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Atlantic City Racing Assoc. v. Sonic Financial Corp.

February 22, 2000

ATLANTIC CITY RACING ASSOC.,
PLAINTIFF,
V.
SONIC FINANCIAL CORP. AND SPEEDWAY MOTORSPORTS, INC.,
DEFENDANTS.



The opinion of the court was delivered by: Brotman, District Judge.

FOR PUBLICATION

OPINION GRANTING DEFENDANTS SONIC FINANCIAL CORP. AND SPEEDWAY MOTORSPORTS, INC.'S MOTIONS FOR SUMMARY JUDGMENT

Presently before the Court are motions by defendants Sonic Financial Corp. ("Sonic") and Speedway Motorsports, Inc. ("Speedway") for summary judgment pursuant to Fed. R. Civ. P. 56. For the reasons stated below, these motions will be granted.

I. FACTS AND PROCEDURAL BACKGROUND

This breach of contract action arises out of the termination of an agreement to purchase the Atlantic City Race Course. On November 13, 1997, Atlantic City Racing Association ("ACRA") and Sonic, both of which were represented by counsel, entered into a Purchase and Sale Agreement, wherein ACRA agreed to sell to Sonic the Atlantic City Race Course and related real estate in Hamilton Township, New Jersey ("the property") for $11 million. Defendant Speedway was not a signatory to the Purchase and Sale Agreement between ACRA and Sonic. The Agreement provided, however, that at closing and as part of the purchase price for the property, Sonic would deliver to ACRA a warrant to purchase 325,000 shares of Speedway's common stock. See Defs.' Ex. A at 4.

Under the Agreement, closing was contingent upon the performance, by the closing date, of specified ACRA obligations and conditions precedent to Sonic's duty to purchase. Relevant provisions of the Agreement respecting these obligations and conditions precedent are set forth below:

1. Obligations of Seller at Closing. At the closing, Seller shall deliver to Buyer the following (collectively referred to hereinafter as the "Closing Documents."):

a. A Bargain and Sale Deed with Covenants Against Grantor's Acts substantially in the form of Exhibit 5.a. attached to this Agreement or in other form acceptable to Buyer's counsel, duly executed by Seller and properly acknowledged, transferring good, marketable and insurable title to all of the Property, including the Leased Premises, to Buyer, provided, however, that such conveyance shall not abrogate Buyer's obligation to lease the Leased Premises to Seller as otherwise provided herein;

b. An affidavit of title substantially in the form of Exhibit 5.b. attached to this Agreement, duly executed by Seller and acknowledged;

7. Conditions Precedent to Obligations of Buyer. The obligations of Buyer under this Agreement shall be subject to the satisfaction, before the Closing Date, of all of the following conditions, any one or more of which may be waived by Buyer in its sole discretion:

d. Seller shall have delivered at Closing all of the Closing Documents, in form and substance satisfactory to Buyer, executed by Seller, conveying to Buyer the Property.

f. Seller shall have good, marketable and insurable title to the Property subject only to the Permitted Exceptions, which shall be conveyed to Buyer at closing.

h. Seller shall have delivered or caused to be delivered such corporate resolutions, shareholder and director approvals . . . as are reasonably required by the Buyer or the title company insuring the Buyer's title to the Property.

i. Buyer shall be satisfied, in its sole discretion, with the results of any environmental or other testing or inspections undertaken pursuant to paragraphs 10 and 13 of this Agreement or otherwise and the results of the Survey undertaken pursuant to Paragraph 11 of this Agreement. Id.

Closing originally was scheduled to occur on or about January 13, 1998, with Sonic having until January 12, 1998 to complete its due diligence. Included in this due diligence was Sonic's right to perform various inspections of the property. During such inspection period, Sonic could terminate the agreement, in its sole discretion, pursuant to the express terms of paragraph 13, which provided in pertinent part:

a.. Buyer and its agents and contractors shall be entitled to enter upon the Property during the period from and after the complete execution of this Agreement by all parties through and including the day before the Closing Date (the "Inspection Period") to obtain financing, to inspect the Property, to perform investigations (including without limitation environmental investigations), to determine the status of utilities thereon, to conduct title examinations, zoning investigations, feasibility studies geological tests and other studies or tests necessary to determine whether the Property is suitable for Buyer's intended use of the Property, including but not limited to soil, surface water and groundwater sampling, drilling and test wells and borings. If, during the Inspection Period, Buyer determines, in Buyer's sole discretion, not to close the purchase of the Property, Buyer may terminate this Agreement, Escrow Agent shall return the full amount of the Earnest Money to Buyer and Buyer and Seller shall be relieved of all obligations hereunder. Defs.' Ex. A at 12.

By letter dated January 9, 1998, Sonic provided ACRA with notice of termination. See Defs.' Ex. B. On January 12, 1998, ACRA and Sonic executed an amendment to the agreement ("the First Amendment"), extending the inspection period through February 11, 1998 and rescheduling the closing date for February 12, 1998. See Defs.' Ex. C. The First Amendment provided that "All other terms, conditions and provisions set forth in the Agreement shall remain in full force and effect, as amended hereby." Id.

On February 9, 1998, Sonic again gave notice of termination, see Defs.' Ex. D, and three days later, the parties entered into a Second Amendment which extended the Inspection Period through February 17, 1998. See Defs.' Ex. E. Under the Second Amendment, the closing date was moved to February 19, 1998, and the purchase price was reduced from $11 million to $9 million:

Seller and Buyer have now agreed to further extend the Inspection Period until February 17, 1998 for purposes of completing a survey and title examination of the Property, to further extend the Closing and the Closing Date until February 19,1998 and to reduce a certain portion of the Purchase Price, and Seller and Buyer wish to further amend the Agreement to reflect such agreements. Id.

As to the continuation of due diligence, the Second Amendment provided in relevant part:

NOW, THEREFORE, in consideration of the mutual promises set forth below and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer hereby agree as follows:

2. Inspection Period. The definition of the term "Inspection Period" contained in Paragraph 13a of the Agreement is hereby amended by deleting the words "the period from and after the complete execution of this Agreement by all parties through and including the day before the Closing Date" and by inserting the following words in lieu thereof and in lieu of the revised definition of the term "Inspection Period" contained in Paragraph 2 of the First Amendment:

the period from and after the complete execution of this Agreement by all parties through and including February 17, 1998 or on the day which is two (2) days before such date as may reasonably be required by Buyer and agreed upon by Buyer and Seller for the Closing Date subsequent to February 19, 1998.

Provided, however, that the extension of the Inspection Period contemplated by this Second Amendment is for the sole purpose of permitting Buyer to complete its survey and title examination of the Property, Buyer hereby acknowledging that it has completed its physical inspection of the Property and all environmental testing and other inspections of the Property to its satisfaction. Id.

The Second Amendment further provided that "All other terms, conditions and provisions set forth in the Agreement and the First Amendment shall remain in full force and effect, as amended hereby." Id.

By letter dated February 17, Sonic provided a final notice of termination, stating that it would not be closing the purchase of the property. Sonic stated as reasons for the termination that "certain outstanding title issues remain[ed] unresolved to Sonic's satisfaction" and ACRA had not obtained necessary approval of the sale by its stockholders, conditions precedent for closing which Sonic would not waive. Defs.' Ex. F. ACRA concedes that the agreement, as modified by the Second Amendment, was not approved by its shareholders before the February 19, 1998 closing date. See Am. Comp. ¶ 15.

On March 13, 1998 ACRA filed the present action against Sonic and Speedway, asserting claims for breach of contract, fraud, and bad faith, for which it requests specific performance of the agreement or, in the alternative, compensatory damages. On June 7, 1999 Sonic and Speedway filed the instant summary judgment motion, seeking dismissal of all claims. *fn1

2@ DISCUSSION

A. Jurisdiction

As the plaintiff and defendants are citizens of different states and the amount in controversy exceeds seventy-five thousand dollars ($75, 000), this Court has jurisdiction over the ...


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