Almont Shipping Company

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UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WILMINGTON DIVISION
IN RE:
ALMONT SHIPPING COMPANY, 	06-00944-8-JRL
Debtor. 	Chapter 11
ORDER
The matter before the court is the debtor’s objection to the claim of Old Wilmington
Harbour, LLC (“Old Wilmington”). On March 21, 2007, the court conducted a hearing in Wilson,
North Carolina.
On September 8, 2005, the debtor entered a Real Estate Purchase and Sale Agreement (“the
Agreement”) with Trask Land Company, LLC (“Trask”), to purchase certain parcels of real estate
located in Wilmington, North Carolina. Significantly, paragraph 8 of the Agreement stated that the
purchaser would have the opportunity to enter the property to inspect it until January 1, 2006. The
inspection period is known as the “Review Period” under the Agreement. On September 15, 2005,
Trask assigned all of its rights and obligations under the Agreement to Old Wilmington. On
December 5, 2005, the debtor and Old Wilmington entered a first amendment to the Agreement. The
first amendment extended the Review Period to February 1, 2006. On January 9, 2006, the debtor
SO ORDERED.
SIGNED this 02 day of April, 2007.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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and Old Wilmington entered a second amendment, and the second amendment extended the Review
Period to February 15, 2006.
On February 15, 2006, the debtor and Old Wilmington entered a third amendment.
Paragraph 8 of the third amendment states that, if certain conditions were not met within the Review
Period, then Old Wilmington could recover a portion of its due diligence costs. The amended
language, in pertinent part, reads as follows:
Seller shall obtain as soon as possible but no later than February 28, 2006 a standstill
agreement (“Standstill Agreement”) from River Ventures, LLC (“River”) in a form
reasonably satisfactory to Purchaser whereby River (a) agrees to not exercise any
option or other right which River may have to purchase all or any portion of the
Property until March 16, 2006, provided that this Agreement is still in force and
effect, and (b) agrees to terminate at the time of Closing such option or other right
to purchase all or any portion of the Property being sold to Purchaser at Closing.
Purchaser shall cooperate and assist Seller, but at no cost to Purchaser, in this effort
to obtain the Standstill Agreement from River. Notwithstanding any other
provision of this Agreement, should Seller fail to obtain such Standstill
Agreement within the specified time period, or fail to obtain the executed
purchase agreement from PPD for PPD Out Parcels 1 and 2 (the “PPD
Purchase Agreement”) on or before February 28, 2006, which failure shall not
be deemed a default by Seller of this Agreement, Purchaser may terminate this
Agreement by written notice given to Seller on or before the expiration of the
Review Period and recover from Seller the portion of Purchaser’s due diligence
costs incurred as of the date of such termination up to a maximum amount of
$100,000.00. Notwithstanding any other provisions of this Agreement, should
Purchaser fail to obtain the executed purchase agreement from CSX for the two
parcels described on Exhibit A attached to the Second Amendment (“CSX
Parcels”) (the “CSX Purchase Agreement,” and collectively with the PPD
Purchase Agreement the “Related Purchase Agreements”) on or before
February 28, 2006, which failure shall not be deemed a default by Seller of this
Agreement, Purchaser may terminate this Agreement by written notice given
to Seller on or before the expiration of the Review Period and recover from
Seller the portion of Purchaser’s due diligence costs incurred as of the date of
such termination up to a maximum amount of $100,000.00 (emphasis added).
In addition, under paragraph 12 of the third amendment, the Review Period changed from
a date certain to a date triggered by a number of contingencies. The pertinent language states:
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The Review Period shall be deemed to have expired on the later of (a) February 15,
2006, (b) the date on which the Standstill Agreement and the Related Purchase
Agreements have all been executed by all appropriate parties, or (c) the date on
which Purchaser gives Seller the CSX and PPD Environmental Notice.
On March 6, 2006, a meeting was held whereby Raiford Trask, Manager of Old Wilmington,
stated that Old Wilmington was having trouble obtaining financing for the job. However, Mr. Trask
advised that Old Wilmington wanted to continue the deal by bringing in partners, representatives
of which were present at the meeting. The debtor asserts that Old Wilmington’s representations
made at the meeting that it lacked financing to complete the deal amounted to an anticipatory breach
of the Agreement. Under North Carolina law, “[i]n order to maintain a claim for anticipatory breach,
the words or conduct evidencing the renunciation or breach must be a ‘positive, distinct, unequivocal
and absolute refusal to perform the contract’ when the time fixed for it in the contract arrives.” Allen
v. Weyerhaeuser, Inc., 95 N.C.App. 205, 209, 381 S.E.2d 824, 827 (1989)(quoting Edwards v.
Proctor, 173 N.C. 41, 44, 91 S.E. 584, 585 (1917)). The evidence presented at the hearing supports
that, at the March 6, 2006 meeting, Old Wilmington did not express a positive, distinct, unequivocal
and absolute refusal to perform the contract; rather, it stated that it wanted to move forward with the
deal by bringing in partners as an additional source of funding. There was no financing contingency
in the Agreement, and the court finds that Old Wilmington’s representations did not amount to an
anticipatory breach. Moreover, the debtor and Old Wilmington entered into a fourth amendment
on March 13, 2006 that ratified the terms of the original agreement and its amendments. Pursuant
to the fourth amendment, the closing of the purchase and sale of the subject property was extended
to “on or before March 24, 2006.” Old Wilmington terminated the Agreement on March 24, 2006.
On March 30, 2006, the debtor filed for relief under Chapter 11. On June 26, 2006, Old
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Wilmington filed its proof of claim for $100,000.00, representing the portion of its due diligence
costs to be recovered pursuant to the third amendment of the Agreement. Exhibit B of the proof of
claim reflects that Old Wilmington’s due diligence costs exceeded $100,000.00 and totaled
$173,656.40.
If the debtor did not obtain the Standstill Agreement from River by February 28, 2006, obtain
the executed purchase agreement from PPD for PPD Out Parcels 1 and 2 by February 28, 2006, or
obtain an executed purchase agreement from CSX for the CSX parcels by February 28, 2006, then
Old Wilmington was entitled to collect its due diligence costs up to $100,000.00 so long as it
terminated the Agreement by written notice on or before the expiration of the Review Period. The
debtor did obtain two Standstill Agreements from River prior to the February 28, 2006 deadline.
Even though both Standstill Agreements expired before the closing date, the court finds that the
debtor fulfilled its obligation by obtaining a Standstill Agreement prior to February 28, 2006.
The debtor did not obtain the executed purchase agreement for the PPD Out Parcels by the
February 28, 2006 deadline. The evidence supports that the debtor negotiated an agreement
acceptable to PPD for the sale of the PPD Out Parcels, and the debtor’s attorney emailed the
proposed agreement to Old Wilmington’s attorney on February 20, 2006. Old Wilmington’s attorney
did not respond to the email. Although no agreement was executed by February 28, 2006, the debtor
argues that it fulfilled its responsibilities by providing Old Wilmington the drafted agreement eight
days prior to the February 28, 2006 deadline. Old Wilmington asserts that it did not approve the
proposed PPD purchase agreement because it did not receive the environmental assessment of the
PPD Out Parcels until March 2006. Old Wilmington contends that, as a prudent purchaser, it wanted
to assess the environmental conditions before signing the agreement. The court finds Old
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Wilmington’s position to be reasonable.
The debtor also did not meet its obligation to obtain an executed purchase agreement for the
CSX parcels by the February 28, 2006 deadline. As for the CSX purchase agreement, the debtor’s
attorney emailed a draft purchase agreement on February 22, 2006 to Old Wilmington’s attorney.
Old Wilmington’s attorney provided no response to the email. The proposed CSX purchase
agreement contained an indemnification provision whereby, just to obtain a right of entry to access
the premises for assessing the land’s condition, Old Wilmington would have to indemnify CSX. Old
Wilmington’s attorney advised it against signing such agreement, finding the indemnification terms
to be unreasonable. Old Wilmington and its consultants never had access to the property. The court
finds that it was reasonable for Old Wilmington to want to assess the condition of the property
before signing any purchase agreement and that the indemnification provision for accessing the land
was unreasonable.
Because the debtor did not fulfill its obligations to obtain executed purchase agreements for
the PPD Out Parcels and CSX parcels by February 28, 2006, Old Wilmington was entitled to collect
its due diligence costs up to $100,000.00 so long as it terminated the Agreement by written notice
on or before expiration of the Review Period. As noted above, the Review Period expired on the
later of: February 15, 2006; the date on which the Standstill Agreement and the Related Purchase
Agreements were all executed by all appropriate parties; or the date on which the Purchaser gave
the Seller the CSX and PPD Environmental Notice.
Clearly, the first expiration date of February 15, 2006 had passed by the time Old
Wilmington terminated the Agreement. The second expiration date, however, had not passed. The
Related Purchase Agreements, which include the PPD and CSX purchase agreements, had not been
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executed. The court finds that Old Wilmington acted reasonably by not signing the PPD purchase
agreement without being able to first see the environmental assessment of the PPD Out Parcels. The
court also finds that Old Wilmington acted reasonably by not signing the CSX purchase agreement
when it was unable to even access the land to assess its conditions without first having to indemnify
the owner. As noted by the debtor, paragraph 13 of the original contract states that the purchaser will
take the property “as is.” Certainly, under those circumstances, a purchaser would want to assess the
land’s condition before accepting ownership. While Sid Camden, president of the debtor, stated that
the debtor was willing to indemnify CSX regarding the environmental condition of the CSX parcels,
Old Wilmington’s attorney was unaware of those representations and disputed that the email of
February 14, 2006 between Charles Case and Bruce McMahon supported such an indemnification
arrangement. Moreover, even if the debtor had agreed to indemnify CSX regarding the
environmental condition of the subject CSX parcels, it is not clear that such indemnification claim
would be paid in bankruptcy.
The third expiration date of the Review Period also had not passed when Old Wilmington
terminated the Agreement. Paragraph 3 of the third amendment explains that the CSX and PPD
Environmental Notice is a written notice from the purchaser to the seller “stating that the
environmental condition of the CSX Land, the PPD Non-Marina Land, and the PPD Marina Land
are substantially the same or better than the environmental condition of the Almont Property.” Old
Wilmington never had access to the CSX Land for assessing its condition in order to provide this
type of written notice. Moreover, the court does not find it unreasonable that Old Wilmington
refused to indemnify CSX in order to access the land to inspect its environmental condition.
Because neither the second nor third deadline of the Review Period had expired before Old
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Wilmington terminated the Agreement on March 24, 2006, Old Wilmington is entitled to due
diligence costs of $100,000.00. Based on the foregoing, the debtor’s objection to the claim of Old
Wilmington is denied.
END OF DOCUMENT
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