STATE OF SOUTH CAROLINA
COUNTY OF RICHLAND
Venture Investment Properties Group, Inc.
Whaley's Mill, L.P. and L.
IN THE COURT OF COMMON PLEAS
C.A. No. 2007-CP-40-7742
This matter came before the Court on August 19, 2008, pursuant to Defendants Whaley's Mill, L.P. and L. Marc Carter's Motion for Judgment on the Pleadings with Regard to All Requests for Damages Related to Alleged Default or Breach of Contract (filed January 22, 2008). Present at the hearing were William R. Padget, Esquire, and Howard S. Sheftman, Esquire, representing Plaintiff; James K. Lehman, Esquire, and Jeremy C. Hodges, Esquire, representing Defendants Whaley's Mill, L.P. and L. Marc Carter; and Demetri K. Koutrakos, Esquire, representing Defendants JARS at Whaley's Mill, L.L.C., and JARS at Whaley's Mill, II, L.L.C. (collectively "JARS").
Factual and Procedural Background
This case involves an alleged breach of an agreement for the purchase and sale of certain property. In 2006 Plaintiff began negotiations for the purchase of Whaley's Mill Apartments located at 211 Main Street, Columbia, South Carolina (the "Property") from Whaley's Mill L.P. ("WMLP"). On June 20, 2006, Plaintiff and Defendant WMLP entered into a Purchase and Sale Agreement for the sale of the Property. The Purchase and Sale Agreement was amended and reinstated on seven separate occasions beginning in July 2006 through May 2007 (collectively the "Agreement"). The purchase price of the property after all amendments was $8,650,000.00. Plaintiff never closed on the purchase and sale of the Property under the Agreement. In October 2007, Defendant WMLP sold the Property to the JARS Defendants. Plaintiff filed this lawsuit in November 2007 against Defendants WMLP and Carter, and JARS.
Plaintiff's Complaint alleges various causes of action against each Defendant, including breach of contract, breach of contract accompanied by a fraudulent act, fraud, negligent misrepresentation, and unjust enrichment against Defendant WMLP; fraud and negligent misrepresentation against Defendant Carter; and interference with contractual relations, conversion, and quiet title/specific performance against the JARS Defendants.
Defendants WMLP and Carter, pursuant to Rule 12(c) of the South Carolina Rules of Civil Procedure, move the Court for an Order entering judgment in their favor on all claims where Plaintiff is requesting an award of damages resulting from Defendant WMLP's alleged default or breach of contract. Defendants WMLP and Carter claim that under the terms of the contract Plaintiff has sued on, Plaintiff expressly waived any right to bring suit against Defendant WMLP for damages in the event that Defendant WMLP defaulted under the Agreement and that Plaintiff's sole right and exclusive remedy is to seek specific performance of the Agreement. Plaintiff counters with the argument that Defendants WMLP and Carter are not entitled to an entry of judgment in these Defendants' favor because (1) Plaintiff's claims are not limited to contract claims; (2) a non-party to a contract may not rely on a limitation of remedies provision found in the contract; (3) the plain language of the limitation of remedies provision presumes the return of earnest money; and (4) Defendants waived their right to assert that Plaintiff's sole remedy is specific performance by conveying the property to third parties.
Standard of Review
"After the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings." Rule 12(c), SCRCP. When considering such motion, the Court must regard all properly pleaded factual allegations as admitted, and any inference of law or conclusions of fact that may properly arise therefrom are to be regarded as embraced in the averment. Falk v. Sadler, 341 S.C. 281, 533 S.E.2d 350 (Ct. App. 2000). However, the court will not admit inferences drawn by the plaintiff from such facts, nor will it admit conclusions of law. Fireman's Ins. Co. v. Cincinnati Ins. Co., 302 S.C. 234, 235, 394 S.E.2d 855, 856 (Ct. App. 1990). A complaint is sufficient if it states any cause of action or it appears that the plaintiff is entitled to any relief whatsoever. Id. "A judgment on the pleadings against the plaintiff is not proper if there is an issue of fact raised by the complaint which, if resolved in favor of the plaintiff, would entitle him to judgment." Lydia v. Horton, 343 S.C. 376, 540 S.E.2d 102 (Ct. App. 2000), rev'd on other grounds; Douglass ex. rel. Louthian v. Boyce, 336 S.C. 318, 323, 519 S.E.2d 802, 805 (Ct. App. 1999) (citing Russell v. City of Columbia, 305 S.C. 86, 406 S.E.2d 338 (1991)). "Our courts have held the pleadings should be construed liberally so that substantial justice is done between the parties." Falk, 341 S.C. at 287, 533 S.E.2d at 353. Moreover, "a judgment on the pleadings is considered to be a drastic procedure by our courts." Id.
At the outset, the Court addresses Plaintiff's arguments that its claims arise in tort as well as contract, and thus its damages are not limited by any contractual provision; and that a non-party to the Agreement may not rely upon any limitation of remedies provision contained in the Agreement. The Court finds that Defendants WMLP and Carter are not seeking to limit Plaintiff's damages with respect to its tort claims, but rather those claims resulting from any default or breach of contract by Defendant WMLP. The Court further finds that Defendant Carter has no standing to bring this motion because Plaintiff does not assert contract claims against him, but rather claims arising in tort.
At issue in this motion is the effect of Section 4.1 of the Agreement, which provides the following:
"If Seller defaults hereunder, Escrow Agent will refund to Buyer the Deposit (or such portion thereof that has been deposited with the Escrow Agent), and Buyer may, as its sole right and exclusive remedy, seek specific performance of this Agreement. Buyer shall have no right to bring an action against Seller for damages incurred by Buyer by reason of the breach or default of Seller under this Agreement…"
For purposes of this motion, the Court may treat the allegations in Plaintiff's Complaint as true. In the Complaint, Plaintiff makes several allegations, including that it provided escrow and interest carry funds to Defendant WMLP; that such funds were released to Defendant WMLP at various times based on amendments to the Agreement; that Defendant WMLP failed to abide by certain provisions of the amendments to the Agreement; that Defendant WMLP failed to disclose certain information and/or made several material misrepresentations relating to the Agreement; that Defendant WMLP sold the Property to the JARS Defendants despite Defendant WMLP's prior representations to Plaintiff that the Agreement between the parties was still valid after the expiration of the last closing date; and that upon the sale of the Property to the JARS Defendants, Defendant WMLP did not return the escrow funds and interest carry funds to Plaintiff. As a result, Plaintiff filed various causes of action against Defendants WMLP and Carter arising both out of the Agreement and these Defendants' alleged misrepresentations and fraudulent conduct with respect to the transaction.
Defendant WMLP contends that even if the Court treats Plaintiff's allegations of breach by Defendant WMLP as true, Plaintiff is not entitled to an award of damages for Defendant WMLP's alleged breach of contract beyond those contained in Section 4.1 of the Agreement because (1) Plaintiff's Complaint addresses an arm's length transaction negotiated by sophisticated parties, (2) the limitation of remedies clause should be given its plain and ordinary meaning, and (3) limitation of remedies clauses are enforceable under South Carolina law. Defendant further argues that since Plaintiff does not dispute the validity of the Agreement, just its entitlement to the escrow funds and the Property, the limitation of remedies clause within the Agreement should be applied and enforced by the Court.
The Court is not limited to reviewing only Section 4.1 of the Agreement, but rather is permitted to review the pleadings as a whole when deciding a motion for judgment on the pleadings.
1) Ambiguity of Contract Language
Defendant WMLP argues that the limitation of remedies language in Section 4.1 of the Agreement manifests the parties' clear and unambiguous intent to limit the remedies available to Plaintiff for any breach or default by Defendant WMLP under the Agreement. "The cardinal rule of contract interpretation is to ascertain and give legal effect to the parties' intentions as determined by the contract language." Ashley Rivers Prop. I, LLC v. Ashley Rivers Prop. II, LLC, 374 S.C. 271, 280, 648 S.E.2d 295, 299 (Ct. App. 2007) (citing United Dominion Realty Trust, Inc. v. Wal-Mart Stores, Inc., 307 S.C. 102, 105, 413 S.E.2d 866, 868 (Ct.App.1992)). Whether a contract is ambiguous is a question of law for the court, and the court must consider the contract as a whole. Silver v. AAbstract Pools & Spas, Inc., 376 S.C. 585, 591, 658 S.E.2d 539, 542 (Ct. App. 2008). "In construing and determining the effect of a written contract, the intention of the parties and the meaning are gathered primarily from the contents of the writing itself, or as otherwise stated, from the four corners of the instrument…" Id. The Court agrees with Defendant WMLP that "[i]f the contract's language is clear and unambiguous, the language alone determines the contract's force and effect." Id. But the Court is not persuaded that the provision at issue in this case is clear, explicit, unambiguous and capable of only one reasonable interpretation…" Ashley Rivers Prop. I, LLC, 374 S.C. at 280, 648 S.E.2d at 299. Even if the Court finds that the Agreement manifests the parties' intent to limit Plaintiff's remedies in the event of any breach or default by Defendant WMLP, Plaintiff contends that the plain language of the Agreement presumes the return of the earnest money deposit in order for this limitation to be operable. On the other hand, Defendant WMLP contends that even if it has defaulted or otherwise breached the Agreement, Plaintiff is not entitled to the escrow funds since Plaintiff consented to the release of the escrow funds to Defendant WMLP pursuant to the amendments, and therefore, is still limited to the remedy of specific performance of the contract. Thus, the Court finds that there exists at least two reasonable interpretations of the plain language of the limitation of remedies provision rendering the provision either ambiguous and/or unenforceable. The Court further finds that the enforceability of the limitation of remedies provision is subject to additional considerations beyond the Court's determination of whether the Agreement is clear and unambiguous.
2) Enforceability of the Limitation of Remedies Provision
The crux of Defendant WMLP's argument is the enforceability of the limitation of remedies provision in the Agreement. Plaintiff alleges in its Complaint that there exists a valid and binding contract between the parties. Therefore, the Court determines whether the limitation of remedies provision in this case is enforceable; and if so whether circumstances as alleged in the pleadings could potentially preclude Defendants from invoking the protections of the provision. As part of its argument in support of the enforceability of the limitation of remedies provision, Defendant WMLP contends that the Agreement is the product of an arm's length transaction between sophisticated parties, and that the parties were free to contract as they chose, provided they did not violate public policy. While the Court notes that our Courts have recognized "the freedom of sophisticated parties to contract as they choose," the Court finds that this fact alone does not preclude a finding that Plaintiff's damages should not be limited. See Keith v. River Consulting, Inc., 365 S.C. 500, 509, 618 S.E.2d 302, 306 (Ct. App. 2005). First, the Court recognizes that appellate courts have not defined a standard for evaluating whether parties to a commercial transaction are sophisticated parties. As a result, the Court would likely engage in an examination beyond the scope of the pleadings in order to determine the sophistication of the parties. However, even if the Court were to conduct such an examination and find Plaintiff and Defendant WMLP to be sophisticated parties, such that their intent was to limit the non-breaching party's remedies, the Court must further find that such limitation is reasonable under the circumstances of this case.
Notably, Plaintiff alleges in its Complaint that Defendant WMLP sold the Property to the JARS Defendants and failed to return earnest money paid in Escrow by Plaintiff to Defendant WMLP. Plaintiff and Defendant WMLP have conflicting arguments as to the effect of Defendant WMLP's retention of the earnest money. Specifically, Plaintiff argues that Section 4.1 presumes the return of earnest money in order for the limitation of remedies provision to apply, while Defendant WMLP argues that Plaintiff is not entitled to a refund in order for this provision to be effective since Plaintiff consented to the release of the escrow funds to Defendant WMLP. In Plaintiff's Reply to the Counterclaims of Defendants Whaley's Mill, L.P. and Marc Carter, Plaintiff alleges that Defendant WMLP waived its right to assert this limitation of remedies provision by conveying the property to a third party despite Defendant WMLP's alleged misrepresentations in extending the time for Plaintiff to close on the property and Plaintiff's efforts thereafter to attempt to close on the Property. If the Court were to accept as true the allegations within the pleadings of these parties, the challenge before the Court is that limiting Plaintiff to the limitation of remedies provided for in Section 4.1 is essentially meaningless since the Court may find that no such remedy is available given Plaintiff's allegations of conduct by each party.
South Carolina courts have not specifically addressed the enforceability of a clause that limits a non-breaching party's remedy to specific performance, such as the one at issue in this case. However, the South Carolina Court of Appeals has addressed contractual limitations on remedies in the context of liquidated damages provisions. In Bannon v. Knaus, 282 S.C. 589, 320 S.E.2d 470 (Ct. App. 1984), the Court of Appeals held that parties may agree to a limitations clause in the contract. The Court of Appeals further clarified that "if such a limitation is reasonable in the circumstances, the courts will enforce it." Id. at 592, 320 S.E.2d at 472 (emphasis added). Here, if the allegations of the Complaint are taken as true, the limitation of remedies provision might not be deemed reasonable since the earnest money has already been transferred back to the Seller, Defendant WMLP, and the Property has been sold to a third party, thus potentially leaving Plaintiff with no realistic remedy under Section 4.1 of the Agreement.
The Court finds that the construction and interpretation of Section 4.1 together with Plaintiff's allegations in its Complaint raise issues of fact which, if resolved in favor of Plaintiff, would entitle it to judgment. The Court further finds that, based on the allegations in the Complaint as to the conduct between these parties and the possible situation in which specific performance cannot be awarded or is deemed unreasonable under the circumstances, the effect of the limitation of remedies provision may require facts to be proven that are outside the realm of the pleadings.
Therefore, Defendants WMLP and Carter's Motion for Judgment on the Pleadings with Regard to All Requests for Damages Related to Alleged Default or Breach IS DENIED. However, because the Court finds Defendants' grounds for this motion to be meritorious, Plaintiff is not entitled to a reimbursement of reasonable attorneys' fees for having to defend this motion.
IT IS SO ORDERED.
The Honorable J. Michelle Childs
Circuit Court Judge
Fifth Judicial Circuit
Columbia, South Carolina
October 13, 2008