Cincinnati Development III v. Cincinnati Terrace Plaza, LLC ( 2023 )

NOT RECOMMENDED FOR PUBLICATION
File Name: 23a0128n.06
Nos. 22-3303/3367
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FILED
) Mar 14, 2023
CINCINNATI DEVELOPMENT III, LLC, DEBORAH S. HUNT, Clerk
)
Plaintiff-Appellee/Cross-Appellant, )
)
v. ) ON APPEAL FROM THE UNITED
) STATES DISTRICT COURT FOR
CINCINNATI TERRACE PLAZA, LLC, ) THE SOUTHERN DISTRICT OF
Defendant-Appellant/Cross-Appellee. ) OHIO
) OPINION
Before: READLER, MURPHY, and MATHIS, Circuit Judges.
The court delivered a PER CURIAM opinion. MATHIS, J. (pp. 32–38), delivered a
separate opinion concurring in part and dissenting in part.
PER CURIAM. This case concerns a dispute over the sale of a property in Cincinnati (the
“Property”). Initially, Cincinnati Terrace Plaza, LLC (“Seller”) agreed to sell the Property to
Cincinnati Development III, LLC (“First Buyer”) with the caveat that Seller could continue to
market the Property to other potential buyers subject to First Buyer receiving a right of first refusal
to match any subsequent offer.
As permitted by Seller and First Buyer’s contract, Seller continued to market the Property
and, during First Buyer’s Inspection Period, agreed to sell the Property to Cincinnati Terrace
Associates, LLC (“Second Buyer”) for a higher purchase price. But, Seller never informed First
Buyer of the second offer, nor provided First Buyer with the right of first refusal to match Second
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
Buyer’s terms. The Property was then conveyed to Second Buyer for a higher purchase price.
First Buyer learned of Seller’s contract with Second Buyer only after the Property had already
been sold.
First Buyer filed suit against both Seller and Second Buyer asserting several contractual
and statutory claims. After a bench trial, the district court ruled in favor of First Buyer on its
contractual claims but dismissed First Buyer’s statutory and equitable claims. The court awarded
First Buyer damages in the amount of $1.7 million. Seller appeals the district court’s judgment
and First Buyer cross-appeals the court’s dismissal of its statutory claim. For the following
reasons, we AFFIRM the district court’s judgment on all liability issues, REVERSE the court’s
damages award to First Buyer, and REMAND for modification of that award.
I.
The Property was formerly known as the Terrace Plaza Hotel, a mid-century hotel, office,
and retail building with historical and architectural significance. While once a luxury hotel, the
building had been mostly vacant for years and had fallen into serious disrepair. As a result, the
Property was difficult to sell and costly to maintain.
A. The 2017 Purchase Agreement
Seller started marketing the Property for sale in late 2016. After receiving several offers,
Seller determined that First Buyer’s was the most attractive, and they entered contract negotiations.
These negotiations culminated in the June 30, 2017, Membership Interest Purchase Agreement
(“2017 Purchase Agreement”) to purchase the Property for $12.5 million.
The 2017 Purchase Agreement provided for a 75-day inspection period and gave First
Buyer the option to extend the inspection period by 30 days for a non-refundable payment of
2
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
$15,000. It also required First Buyer to deposit $150,000 into an escrow account as earnest money
within five days of the agreement’s effective date, which First Buyer did.
For the building to be worth the $12.5 million purchase price, First Buyer determined that
it needed to obtain tax options and incentives from the City of Cincinnati (“City”). As a result,
during the inspection period, and in addition to its due diligence, First Buyer met with City
officials, business leaders, real estate development companies, and various banks to obtain such
options and incentives. After conducting its due diligence, First Buyer terminated the 2017
Purchase Agreement.
B. The 2018 Purchase Agreement
Despite terminating the 2017 Purchase Agreement, First Buyer remained interested in the
Property, and the parties continued to work with each other on a potential new deal. Ultimately,
First Buyer entered into another Membership Interest Purchase Agreement (“2018 Purchase
Agreement”) with Seller to purchase the Property for $9.5 million. The effective date of the
Agreement was June 1, 2018.
The 2018 Purchase Agreement’s contemplated conveyance structure mirrored that of the
2017 Purchase Agreement to avoid certain Ohio transfer taxes. Specifically, no later than three
days prior to the closing date, First Buyer would, with Seller’s involvement and consent, form a
new Ohio LLC in which Seller would be the sole member. Then, one day prior to the closing,
Seller would convey the Property to the newly formed LLC through a limited warranty deed.
Subsequently, on the closing date, Seller would sell 100% of the membership interests in the LLC
to First Buyer.
The 2018 Purchase Agreement also required First Buyer to deposit $150,000 into an
escrow account five days after the Agreement’s effective date. But, at the time of the Agreement’s
3
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
execution, First Buyer had no legal representation or escrow agent to manage the process for
making the payment. Thus, in the executed Agreement, the escrow section contains a blank space
for First Buyer’s counsel, and no one signed the Agreement as escrow agent on First Buyer’s
behalf.
The 2018 Agreement provided First Buyer with a 60-day period for First Buyer to
investigate the Property (the “Inspection Period”), during which First Buyer could terminate the
contract without forfeiting its escrow payment. But, after the Inspection Period, the payment
would become nonrefundable and would be applied to the purchase price at closing.
The 2018 Purchase Agreement provided for a closing within 30 days after the expiration
of the Inspection Period as long as the Agreement had not been terminated before that expiration.
Importantly, if the parties failed to close on the Property due to Seller’s breach, First Buyer could
either (1) “elect to enforce the terms [of the 2018 Purchase Agreement] by action for specific
performance, and/or exercise any other right or remedy available to it at law or in equity” or
(2) “terminate [the agreement] by notice to Seller and receive a full refund of the Earnest Money
plus reimbursement” from Seller for due diligence costs not to exceed $50,000. Agreement, R. 7-
4, PageID 347.
The 2018 Purchase Agreement permitted Seller to continue marketing the Property to third
parties until the closing occurred. But, an amendment to the Agreement was also
contemporaneously executed to provide First Buyer with a right of first refusal to match any
subsequent third-party offers (“ROFR Amendment”). Specifically, if Seller agreed to sell the
Property to a third party before the Inspection Period expired, Seller had to provide notice of the
closing to First Buyer. First Buyer would then have the option to purchase the Property by
matching the third party’s terms, including the purchase price. If First Buyer chose not to match,
4
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
Seller could terminate the 2018 Purchase Agreement by providing written notice of termination
and paying a $100,000 termination fee within ten days.
Despite being required to make its $150,000 escrow payment no more than five days after
the 2018 Purchase Agreement’s effective date, First Buyer failed to do so. In fact, First Buyer
failed to make the payment at any time during the Inspection Period. First Buyer also never
inserted the name of its legal counsel in whose name the escrow account was to be jointly titled
with Seller’s counsel. Ultimately, First Buyer and Seller never jointly opened an escrow account
at the contractually listed bank or any other agreed-upon bank.
From the outset of the 2018 Purchase Agreement’s negotiation, “and due to a combination
of the Property’s decline and [First Buyer’s] intent to limit [its] risk, First Buyer made it clear to
Seller that, unless First Buyer received a tax incentive package from the City, it would not be
willing to close the purchase of the Property. One piece of First Buyer’s desired tax incentive
package was tax increment financing (‘TIF’).” Op., R. 111, PageID 3958. But, “the City gave
First Buyer push-back that resulted in delays due to the timing of certain City meetings required
for TIF approval.” Id. at 3959. These delays caused First Buyer to request extensions of the 2018
Purchase Agreement’s Inspection Period almost immediately after the Agreement’s execution.
Seller did not authorize or approve any extensions of the Inspection Period.
C. The Second Buyer Contract
As permitted by the 2018 Purchase Agreement, Seller continued to market the Property to
potential third-party buyers. On June 12, 2018, Second Buyer entered into a Membership Interest
Purchase Agreement (“Second Buyer Contract”) with Seller to purchase the Property for $11
million.1
1
Technically, Cincinnati Terrace Associates purchased the Property, but it was a company formed and purchased by
Cincinnati Terrace Member, LLC as part of the Second Buyer Contract’s conveyance structure.
5
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
Structurally, the Second Buyer Contract was very similar to the 2018 Purchase
Agreement—Second Buyer would establish an LLC with Seller as the sole member, Seller would
then transfer the Property into the LLC before the closing, after which, on the date of the closing,
Seller would sell 100% of its membership interests in the LLC to Second Buyer. This arrangement
was intended to avoid certain Ohio transfer taxes. That being said, the Second Buyer Contract was
more favorable to Seller in several ways—the purchase price was higher, it lacked an inspection
period (which enabled a quicker closing), and the initial escrow payment was both larger and
nonrefundable.
D. Subsequent Developments
Seller never provided First Buyer with a right of first refusal to match Second Buyer’s
terms and failed to inform either buyer as to the existence of the other buyer’s agreement. Instead,
Seller actively assured both buyers that their contracts were valid. For example, on July 18, 2018,
First Buyer met with Seller in anticipation of a meeting that First Buyer had with the City Planning
Commission regarding First Buyer’s TIF request. During the meeting, First Buyer pressed Seller
on Seller’s commitment to sell the Property to First Buyer and was assured by Seller that the parties
were under contract.
Additionally, despite the 2018 Purchase Agreement being in place, Seller represented and
warrantied in the Second Buyer Contract that the contract would not “conflict or result in a breach
of any agreement to which Seller [was] a party.” Second Buyer Contract, R. 56-1, PageID 1586.
Unaware of each other’s contract, both buyers continued to work toward closing on the
Property. First Buyer met with the City Planning Commission regarding its TIF proposal and
received unanimous approval to move the proposal forward. Second Buyer secured financing,
which included a $7 million loan and numerous other agreements to finance the transaction. In
6
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
sum, both buyers expended significant resources under the impression that they would be
purchasing the Property.
Ultimately, and per the terms of the Second Buyer Contract, Seller conveyed the Property
to Second Buyer on August 1, 2018, the day after First Buyer’s Inspection Period expired. Two
days later, First Buyer learned of the Property’s sale to Second Buyer. First Buyer put $150,000
into an escrow account the same day.
E. First Buyer’s Lawsuit
On August 7, 2018, First Buyer filed suit against Seller in Ohio state court and obtained a
temporary restraining order to enjoin the recording of the deed for 14 days. Nevertheless, the deed
was recorded on the same day First Buyer filed suit. Subsequently, on August 10, 2018, First
Buyer amended its complaint to include Second Buyer as a defendant and obtained an amended
temporary restraining order to include Second Buyer. Seller then removed the case to the district
court.
First Buyer’s suit asserted the following claims: (1) breach of contract against Seller for
failure to convey the Property to First Buyer, provide First Buyer with a right of first refusal, or
give notice of termination to First Buyer during the Inspection Period and pay a $100,000
termination fee; (2) breach of the implied duty of good faith and fair dealing against Seller in
connection with the manner in which Seller allegedly breached the 2018 Purchase Agreement;
(3) promissory and equitable estoppel against Seller based on its contractual and extracontractual
affirmations and representations regarding the validity and enforceability of the 2018 Purchase
Agreement; (4) tortious interference against Second Buyer for allegedly knowing about First
Buyer’s contract but nevertheless contracting to purchase the Property and inducing Seller’s
breach of its contract with First Buyer; and (5) violation of the Ohio Uniform Fraudulent Transfer
7
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
Act (“UFTA”) against Seller and Second Buyer regarding the manner in which the Second Buyer
Contract conveyed the Property to Second Buyer. First Buyer also sought declaratory and
injunctive relief with regard to the 2018 Purchase Agreement’s validity and enforceability, and
specific performance in connection with Seller’s alleged breach.
F. The District Court’s Decision
The case ultimately proceeded to a bench trial. The district court then issued bifurcated
decisions on liability and damages. The Liability Order was issued on June 7, 2021. The Damages
Order was issued on December 28, 2021.
Findings of Fact. After considering the physical and testimonial evidence submitted at
trial, the district court found that Seller ultimately “wanted to sell the Property as fast as possible
for the highest price”—an understandable desire given the state of the building and the cost of its
upkeep. Op., R. 111, PageID 3971. As such, Seller was concerned about First Buyer’s willingness
to close on the Property, given First Buyer’s prior termination of the 2017 Purchase Agreement
and repeated requests to extend the 2018 Purchase Agreement’s Inspection Period. For its part,
First Buyer “was reluctant to put hard money down until it had a clear read on the City’s intentions
regarding” the TIF funding, given the funding’s necessity in minimizing First Buyer’s risk. Id. at
3972. As a result, the district court was “convinced” that, if First Buyer had been tendered the
right of first refusal, it would not have matched Second Buyer’s terms. Id.
On the other hand, Seller was concerned that Second Buyer would not ultimately close on
the Property because the intermediary facilitating the sale had previously brought Seller deals that
failed to close. As a result, “Seller had two choices: honor the [right of first refusal] or violate the
[right of first refusal].” Id. at 3972–73.
With respect to violating the [right of first refusal], there were two possible
options for Seller. First option: if Second Buyer did not close, then Seller could
8
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
continue to negotiate with First Buyer about the 2018 Purchase Agreement with the
[$9.5 million] purchase price. Second option: if Second Buyer actually closed, then
Seller would receive [$11 million] and risk being sued by First Buyer under the
[right of first refusal]. Seller chose the second option as a calculated, contractual
risk because the Property was, and is, rapidly deteriorating and Seller did not want
to be stuck with it any longer. Seller gambled that a court would rule in its favor
by finding that First Buyer’s non-payment of the [escrow amount] would invalidate
the 2018 Purchase Agreement.
Id. at 3973.
Conclusions of Law. The district court found that First Buyer did not materially breach the
2018 Purchase Agreement by failing to timely make the escrow payment and that First Buyer did
not anticipatorily breach the Agreement by seeking extensions of the Inspection Period. The
district court found that Seller materially breached the 2018 Purchase Agreement by not providing
First Buyer with: (1) notice of the Second Buyer Contract, including the closing date in that
contract, and (2) an opportunity to match Second Buyer’s offer. The district court also found that
the way Seller breached the Agreement violated its implied duty of good faith and fair dealing.2
The court also found that Second Buyer was a bona fide purchaser of the Property and acted in
good faith during the closing process, thus disallowing First Buyer’s requests for specific
performance and injunctive relief, and its claim of tortious interference. Lastly, the district court
found that First Buyer did not fit the UFTA’s definition of a “creditor” and thus lacked standing
to bring a claim under the statute.
Damages. For the breach of contract claim, the district court awarded First Buyer $1.5
million in expectation damages, or the difference between the 2018 Purchase Agreement’s
purchase price ($9.5 million) and the Second Buyer Contract’s purchase price ($11 million), which
the court concluded was the fair market value of the Property at the time of the breach. It further
2
The district court dismissed First Buyer’s claim for equitable and promissory estoppel based on its rulings in favor
of First Buyer for breach of contract and the implied duty of good faith and fair dealing.
9
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
awarded First Buyer $200,000 in “special damages” for the amount that First Buyer expended in
connection with its normal due diligence processes and efforts to obtain TIF funding as the
“reasonable and natural consequence of [Seller’s] actions,” which were “reasonably contemplated
by [Seller] at the time of contracting.” Op., R. 114, PageID 4002–03.
II.
Because this appeal is from a judgment following a bench trial, we utilize different
standards of review depending on the part of the judgment being challenged. Findings of fact are
reviewed for clear error. See Lyngaas v. Curaden AG, 992 F.3d 412, 419 (6th Cir. 2021) (citation
omitted). A district court’s factual finding is “clearly erroneous when ‘although there is evidence
to support it, the reviewing court on the entire evidence is left with the definite and firm conviction’
that the district court made a mistake.” United States v. Ellis, 938 F.3d 757, 761 (6th Cir. 2019)
(quoting United States v. Vasquez, 352 F.3d 1067, 1070 (6th Cir. 2003)). We do not decide factual
issues de novo; instead, we generally defer to the trier of fact “who is usually in a superior position
to appraise and weigh the evidence.” Zenith Radio Corp. v. Hazeltine Res., Inc., 395 U.S. 100,
123 (1969).
Questions of law are reviewed de novo. See Lyngaas, 992 F.3d at 419 (citation omitted).
This standard of review often includes the district court’s application of the law to the facts. See
Max Trucking, LLC v. Liberty Mut. Ins. Corp., 802 F.3d 793, 803 (6th Cir. 2015); cf. U.S. Bank
Nat’l Ass’n v. Village at Lakeridge, LLC, 138 S. Ct. 960, 966–69 (2018).
Awards of money damages are reviewed for abuse of discretion. See New London Tobacco
Mkt., Inc. v. Ky. Fuel Corp., 44 F.4th 393, 402 (6th Cir. 2022). Under this standard, “[a] district
court abuses its discretion when it relies on clearly erroneous findings of fact, when it improperly
10
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
applies the law, or uses an erroneous legal standard.” Bisig v. Time Warner Cable, Inc., 940 F.3d
205, 218 (6th Cir. 2019).
This is a diversity case, and the parties agree that Ohio substantive law applies. See Wilton
Corp. v. Ashland Castings Corp., 188 F.3d 670, 673 n.2 (6th Cir. 1999) (observing that we need
not conduct a choice-of-law inquiry when there is no dispute on the applicable substantive law).
III.
A plaintiff must prove four elements to establish an Ohio breach of contract claim: (1) the
existence of a contract, (2) performance by the plaintiff, (3) breach by the defendant, and
(4) damages caused by the breach. See Quest Workforce Sols., L.L.C. v. Job1USA, Inc., 75 N.E.3d
1020, 1030 (Ohio Ct. App. 2016) (citation omitted). The parties do not contest that the 2018
Purchase Agreement was a valid and enforceable contract. As a result, we will address only the
three elements that the parties dispute.
On June 1, 2018, Seller agreed to sell the Property to First Buyer for $9.5 million. As part
of the purchase price, First Buyer was required to deposit $150,000 into an escrow account. First
Buyer had until July 31, 2018, to investigate the Property. If the 2018 Purchase Agreement was
not terminated by July 31, 2018, Seller and First Buyer agreed to close the purchase and sale of
the Property by August 30, 2018. The parties raise several “breach” claims. Seller argues that
First Buyer failed to perform because it did not provide a timely escrow payment and indicated
immediately that it would need a longer Inspection Period. First Buyer argues that Seller breached
because it did not provide First Buyer with a right of first refusal. Seller also reasserts its UFTA
claim. And both sides raise arguments about the proper remedies.
11
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
A. Whether First Buyer’s Failure to Timely Make Its Escrow Payment and Stated
Inability to Close on the Contracted-For Closing Date Excused Seller’s
Subsequent Performance
Seller initially argues that First Buyer did not perform under the 2018 Purchase Agreement
both because it failed to make a timely escrow payment and because it engaged in an anticipatory
breach by indicating that it would need a longer Inspection Period.
First Buyer’s Failure to Timely Make Its Escrow Payment. Section 2(c)(i) of the 2018
Purchase Agreement provides:
Within five business days after the Effective Date of this Agreement
Purchaser shall deposit $150,000 (“Earnest Money”) into an escrow account titled
jointly in the names of Michael A. Galasso (Seller’s counsel) and [blank space]
(Purchaser’s counsel). Seller’s counsel and Purchaser’s counsel shall collectively
serve and be referred to herein as “Escrow Agent.” The signature of both Seller’s
counsel and Buyer’s counsel shall be required for all withdrawals from the escrow
account. The escrow account shall be opened and held at Huntington National
Bank, or such other bank as Seller’s counsel and Buyer’s counsel may agree.
2018 Agreement, R. 7-4, Page ID 343. The district court found that First Buyer failed to make its
escrow payment within five days of the 2018 Purchase Agreement’s effective date, or at any time
during the Inspection Period. That fact is undisputed.
First Buyer disputes whether this failure breached the escrow payment requirement of the
Agreement, arguing that Seller prevented it from timely making its escrow payment. Additionally,
First Buyer argues that, after First Buyer eventually retained counsel, Seller was unresponsive to
First Buyer’s attempts to finalize “a complete set of escrow terms” and that Seller never declared
First Buyer in breach of the Agreement.
Ultimately, First Buyer’s arguments appear to be an attempt to impose obligations on Seller
that the Agreement does not require. The clause’s text is clear—First Buyer was required to
deposit $150,000 into a qualified escrow account within five days of the effective date of the
Agreement (i.e., June 1, 2018). Apart from any efforts that the bank may have required to establish
12
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
Seller’s counsel as joint holder of the account (e.g., counsel’s in-person signature), the obligation
was First Buyer’s and First Buyer’s alone.
Seller had no obligation to monitor the status of First Buyer’s escrow payment or take the
lead on opening the escrow account. Seller also had no obligation to review or approve First
Buyer’s escrow agent. By failing to timely make the escrow payment, First Buyer breached the
2018 Purchase Agreement.
The question remains whether First Buyer’s failure to comply with the escrow requirement
was a material breach of the 2018 Purchase Agreement that excused Seller’s performance. “It is
an old rule of law, as old as the law of contracts, that where one party has substantially performed
his part of the contract, he may call upon the other party to perform his part of the contract; or,
such party failing so to perform, he may sue for breach of contract.” Ohio Farmers’ Ins. Co. v.
Cochran, 135 N.E. 537, 539 (Ohio 1922). “For the doctrine of substantial performance to apply,
the part unperformed must not destroy the value or purpose of the contract.” Hansel v. Creative
Concrete & Masonry Constr. Co., 772 N.E.2d 138, 141 (Ohio Ct. App. 2002).
For example, in Hansel, homeowners sued a contractor for failing to finish their driveway
in a workmanlike manner with proper techniques, alleging that the driveway had problems with
the placement of the wire mesh and an uneven subbase. See id. at 141–42. Ultimately, the court
found that the evidence supported the magistrate’s conclusion that the contractor “substantially
performed under the contract in that the driveway had not failed in its essential purpose.” Id. at
142. Furthermore, although the homeowners in Hansel submitted expert testimony that the
driveway had suffered significant damage after only one or two years, the same expert also testified
that the concrete itself was satisfactory. The crucial linchpin in Hansel was that, while the
homeowners “did not receive exactly what they bargained for, the driveway still met its essential
13
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
purpose. There was no testimony that the driveway was unusable or would become so in the near
future. Pictures admitted at trial showed some surface defects, but the driveway was clearly
useable.” Id. at 142–43. The contractor had thus substantially performed under the contract and
was entitled to be paid for that performance “less an allowance for the defects in the performance
or damages for failure to strictly comply with the contract.” Id. at 143.
Here, after the Inspection Period, the escrow payment became nonrefundable and was to
be applied to the purchase price. The only substantive effect of First Buyer’s failure to timely
make its escrow payment was that it would need to pay that $150,000 at closing. It is unlikely that
a failure to prepay 1.6% of the Agreement’s purchase price “destroy[ed] the value or purpose of
the contract.” Hansel, 772 N.E.2d at 141. As a result, First Buyer’s failure to timely make its
escrow payment was not a material breach of the 2018 Purchase Agreement such that Seller’s
obligation to perform was excused.
First Buyer’s Requested Extensions of the 2018 Purchase Agreement’s Inspection Period.
Apart from First Buyer’s failure to timely make its escrow payment, Seller argues that First
Buyer’s repeated requests for extensions of the Inspection Period constituted an anticipatory
breach of the 2018 Purchase Agreement such that Seller’s performance was excused. “Under Ohio
law, ‘[a] party repudiates a contract when the party insists upon terms contrary to the parties’
agreement to the point where that insistence amounts to a statement of intention not to perform
except on conditions which go beyond the contract.’” Bank One, N.A. v. Echo Acceptance Corp.,
380 F. App’x 513, 518 (6th Cir. 2010) (quoting Mihelich v. Active Plumbing Supply Co., No.
90965, 2009 WL 1351031, at *3 (Ohio Ct. App. May 14, 2009) (alteration in original)). “The
repudiating party must clearly and unequivocally relay its intention not to perform its contractual
obligations.” Mihelich, 2009 WL 1351031, at *3. In other words, “[a] mere request for a change
14
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
in the terms or a request for cancellation of the contract is not in itself enough to constitute a
repudiation.” Id.Here, almost immediately after execution of the 2018 Purchase Agreement, First Buyer
began requesting extensions of the Inspection Period to permit it more time to negotiate for TIF
funding with the City. But, First Buyer never requested a conditional closing based on the City’s
timing and continued to expend resources in furtherance of its obligation to purchase the Property
as dictated by the Agreement. First Buyer’s requests for extensions of the Inspection Period do
not rise to the level of an insistence that First Buyer would not substantially perform under the
Agreement without such extensions. See Bank One, 380 F. App’x at 518–20. Therefore, First
Buyer’s requests for extensions of the Inspection Period did not constitute an anticipatory
repudiation of the 2018 Purchase Agreement such that Seller was excused from performance.
B. Whether Seller’s Failure to Provide First Buyer with a Right of First Refusal
Breached the 2018 Purchase Agreement
The 2018 Purchase Agreement allowed Seller to continue marketing the Property even
though it was under contract with First Buyer. But, there was a catch contained in the ROFR
Amendment: “If Seller agrees to sell the Property . . . to a third party before the expiration of the
Inspection Period, Seller shall provide notice of the closing to [First Buyer] and [First Buyer] may
purchase the Property upon the same terms and conditions as the third party buyer’s . . . .” ROFR
Amendment, R. 7-5, PageID 360.
Seller argues that, under the Agreement, its duty to provide First Buyer with a right of first
refusal was only triggered if a subsequent agreement with a third-party buyer had a closing date
before First Buyer’s Inspection Period expired on July 31, 2018. But this argument misreads the
clause because it conflates two separate concepts—agreement and fulfillment. To “agree” is to
“accede,” “consent,” or “come to an agreement with another.” Agree, OXFORD ENGLISH
15
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
DICTIONARY (2012). Thus, by definition, nothing further is imposed on the parties after the
achievement of mutual consent. Seller’s obligation to provide First Buyer with a right of first
refusal triggered when Seller agreed to sell the Property to a third party during the Inspection
Period, regardless of when the closing date of that agreement was to take place. As a result, finding
no clear error in the district court’s factual findings that Seller failed to provide First Buyer with a
right of first refusal to match Second Buyer’s terms, the Court finds that Seller breached the
Agreement by failing to provide the right of first refusal.
C. Whether Seller Breached the Implied Duty of Good Faith and Fair Dealing
“In addition to a contract’s express terms, every contract imposes an implied duty of good
faith and fair dealing in its performance and enforcement.” Lucarell v. Nationwide Mut. Ins. Co.,
97 N.E.3d 458, 463 (Ohio 2018). The requirement of good faith is thus a “compact reference to
an implied undertaking not to take opportunistic advantage in a way that could have not been
contemplated at the time of drafting, and which therefore was not resolved explicitly by the
parties.” Id. (citation and quotation omitted). In other words, “‘[g]ood faith performance or
enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency
with the justified expectations of the other party. . . . [Conversely,] [b]ad faith may consist of
inaction, or may be the abuse of a power to specify terms, [or] interference with or failure to
cooperate in the other party’s performance.’” Matus v. Lorain Cnty. Gen. Health Dist., 707
F. App’x 304, 312 (6th Cir. 2017) (quoting Littlejohn v. Parrish, 839 N.E.2d 49, 54 (Ohio Ct. App.
2005)) (internal quotation omitted) (alteration in original).
Ohio does not recognize an independent cause of action for breach of the implied duty of
good faith and fair dealing. See Lucarell, 97 N.E.3d at 469 (citation omitted). “Thus, there is no
violation of the implied duty unless there is a breach of a specific obligation imposed by the
16
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
contract, such as one that permits a party to exercise discretion in performing a contractual duty or
in rejecting the other party’s performance.” Id.
As discussed above, Seller materially breached the 2018 Purchase Agreement when it
failed to provide First Buyer with notice of the closing of the sale to Second Buyer and when Seller
failed to provide First Buyer with a right of first refusal to match Second Buyer’s terms. The
question is whether Seller’s actions were sufficiently dishonest or in bad faith to violate its implied
duty of good faith and fair dealing.
The 2018 Purchase Agreement permitted Seller to continue marketing the Property to
prospective third-party buyers. But, if Seller agreed to sell the Property to a third party during
First Buyer’s Inspection Period, it had to provide First Buyer with notice of the closing and with a
right of first refusal. Not only did Seller fail to satisfy its contractual obligations to First Buyer,
but it also continued to work with First Buyer towards a potential closing, assuring First Buyer
that the parties had a contract in place. It did so to keep First Buyer “on the hook” in case Second
Buyer failed to close on the Property. Thus, Seller’s failure to provide First Buyer with notice of
the closing of the Second Buyer Contract and with the right of first refusal was less accidental
omission and more purposeful concealment to inure to Seller’s financial benefit. Seller’s conduct
falls within the type of bad faith inaction that rises to the level of violating the implied duty of
good faith and fair dealing. As such, the district court did not err in finding that Seller violated its
implied duty of good faith and fair dealing.
D. The Applicability of the UFTA to the Second Buyer Contract
First Buyer’s UFTA claims arise under Ohio Revised Code §§ 1336.04(A) and 1336.05(A).
Section 1336.04(A) provides that a fraudulent transfer occurs as to a creditor if the debtor made
the transfer or incurred the obligation in either of the following ways:
(1) With actual intent to hinder, delay, or defraud any creditor of the debtor; [or]
17
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
(2) Without receiving a reasonably equivalent value in exchange for the transfer or
obligation, and if either of the following applies: (a) [t]he debtor was engaged or
was about to engage in a business or a transaction for which the remaining assets
of the debtor were unreasonably small in relation to the business or transaction [or]
(b) [t]he debtor intended to incur, or believed or reasonably should have believed
that the debtor would incur, debts beyond the debtor’s ability to pay as they became
due.
Similarly, § 1336.05(A) also requires that First Buyer show that Seller’s transfer of the
Property under the Second Buyer Contract was made “without receiving a reasonably equivalent
value in exchange for the transfer . . . .”
First Buyer argues that the district court erred by finding that First Buyer was not a
“creditor” under the UFTA and, further, that the Second Buyer Contract involved a fraudulent
transfer when Seller conveyed the Property to an LLC to avoid certain Ohio transfer taxes. The
question is thus whether First Buyer qualifies as a “creditor” under the UFTA and subsequently
whether it can sustain a claim under § 1336.04(A) or 1336.05(A).
The UFTA defines a “creditor” as “a person who has a claim,” with a “claim” being defined
as a “right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured.” Ohio Rev. Code Ann. § 1336.01(C)–(D). The Supreme Court of Ohio has interpreted
“creditor” to encompass individuals with causes of action in tort. See Stein v. Brown, 480 N.E.2d
1121, 1123–24 (Ohio 1985). The tort claimant would then become a creditor “at the moment in
which the cause of action accrues.” Id. Under an earlier version of this statute defining a creditor
as a person having “any claim,” moreover, Ohio courts recognized that creditors include “all
persons having a valid cause of action arising from torts as well as from contracts.” Foster v.
Gibson, 202 N.E.2d 202, 204 (Ohio Ct. App. 1964) (emphasis added).
As First Buyer correctly points out, there appears to be no precedent under the current
statutory language differentiating contract claims from tort claims to determine whether a claimant
18
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
is a “creditor” under the UFTA. Therefore, we find that First Buyer established that it is a
“creditor” under the UFTA and has standing to sue under §§ 1336.04(A) and 1336.05(A). That
said, based on the record, we find as a matter of law that First Buyer did not prove that Seller
violated the UFTA under either § 1336.04(A) or § 1336.05(A).
Section 1336.04(A)(1) required First Buyer to prove that Seller transferred the Property to
an LLC under the Second Buyer Contract with “actual intent to hinder, delay, or defraud” First
Buyer in connection with the supposed creditor-debtor relationship. First Buyer argues that it
sufficiently showed that “Seller was aware of its contract with First Buyer and its obligations
thereunder, including its obligation to offer a right of first refusal” and that Seller “intentionally,
secretly, and maliciously transferred the Property to [Second Buyer] as part of the closing with
Second Buyer.” Appellee’s Br. at 51–52. This argument appears to fail by its own terms. Seller
transferred the Property under the Second Buyer Contract as part of the closing with Second Buyer,
not as an attempt to avoid paying First Buyer on its “claim” (i.e., the breach of contract action).
Even assuming that the claim for the breach of the right of first refusal arose prior to closing, the
district court found that Seller received funds from Second Buyer corresponding to the Property’s
value in an arms-length deal. See Ohio Rev. Code § 1336.04(B). Because § 1336.04(A) requires
a transfer to be “fraudulent as to a creditor,” the evidence does not support First Buyer’s claim that
Seller transferred the Property pursuant to the Second Buyer Contract to avoid paying damages to
First Buyer in connection with its breach of contract claim.
Section 1336.04(A)(2) required First Buyer to prove that Seller transferred the Property
pursuant to the Second Buyer Contract “[w]ithout receiving a reasonably equivalent value in
exchange for the transfer . . . .” First Buyer argues that the facts are “undisputed that Seller
transferred the Property to its affiliate for no consideration,” and then Second Buyer purchased the
19
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
membership interests of that affiliate. It is slightly disingenuous for First Buyer to argue that the
sales arrangement created by the Second Buyer Contract was a fraudulent conveyance when the
2018 Purchase Agreement’s conveyance structure almost completely mirrors that of the Second
Buyer Contract. Nevertheless, looking at the Second Buyer Contract as a whole, the facts do not
support First Buyer’s argument that Seller conveyed the Property pursuant to the Second Buyer
Contract for “no consideration.” While the Second Buyer Contract required Seller to convey the
Property to an LLC as a “capital contribution” for no compensation, the Contract also required
Second Buyer to purchase 100% of the LLC’s membership interests from Seller on the date of the
closing for $11 million. Thus, looking at the transfer structure as a whole, the facts indicate that
Seller transferred the Property pursuant to the Second Buyer Contract in exchange for $11 million.
Cf. Columbus City Schs. Bd. of Educ. v. Franklin Cnty. Bd. of Revision, 150 N.E.3d 877, 881, 886
(Ohio 2020). As a result, the facts do not support the claim that Seller’s receipt of millions of
dollars was not a “reasonably equivalent value in exchange for the transfer . . . .” § 1336.04(A)(2).
And for the same reasons that First Buyer’s claim under § 1336.04(A)(2) fails, its claim
under § 1336.05(A) must also fail because the section similarly required First Buyer to show that
Seller’s transfer of the Property under the Second Buyer Contract was made “without receiving a
reasonably equivalent value in exchange for the transfer . . . .” § 1336.05(A). All told, First Buyer
failed to prove that Seller violated the UFTA.
E. Remedies
First Buyer argues that the district court erred by denying it specific performance under the
UFTA, namely, transfer of the Property from Second Buyer to First Buyer. Seller argues that
specific performance is not warranted and that the district court erred in calculating its damages
award because (1) the district court’s expectation damages award was improperly calculated,
20
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
(2) the district court failed to follow the 2018 Purchase Agreement’s liquidated damages provision,
which permitted an award of no more than $100,000, and (3) the district court’s special damages
award of $200,000 was not supported by credible evidence. We conclude that First Buyer cannot
obtain specific performance and that it was entitled to only $100,000 damages—whether we
calculate those damages using an “expectation” or “reliance” measure.
1. Specific Performance. First Buyer initially argues that it would be entitled to specific
performance and an unwinding of the sale to Second Buyer if its claim under the UFTA succeeded.
Because this claim fails, we need not consider this requested remedy for the UFTA violation.
2. Damages. That fact leaves First Buyer with a potential damages award. “[T]he sole
purpose of contract damages is to compensate the nonbreaching party for losses suffered as a result
of a breach[.]” Infinity Cap. LLC v. Francis David Corp., 851 F. App’x 579, 590–91 (6th Cir.
2021) (quoting Lake Ridge Acad. v. Carney, 613 N.E.2d 183, 187 (Ohio 1993)) (alteration in
original). These damages generally serve to protect the non-breaching party’s expectation interest
(“i.e., its interest in having the benefit of the bargain” by being put in as good of a position as it
would have been in had the contract been performed) or the party’s reliance interest (“i.e., its
interest in being reimbursed for loss caused by reliance on the contract” by being put in as good
of a position as it would have been in had the contract not been made). Father’s House Int’l, Inc.
v. Kurguz, 71 N.E.3d 711, 718 (Ohio Ct. App. 2016) (quoting Alts. Unlimited-Special, Inc. v. Ohio
Dep’t of Educ., No. 12AP-647, 2013 WL 4807016, at *6 (Ohio Ct. App. Sept. 10, 2013)); see
Restatement (Second) of Contracts § 344 (Am. L. Inst. 1981). “Expectation damages and reliance
damages are fundamentally different: ‘[t]he expectancy recovery affirms the existence of a
contract; the reliance recovery tries to deny it.’” Father’s House, 71 N.E.3d at 718 (quoting Alts.
Unlimited-Special, 2013 WL 4807016, at *6). Under standard principles of contract law, a party
21
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
has the option to choose either its expectation damages or its reliance damages. But it cannot
recover both types of damages. See id. at 718–19; Restatement (Second) of Contracts §§ 344–45.
In this case, the district court awarded First Buyer $1.5 million in “expectation” damages
and $200,000 in “special” damages. Its award rested on two mistakes. The court used an improper
calculation to measure expectation damages. It also treated reliance damages as special damages
and so improperly allowed First Buyer to recover both expectation and reliance damages.
Expectation Damages. When a court does not order specific performance for a
conventional breach of a real estate agreement, the traditional damages award is expectation
damages, measured by “the difference between the original contract price and the fair market value
of the property at the time of the breach.” Kaufman v. Byers, 823 N.E.2d 530, 539 (Ohio Ct. App.
2004) (quotation omitted). For fair market value, “[i]t has been held that when the sale of real
estate after a breach of contract is made within a reasonable time and at the highest price obtainable
after the breach, it is evidence of the market value on the date of the breach.” Triangle Props.,
Inc. v. Homewood Corp., 3 N.E.3d 241, 254 (Ohio Ct. App. 2013) (citing Roesch v. Bray, 545
N.E.2d 1301, 1303 (Ohio Ct. App. 1988)); see Spalla v. Fransen, 936 N.E.2d 552, 557 (Ohio Ct.
App. 2010) (same). The district court relied on this traditional number. First Buyer agreed to buy
the Property for $9.5 million and Seller sold it to Second Buyer for $11 million. The court thus
awarded the difference: $1.5 million.
But this case does not involve a conventional breach. The district court held that Seller
breached a unique provision of the real-estate contract: the right of first refusal. When a contract
has this type of provision and the seller communicates a second offer to the holder of the first-
refusal right, those terms override any terms that the right holder may have originally obtained.
See generally 3 Corbin on Contracts § 11.3 (2022 ed.). The holder of the first-refusal right “has a
22
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
privilege, without the obligation, to purchase real property at a price determined by an offer by a
third party within an agreed upon period of time following notice of such third party’s offer.”
Loeffler v. Crosser, No. OT-98-034, 1999 WL 375525, at *3 (Ohio Ct. App. June 11, 1999) (citing
4 Robert M. Curry & James Geoffrey Durham, Ohio Real Property Law and Practice § 1-1(e) (5th
ed. 1996)).
When a party has breached a right of first refusal, expectation damages accordingly must
reflect the third-party offer, not the original price, in order to put the victim of the breach in as
good of a position as if it had been able to exercise its first-refusal right. Otherwise, the holder of
the first-refusal right would receive a windfall by basing damages on a lower price that was no
longer available to that party. See Koch Indus., Inc. v. Sun Co., Inc., 918 F.2d 1203, 1214 (5th Cir.
1990); Pantry Pride Enters., Inc. v. Stop & Shop Cos., Inc., 806 F.2d 1227, 1231 (4th Cir. 1986);
see also Abdallah v. Abdallah, 359 F.2d 170, 173 (3d Cir. 1966) (collecting authorities). And if a
buyer showed no interest in purchasing that property at the third-party price, the buyer cannot
obtain expectation damages for breach of a right that it would not have exercised. Cf. Christiansen
v. Schuhart, 951 N.E.2d 107, 114–15 (Ohio Ct. App. 2011); Treinen v. Kollasch-Schlueter, 902
N.E.2d 998, 999–1002 (Ohio Ct. App. 2008); see also Koch Indus., 918 F.2d at 1214–15.
That is the case here. The district court was “convinced” (and found as a fact) that First
Buyer would not have matched the $11 million purchase price offered by Second Buyer. Op.,
R. 111, PageID 3972. Thus, First Buyer would have declined to exercise its right to purchase the
Property at the higher price under the right of first refusal. If Seller had properly given notice of
Second Buyer’s offer and First Buyer had declined to exercise its right of first refusal (as the
district court found it would), what would have been First Buyer’s expectation? The ROFR
Amendment leaves the answer to this question clear: “Purchaser’s right of first refusal shall
23
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
terminate, and Seller may terminate the Purchase Contract in accordance with section 3 below.”
ROFR Amendment, R. 7-5, PageID 360. Sections 3 and 4 of the amendment then provide:
3. RIGHT TO TERMINATE: Seller may terminate the Purchase Contract at any
time during the Inspection Period, by providing Purchaser with written notice of
termination (the “Termination Notice”). Within ten days of Seller’s delivery of the
[notice], Seller shall pay $100,000 to Purchaser (the “Termination Fee”).
4. TERMINATION FEE: The Termination Fee shall serve as liquidated damages
under the Purchase Contract, and shall be Purchaser’s sole remedy for Seller’s
failure to perform under the Purchase Contract. Upon Seller’s payment of the
Termination Fee, Purchaser shall have no further rights or claims of any kind
against Seller, and Purchaser shall have waived all remedies for Seller’s breach of
the Purchase Contract, including, without limitation, specific performance.
Id. Under these terms, First Buyer would have received only the $100,000 fee if Seller had not
breached the ROFR Amendment by failing to give it the right of first refusal. We therefore hold
that First Buyer was entitled to $100,000 in expectation damages, the amount that would put it in
as good of a position as if Seller had presented First Buyer with Second Buyer’s offer, First Buyer
had declined, and Seller had terminated the agreement and paid the Termination Fee.
In response, First Buyer invokes a different theory about the terms that Seller “breached.”
First Buyer argues that the 2018 Purchase Agreement obligated Seller to sell the Property to First
Buyer for $9.5 million once the Inspection Period ended regardless of the right of first refusal.
According to this theory of breach, once the time to notify First Buyer of another sale had expired,
Seller’s right to sell the Property to Second Buyer also expired, and the contract required Seller to
close on the sale to First Buyer at the original $9.5 million price. This theory of breach has several
problems. To begin with, the theory made its first appearance during our questioning at oral
argument. Because First Buyer did not brief this breach theory, it has forfeited the argument. See
Bannister v. Knox Cnty. Bd. of Educ., 49 F.4th 1000, 1011–13 (6th Cir. 2022).
In any event, the district court’s conclusions do not support this theory. The district court
found that Seller breached the agreement because it “did not provide First Buyer notice of the
24
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
Second Buyer Contract’s existence” and “did not provide First Buyer with the opportunity to
purchase the Property under the same terms and conditions as found in the Second Buyer
Contract.” Op., R. 111, PageID 3977. In its damages order, the district court similarly noted that
the breach occurred “by failing to offer First Buyer its [right of first refusal].” Op., R. 114, PageID
3999. The court did not find that First Buyer and Seller were locked into a contract to transact the
property at the original price after the close of the Inspection Period. Nor did it make findings that
would have supported First Buyer’s theory of breach, such as that First Buyer would have been
willing and able to purchase the Property for $9.5 million by August 30, 2018. This theory thus
cannot save the district court’s $1.5 million expectation damages award. That award is an
improper windfall.
“Special” Damages. Apart from expectation damages, the district court awarded First
Buyer $200,000 to reimburse its due diligence costs. First Buyer argues that it can recover these
costs in addition to its expectation damages because they are “special damages.” We disagree.
These due diligence damages seek to protect First Buyer’s “reliance interest, i.e., its interest
in being reimbursed for loss caused by reliance on the contract.” Alts. Unlimited-Special, 2013
WL 4807016, at *6. In that respect, First Buyer would have engaged in these same due diligence
practices even if Seller had offered it the right of first refusal. See Op., R. 111, PageID 3958, 3967.
Indeed, First Buyer incurred these expenses while it believed the contract was still in effect, not
after learning of the breach. Cf. Sharp v. Andisman, Nos. 24999, 25002, 2010 WL 3676865, at
*8–9 (Ohio Ct. App. Sept. 22, 2010). As a result, these expenses formed “a part of the expected
cost of the transaction” that First Buyer presumably believed it would recoup through profitable
operation of the property. Callahan v. Richardson, No. C-780119, 1979 WL 208683, at *2 (Ohio
Ct. App. Apr. 4, 1979) (per curiam) (quotation omitted). As a matter of law, however, First Buyer
25
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
could not recover both expectation damages and reliance damages. See Father’s House, 71 N.E.3d
at 718–19.
Nor can First Buyer sidestep this black-letter limitation on the proper relief by relabeling
its “reliance” damages as “special” damages. What Ohio has sometimes called “special” damages
are what we more commonly today call “consequential” damages. See 24 Williston on Contracts
§ 64:16 (4th ed. 2022); Restatement (Second) of Contracts § 351 cmt. b; cf. MacDonald v.
Authentic Invests., L.L.C., No. 15AP-801, 2016 WL 3522193, at *8–9 (Ohio Ct. App. June 28,
2016); Cleveland Punch & Shear Works Co. v. Consumers’ Carbon Co., 5 Ohio C.C. (n.s.) 258(1904). Consequential damages are a special form of expectation damages that correspond not to
the direct loss of the bargained-for promise but the foreseeable consequences that proximately
result from the breach. See 24 Williston on Contracts § 64:16; Restatement (Second) of Contracts
§ 351. In other words, special damages allow a party to recover certain costs that a party has
suffered because of that breach; they do not allow the recovery of expenses that would have been
borne even without the breach. See MacDonald, 2016 WL 3522193, at *9; Callahan, 1979 WL
208683, at *2; see also 30 Ohio Jur. (Third) Damages § 20 (2022) (discussing the elements of
special damages). In this case, the district court denied First Buyer’s request for special damages
(without labeling them as such) when it held that its request for lost profits were “too remote and
speculative.” Op., R. 114, PageID 4003.
In contrast to these types of consequential damages, Ohio case law makes it clear that due
diligence costs that a party would have incurred even if the other side had not breached do not
qualify as special damages in the real estate context. For instance, a party may receive special
damages for the costs of removing a cloud on title caused by the breach, see Moorman v. Levitch,
26 Ohio N.P. (n.s.) 540, 545–46 (Ohio C.P. Hamilton Cnty. 1927), but not the expenses of
26
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
procuring the “certificate of title . . . in anticipation of the contract being fulfilled,” Dudock v.
Alexander, 1928 WL 2508, at *2 (Ohio Ct. App. 1928). The sellers of real estate may be able to
recover for additional costs of insurance and utilities needed “for the preservation of the property”
pending another sale if the breach had caused these costs because the sellers had moved out
because of the contract, Callahan, 1979 WL 208683, at *3, but not if they had vacated that property
before putting it up for sale and so demonstrated that those costs were incidental to their continued
ownership, see Sharp, 2010 WL 3676865, at *8–9 (citing Peterman v. Dimoski, No. C-020116,
2002 WL 31894859, at *4 (Ohio Ct. App. Dec. 31, 2002)); Hiatt v. Giles, No. 1662, 2005 WL
3346172, at *8 (Ohio Ct. App. Dec. 9, 2005). And while sellers can recover for the costs of hiring
a broker to relist a home following the breach in order to mitigate damages, see Callahan, 1979
WL 208683, at *3, special damages remain unavailable when the seller engaged that broker to
arrange the initial sale, see Czerniak v. Aziz, 2011 WL 2535584, at *8 (Ohio Ct. App. June 24,
2011). First Buyer’s due diligence expenditures in this case fall on the wrong side of this divide.
It would have incurred those costs even if Seller had not breached and so the costs qualify as
“reliance” damages rather than “special” damages.
To be sure, First Buyer could choose the larger of its expectation damages (which, under
the proper calculation, were $100,000) and its reliance damages (which the district court calculated
as $200,000). Yet the district court legally erred in another way by finding First Buyer entitled to
recover all of its $200,000 in alleged reliance expenditures. Recall that under § 4 of the ROFR
Amendment, First Buyer’s “sole remedy for Seller’s failure to perform under the Purchase
Contract” was $100,000 in “liquidated damages.” ROFR Amendment, R. 7-5, PageID 360.
Businesses commonly include such “breakup fees” in their contracts to assure potential buyers that
they will be able to recover the costs that they expended in reliance on the deal coming to fruition
27
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
in the event the deal does not go through. Cf. Frazier Indus., L.L.C. v. Gen. Fasteners Co., 137
F. App’x 723, 727–28, 733–34 (6th Cir. 2005); Edelman v. Fruehauf Corp., 798 F.2d 882, 885
(6th Cir. 1986); Sunde v. Highline Corp., No. 19337, 1999 WL 635727, at *3 (Ohio Ct. App. Aug.
18, 1999).
The $100,000 Termination Fee serves that same function. Cf. Restatement (Second) of
Contracts § 349. As the district court found, the parties intended that this fee would suffice “to
cover the expenses that First Buyer would incur performing its due diligence and working to secure
incentives from the City.” Op., R. 111, PageID 3958 n.8. First Buyer also does not claim that the
Termination Fee is an unenforceable penalty clause instead of a legitimate liquidated damages
provision, such as might occur if $100,000 was an unreasonably small estimate of anticipated
expenditures. See Restatement (Second) of Contracts, § 356; see also Infinity Cap., 851 F. App’x
at 583–84; cf. Frazier Indus., 137 F. App’x at 735. Under § 4’s Termination Fee, therefore, First
Buyer can receive only $100,000 in reliance damages for its due diligence costs.
In response, First Buyer says that § 4’s limitation on the amount of damages should not
apply to Seller’s breach in this case. Section 11(b) of the 2018 Purchase Agreement provided other
remedies that First Buyer could seek upon Seller’s breach of the Agreement:
If the Closing is not concluded due to Seller’s breach of this Agreement,
Purchaser, at its option, (a) may elect to enforce the terms hereof by action for
specific performance, and/or exercise any other right or remedy available to it at
law or in equity, or (b) may terminate this Agreement by notice to Seller and receive
a full refund of the Earnest Money plus reimbursement from Seller for Purchaser’s
out of pocket costs incurred investigating the Property in an amount not to exceed
[$50,000]. Upon any termination under (b) above, the parties shall have no further
rights and obligations hereunder other than those rights and/or obligations which
are expressly stated to survive expiration or termination of this Agreement.
2018 Agreement, R. 7-4, PageID 347. According to First Buyer, this provision, not § 4 of the
ROFR Amendment, applied to Seller’s breach and gave it a right to seek $200,000 in reliance
28
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
damages. Yet it limited due-diligence costs to an even smaller number: $50,000. Regardless, we
do not think that this provision applied here.
At first glance, there appears to be a conflict between § 11(b) of the 2018 Purchase
Agreement and § 4 of the ROFR Amendment. How could § 11(b) serve as a basis for damages
when § 4 of the ROFR Amendment states that the Termination Fee is First Buyer’s “sole remedy
for Seller’s failure to perform”? While an amendment generally supersedes a contract’s prior
terms, “construction of the contract should attempt to harmonize all the provisions rather than
produce conflict in them. . . . To that end, no provision of the contract should be ignored as
inconsistent if there exists a reasonable interpretation [that] gives effect to both.” Lincoln Elec.
Co. v. St. Paul Fire & Marine Ins. Co., 210 F.3d 672, 685 (6th Cir. 2000) (quoting Ottery v. Bland,
536 N.E.2d 651, 654 (Ohio Ct. App. 1987)).
But we interpret § 4’s Termination Fee as serving as First Buyer’s “sole remedy” whenever
Seller breached the termination procedure of the ROFR Amendment. Section 4 provides First
Buyer with this remedy “for Seller’s failure to perform under the Purchase Contract” and states
that Purchaser waives all other remedies for “Seller’s breach of the Purchase Contract[.]” ROFR
Amendment, R. 7-5, PageID 360 (emphasis added). Because § 3 of the ROFR Amendment grants
Seller the option of selling the property to someone else, and because First Buyer acknowledged
in the Purchase Agreement that Seller could continue to market the property until closing, no
breach would occur simply because Seller chose another offer and properly gave First Buyer
timely notice of termination. Thus, § 4 must contemplate a situation other than when Seller gave
notice of termination of the contract during the Inspection Period. Instead, the same termination
fee as owed under § 3 would serve as First Buyer’s sole remedy when Seller sold the property to
another buyer without offering First Buyer its right of first refusal (in breach of § 2 of the ROFR
29
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
Amendment) or providing notice (in breach of § 3). If Seller never agreed to sell to another
purchaser, by contrast, § 3’s termination requirements would not arise, and absent a need for
termination, First Buyer would not be entitled to a Termination Fee as its sole remedy. In that
case, Section 11(b) would continue to govern First Buyer’s remedies, as Seller’s conduct had not
implicated the right of first refusal.
First Buyer rejects this reading as absurd by suggesting that Seller could profit from its
breach by paying First Buyer $100,000 while retaining the $150,000 deposited into escrow. That
speculation (First Buyer does not claim that Seller retained the $150,000) misstates the mechanics
of escrow. In an escrow agreement, a grantor places property with a depository, who is both an
agent for the parties and a trustee of the property pursuant to the escrow agreement. Squire v.
Branciforti, 2 N.E.2d 878, 882 (Ohio 1936); Standard Asbestos Mfg. Co. v. Fulton, 4 N.E.2d 713,
715 (Ohio Ct. App. 1935). Even though delivery of the property is irrevocable and the transferee
obtains some conditional rights in that property, the grantor retains ownership of the property until
the escrow conditions are satisfied. In re Arctic Exp. Inc., 636 F.3d 781, 792 (6th Cir. 2011);
Lloyd’s Lessee v. Giddings, 7 Ohio 50, 53 (1836); Bank Street Bldg. Ass’n v. Schnell, 29 Ohio N.P.
(n.s.) 579, 581 (Ohio C.P. Hamilton Cnty. 1932). The escrow agent accordingly can disperse
property held in escrow only as the contract of deposit permits. Waffen v. Summers, No. OT-08-
34, 2009 WL 1741731, at *5 (Ohio Ct. App. June 19, 2009). The 2018 Purchase Agreement gave
Seller the right to retain First Buyer’s earnest money only if closing occurred or First Buyer
breached the agreement. 2018 Agreement, R. 7-4, PageID 343, 347. The escrow agent
accordingly would be obligated to return the earnest money to First Buyer whenever Seller
prevented First Buyer from closing on the Property, even if Seller did not breach the right of first
refusal in the process. See Escrow Agreement, R. 7-7, PageID 392–94. If Seller refused to consent
30
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
to returning the earnest money, the escrow agent could then bring an interpleader action that would
result in the money being returned to First Buyer without First Buyer ever having to seek a
“remedy” against Seller directly for the $150,000 under the 2018 Purchase Agreement. Id. at 394.
In sum, because of the way § 4 of the ROFR Amendment operates, First Buyer’s
expectation and reliance damages both equal $100,000. We therefore hold that the district court
erred by awarding First Buyer damages greater than $100,000.
IV.
For the aforementioned reasons, we AFFIRM the district court’s judgment regarding the
respective liabilities of the parties. But we REVERSE its damages award to First Buyer and
REMAND with instructions to reduce that award from $1.7 million to $100,000.
31
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
MATHIS, Circuit Judge, concurring in part and dissenting in part. I concur in the
majority opinion, except as to the expectation damages analysis in Section III.E. I agree with the
majority that the district court did not err in its liability determinations. I further agree that the
award of expectation damages to First Buyer should be reduced, just not by as much as determined
by the majority opinion. For the reasons below, I would reduce the expectation damages awarded
by the district court to First Buyer to $900,000 rather than $100,000.
I.
To briefly recap, on June 1, 2018, Seller entered into the 2018 Purchase Agreement to sell
the Property to First Buyer for $9.5 million. Seller and First Buyer also executed the ROFR
Amendment, which amended and became part of the 2018 Purchase Agreement. The 2018
Purchase Agreement allowed First Buyer to inspect and investigate the Property up to July 31,
2018. Seller and First Buyer were required to close on the Property no later than August 30, 2018.
First Buyer was unable to purchase the Property from Seller because Seller secretly sold the
Property to Second Buyer on August 1, 2018, the day after the 2018 Purchase Agreement’s
Inspection Period concluded. Thus, Seller materially breached the 2018 Purchase Agreement, and
its duty of good faith and fair dealing, when it sold the Property to Second Buyer without
complying with the ROFR Amendment.
II.
Under Ohio law, “[i]n all cases involving contract interpretation, [courts] start with the
primary interpretive rule that courts should give effect to the intentions of the parties as expressed
in the language of their written agreement.” Sutton Bank v. Progressive Polymers, L.L.C., 163
N.E.3d 546, 552 (Ohio 2020) (citation omitted). In doing so, “common words appearing in a
written instrument will be given their ordinary meaning unless manifest absurdity results or unless
32
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
some other meaning is clearly intended from the face or the overall contents of the instrument.”
Alexander v. Buckeye Pipe Line Co., 374 N.E.2d 146, 150 (Ohio 1978); see Sutton Bank, 163
N.E.3d at 552.
There are several provisions in the 2018 Purchase Agreement and ROFR Amendment that
address the remedies First Buyer can seek upon Seller’s breach, or termination, of the Agreement.
Section 11(b) of the 2018 Purchase Agreement provides:
If the Closing is not concluded due to Seller’s breach of this
Agreement, Purchaser, at its option, (a) may elect to enforce the
terms hereof by action for specific performance, and/or exercise any
other right or remedy available to it at law or in equity, or (b) may
terminate this Agreement by notice to Seller and receive a full
refund of the Earnest Money plus reimbursement from Seller for
Purchaser’s out of pocket costs incurred investigating the Property
in an amount not to exceed [$50,000]. Upon any termination under
(b) above, the parties shall have no further rights and obligations
hereunder other than those rights and/or obligations which are
expressly stated to survive expiration or termination of this
Agreement.
[R. 7-4, PageID 347]. Sections 3 and 4 of the ROFR Amendment contain additional language
regarding First Buyer’s remedies to Seller’s breach of the 2018 Purchase Agreement:
3. RIGHT TO TERMINATE: Seller may terminate the Purchase
Contract at any time during the Inspection Period, by providing
Purchaser with written notice of termination (the “Termination
Notice”). Within ten days of Seller’s delivery of the [notice], Seller
shall pay $100,000 to Purchaser (the “Termination Fee”).
4. TERMINATION FEE: The Termination Fee shall serve as
liquidated damages under the Purchase Contract, and shall be
Purchaser’s sole remedy for Seller’s failure to perform under the
Purchase Contract. Upon Seller’s payment of the Termination Fee,
Purchaser shall have no further rights or claims of any kind against
Seller, and Purchaser shall have waived all remedies for Seller’s
breach of the Purchaser Contract, including, without limitation,
specific performance.
[R. 7-5, PageID 361].
33
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
At first glance, there appears to be a conflict between § 11(b) of the 2018 Purchase
Agreement and § 4 of the ROFR Amendment. How could § 11(b) serve as a basis for damages
when § 4 of the ROFR Amendment states that the Termination Fee is First Buyer’s “sole remedy
for Seller’s failure to perform”?
While an amendment generally supersedes a contract’s prior terms, “‘construction of the
contract should attempt to harmonize all the provisions rather than produce conflict in them. . . .
To that end, no provision of the contract should be ignored as inconsistent if there exists a
reasonable interpretation [that] gives effect to both.’” Lincoln Elec. Co. v. St. Paul Fire & Marine
Ins. Co., 210 F.3d 672, 685 (6th Cir. 2000) (quoting Ottery v. Bland, 536 N.E.2d 651, 654 (Ohio
Ct. App. 1987)). A literal interpretation of § 4 of the ROFR Amendment fails to give effect to all
provisions of the 2018 Purchase Agreement in a manner that expresses the reasonable expectations
of the parties.
Section 4 of the ROFR Amendment should be interpreted to only foreclose First Buyer
from obtaining remedies against Seller beyond the Termination Fee solely for exercising its right
to terminate the 2018 Purchase Agreement during the Inspection Period. In other words, First
Buyer cannot seek specific performance, reliance damages, or other equitable remedies from Seller
simply because Seller exercised its contractual right to back out of the deal. Section 4 does not
encompass other breaches of the Agreement, nor Seller’s attempt to terminate the Agreement after
the Inspection Period.
Section 4 of the ROFR Amendment was not triggered in this case. Seller purported to
terminate the 2018 Purchase Agreement nine days after the close of the Inspection Period.
Furthermore, when it purported to terminate the Agreement, Seller failed to pay First Buyer the
Termination Fee within 10 days of providing notice of termination. By its own terms, § 4 does
34
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
not apply. As a result, the liquidated damages provision in § 4 does not limit the amount of
damages First Buyer can recover damages from Seller.
Seller argues that § 4 should be read literally and that under such a reading, § 4 “is First
Buyer’s sole remedy and damages for any breach of the [A]greement by Seller.” [D. 21 at p.27].
Looking at the plain language of § 4, it appears to limit First Buyer’s damages to the $100,000
Termination Fee for any claims in connection with Seller’s breach. Thus, because “the additional
terms supersede the original terms to the extent the two are contradictory,” Seller appears correct
that, under a literal reading, First Buyer was entitled to $100,000 in damages and nothing more.
Ottery, 536 N.E.2d at 654. But there are two reasons why a literal reading of § 4 leads to “manifest
absurdity” in the interpretation of the 2018 Purchase Agreement. Alexander, 374 N.E.2d at 150.
First, in its briefing, First Buyer raises a compelling counterargument to Seller’s rigid
interpretation of § 4: “Under Seller’s interpretation, Seller could theoretically keep First Buyer’s
$150,000 [escrow payment] and pay out only $100,000 as liquidated damages,” producing a
financial windfall for Seller. [D. 22 at p.43]. Such an arrangement appears to give Seller all the
upside and leave First Buyer with all the risk. Ultimately, it is highly unlikely that the parties
would have negotiated for such a result. As such, another meaning appears “clearly intended from
the face or the overall context of the instrument.” Alexander, 374 N.E.2d at 150.
Second, putting aside § 4’s effect on the other relevant damages provisions, a literal reading
of § 4’s extent appears similarly misguided. Pursuant to § 3 of the ROFR Amendment, Seller can
terminate the 2018 Purchase Agreement by providing written notice of termination during the
Inspection Period and paying First Buyer the $100,000 Termination Fee within ten days of the
notice. If Seller fails to fulfill either requirement, the termination is void. But if one looks solely
at § 4, it appears that Seller could simply breach the 2018 Purchase Agreement for any reason and
35
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
still only be required to pay $100,000. Why, then, would Seller ever choose to properly terminate
the Agreement during the Inspection Period and immediately pay $100,000 when it could breach
the Agreement at a later time and still only have to pay the same $100,000 years down the line?
An interpretation of § 4 that would permit the above scenario appears to fall under the
exception for giving words their common meaning “unless manifest absurdity results.” Alexander,
374 N.E.2d at 150. Of course, § 4 directly follows § 3 in the ROFR Amendment. It would be
absurd to conclude that the Termination Fee is highly conditioned in one paragraph and nearly
unconditioned in the next, especially when the later paragraph subsumes the circumstances
outlined in the former. See id. The question then turns to what the proper amount of expectation
damages should be in this case.
III.
“[T]he sole purpose of contract damages is to compensate the nonbreaching party for
losses suffered as a result of a breach[.]” Infinity Cap. LLC v. Francis David Corp., 851 F. App’x
579, 590–91 (6th Cir. 2021) (quoting Lake Ridge Acad. v. Carney, 613 N.E.2d 183, 187 (Ohio
1993)) (alteration in original). In breaches of real estate agreements, the traditional damages award
is expectation damages, measured by “the difference between the original contract price and the
fair market value of the property at the time of the breach.” Kaufman v. Byers, 823 N.E.2d 530,
539 (Ohio Ct. App. 2004) (quotation omitted). In determining fair market value, “[i]t has been
held that when the sale of real estate after a breach of contract is made within a reasonable time
and at the highest price obtainable after the breach, it is evidence of the market value on the date
of the breach.” Triangle Props., Inc. v. Homewood Corp., 3 N.E.3d 241, 254 (Ohio Ct. App. 2013)
(citing Roesch v. Bray, 545 N.E.2d 1301, 1303 (Ohio Ct. App. 1988)); see Spalla v. Fransen, 936
N.E.2d 552, 557 (Ohio Ct. App. 2010) (same).
36
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
The Property’s sale to Second Buyer took place on August 1, 2018, shortly after Seller
breached the 2018 Purchase Agreement. This led the district court to use the price difference
between the 2018 Purchase Agreement ($9.5 million) and the Second Buyer Contract ($11 million)
as the measure of First Buyer’s expectation damages. This was incorrect.
The district court found that Seller sold the Property to Second Buyer for $10.4 million.
Thus, “the highest price obtainable after the breach” was $10.4 million, not $11 million. Triangle
Props., 3 N.E.3d at 254. Spalla is instructive on this point. In Spalla, the parties disputed whether
the highest obtainable price for a real estate sale was the purchase agreement’s contract price or
the amount the buyer actually paid for the property. See Spalla, 936 N.E.2d at 557. Specifically,
the purchase agreement stipulated that $15,000 of the sale proceeds would be held in escrow in
case the property’s septic tank failed to pass inspection and needed repair. Id. at 558. The septic
tank ultimately failed its inspection and the court determined that this condition reduced the
property’s highest obtainable price by $15,000. Id. In other words, the focus was on how much
the buyer actually paid from the sale of the property, not the purchase price in the purchase
agreement. See id.
While it was not an abuse of discretion for the district court to award First Buyer the
traditional measure of damages for breaches of real estate agreements (i.e., expectation damages),
the district court erred when it found that the Second Buyer Contract price ($11 million) was the
fair market value for the Property rather than the actual purchase price ($10.4 million). See Bisig
v. Time Warner Cable, Inc., 940 F.3d 205, 218 (6th Cir. 2019) (“A district court abuses its
discretion when it . . . improperly applies the law[.]”) (quotation omitted). Therefore, the proper
expectation damages award to First Buyer should have been $900,000, not $1.5 million. This
amount would put First Buyer in the position it would have been had the 2018 Purchase Agreement
37
Nos. 22-3303/3367, Cincinnati Development III, LLC v. Cincinnati Terrace Plaza, LLC
been performed—i.e., if Seller had sold the Property to First Buyer for $9.5 million as it was
required to do when it, instead, sold the Property to Second Buyer. See Father’s House Int’l, Inc.
v. Kurguz, 71 N.E.3d 711, 718 (Ohio. Ct. App. 2016) (citation omitted).
The majority opinion limits First Buyer’s expectation damages to the $100,000
Termination Fee in the ROFR Amendment because “[t]he district court was ‘convinced’ . . . that
First Buyer would not have matched the $11 million purchase price offered by Second Buyer.”
[Op. at 23]. There are a couple of problems with this reasoning. First, the district court expressly
found that its belief that First Buyer would not have matched the purchase price in the Second
Buyer Agreement was “hypothetical” and “irrelevant.” [R. 111, PageID 3972]. And second, when
Seller sold the Property to Second Buyer on August 1, 2018, the termination terms of the ROFR
Amendment no longer applied. To limit First Buyer’s damages to $100,000, Seller had to
terminate the 2018 Purchase Agreement on or before July 31, 2018, and pay the Termination Fee
to First Buyer within 10 days of the termination. As the district court found, Seller did not attempt
to terminate the 2018 Purchase Agreement until August 9, 2018, and it never paid the Termination
Fee.
I respectfully dissent from the expectation damages analysis in Section III.E of the majority
opinion.
38