Regis Metro Associates, Inc. v. NBR Company, LLC

Background

Regis Metro Associates, Inc. and RMA-CW, LLC, collectively referred to as RMA, sued NBR Company, LLC, referred to as Northbridge, for breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory relief. Northbridge removed the case from state court based on diversity jurisdiction. The parties filed cross-motions for summary judgment, which asks whether the evidence shows that no material fact requires a trial and whether a party is entitled to judgment under the law.

RMA and Northbridge had entered into an Investment Vehicle Formation Agreement. The agreement gave RMA an option to participate if Northbridge formed or managed an eligible investment vehicle during the specified period. An eligible investment vehicle was defined to include certain real-estate funds, pooled investment vehicles, separately managed accounts, or other entities with more than $25 million in capital commitments focused on acquiring or developing assisted-living or memory-care facilities. If RMA did not exercise an applicable option, Northbridge generally had to pay an EIV Formation Fee.

Section 4, however, stated that the agreement would not affect or apply to the ongoing business conducted by Northbridge or its affiliates. The agreement and its recitals also referred to investment vehicles formed in the future to acquire or develop additional facilities.

The Welltower Transaction

In 2016, Welltower approached Northbridge about purchasing properties. Northbridge sold Welltower 95 percent of six properties that Northbridge had operated for years. Northbridge retained five percent equity in each property and continued operating them at Welltower’s request. The record described the retained equity as equity Northbridge had already owned and rolled over rather than new capital invested in the Welltower entity.

RMA argued that the transaction created an eligible investment vehicle and triggered its participation option and the formation fee. Northbridge argued that the transaction was part of its ongoing business and involved existing properties, not additional facilities. RMA did not offer contrary evidence concerning Northbridge’s ongoing business or the nature of the transaction.

Contract Interpretation

Applying California law, the court interpreted the agreement according to the parties’ mutual intent, giving the written contract’s clear and ordinary meaning and reading the agreement as a whole. Because the agreement did not define “ongoing business,” the court used the ordinary meanings of “business” and “ongoing.” It concluded that the phrase referred to Northbridge’s commercial activities that were in process when the parties entered into the agreement.

The court found that the agreement unambiguously gave RMA an option or formation fee for an eligible investment vehicle involving the acquisition or development of future additional facilities. It also found that the agreement exempted transactions involving existing facilities already owned and operated by Northbridge as part of its regular commercial practices. The court reasoned that this reading gave effect to the agreement’s repeated references to “additional” facilities and harmonized the agreement’s provisions.

Application and Rulings

The court found that the undisputed evidence established that Northbridge’s ongoing business included acquiring and developing senior-living facilities, stabilizing them, selling them to third-party investors, retaining a small ownership interest, and continuing to operate them. The Welltower transaction followed that model: Northbridge sold interests in six existing facilities, retained five percent ownership in each, and continued operating them. The transaction therefore fell within the ongoing-business exception and did not involve newly acquired or developed additional facilities.

The court held that Northbridge was not required to offer RMA an option to participate in the Welltower transaction or pay the EIV Formation Fee. It granted Northbridge’s motion for summary judgment on RMA’s breach-of-contract claim and denied RMA’s motion for summary judgment. Because RMA’s implied-covenant claim was based on the same allegations as its contract claim, the court granted Northbridge summary judgment on that claim as well. The court also granted Northbridge summary judgment on RMA’s declaratory-relief claim because it was wholly derivative of the contract claim. The court did not reach Northbridge’s additional arguments or RMA’s arguments concerning other contract provisions.

Motions to Seal and Final Disposition

The court granted Northbridge’s motion to seal materials containing sensitive business information or information covered by confidentiality agreements, along with narrowly tailored redactions referring to those materials. It granted RMA’s motion to seal the exhibits to the Ryan Declaration that overlapped with Northbridge’s sealing request, but denied without prejudice RMA’s request to seal portions of its motion and opposition briefs. The court directed RMA to refile those briefs within seven days, either without redactions or with a new, properly supported sealing motion.

The conclusion states that RMA’s supplemental administrative motion to seal was granted in part and denied in part without prejudice, and that the other pending administrative motions to seal were terminated. The clerk was directed to render judgment in favor of Northbridge and close the case.