The opinion of the court was delivered by: PISANO
JOEL A. PISANO, UNITED STATES MAGISTRATE JUDGE:
Presently before the Court are the motions of defendants Signet Star Holdings, Inc. and Penn Mutual Life Insurance Company for summary judgment and the cross-motion of plaintiffs Woods Corporate Associates, Damon G. Douglas, and GRC Management Company to abstain from exercising its jurisdiction and remand this action to state court. On May 16, 1995, the parties consented to the jurisdiction of the undersigned to decide these dispositive motions, pursuant to 28 U.S.C. § 636(c)(1).
The Court did not hear oral argument and has decided these motions based upon the written submissions of the parties, pursuant to Federal Rule of Civil Procedure 78. For the reasons stated herein, the Court denies the motion of plaintiffs to abstain or remand the action to state court and grants both defendants' motions for summary judgment.
This action arises out of financing transactions surrounding the construction of a two-story office building in Bernards Township, New Jersey. Plaintiff Woods Corporate Plaza Associates ("Woods") is a joint venture New Jersey partnership comprised of 911 Associates, a New Jersey general partnership, and plaintiff Damon G. Douglas ("Damon Douglas"), the fee owner of the real property involved in this dispute. Plaintiffs filed their Complaint in Superior Court in Morris County, New Jersey, and defendant Signet Star Holdings, Inc. ("Signet") subsequently removed the action to this Court.
In 1985, Damon Douglas leased the Bernards Township property to Woods for a term of seventy-five years, and plaintiff GRC received the right to manage the property on behalf of Damon Douglas and Woods.
Following execution of its lease of the property, Woods constructed the two-story office building that is at the center of this litigation (the "Premises"). In order to finance the construction, Woods borrowed $ 3,550,000 from defendant Penn Mutual Life Insurance Company ("Penn Mutual") through a non-recourse loan evidenced by a promissory note set to mature on December 1, 1992. As security for the repayment of the loan, Woods and Damon Douglas gave Penn Mutual a mortgage on the property (the "Mortgage"), and Woods executed and delivered to Penn Mutual a Collateral Assignment of Rents and Leases (the "Assignment").
On December 1, 1992, Penn Mutual's loan to Woods came due, and Woods failed to pay the principal and interest then owing under the note. By letter of January 6, 1993, Penn Mutual notified Signet that Woods had defaulted on the Mortgage and directed Signet to attorn to and tender all rents directly to Penn Mutual as landlord. Also, Penn Mutual initiated a foreclosure action in Superior Court in Somerset County, New Jersey in which it named Woods, 911 Associates, Damon Douglas, and Signet as defendants. All of the defendants, including Signet, answered the Complaint and admitted the validity of the Mortgage and its priority over the Signet Lease.
Woods, 911 Associates, GRC, and Penn Mutual entered into a Consent Order providing for the appointment of a receiver of the Premises during the pendency of the foreclosure action.
After the appointment of the receiver, Woods and Penn Mutual commenced negotiations to restructure the loan. The negotiations contemplated an extension of the term of the Mortgage if Woods were able to lease the vacant first floor of the building. Penn Mutual and Woods communicated through a series of Letters of Intent in which the terms of the proposed loan restructuring were discussed. The Letters of Intent, however, contained express statements recognizing that they did not constitute binding modifications of the debt.
As envisaged in the final Letter of Intent, dated August 2, 1993, the proposed restructuring of the Mortgage was conditioned upon the execution by Signet of a Lessee's Statement. The statement was to provide that there had been no modifications or changes to the Lease, that there were no current defaults by either party to the Lease, and that Signet had consented to Woods assigning the Lease to Penn Mutual. Signet declined to sign the Lessee Statement, contending that its tenancy had been destroyed by virtue of its being named as a defendant in Penn Mutual's foreclosure action. Signet's position was that the Lease had been extinguished by Penn Mutual's complaint, which demanded that Signet relinquish possession of the Premises, and therefore, Signet advised Penn Mutual of its intention to vacate the premises on November 1, 1993.
II. Plaintiffs' Claims Against Signet
Counts One and Two of Woods' Complaint seek recovery from Signet and arise out of the Signet Lease. Immediately following Woods' default on the loan, Penn Mutual gave notice to Signet to attorn to Penn Mutual as landlord and tender all rents to Penn Mutual, and Signet did so. Three months later, Penn Mutual instituted the foreclosure action, named Signet as a defendant, and demanded possession of the Premises. In Signet's answer to Penn Mutual's complaint, it admitted the validity of the Mortgage and its priority over the Signet Lease. Damon Douglas and Woods similarly filed an answer in the foreclosure action, both admitting that Penn Mutual was entitled to possession over Signet. Following the appointment of a receiver, Penn Mutual moved for summary judgment on all counts of its Complaint in the foreclosure action. Woods and Damon Douglas did not oppose the motion, believing to be imminent a restructuring agreement that would render the foreclosure action moot. Similarly, Signet did not oppose the motion. By Order dated July 23, 1993, Judge Diana of the New Jersey Superior Court, Chancery Division struck the answers of Woods, 911 Associates, and Damon Douglas and remanded the case to that Court's foreclosure unit to proceed as an uncontested action.
Meanwhile, Penn Mutual and Woods had been exchanging the Letters of Intent in pursuit of an agreement to restructure the defaulted loan. The restructuring arrangement was contingent upon the lease of both floors of the Premises. Woods had been negotiating with AT&T for a lease on the first floor of the building, and AT&T had entered the building and begun making improvements to the first floor space. As alleged by Woods in the Complaint, the restructuring deal was contingent upon the continuation of the Signet Lease and the execution by Signet of a Lessee's Agreement.
Signet maintains the position that its lease had been terminated by virtue of its being named as a defendant in Penn Mutual's foreclosure action. Acting upon this belief, Signet notified Woods and Penn Mutual by letter of September 1, 1993 that it would be vacating the Premises on November 1, 1993, and it eventually did so. Woods argues that the Signet Lease was neither extinguished nor affected by Penn Mutual's demand for possession against Signet, and therefore, Signet's act of vacating the Premises was a breach of the Lease.
In the Complaint in this action, Woods alleges that Signet never expressed its position that the Lease had been terminated until it was presented with the Lessee's Statement that was required as part of the loan restructuring between Penn Mutual and Woods. As a result, Woods alleges, Signet frustrated the loan restructuring negotiations taking place between Woods and Penn Mutual. Woods claims that Signet was aware of the negotiations and the circulation of the Letters of Intent between Woods and Penn Mutual. Thus, Signet knew that by vacating the Lease it could prevent the execution of the restructuring agreement contemplated by the August 2, 1993 Letter of Intent. As a direct result of Signet's breach of the Lease, Woods alleges that it was unable to meet its obligations under the proposed restructuring agreement with Penn Mutual, and Penn Mutual foreclosed on the Woods' interest in the Premises. In addition to Woods losing the value of its interest in the Premises, Damon Douglas lost its interest in the real property and the value of the ground lease, and GRC lost the value of its management contract.
In Count I of the Complaint, Woods asserts a breach of lease claim against Signet, seeking to recover the rent differential between the rent paid under the Signet Lease and the much lower rent paid by AT&T as the successor tenant occupying the Signet space. Woods also seeks to recover consequential damages, including the loss of its net equity in the Premises, and punitive damages.
Additionally, in Count II of the Complaint plaintiffs Damon Douglas and GRC allege that Signet breached the Lease and vacated the Premises with full knowledge that its actions would render consummation of the loan restructuring deal between Woods and Penn Mutual impossible, thereby destroying both Damon Douglas' interest in the property and GRC's management contract. Thus, Damon Douglas and GRC claim that Signet intentionally and maliciously breached the Lease, thereby tortiously interfering with the contracts and business relations between Damon Douglas and GRC and Woods. Damon Douglas and GRC seek compensatory damages for the value of Damon Douglas' fee interest in the property and the ground lease and the value of the GRC management contract, as well as punitive damages.
III. Plaintiffs' Claims Against Penn Mutual
Plaintiffs Woods, Damon Douglas, and GRC allege that Penn Mutual named Signet as a defendant in the foreclosure action despite Signet's compliance with the terms of the Lease and the above-market value of the rental payments. Plaintiffs allege in Count III of the Complaint that Penn Mutual negligently named Signet as a defendant in the New Jersey foreclosure action. In support of this claim, plaintiffs argue that as mortgagee Penn Mutual owed Woods, Damon Douglas, and GRC a duty to avoid unnecessary acts that would damage the value of Woods' property or interfere with the efforts restructure the loan. If Signet is ultimately found to be correct in its assertion that its Lease was extinguished by virtue of having been named as a defendant in the foreclosure action, plaintiffs allege, then Penn Mutual is liable for their damages resulting from Woods' inability to execute the loan restructuring as set forth in the August 2, 1993 Letter of Intent. In this Count, plaintiffs seek compensatory damages, including interest and costs of suit, including reasonable attorneys' fees.
Plaintiffs also allege that these actions constitute a breach of Penn Mutual's implied duty of good faith and fair dealing. As a further indication of bad faith, plaintiffs allege that Penn Mutual refused to pay the broker's commission, tenant improvement costs, and attorneys' fees incurred in connection with the AT&T lease. For these claims, plaintiffs seek compensatory damages, interest and costs of suit including reasonable attorneys' fees, and punitive damages.
I. Plaintiffs' Motion for Abstention or, Alternatively, for Remand to State Court
As an initial matter, plaintiffs argue that this Court should abstain from exercising jurisdiction in this case because there is a related action pending in state court. In doing so, plaintiffs urge the Court to remand this suit to the New Jersey Superior Court in Morris County, where they filed their Complaint. If the action is remanded to Morris County, plaintiffs, will seek to consolidate the suit with the action currently pending between Penn Mutual and Signet. In support of this motion plaintiffs rely on Colorado River Water Conservation Dist. v. United States, which recognized that abstention by a federal court is appropriate under certain limited circumstances to avoid the contemporaneous exercise of concurrent jurisdiction by two federal courts or by state and federal courts. 424 U.S. 800, 817 (1976).
Colorado River abstention, or the "exceptional circumstances" doctrine, permits a district court to dismiss or stay an action when there is an ongoing parallel action in state court. As the Supreme Court explained, the principles underlying the doctrine "rest on considerations of 'wise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation.'" Colorado River, 424 U.S. at 817 (quoting Kerotest Mfg. v. C-O-Two Fire Equip. Co., 342 U.S. 180, 183, 96 L. Ed. 200, 72 S. Ct. 219 (1952)).
Because federal courts have a "virtually unflagging obligation . . . to exercise the jurisdiction given them," the fact that an action is pending in state court ordinarily is no bar to parallel federal proceedings. Id. Thus, the surrender of jurisdiction in deference to parallel state court proceedings for reasons of "wise judicial administration" is warranted only under "limited" and "exceptional" circumstances. Id. at 818. In fact, abstention under the Colorado River doctrine is less common than the three constitutionally- or comity- based grounds for abstention,
all of which are proper only in exceptional cases. Trent v. Dial Medical, 33 F.3d 217, 223 (3d Cir. 1994).
A federal court may only abstain under the Colorado River doctrine when the pending state and federal actions are found to be "parallel." Thus, the initial inquiry for the Court is whether this action and the ...