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PHILADELPHIA v. ONE READING CENTER ASSOC.

June 8, 2001

CITY OF PHILADELPHIA, TRUSTEE UNDER THE WILL OF STEPHEN GIRARD, DECEASED, ACTING BY THE BOARD OF THE DIRECTORS OF CITY TRUST, PLAINTIFF
v.
ONE READING CENTER ASSOCIATES AND MSI ASSOCIATES, L.P., DEFENDANTS AND ALASKA PERMANENT FUND CORPORATION, INTERVENOR/DEFENDANT.



The opinion of the court was delivered by: Dubois, J.

MEMORANDUM

I. INTRODUCTION

This case arises out of conflicting agreements regarding the sale of the Aramark Tower, a Philadelphia, Pennsylvania landmark. Defendants MSI Associates ("MSI") and One Reading Center Associates ("One Reading"), are partnerships that were formed for the express purpose of owning and maintaining the Aramark Tower; they own the property and leasehold, respectively. Intervenor defendant Alaska Permanent Fund Corporation ("Alaska") is a limited and general partner of the MSI and One Reading partnerships (referred to collectively as the "partnerships" or "Seller").

Alaska claims that it had a right of election to purchase the partnership interests of its partners MSI and One Reading in the Aramark Tower upon receipt of a bona fide offer from a third party for the building. Plaintiff City of Philadelphia, Trustee Under the Will of Stephen Girard, Deceased, Acting by the Board of the Directors of City Trust ("the Board," "Girard Estate" or "Purchaser") made such an offer by entering into an agreement of sale with the Seller dated August 4, 2000. In response, Alaska attempted to exercise its alleged right of election. This action followed.

Plaintiff seeks a preliminary injunction ordering Seller to specifically perform its obligations under the agreement of sale between Seller and Purchaser discussed infra and proceed with the sale of the building to plaintiff. Alaska argues that the Court should deny plaintiff's motion in its entirety or, at this preliminary stage, enjoin the sale to Alaska pending a full trial on the merits. For the following reasons, plaintiff's Motion for Preliminary Injunctive Relief will be granted in part and denied in part. The sale to Alaska will be enjoined; the remaining relief sought in the Motion for Preliminary Injunctive Relief will be denied without prejudice.

II. PROCEDURAL HISTORY

Plaintiff filed a Verified Complaint in the Philadelphia County Court of Common Pleas on October 10, 2000 against MSI and One Reading. Those defendants removed the action to this Court on October 11, 2000 pursuant to 28 U.S.C. § 1441. Plaintiff filed a Motion for Temporary Restraining Order and Preliminary Injunctive Relief in this Court on October 12, 2000. By Order dated October 13, 2000, this Court granted Alaska's oral motion to intervene as a party defendant, and, by agreement of the parties, ordered settlement on the purchase of the building postponed until the Court decided the Motion for Preliminary Injunctive Relief. Plaintiff's Motion for a Temporary Restraining Order was denied without prejudice in view of that agreement.

The parties filed a Joint Motion for Entry of Confidentiality Order Pursuant to Federal Rule of Civil Procedure 26(c)(7) on November 13, 2000. On November 16, 2000, defendants One Reading and MSI and intervenor defendant Alaska filed Motions for Summary Judgment; plaintiff filed a Memorandum in Opposition to the Motions for Summary Judgment on November 22, 2000. The Court held a hearing on plaintiff's Motion for Preliminary Injunctive Relief on November 30, 2000. Intervenor defendant Alaska then filed a Motion for Leave to Amend Answer to Assert Additional Affirmative Defense on December 8, 2000. On December 12, 2000, the Court held oral argument on plaintiff's Motion for Preliminary Injunctive Relief, the motion presently before the Court.

III. APPLICABLE LAW

Because of the complex nature of the relationship between the parties in this case and the contracts at issue, the laws of three jurisdictions are implicated. The two defendant partnerships, MSI Associates and One Reading Center Associates, were formed under the laws of Delaware and Pennsylvania, respectively. Accordingly, the law of those jurisdictions shall be applied to all partnership issues.

With respect to the contracts at issue in this case — an Agreement and Consent ("Consent") and an Agreement of Purchase and Sale ("Sale Agreement") — the Court will give deference to the parties' choices of law as embodied in those agreements. The Consent expressly provides that it "shall be governed by the laws of the State of Illinois without regard to conflicts of laws rules." Consent ¶ 8. The Sale Agreement also contains a choice of law clause — it is to be governed by the laws of the Commonwealth of Pennsylvania. Sale Agreement ¶ 18.4.

"Both Pennsylvania law and the Restatement of Conflict of Laws provide that the first question to be answered in addressing a potential conflict of laws dispute is whether the parties explicitly or implicitly have chosen the relevant law." Assicurazioni Generali, S.P.A. v. Clover, 195 F.3d 161, 164 (3d Cir. 1999). If the parties have agreed to the applicable law, "[c]hoice of law provisions in contracts will generally be given effect." Smith v. Commonwealth Nat'l Bank, 384 Pa. Super. 65, 68, 557 A.2d 775, 777 (Pa.Super.Ct. 1989). As the parties in this case have offered no reason why their contractual choices should not be given effect, this Court will respect the parties' choices and construe the Consent in accordance with Illinois law and the Sale Agreement under Pennsylvania law. In addition, the Court will evaluate agency issues pertaining to the Sale Agreement under Pennsylvania law.

IV. STANDARD FOR INJUNCTIVE RELIEF

Preliminary injunctive relief is appropriate where "(1) the plaintiff is likely to succeed on the merits; (2) denial will result in irreparable harm to the plaintiff; (3) granting the injunction will not result in irreparable harm to the defendant; and (4) granting the injunction is in the public interest." Maldonado v. Houstoun, 157 F.3d 179, 184 (3d Cir. 1998) (citing Merchant & Evans, Inc. v. Roosevelt Bldg. Prods. Co., Inc., 963 F.2d 628, 632-33 (3d Cir. 1992)). See also Wright v. Columbia University, 520 F. Supp. 789, 792-93 (E.D.Pa. 1981) ("To prevail on its motion for a temporary restraining order and a preliminary injunction, plaintiff must demonstrate that irreparable injury will occur if the relief is not granted until a final adjudication on the merits can be made, that there is a reasonable probability of success on the merits, and that the possibility of harm to the non-moving party will be minimal and that harm to the public, when relevant, will not be likely.").

Under Federal Rule of Civil Procedure 65, "the court may order the trial of the action on the merits to be advanced and consolidated with the hearing of the application" for a preliminary injunction. Fed.R.Civ.P. 65(a)(2). In this case, the parties could not reach agreement on this issue and advised the Court that some discovery would be required before scheduling a trial on the merits. Accordingly, in this Memorandum, the Court only analyzes issues pertinent to plaintiff's Motion for Preliminary Injunctive Relief. In addressing those issues, the Court will analyze the applicable law and determine whether plaintiff established the elements necessary for the issuance of a preliminary injunction, focusing on likelihood of success on the merits and irreparable harm.

V. DISCUSSION

A. Factual Background

On November 17, 1999, the Telephone Real Estate Equity Trust ("TREET"), Heitman Real Estate Fund II ("HREF") and Alaska,*fn1 entered into the Consent relating to the marketing and potential sale of the Aramark Tower, a building owned and maintained by the partnerships they had previously created — MSI and One Reading. The Consent granted Alaska an election to purchase the partnership interests*fn2 of the remaining partners of Seller — TREET and HREF — upon receipt of a bona fide third-party offer for the purchase of the Aramark Tower. The Consent further provided that the partners would cause their partnerships, MSI and One Reading, to market the property according to the terms of the Consent and that Heitman Capital Management LLC ("Heitman") would prepare a form purchase agreement to be used by prospective purchasers. Under the terms of the Consent, Heitman was required to give written notice to Alaska

of the existence of a Qualified Third-Party Offer that TREET and HREF, have approved, which notice (the "Offer Notice") must include a copy of the Qualified Third Party Offer and clearly state that each of TREET and HREF has approved the Qualified Third-Party Offer. . . . For purposes of this Agreement, "Qualified Third-Party Offer" means an offer to purchase the Property that is in a form satisfactory to Heitman . . . that is sufficient to constitute a "Bona Fide Offer" within the meanings of section 6 of the Partnership Agreements. . . .

Consent ¶ 3(a) (Ex. P-16). The Consent does not contain a provision specifying the time by which Heitman must notify Alaska of the existence of an offer. It provides, however, that Alaska has an election to purchase interests in the partnerships as follows: "Alaska may elect by written notice to Heitman at any time within ten (10) business days following its receipt of such Offer Notice, to purchase all Partnership Interests of TREET and HREF . . . except that in calculating the purchase price there shall be a 1% reduction from the purchase price" as stated in the offer. Consent ¶ 4(a) (Ex. P-16).

After marketing the property, MSI and One Reading, through their agent Heitman, entered into a Sale Agreement dated August 4, 2000 with plaintiff, Girard Estate. In describing Alaska's right of first refusal, the Sale Agreement recited that a partner of Seller "has the right to match the offer to purchase the Property and Leasehold made by Purchaser to Seller as contemplated herein . . . ." Sale Agreement ¶ 3.5, at 9 (Ex. P-5).

Upon execution of the Sale Agreement with plaintiff, Heitman provided Alaska with notice of the Board's offer and a copy of the Sale Agreement as required by paragraph 3(a) of the Consent by letter sent via United Parcel Service ("UPS") on August 4, 2000. Stipulated Facts ¶ 23. UPS delivered the Sale Agreement to Alaska on August 9, 2000. Stipulated Facts ¶ 24. Thereafter, by facsimile sent August 22, 2000, Alaska purported to exercise its right of election to purchase its partners' partnership interests as set forth in paragraph 4(a) of the Consent. See Ex. P-6 (facsimile letter from Peter M. Naoroz to Thomas D. McCarthy and Howard J. Edelman). Heitman then informed Girard Estate, by letter dated August 23, 2000, that "Seller has received a notice from the Right of First Refusal Party timely exercising the Right of First Refusal." Ex. P-6 (letter from Howard J. Edelman to the Girard Estate).

Plaintiff contends that defendants MSI and One Reading breached the Sale Agreement by accepting an offer from Alaska that does not match the offer for the Aramark Tower submitted by the Board. Specifically, plaintiff contends that Alaska's offer is materially different in that it does not match plaintiff's offer and that because Alaska's offer did not match the offer made by the Board, the right of first refusal was not timely exercised. Due to this alleged breach, plaintiff argues that the Court should order defendants to sell the Aramark Tower to plaintiff in accordance with the Sale Agreement.

In response, Alaska contends that its offer does match plaintiff's offer and that its rights in the property established by the Consent, a prior contract, are superior to the Board's claim under the Sale Agreement for the Aramark Tower. Alaska also argues that if the right of first refusal as described in the Sale Agreement and the right of election clause set forth in the Consent are inconsistent, the inconsistent provisions in the Sale Agreement are invalid — that Heitman had no authority to enter into an agreement that modified Alaska's rights and that any unwritten modifications to the Consent are void under the statute of frauds. Alaska further contends that the Court should not order the sale to plaintiff at this preliminary stage.

The Court first addresses the question whether the offer to purchase the Aramark Tower made by Alaska matches the offer made by the Board. Second, the Court turns to the question whether the partnerships are bound by the Sale Agreement that was executed by their agent, Heitman. Third, the Court analyzes plaintiff's argument that defendants and Alaska should be equitably estopped from denying the representations contained in the Sale Agreement. Fourth, the Court will evaluate whether Alaska, by approving the Sale Agreement, modified the Consent. Finally, the Court discusses defendants' argument that Girard Estate did not timely notify the partnerships of its intention to seek specific performance as required by the Sale Agreement.

B. Did Alaska's offer match that of the Purchaser?

The Court first turns to the question of whether Alaska's offer matched the offer to purchase the Aramark Tower made by the Board. At the preliminary injunction hearing, plaintiff presented evidence that the representations in the Sale Agreement regarding the right of first refusal and the right of election set forth in the Consent and subsequent offer by Alaska do not match.

The Sale Agreement with Girard Estate provides as follows:

Right of First Refusal. Seller represents to Purchaser (i) that a partner of Seller (the "Right of First Refusal Party") has the right to match the offer to purchase the Property and Leasehold made by Purchaser to Seller as contemplated herein ("Right of First Refusal"), and (ii) that said Right of First Refusal may be exercised by the Right of First Refusal Party at any time within ten (10) business days after it receives a copy of this Agreement. Seller will deliver a copy of this Agreement to the Right of First Refusal Party within two (2) business days after this Agreement has been fully executed by both parties. As a condition to Seller's obligation to consummate the transaction contemplated under this Agreement, either (x) the period during which the Right of First Refusal may be exercised by the Right of First Refusal Party shall have expired, with no such exercise having taken place, or (y) the Right of First Refusal period shall have been effectively waived, or, pursuant to the terms of the Right of First Refusal, is deemed waived, by the Right of First Refusal Party. If the Right of First Refusal is exercised by the Right of First Refusal Party within the period during which the Right of First Refusal may be exercised, ...

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