NVR Inc. is suing Orleans Homebuilders for breach of contract, following the Bensalem-based builder's decision to pursue a reorganization plan with its senior lenders instead of proceeding with an assets auction this month.

Reston, Va.-based NVR - the parent company of Ryan Homes, with 14 communities in the Philadelphia region - filed the suit Friday in U.S. Bankruptcy Court in Wilmington, court documents show.

Orleans, which filed for Chapter 11 bankruptcy protection March 1, announced April 14 that it had executed a $170 million agreement with "stalking horse" NVR to buy substantially all its assets.

The agreement was designed to set a floor for other bids at an auction of Orleans' assets that, if the court approved, would have taken place at the end of June.

NVR, which had assets of $2.9 billion in 2009 and net income of $192 million, was to give Orleans $17 million in earnest money. Half of that already was in escrow when the agreement was announced, documents show.

But on May 19, two days before Bankruptcy Judge Patrick J. Walsh was scheduled to consider bidding procedures for the auction, Orleans announced that it was pursuing a stand-alone reorganization process and abandoning the auction. The company said it expected to reach agreement with its senior lenders and file a plan to emerge from bankruptcy in late summer.

In the lawsuit, NVR says that it approached Orleans about bidding for its assets after the bankruptcy filing, and that it was told March 15 the builder would "entertain a proposal from NVR to act as the stalking-horse bidder."

NVR says it incurred "significant expenses" in preparing to acquire Orleans' assets at auction, among them environmental due-diligence on property.

In its suit, NVR says that on May 4, and "contrary to [Orleans'] prior representations and assurances," it learned that the builder "had been negotiating with certain distressed-asset investors" about a stand-alone reorganization plan.

According to the lawsuit, the agreement between the two builders requires Orleans to pay NVR a termination fee of 2 percent of the base purchase price, or $3.4 million, as well as an expense reimbursement equal to $150,000 plus all its out-of-pocket expenses, subject to an aggregate cap of $1 million.

NVR also is seeking unspecified damages if the court rules in its favor, with the amount to be set at trial.

Orleans sought bankruptcy protection when it and its 17 lenders failed to agree on extending the credit facility - about $311 million in cash borrowing, excluding letters of credit - past Feb. 12.

When the credit-facility extension failed, Orleans negotiated a sale of the company to a different buyer. But that sale could not be finalized, the company said at the time.

Orleans, the region's oldest home builder, said Tuesday that it had no comment on the litigation.

It has until June 28 to respond. A pretrial conference is scheduled for July 8, according to court documents.