Simon-Mills II, LLC v. Kan Am USA XVI Limited Partnership
CA 8520-VCG
| Del. Ch. | Mar 30, 2017Background
- Simon (Simon Entities) and KanAm (KanAm Entities) were co-venturers in multiple Delaware limited partnerships governed by JV Agreements that gave Simon a call right to buy KanAm’s interests for appraised value, payable in cash or, by default, in specified "Mills Units." Mills Partnership and Mills Corp (together, "Mills") later became financially distressed, its stock stopped trading, and Mills Units convertible into public stock became unavailable.
- Over decades the parties negotiated numerous JVs; some original JVs explicitly allowed Simon Units as part of the currency, but after Simon’s 2002 exit many agreements were amended to remove references to Simon; several JVs (including those Simon later acquired via purchase of Mills in 2007) continued to specify Mills Units only.
- In 2007 Simon (with Farallon) acquired Mills; Mills was dissolved later that year so Mills Units meeting contractual liquidity/convertibility specs remained unavailable.
- The parties repeatedly recognized the problem but declined to resolve it: Denver West (2007) negotiations produced a side letter that expressly left the non‑cash‑currency issue unresolved; a 2012 indemnity agreement likewise preserved existing JV rights without altering buy/sell currency.
- In 2013–2014 Simon attempted to exercise call rights and tender Simon Units (or cash); KanAm insisted the contracts required Mills Units (or cash) and refused to close. Simon sued for specific performance, breach, and breach of the implied covenant; KanAm counterclaimed for breach and sought declaratory relief and fees.
Issues
| Issue | Plaintiff's Argument (Simon) | Defendant's Argument (KanAm) | Held |
|---|---|---|---|
| Whether "Mills Units" in the JVs can be satisfied by tender of Simon Units | "Mills Units" should be read to include successor or similar units (Simon Units); extrinsic evidence and some prior agreements show parties were indifferent | The JV text unambiguously requires Mills Units as specified; no mutual agreement substituted Simon Units | Court: Except for Orange City JV (which expressly defines Mills to include successors), plaintiffs failed to prove a meeting of the minds; Simon Units do not satisfy Mills Units under the operative JVs |
| Whether Simon's tender of Simon Units constituted substantial performance or a non‑material breach permitting enforcement | Tendering Simon Units was at most a minor deviation; KanAm's refusal is an unwarranted forfeiture | Buy/sell is an option-like contractual right requiring strict compliance; the agreements expressly permit the non-breaching party to void non‑compliant notices | Court: Option‑style rights require strict adherence; failure to tender Mills Units voids the Buy/Sell Notice—substantial performance doctrine inapt here |
| Whether the implied covenant of good faith and fair dealing requires allowing Simon to substitute units | Implied covenant should fill the gap and prevent KanAm from defeating the call by insisting on non‑existent Mills Units | The implied covenant cannot supply a term the parties considered and declined to resolve; courts will not rewrite bargained terms | Court: Implied covenant inapplicable—parties were aware of the issue and consciously left it unresolved, so court will enforce the written contracts |
| Whether KanAm waived or is estopped from insisting on Mills Units; and KanAm's counterclaim for damages/fees | KanAm made statements to investors and others implying Simon Units would be acceptable; KanAm’s silence and conduct amount to waiver/estoppel | No unequivocal, knowing relinquishment of rights; statements to third parties and isolated communications do not show waiver or unconscionable change of position | Court: No waiver or quasi‑estoppel; KanAm’s counterclaim for declaratory relief granted (except Orange City), breach claim dismissed because KanAm had right to void non‑compliant notices; prevailing‑party fee entitlement recognized for KanAm (pending Orange City resolution) |
Key Cases Cited
- Nemec v. Shrader, 991 A.2d 1120 (Del. 2010) (describing limits of the implied covenant of good faith and fair dealing)
- Salamone v. Gorman, 106 A.3d 354 (Del. 2014) (contract interpretation rules: give priority to parties’ intentions as reflected in the four corners of the agreement)
- RBC Capital Markets, LLC v. Jervis, 129 A.3d 816 (Del. 2015) (quasi‑estoppel requires unconscionability and a benefit or detriment)
- In re IBP, Inc. Shareholders Litig., 789 A.2d 14 (Del. Ch. 2001) (clear‑and‑convincing standard for specific performance)
- Mahani v. Edix Media Grp., Inc., 935 A.2d 242 (Del. 2007) (contractual fee‑shifting provisions enforceable; prevailing party may recover reasonable fees)