ANALYSIS OF NOVEMBER 21, 2018 SUPREME COURT OPINIONS
(Posted November 21, 2018) To whet your appetite for tomorrow, the justices give us two new published opinions in two cases, each of which stated claims for breach of contract and related torts.
The first of these (only if you line them up this way) is Francis Hospitality, Inc. v. Read Properties, LLC, from Lynchburg. It arises from a commercial lease, in which the landlord and tenant each agreed that the procuring broker would receive 5% of the rental payments over the course of the lease term. That term eventually extended to 15 years.
In about the 12th year of the tenancy, the landlord sold the property to Francis Hospitality, which became the new landlord by virtue of an assignment of the lease. As soon as that sale closed, the landlord and tenant cut off payments to the broker. They executed an amendment to the lease, expressly removing the obligation to pay the broker.
The broker sued, claiming breach of contract, tortious interference with contract, and statutory conspiracy. The trial court ruled in favor of the broker, fixing damages at $34,000 for each of the first two counts and treble damages plus attorneys’ fees for the third. The landlord and tenant got a writ to review the awards for the second and third claims.
Today the justices reverse those two awards, because under Virginia law, as elsewhere, you can’t tortiously interfere with your own contract. Tortious-interference claims are available only against strangers to the contract, so this is a plain-vanilla breach of contract. And since the predicate unlawful act for the conspiracy count was the now-failed tortious-interference claim, the conspiracy claim dies as well, taking with it the treble damages and attorneys’ fees that might well have exceeded even the damage awards. The court affirms the judgment on the breach-of-contract count.
The next case is Sweely Holdings, LLC v. SunTrust Bank. This one involves $18 million in loans secured by personal property and four real parcels. The timing was unfortunate: The loans closed in 2008, just at the time the economy was tanking. When the borrower defaulted two years later, the bank seized $1.8 million in cash and made plans to foreclose on the realty. The borrower threatened bankruptcy.
Cooler heads intervened in this escalating situation, and the parties negotiated a workout agreement, giving the borrower time to raise money or liquidate property. The agreement obligated the borrower to make four payments on a set schedule. If the borrower couldn’t make those payments, it agreed to deliver deeds to the properties, one at a time, and cooperate in subsequent foreclosures.
On the second of these scheduled dates, the borrower offered a deed to the relevant property in lieu of foreclosure. The bank refused, realizing that foreclosure would wipe out inferior liens but a deed wouldn’t.
The borrower sued the bank, plus three of its employees for breach of contract, plus fraud in the inducement to execute the workout agreement. It claimed that the bank had falsely stated that it had lowball appraisals that would diminish the value of bankruptcy protection, thus falsely leading the borrower to reach an agreement.
A circuit court judge sustained a demurrer and dismissed the case. Today the justices agree and affirm. The contract claim fails because its terms allowed the bank to do exactly what it did: refuse to accept a deed in lieu of foreclosure. Indeed, the requirement for a “friendly foreclosure” contemplates just that. The fraud claim fails because of the Murayama doctrine: Once you’re in an adversarial relationship against someone, you can’t justifiably rely on their representations to support a fraud claim.
Both of today’s decisions are unanimous.