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.

The Court of Chancery recently reviewed and denied an ex parte application for a temporary restraining order (“TRO”) in the decision of Smart Home, Inc. v. Brian Selway, et al., C.A. No. 6778-VCG (Del. Ct. Ch., Aug. 15, 2011).  According to the Complaint, Plaintiff alleged that Defendant Selway improperly withdrew funds from the operating account of Plaintiff Smart Home.  In response, Plaintiff sought a TRO enjoining Defendant and his wife from removing funds from their personal bank account, and also requested that the TRO be granted on an ex parte basis—meaning without prior notice to Defendant.

Analysis

The Court reiterated the requisite elements to be demonstrated by a plaintiff seeking a TRO, which are as follows:

  • The plaintiff has a colorable claim,
  • That absent the entry of the order, plaintiff will suffer irreparable harm, and
  • The hardship to the plaintiff absent entry of the restraining order outweighs the harm which the order may cause to the defendant. 

See, e.g., Roseton OL, LLC v. Dynegy Holdings, 2011 WL 3275965, at *8 (Del. Ch. July 29, 2011).

The Court further noted, however, that a party seeking an ex parte temporary restraining order must further demonstrate imminent irreparable injury, as the granting of an ex parte restraining order is an extreme remedySee Royal Improvements Co. v. Rosauri, 1987 WL 19318, at *1 (Del. Ch. Oct. 30, 1987) (emphasis added).   

The Court held that Plaintiff failed to establish “imminent irreparable harm”, as the allegations made by Plaintiff that its future operations may be prejudiced without a return of the withdrawn funds were merely conclusory.  In addition, the Court note that entering a TRO which froze the funds of a bank account held by Defendant and a third-party, without prior notice, would raise due process concerns. 

Accordingly, the Court denied Plaintiff Smart Home’s request for an ex parte temporary restraining order, and instead deferred on a final ruling of the application, pending service of the Complaint on the Defendant, along with an opportunity for Defendant to be heard in connection with the matter.

Conclusion

This decision demonstrates the difficulty in obtaining temporary restraining orders on an ex parte basis, and accordingly, plaintiffs seeking such ex parte relief must be prepared to establish facts demonstrating imminent irreparable injury.