That Is Not What
Hurt You
In a recent decision from the
Sixth Circuit Court of Appeals reviewing a decision out of Michigan, it focused
upon the issue that, in order to prevail on a claim for breach of contract, it
must be shown that the breach caused the plaintiff’s damages. In this instance,
even assuming that the defendant acted improperly, that is not what caused the
plaintiff’s problems. S. D. Benner, LLC
v. Bradley Company, LLC, Case No. 19-1439, 2019 WL 6998154 (6th
Cir. Dec. 20, 2019).
S. D. Brenner, LLC was a real
estate developer in Michigan, once holding some 22 commercial properties in the
Grand Rapids area. It and related companies filed for bankruptcy approximately
a decade ago. In the course thereof, there was negotiated a settlement with its
primary creditor, Comerica Bank, under which it would forgive the outstanding
debt if paid $18.75 million within five months. Absent making that payment,
Comerica had the right to seize the properties. Benner then retained Bradley to
market ten of the properties, seven for sale and three for lease. Bradley was
never successful in effecting a sale or lease of any of the properties.
Ultimately, Benner was not being able to make the payment to Comerica Bank
(even after an extension), and the properties were seized. Then, “an affiliate
of Great Lakes Capital (a company that shared common ownership with Bradley)
bought the bank’s rights to the properties at a significant discount.”
Thereafter, Benner sued Bradley for breach of contract and breach of fiduciary
duty. Summary judgment in favor of the defendants was granted, and this appeal
followed.
The Sixth Circuit narrowed the
question to one of causation; “to simplify matters, let's assume for the sake
of argument that the companies have offered evidence of breach and damages. The
problem is that there’s no evidence of causation.” From there the court wrote:
The
[plaintiffs] had to show that any breach was both the but-for and proximate
cause of their damages. At a minimum, then, the companies needed some evidence showing that, if Bradley
had honored its contractual and fiduciary duties, then they wouldn't have lost
their properties because they would have paid $18.75 million to Comerica by the
settlement deadline. But the [plaintiffs] haven't offered any evidence to that
effect.
Take the
theory that Bradley didn’t use its “best efforts” to market the properties. The
Benner companies point out that Bradley waited around two months before listing
any of the properties. But the companies haven’t offered evidence that any of
the properties would have been sold or leased if Bradley had listed them
sooner. For instance, the companies haven’t pointed to anyone who might have
been interested in the properties at the listed prices. Nor have they offered
any expert testimony to show that sales would have occurred. Indeed, just a
year earlier, the companies had tried to sell the very same properties—without
success. Of course, someone (an affiliate of Great Lakes Capital) eventually
bought the properties. But it did so during a later period and at a significant
discount. So this fact doesn’t show that any of the properties could have been
sold during the relevant period and at the listed prices. And without these
sales, the Benner companies still would have lost the properties because they
wouldn’t have paid $18.75 million by the settlement deadline.
Even so,
let’s assume that there were potential buyers out there just waiting to be
found. The Benner companies still haven’t shown that these sales would have
prevented their default. According to their own evidence, the seven properties
listed for sale were worth a bit under $11 million—at the very most. So even if
the companies had sold all the listed properties, they would have owed Comerica
another $7.75 million. True, the leased properties could have brought in a
little more money. Unfortunately, the Benner companies haven’t offered any real
evidence about how much. At best, the listings agreements—which reflect how
much the companies wanted for the leases, not how much the leases were actually
worth—suggest that the properties might have brought in a sum in the mid-five
figures each month. Multiply that sum by four months (about how long Bradley
had to lease the properties) and the companies still would have fallen millions
of dollars short of what they owed under the settlement agreement.
Nor have the
Benner companies offered anything else to show how Bradley’s “best efforts”
might have changed matters. For instance, the companies haven’t pointed to any
evidence that they would have obtained refinancing if some properties had been
sold or leased. All this means that the companies haven’t shown causation. By
all appearances, they would have lost the properties even if Bradley had used
its “best efforts.”
