Richards Layton & Finger
 

Judge Davis Denies Motion to Dismiss on Grounds that Factual Record Needs Further Development

October 31, 2018

In two consolidated actions, Wilmington - 5190 Brandywine Parkway, LLC v. Acadia Brandywine Holdings, LLC, C.A. No.: N17C-04-60 EMD CCLD, and Wilmington - 5190 Brandywine Parkway, LLC v. Acadia Realty Limited Partnership, C.A. No.: N17C-04-061 EMD CCLD, Judge Davis denied a motion to dismiss after concluding that the record was in need of further development. Defendant Acadia Brandywine Holdings (“Holdings”) executed a loan agreement and promissory note (collectively, the “Loan Documents”) for $26,250,000 with Bear Stearns. Defendant Acadia Realty Limited Partnership (“Acadia” and collectively with Holdings, the “Defendants”) simultaneously entered into a guaranty agreement (the “Guaranty”) with Bear Stearns, making Acadia personally liable for the debt if certain conditions were met. Subsequently, Bear Stearns assigned all of its rights to collection under the Loan Documents to plaintiff Wilmington - 5190 Brandywine Parkway, LLC (“Parkway”).

Parkway filed suit against the Defendants in two separate actions in Superior Court seeking to collect the principal, accrued interest, default interest, and late fees (collectively, the “Debt”). Parkway also filed a complaint in the Court of Chancery seeking to reform and foreclose on the mortgage. In the Superior Court actions, the Defendants filed a motion to dismiss, arguing that the triggering conditions under the Loan Documents and the Guaranty had not been met, and therefore they could not be held individually liable for the Debt. In resolving the motion to dismiss, the Court applied New York law based on choice of law provisions in the parties’ agreements.

The Court first considered whether Parkway could recover based on Holdings’ status, or lack thereof, as a special purpose entity. Holdings’ failure to maintain status as a special purpose entity was a triggering condition under the Guaranty. According to the Loan Documents, if Holdings owned unencumbered property, it could lose its status as a special purpose entity. The Court found that it was unclear, however, whether “Holdings would trigger recourse liability if Holdings never had special purpose entity status when the parties executed the Loan Documents and the Guaranty.” Ultimately, the Court concluded that “Holdings’ status as a Special Purpose Entity could not be decided before the Court of Chancery rules in the Chancery Action.” On this basis alone, the Court denied the motion to dismiss because it would be premature to rule on the issue before the Court of Chancery had made a determination.

Analysis: As discussed in prior issues of this mailing, the CCLD often handles disputes that are related in some way to proceedings ongoing in the Court of Chancery (Delaware’s court of equity). Here, based on the related proceedings, Judge Davis denied the Defendants’ motion to dismiss to allow the Court of Chancery time to resolve certain underlying issues.

Related Practices