Flatiron Acquisition Vehicle, LLC v. CSE Mortgage LLC

Background

Flatiron Acquisition Vehicle, LLC bought CS Paradiso Holdings, LLC from CSE Mortgage LLC and CapitalSource Commercial Loan, 2006-2. Before the purchase, Flatiron learned about litigation involving the Tellico Village Property Owners Association. A settlement agreement required Paradiso and the CapitalSource defendants to convey certain lots, assign related contract interests, and record releases by August 19, 2013.

On July 22, 2013, counsel for CSE and CapitalSource Commercial emailed Flatiron’s counsel that the settlement agreement was fully compiled and fully executed. The court found evidence that the exhibits to the agreement were intended to be completed after execution. Flatiron then entered the purchase agreement and acquired Paradiso. The required documents were not timely completed, and later litigation resulted in Paradiso paying $330,000 to settle disputes with the property owners association.

Rulings on the Claims

Tennessee lien law

The court granted summary judgment for defendants on Paradiso’s Tennessee lien-law claim. The relevant Tennessee statutes require a debt secured by a lien or deed of trust to have been fully paid or satisfied before the lien-release requirements apply. The court found no evidence that Paradiso paid or satisfied the debt owed by National Recreational Properties of Tellico Village, LLC to CapitalSource Finance. The settlement payment concerned property assessments owed to the property owners association, not the secured debt owed to CapitalSource Finance.

The court also held that the release documents’ statement that the liens were released for “sufficient consideration” did not show that the underlying debt had been fully paid or satisfied. Separately, the court held that the settlement agreement and two emails identified by Paradiso did not qualify as the clear and definite written request required by Tennessee law. The court therefore granted summary judgment on this claim without reaching defendants’ statute-of-limitations argument.

Negligent misrepresentation

The court denied summary judgment on plaintiffs’ negligent-misrepresentation claim. Applying Tennessee law, the court held that factual disputes remained about whether the settlement exhibits were final when counsel sent the email describing the agreement as fully compiled and executed. Factual disputes also remained about whether plaintiffs actually relied on the email and whether that reliance was reasonable.

The court rejected defendants’ arguments that the claim was inadequately pleaded, time-barred, waived, or barred by the law-of-the-case doctrine. It treated defendants’ pleading-particularity challenge, although raised in a summary-judgment motion, as a request for judgment on the pleadings and denied that request. The court also concluded that the record did not establish as a matter of law that plaintiffs should have discovered the alleged misrepresentation earlier or that their reliance was unreasonable.

Breach of the settlement agreement

The court granted summary judgment for defendants on Paradiso’s breach claim and on defendants’ counterclaim for breach of the settlement agreement. It held that both sides materially breached the agreement: Paradiso failed to execute the required quitclaim deeds and assignments, while Paradiso and the defendants failed to timely record the release documents.

Under Tennessee law, a party that materially breaches a contract generally cannot recover damages for a later material breach by the other party. The court found that the CapitalSource defendants cured their breach when the release documents were recorded in September 2014, while Paradiso still had not delivered the required assignments in 2016. The court therefore held that Paradiso committed the first uncured material breach.

Declaratory judgment

The court granted summary judgment on defendants’ counterclaim seeking a declaration that CSE and CapitalSource Commercial Loan LLC, 2006-2 were prevailing parties under the purchase agreement. The purchase agreement provided for attorney’s fees and costs for the prevailing party in litigation over contractual obligations. Because the court had previously dismissed plaintiffs’ purchase-agreement claim without leave to replead, it held that those defendants were prevailing parties for purposes of that provision.

Disposition

Judge Gregory H. Woods concluded that defendants’ motion for summary judgment was GRANTED in part and DENIED in part. Judgment was granted to defendants on plaintiffs’ Tennessee lien-law and settlement-agreement claims, on defendants’ settlement-agreement counterclaim, and on defendants’ counterclaim seeking the prevailing-party declaration. The motion was denied as to plaintiffs’ negligent-misrepresentation claim. The court directed the Clerk to terminate the pending motion and scheduled a status conference for March 2, 2020.