Contractual relationships and the relative obligations and rights that come with them can be difficult to decipher. There are so many clauses, provisions, and sections buried in these agreements that understanding the importance of certain matters can get lost in translation. In order to truly comprehend the exact obligations and rights that an individual or corporation has under an agreement, it is important to have the best attorneys drafting and reviewing the agreement. After all, these clauses are what govern the course of the parties’ professional relationship.
Case in point, Christus Health Southwestern Louisiana (“Christus”) planned to build a Senior Living Community in Lake Charles, Louisiana. It entered into a Development Services Agreement (“DSA”) with Greenbrier Development Co., L.L.C. (“Greenbrier”) in May 2007. Under the agreement Greenbrier would assist Christus with preparing budgets, providing marketing advice, and performing other development services.
Under the terms of the DSA, Christus was required to pay Greenbrier a development fee of $1.49 million, which was payable in installments throughout different phases of the project. There was no dispute as to Christus paying the initial 20% of the payment. The next 35% of the payment was due upon commencement of the construction. Certain sections of the DSA governed the parties’ respective rights and obligations for payment and termination of their professional relationship. The pertinent sections are summarized as follows:
Section 7.1: Christus could terminate the DSA with or without cause by providing 60 days’ notice to Greenbrier.
Section 7.1(a) and (b): Christus could terminate the DSA with 30 days’ notice to Greenbrier if Christus failed to obtain: (1) corporate approvals required for development, construction and financing of the Community or (2) permanent financing for the community. If the agreement was terminated pursuant to 7.1(a) or (b), the parties would have no further obligations to one another.
Section 7.3: Christus could terminate the DSA if Greenbrier materially failed to perform its obligations under the agreement.
Section 7.5 outlined Christus’s obligations in the event of termination. Unless the DSA was terminated for reasons enumerated in Section 7.3, Christus was required to pay the amount of any unpaid portion of the development fee due prior to the date of termination and all reimbursable expenses. If Christus terminated the DSA without cause and at any time within one year of the termination date Christus went forward with development of the community, Christus would have to pay Greenbrier any unpaid balance of the entire development fee.
After development of the community began, it became obvious that Christus would not be able to finance the venture. In 2009, Christus sold the land to Lake Charles Gardens, L.L.C. (“LCG”), which decided to build the community itself. LCG retained Christus to perform developer and manager roles and thus Christus still stayed involved in the development of the community. In December of 2009 Christus’s CFO sent a letter providing Greenbrier with written notice that it was terminating the DSA under Section 7.1.
Christus filed a declaratory judgment action requesting the the District Court to declare that Christus had validly terminated the DSA pursuant to section 7.1 and had paid all amounts due to Greenbrier, with no additional payment needed. Greenbrier filed a counterclaim against Christus for breach of contract claiming that Christus owed the full amount under the DSA because Christus had continued to develop the community. Christus filed a motion for summary judgment, and the District Court found in favor of Christus, and dismissed Greenbrier’s claim.
Greenbrier then appealed to the Louisiana Fifth Circuit Court of Appeal. Greenbrier set forth two arguments for why it was entitled to the full development fee under Section 7.5: (1) the conditions were not met for termination under Section 7.1(a) or (b); and (2) even if Christus properly terminated the DSA under Section 7.1(b), Section 7.5 requires payment of the full development fee because failure to secure permanent financing does not constitute “cause” for termination. Cause is synonymous with the reason for termination. See ; see also Voitier v. Church Point Wholesale Beverage Co., 760 So.2d 451 (La. Ct. App. 2000).
The Fifth Circuit found no merit to Greenbrier’s argument because Greenbrier failed to submit any evidence that demonstrated Christus received “permanent financing” as the DSA defined. To the contrary, evidence of the contractual relationship between Christus and LCG showed that Christus had no ownership rights to the community and thus had no means of securing financing because it was no longer the owner of the land.
Greenbrier argued in the alternative that it was entitled to the payment of 35% more of the development fee because Christus achieved commencement of construction by the time it terminated the DSA. The Fifth Circuit found that this argument failed as well. First, Greenbrier had waived this argument by failing to raise it in Greenbrier’s own motion for summary judgment or as a response to Christus’ motion for summary judgment. In addition, the Fifth Circuit found that this argument failed on the merits because Greenbrier failed to produce sufficient evidence that Christus had commenced construction rather than LCG.
Based on the interpretation of the DSA and Greenbrier’s failure to produce evidence supporting its position, the Fifth Circuit affirmed the District Court’s ruling. This case shows that contracts are often the focal point of business disputes. When drafting a contract, it is difficult to foresee all the possible problems that may arise down the road. That is why it is important to involve good attorneys in the process who have experience. They will be able to assure your rights are protected and there are no hidden clauses that put you in an disadvantageous position. However, it is also important to remember that even the most well-drafted contracts are subject to interpretation.
Written by Berniard Law Firm Blog Writer: Zoha Khan
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