“CBE”) contracted to buy the assets of Potomac
Supply Corporation (“PSC”), a Chapter 11 debtor, and made an
initial security deposit. But CBE failed to follow through, and
the transaction never closed. The bankruptcy court held that
PSC was entitled to the $500,000 deposit, on the theory that it
was CBE that had breached the agreement. The district court
reversed, awarding the deposit to CBE because PSC had failed to
provide the written notice of termination required by the plain
terms of the parties’ agreement. We agree with the district
court and affirm its decision.
This case arises out of PSC’s Chapter 11 bankruptcy
proceedings, during which PSC arranged to sell its assets to CBE
for $20.3 million. On September 21, 2012, PSC and CBE formally
entered into an Asset Purchase Agreement (the “APA” or
“Agreement”), which required CBE to make two $500,000 security
deposits. The first deposit was due before the APA was
executed, and the second was due fifteen days after execution of
the Agreement, on October 6, 2012.
CBE timely posted the first $500,000 security deposit, but
it failed to deliver the second. Instead, on October 2, 2012,
CBE informed PSC that its proposed financing had fallen through.
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The parties nevertheless attempted to save their agreement. At
CBE’s request, PSC twice extended the deadline for CBE to post
the second deposit: first until October 10, and then until
October 12. But PSC refused CBE’s request for a third
extension, and CBE was unable to deliver the second deposit.
The transaction never closed.
At no point during this process did PSC provide CBE with
written notice that it was terminating the APA based on CBE’s
breach. Ultimately, PSC sold its assets to a third party for
$10 million. The bankruptcy court approved that sale and then
converted PSC’s Chapter 11 bankruptcy proceeding to a Chapter 7
liquidation, transferring PSC’s interest in the security deposit
to Chesapeake Trust (“the Trust”).
The Trust then brought the present action for breach of
contract against CBE, claiming that it was entitled to the
$500,000 security deposit. The bankruptcy court agreed, holding
that because CBE breached the Agreement, the deposit should go
to PSC (now, the Trust). As the bankruptcy court saw it, the
status of the deposit under the Agreement “turns entirely on
which party was the first to commit a material breach” of the
APA. J.A. 229. CBE committed a material and un-waived breach
by not posting the second $500,000 deposit. It followed, the
bankruptcy court held, that when the transaction failed to
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close, the Trust (on behalf of PSC) was entitled to the initial
security deposit.
CBE appealed, and in a careful and thorough opinion, the
district court reversed. See Chesapeake Bay Enters., Inc. v.
Chesapeake Trust, No. 3:15CV35,
2015 WL 5786831 (E.D. Va. Sept.
30, 2015). Under the unambiguous terms of the APA, the district
court concluded, the dispositive question was not whether CBE
had breached the Agreement. Rather, the fate of the $500,000
hinged on whether PSC had provided written notice of termination
based on CBE’s breach. Because PSC did not issue written notice
of termination – a fact to which both parties stipulated before
the bankruptcy court – the Agreement required that the deposit
be returned to CBE.
The district court meticulously parsed the language of the
APA, see
2015 WL 5786831 at *3-*5, and we summarize only briefly
here. Under Section 2.1.2 of the APA, which party is entitled
to recover the $500,000 security deposit depends on whether
there has been a “Buyer Default Termination.” Where, as in this
case, there has been no closing of the underlying transaction,
then Section 2.1.2 directs that the deposit be delivered to PSC
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if the Agreement has been terminated by way of a Buyer Default
Termination, and to CBE if it has not. *
Section 2.1.2 defines “Buyer Default Termination” as
“[PSC’s] termination of this Agreement under Section 4.3.2 as a
result of the failure of a condition to [PSC’s] obligations” –
in other words, as a result of a default or breach by CBE. J.A.
21. Section 4.3.2, in turn, provides that a non-defaulting
party may terminate the Agreement “by delivering to the other
[party] written notice of termination.” J.A. 27 (emphasis
added). In other words, under the plain language of the
Agreement, “in order for Buyer Default Termination to have
occurred in this case, PSC must have complied with Section
4.3.2, which required that PSC provide to CBE written notice
upon CBE’s breach[.]”
2015 WL 5786831 at *5. Absent written
notice by PSC, the district court concluded, there was no Buyer
Default Termination; and absent a Buyer Default Termination, CBE
was entitled to return of its deposit.
Id.
* More specifically, Section 2.1.2 provides, inter alia,
that the deposit is to be delivered to PSC “upon the earlier” of
either a “Buyer Default Termination” or a “Closing.” J.A. 21.
Conversely, the deposit is returned to CBE if “no Closing or
Buyer Default Termination has occurred” as of an “Outside Date”
defined as 45 days after the adoption of the Agreement. J.A.
21. Because there was no closing in this case, the status of
the deposit turns entirely on the presence or absence of a Buyer
Default Termination.
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On appeal, the Trust no longer contests the district
court’s interpretation of the Agreement. Instead, it advances
two alternative arguments, both of which were considered and
rejected by the district court. First, the Trust argues that
various communications PSC made to CBE in the course of the
parties’ negotiations – notice of a bankruptcy court hearing,
the APA amendments extending the deadline for the second
deposit, and a demand for additional information from CBE – were
sufficient to satisfy the Agreement’s requirement of written
notice of termination. But as the district court noted, PSC has
waived that argument; instead of presenting it to the bankruptcy
court, PSC stipulated that it had “not serv[ed] notice of
default or termination of any kind on CBE.”
2015 WL 5786831 at
*5 n.25 (emphasis in original).
Second, the Trust argues that non-compliance with Section
4.3.2’s notice provision should be excused because notice of
termination would have been “futile and purposeless” in light of
what it characterizes as CBE’s repudiation of the Agreement.
The district court disagreed, holding that notice would not have
been purposeless in light of the parties’ ongoing efforts to
complete the transaction, under the terms of an APA twice
extended by mutual agreement of the parties.
Id. at *5 n.26.
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Having carefully considered the controlling law and the
parties’ briefs and oral arguments, we affirm on the reasoning
of the opinion of the district court.
AFFIRMED
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