CORAL REEF DR., LANDSEA & SHELLEY V. DUKE REALTY

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State: Florida

Court: Florida Third District Court

Docket No: 09-2356

Case Date: 09/22/2010

Preview:Third District Court of Appeal
State of Florida, July Term, A.D. 2010
Opinion filed September 22, 2010. Not final until disposition of timely filed motion for rehearing. ________________ No. 3D09-2356 Lower Tribunal No. 07-44519 ________________

Coral Reef Drive Land Development, LLC, Douglas F. Landsea and Robert J. Shelley,
Appellants, vs.

Duke Realty Limited Partnership,
Appellee.

An Appeal from the Circuit Court for Miami-Dade County, Israel Reyes, Judge. Isicoff, Ragatz & Koenigsberg and Eric D. Isicoff and Teresa Ragatz, for appellant. Broad and Cassell and Gary E. Lehman and Beverly A. Pohl, for appellee. Before COPE and SALTER, JJ., and SCHWARTZ, Senior Judge. SALTER, J. Coral Reef Drive Land Development, LLC, appeals a summary judgment

and final judgment of foreclosure entered in favor of Duke Realty Limited Partnership.1 The issue is whether the appellants raised genuine issues of material fact for trial supporting legally sufficient claims that: (a) the lender exercised such control as to transform the debtor-creditor relationship into a joint venture, and (b) certain alleged verbal communications between representatives of Coral Reef and Duke Realty, considered in light of the sophisticated written agreements governing the parties' multi-million dollar development plans, constituted a binding commitment by Duke Realty to enter into a joint venture with Coral Reef. We concur with the trial court's assessment and affirm. Our review of the interpretation and application of the contract provisions is de novo, and we consider the record by resolving "all doubts and inferences in favor of the non-moving party." Sheikh v. Coregis Ins. Co., 943 So. 2d 242, 244 (Fla. 3d DCA 2006). The Loan-with-Option The detailed documents entered into by the parties have more bells and whistles than the once-conventional commercial promissory note and mortgage. The terms of the documents afforded Coral Reef a first mortgage loan of $10,000,000 for the purchase and initial development of some 12 acres of prime commercial property in southwest Miami-Dade County. The property adjoined
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The judgments were also entered against the individual appellants, Douglas Landsea and Robert Shelley, as guarantors. 2

Jackson South Community Hospital and was to be developed and leased as medical offices. Duke Realty, an Indiana-based commercial real estate

development partnership, bargained for an option that essentially would allow it to acquire the property by paying Coral Reef a premium of $1,500,000 above the amounts necessary to repay the Duke Realty loan and to reimburse Coral Reef for the interest costs and rezoning expenses. In the event Duke Realty exercised the option, Coral Reef would then have the right to require the property to be contributed to a joint venture in which Duke Realty would control 75%, and Coral Reef or its principals 25% of the venture. This was meticulously documented in lengthy single-spaced documents: an 11-page promissory note; a 47-page recorded first mortgage, security agreement, and assignment of leases and rents; a 24-page loan agreement; and a 36-page form of limited liability company operating agreement (to be entered into if the applicable options were exercised in accordance with section 9.17 of the loan agreement). The loan agreement referred to these instruments collectively as the "Loan Documents." The agreements were reviewed by attorneys for the parties. The Loan Documents contained common "boilerplate" terms--a merger and integration provision, a waiver of the right to trial by jury, and a stipulation that no oral modification or waiver would be binding unless and until reduced to a written agreement signed by the parties. Importantly, the mortgage also included this

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provision: 9.18 No Joint Venture. Notwithstanding anything in any of the Loan Documents or in any other agreement or commitment to the contrary, neither the Loan Documents nor the transactions described in the Loan Documents nor the rights and obligations granted therein shall in any way create or contribute to the creation of a partnership or joint venture or similar arrangement between Borrower and Lender. Regarding Duke Realty's exercise of its option to acquire the mortgaged property, the loan agreement addressed the timing and method of exercise in a lengthy option provision that included this language: The Option shall be in effect from the date hereof until the date which is two (2) years after the date hereof and may be exercised by Lender, BD, or any other designee of Lender at any time upon written notice to Borrower (the "Option Notice"). The loan agreement also specified that any notice required or permitted under its terms "shall" be given in accordance with the notice provisions in the mortgage. Section 9.5 of the mortgage, "Notices," required that all notices

required or permitted to be given "shall be in writing" and also specified how such notices were to be mailed or delivered. Default, Emails, Development Activity, and Foreclosure During 2006 and early 2007, representatives of Duke Realty participated actively with Coral Reef and its principals in studying the medical office needs and status of the Hospital, in monitoring the rezoning process, and in evaluating prospective architects and contractors. Coral Reef asserts that these representatives

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were identifying themselves and doing business as "development partners" of Coral Reef, not as the representatives of a lender. In early 2007, Duke Realty continued to comment on designs, tenant office layouts, and construction cost estimates in anticipation that the rezoning would be approved. In April 2007, one of the principals of Coral Reef sent an email to a principal of Duke Realty stating that Coral Reef could not pay back interest due under the terms of the mortgage "due to unforeseen circumstances," and proposing a meeting to discuss restructuring the mortgage. A representative of Duke Realty then emailed a principal of Duke Realty to advise that "the partners" in the "deal south of Miami" "have evidently run into cash flow difficulties, and are not making debt payments." The final zoning approvals were thought to be

forthcoming in about a month. The rezoning was indeed approved in May 2007. Coral Reef asserts that Duke Realty was "surreptitiously" using its own separate land use attorney to attend the zoning hearing and report to Duke Realty. Shortly after the rezoning, Douglas Landsea of Coral Reef allegedly had a telephone conversation with Donald Dunbar from Duke Realty in which Landsea allegedly asked for a "firm commitment" that Duke Realty would exercise its purchase option. Failing that, Landsea allegedly said, Coral Reef would refinance or sell the property and pay off the loan. Landsea maintains that Dunbar "unequivocally committed" that Duke

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Realty would exercise the option. One important consequence of an exercise of the option was that the defaulted interest would not be due at the closing. Corroboration for this confirmation is alleged by Coral Reef to be in an email in which Dunbar told his boss "I believe we will stay in the deal," and "I can't imagine not buying this dirt."2 Coral Reef alleges that it relied on this commitment by eschewing active efforts to refinance the loan with Duke Realty or to sell the property, but there is no evidence that Coral Reef engaged in or initiated any such activities or that it could have obtained a refinancing or sale in a net amount sufficient to pay off the existing loan. It is undisputed that in October 2007, Duke Realty sent (and Coral Reef and the guarantors received) a written default notice regarding the loan. That notice was squarely inconsistent with any belief that the purchase option would be exercised by Duke Realty in two months. Coral Reef alleges, however, that

representatives of Duke Realty "represented to Coral Reef that [the default notice] was a mere formality required by its loan committee and that, as agreed, Duke would purchase the property by December 14." Taking this allegation as well as true, this was a second alleged verbal promise to forbear from collection of the

These written statements are equivocal expressions of a then-current belief, not confirmation of an actual exercise of an option or a statement that Duke Realty would exercise the purchase option seven months later. Nonetheless, for purposes of review we assume that Landsea's account of his telephone conversation with Dunbar is true. 6

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defaulted interest. Coral Reef also alleges that Duke Realty misled Coral Reef into setting up meetings with medical office and Hospital representatives as if the joint venture would be moving ahead. On December 10, 2007, four representatives of Duke Realty prepared an internal "deal summary memorandum" that evaluated Duke Realty's alternatives (one of which was foreclosure) regarding the defaulted loan. Four days later, Duke Realty filed its foreclosure action. Coral Reef and the two guarantors responded with affirmative defenses and counterclaims alleging waiver, fraud, unclean hands, breach of joint venture contract, breach of fiduciary duty, promissory estoppel, unjust enrichment, and tortious interference. After pretrial discovery, Duke Realty moved for final

summary judgment, which was granted. This appeal followed. Analysis A promise that any agreement waiving or modifying loan terms is to be in writing ordinarily is no less entitled to be enforced than a promise to make a payment by a certain date. In Florida,3 oral modifications are permitted despite

Our Supreme Court or legislature may some day recede from this outdated common law concept. In the Uniform Commercial Code governing sales, in Florida as in all other states, a written agreement that says it can only be modified in a signed writing can only be modified in a signed writing. See

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