CC Finance LLC v. Wireless Properties, LLC, C.A. No. 5927-VCN (October 1, 2012).
Why is this case noteworthy? The ruling provides practical insights into (i) the standards for summary judgment in a reformation case and the Court’s role in reformation of contracts; (ii) the proof required for proving mistake (mutual or unilateral) at the summary judgment stage; and (iii) the Court’s decision awarding specific performance.
CC Finance LLC loaned funds to Wireless Properties, LLC and as part of the credit arrangement, Crown acquired the right to purchase fifteen telecommunications towers from Wireless, either within a specific period or otherwise in the event of default. Wireless and Crown also agreed that Crown, in its discretion, could lend additional funds that would help Wireless acquire or develop more towers. Crown, however, decided not to lend Wireless any more funds and instead it elected to purchase the fifteen towers from Wireless. Crown sought a declaratory judgment for specific performance of its right to acquire the fifteen towers from Wireless and moved for summary judgment. Wireless argued that Crown did not exercise its discretion under the loan agreement in accordance with the implied covenant of good faith and fair dealing, and when the agreements were made between them, there was either mutual mistake or unilateral mistake with knowing silence, necessitating reformation of the loan agreement and the Right to Purchase Agreement.
1) The Court’s discussion of standards for summary judgment in a reformation case:
In a reformation case, ‘that substantive burden is that each of the elements of a claim of reformation must be proven by clear and convincing evidence.’ The clear and convincing standard is ‛an intermediate evidentiary standard, higher than mere preponderance, but lower than proof beyond a reasonable doubt.’ The Superior Court’s civil jury instructions on clear and convincing evidence require the proof to be ‛highly probable, reasonably certain, and free from serious doubt .’ The Delaware Court on the Judiciary has described the clear and convincing standard as requiring ‛evidence which produces in the mind of the trier of fact an abiding conviction that the truth of [the] factual contentions [ is] highly probable.’
2) The Court’s Role in Reformation of Contracts:
In considering an effort to reform a contract, the Court starts with the ‛necessary assumption that an unambiguous written agreement is valid on its face and accurately reflects the intentions of the parties.’ When parties have ordered their affairs voluntarily through a binding contract, Delaware law is strongly inclined to respect their agreement. Equity, therefore, will not rewrite a contract to save a party from its own negligence. It is always tempting for a judge, particularly a judge sitting in equity, to impose a result that seems ‛fairer‘ than one the parties have imposed upon themselves through contract. However, if contract rights were only to be enforced upon a balancing of the equities, there would be far greater mischief than is imposed by letting parties order their own affairs.
3) Standards of Proof for Mistake at the Summary Judgment Stage:
Mutual mistake occurs when “both parties were mistaken as to a material portion of the written agreement,” or “when both parties are under substantially the same erroneous belief as to the facts.” Therefore, proof of a unilateral mistake on the part of only Wireless, with respect to a material provision of the loan agreement, will not satisfy the elements of a claim for mutual mistake. Wireless must show that a rational fact-finder could find, under a clear and convincing standard, that Crown was mistaken that the definition of loan commitment as it appears in the final, executed loan agreement was something other than what Crown intended.
For unilateral mistake at the summary judgment stage, Wireless had to show that a rational fact-finder, reviewing the summary judgment record, could find that: (1) there was a specific prior understanding that differed materially from the written agreement; (2) Wireless was mistaken as to the terms of the final written agreement; (3) Crown had knowledge of Wireless’ mistake, and (4) Crown with this knowledge, remained silent.
4) Court’s Decision on Specific Performance:
A party must prove by clear and convincing evidence that it is entitled to specific performance, and that it has no adequate legal remedy. The only provisions in the loan agreement that Wireless disputed the validity of were those relating to Crown’s discretion, however, the Court rejected Wireless’ arguments for reformation instead finding that these provisions were valid on their face. The Court will only order specific performance if a party is ready, willing, and able to perform under the terms of the agreement. Here the Court found that Crown was ready, willing, and able to perform on July 29, 2010, when Crown provided Wireless with written notice of its election to acquire the Fifteen Towers under the Right to Purchase Agreement and that Crown remained ready, willing, and able to perform. Finally, the Court will only order specific performance if the balance of equities tips in favor of specific performance. When balancing the equities, the Court “must be convinced that specific enforcement of a validly-formed contract would [not] cause even greater harm than it would prevent.” Here the Court found that the balance of equities tipped in favor of Crown and specific performance. The Court recognized that “real property is unique, and often the law cannot adequately remedy a party’s refusal to honor a real property contract. Further, equity respects the freedom to contract and teaches that parties should receive the benefit of their bargain through specific performance.” Because Crown and Wireless were sophisticated parties represented by counsel throughout the drafting process, the loan agreements represent the bargain that they struck.