In the letter opinion of Windsor I, LLC v. CWCapital Asset Management LLC, C.A. No. 12977-CB (Del. Ch. July 31, 2017), the Court of Chancery determined the enforceability of an agreement to negotiate, under Maryland law.  Plaintiff is the owner of a commercial property in Wilmington, Delaware, and Defendant is a special servicer that handles the default side of loan servicing for its affiliate.

Plaintiff requested that its loan be transferred to special servicing in anticipation of its large commercial tenant terminating the lease on the property.  Thereafter, the parties negotiated a Pre-Negotiation Agreement, after which time the parties engaged in settlement negotiations to purchase the loan on the property at issue.

Plaintiff filed a complaint seeking specific performance and injunctive relief, to compel Defendant to comply with the terms of the Pre-Negotiation Agreement contained in the parties’ Mortgage and Security Agreement to refinance existing debt on the property at issue.  Plaintiff asserted that the terms of the Pre-Negotiation Agreement were not upheld by Defendant.

The Court granted Defendant’s motion to dismiss, finding that there was no binding obligation in the Pre-Negotiation Agreement to negotiate.  Further, the Court rejected Plaintiff’s assertion that Defendant violated the implied covenant of good faith and fair dealing.  This is so because even if there was an obligation to negotiate, “such an obligation would be so inherently vague as to be unenforceable.”  Citing Maryland authority, the “overwhelming weight of authority holds that courts will not enforce an agreement to negotiate a contract.”

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.