Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-13-07198/USCOURTS-caDC-13-07198-0/pdf.json

Parties Involved:
Castlerock Partners, LLC
Appellant
Howard Town Center Developer, LLC
Appellant
Howard University
Appellee

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 10, 2014 Decided June 9, 2015

No. 13-7198

HOWARD TOWN CENTER DEVELOPER, LLC,

APPELLANT

v.

HOWARD UNIVERSITY,

APPELLEE

v.

CASTLEROCK PARTNERS, LLC,

APPELLANT

Consolidated with 14-7029

Appeals from the United States District Court

for the District of Columbia

(No. 1:13-cv-01075)

Kenneth C. Smurzynski argued the cause for appellants. 

With him on the briefs were John E. Schmidtlein and Masha 

G. Hansford.

Timothy F. McCormack argued the cause for appellee. 

With him on the brief was Michelle M. McGeogh.

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Before: BROWN, Circuit Judge, and WILLIAMS and 

GINSBURG, Senior Circuit Judges.

Opinion for the Court filed by Senior Circuit Judge

GINSBURG

GINSBURG, Senior Circuit Judge: Howard University 

leased a parcel of land in Washington, D.C. to Howard Town 

Center Developer, LLC. After the Developer failed to make a 

rental payment of $1,475,000 on May 30, 2013, the 

University terminated the lease agreement. The Developer 

sued, and the district court entered a summary judgment in 

favor of the University. Because we agree with the Developer 

that there is a genuine dispute whether a rental payment was 

due on May 30, 2013, we vacate the judgment of the district 

court and remand this case for further proceedings in that 

court.

I. Background

Howard University owns a “long-neglected” parcel of 

land in Washington, D.C. that it sought to transform into an 

upscale “mixed-use residential/retail development.” In 2010 

the University entered into several related agreements with 

Castlerock Partners, LLC, which later assigned its interest in 

the agreements to Howard Town Center Developer, LLC. 

Three of those agreements are relevant to this appeal: the 

Ground Lease, the Development Agreement, and the 

Amendment to the Development Agreement. 

The Ground Lease provides that the University will lease 

the property to the Developer for 99 years. In exchange, the 

Developer will make rental payments of $525,000 on January 

22, 2010 and of $1,475,000 on March 15, 2011, followed by

periodic rental payments in an amount to be determined by a

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formula specified in the lease. Section 16.2 of the Ground 

Lease describes the process by which the University may 

terminate the lease if the Developer fails to pay rent:

Should Tenant at any time be in default with respect to 

any rental payments or other charges payable by Tenant 

under this Lease, and should such default continue for a 

period of ten (10) days after written notice from Landlord 

to Tenant ... then Landlord may treat the occurrence ... 

as a breach of this Lease (an “Event of Default”), and in 

addition to any or all other rights or remedies of Landlord 

under this Lease or as otherwise permitted by law, it shall 

be, at the option of Landlord 

...

[t]he right of landlord to terminate this Lease and to 

declare the Lease term ended ....

...

[P]rior to exercising any right to terminate this Lease on 

account of any Event of Default, Landlord shall provide 

Tenant and each Leasehold Mortgagee with a written 

notice (in addition to any notice of default provided for in 

this Section 16.2 ... ), specifying IN BOLD FACE 

CONSPICUOUS TYPE, that Landlord intends to 

terminate the Lease if the Event of Default is not cured 

within ten (10) days. Upon the expiration of such ten 

(10) day period, and if such Event of Default has not 

been cured, Landlord shall have the right, at its sole 

option, thereafter to elect to terminate this Lease ....

The Development Agreement outlines the plans for 

developing the parcel. It describes, among other things, the 

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type of buildings the Developer must construct on the 

property and the timeline for doing so.

The Amendment to the Development Agreement 

allocates the cost of cleaning up environmental toxins 

discovered on the site. It modifies the Ground Lease by 

directing the Developer to make the first two rental payments

— of $525,000 and $1,475,000 — to an escrow account

rather than to the University directly. The money in the 

escrow account will be used to satisfy the University’s 

obligation to cover its share of the cost of cleaning up the 

toxins, and any remaining funds will be released to the 

University.

 

After signing these three agreements, the University and 

the Developer created an escrow account, and the Developer 

made the first rental payment of $525,000 into the account. 

The Developer did not, however, make the second rental 

payment of $1,475,000 by March 15, 2011 as required by the 

Ground Lease. The University extended the deadline for the 

second rental payment, but it remained concerned with the 

Developer’s progress and demanded assurances that the 

Developer would stay on schedule. The Developer did not 

respond and, on September 26, 2011, the University advised 

the Developer it was in default under the Ground Lease and 

the Development Agreement. On February 3, 2012 the 

University again notified the Developer it was in default and 

the University would regard the Developer’s failure to pay 

$1,475,000 within ten days as an “Event of Default” under the 

parties’ agreements. On March 5, 2012 the University

informed the Developer it intended to terminate the Ground 

Lease and the Development Agreement if the Developer did 

not cure the “Event of Default” within ten days. 

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In an effort to save the project, the parties returned to the 

negotiating table and drafted a Second Amendment to the 

Development Agreement. The proposed Second Amendment 

— which the parties never signed — provided the Developer 

would make the $1,475,000 rental payment by May 30, 2013.

Although the parties had not signed the Second 

Amendment to the Development Agreement, on April 6, 2012 

they signed a Term Sheet, which includes the following 

provisions:

The letters entitled “Notice of Default and Notice of 

Intent to Terminate” dated February 3, 2012 and again on 

March 6, 2012 are hereby withdrawn. The defaults 

related to the timetable for development will be revised 

and documented in amendments to the Development 

Agreement and Ground lease. The timetable for cure of 

the monetary default is defined herein.

...

The new timetable for development is as follows:

1) Execute this Term Sheet: April 6, 2012, or at such later 

time as both parties execute the Term Sheet, which shall 

be deemed to be the Effective Date.

2) Execute Ground Lease Amendment and [Second]

Development Agreement Amendment by Monday, April 

30, 2012.

3) Execute amendment to Escrow agreement such that 

$525,000 held in escrow for the purposes of 

environmental remediation will be released upon 

execution of this Term Sheet.

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4) Payment of past due ground rent in the amount of 

$1,475,000 shall be as follows: (a) no later than ten (10) 

days after execution of this Term Sheet, a payment of 

$100,000 will be made, and (b) the balance of $1,375,000 

will be paid no later than ninety (90) days after the 

execution of the Ground Lease and Development 

Agreement Amendments.

Two of the obligations set forth in the Term Sheet remain 

unfulfilled: the Developer did not make either rental payment, 

and the parties did not execute the Second Amendment to the 

Development Agreement. The parties did, however, 

terminate the escrow agreement, thereby releasing $525,000 

to the University. 

The parties continued to negotiate the terms of the 

Second Amendment to the Development Agreement into

early 2013. On February 1, 2013 the University advised the

Developer it would “take no further action in support of the 

current developer” unless three conditions were satisfied, one 

of which was that a “rental payment of $1.4 million has been 

made to Howard University by May 30, 2013.” On March 27, 

2013 the University sent the Developer a revised draft of the 

Second Amendment to the Development Agreement. On 

April 1, 2013 the Developer proposed two “non-negotiable” 

revisions to the proposed Second Amendment. On April 15, 

2013 the Developer sent the University a letter warning “that 

the $1,475,000 ground lease payment to be tendered on or 

before May 30, 2013 is now a potential issue.” The 

Developer was concerned about applications pending before 

the D.C. Historic Preservation Board to classify as historic 

landmarks the vacant buildings on the property. The 

University replied that the applications did not affect the 

Developer’s obligations. On May 23, 2013 the Developer 

informed the University it would not make any rental 

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payments until the applications for landmark designation had 

been resolved.

On June 3, 2013 the University sent the Developer a

letter with the headers “Notice of Default” and “Notice of 

Intent to Terminate.” The letter, which was “issued pursuant 

to Section 16.2 of the Ground Lease,” advised the Developer 

it “is in default of the Ground Lease by reason of its failure to 

pay to the University the sum of $1,475,000.00 due December 

8, 2011 ... which due date was extended by the University 

through May 30, 2013.” The University further warned it

“intends to terminate the Ground Lease if that failure is not 

cured by the payment in full of the sum of $1,475,000.00 by 

the Developer to the University within ten (10) days after this 

notice.” Eleven days later, on June 14, 2013, the University

informed the Developer “that the University hereby 

terminates the Ground Lease and declares the Ground Lease 

term ended.” On June 19, 2013 the Developer, in an effort to 

cure the alleged breach, created a new escrow account and 

deposited $1,475,000 into that account. The University did 

not enter an escrow agreement with the Developer and did not 

have access to the funds in the account. 

On July 15, 2013 the Developer filed a complaint 

alleging, among other things, that the University improperly 

terminated the Ground Lease. The University filed a 

counterclaim seeking the $1,475,000 rental payment. The 

University moved for summary judgment, and the district 

court granted the motion. The court concluded the University 

properly terminated the Ground Lease and awarded the

University $1,475,000 in damages.

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II. Analysis

The Developer contends the district court erred in

deciding that the $1,475,000 rental payment was due on May 

30, 2013: It would have been required to pay $1,475,000 by

that date under the Second Amendment to the Development 

Agreement, but the parties never executed the Second 

Amendment. The University argues the Developer was 

nevertheless obligated to make the $1,475,000 payment by 

May 30, 2013 because the Developer confirmed in an email, a 

letter, and a telephone conversation that it would do so. The 

district court agreed with the University, saying it decided to

“follow the understanding of the parties as shown in their 

correspondence that the $1,475,000 payment was due no later 

than May 30, 2013, as contemplated in the plaintiff’s 

requested Second Amendment[] to the Development 

Agreement.” Howard Town Center Developer, LLC v. 

Howard Univ., 7 F. Supp. 3d 64, 74 (D.D.C. 2013).

Under D.C. law — which governs this dispute pursuant

to a choice-of-law provision in the Ground Lease — “[f]or a 

contract to be enforceable, the parties must (1) express an 

intent to be bound, (2) agree to all material terms, and (3) 

assume mutual obligations.” Dyer v. Bilaal, 983 A.2d 349, 

356 (D.C. 2009). With respect to the first element, “the 

ultimate issue is whether, by their choice of language ... [the 

parties] objectively manifested a mutual intent to be bound 

contractually.” 1836 S St. Tenants Ass’n v. Estate of B. 

Battle, 965 A.2d 832, 837 (D.C. 2009). Because we are 

reviewing a summary judgment in favor of the University, we 

must view all facts in the light most favorable to the 

Developer. See Holcomb v. Powell, 433 F.3d 889, 895 (D.C. 

Cir. 2006). 

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In the email, which is dated April 1, 2013, the Developer 

described the payment term in the proposed Second 

Amendment to the Development Agreement, but it did not

manifest its intent to be bound by the term regardless whether 

the parties executed the Second Amendment. The Developer 

explained that “the only monetary amount owed pursuant to 

Paragraph 11 of the Second Amendment is the initial Ground 

Lease payment of $1,475,000 on or before May 30, 2013.” It 

also mentioned that if the Developer did not deliver the 

payment by May 30, 2013, then “the agreement automatically 

terminates” and the University is “free to pursue any and all 

legal remedies for non-payment.” As the Developer explains, 

however, these statements were made in the course of 

negotiating the terms of the Second Amendment. The 

Developer began the email by noting it was “still 

contemplating a response to the University’s response to [the 

Developer’s] last ground lease revisions.” It then identified

the two proposed revisions to the Second Amendment that it

considered “non-negotiable.” Far from expressing its intent

to be bound, the Developer conveyed that it would not agree 

to the terms of the Second Amendment — one of which is

that the Developer pay $1,475,000 to the University by May 

30, 2013 — unless the University agreed to the Developer’s

proposed revisions.

In its letter, which is dated April 15, 2013, the Developer 

informed the University “that the $1,475,000 ground lease 

payment to be tendered on or before May 30, 2013 is now a 

potential issue” because of the applications pending before the 

D.C. Historic Preservation Board. The Developer then

advised that, although it has “every intent to make that ground 

lease payment by the date specified,” it is “discomforted by 

the notion that a material change to the development program, 

which has been beyond [the Developer’s] control, will surely 

impact the economics of this project.” Read in isolation,

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these statements suggest the Developer had already 

committed to make a rental payment by May 30, 2013. We 

must bear in mind, however, that the statements were made in 

the course of negotiating the terms of the Second 

Amendment. See Simplicio v. Nat’l Sci. Personnel Bureau, 

Inc., 180 A.2d 500, 502 (D.C. 1962) (“The language of the 

letter, taken as a whole, clearly indicates that the appellant did 

not intend to be bound to do so until a written agreement had 

been signed by both sides covering acceptable terms.... The 

letter was merely a part of the preliminary negotiations 

looking toward the execution of a contract in writing.”).

Furthermore, as a practical matter, it is unlikely the Developer 

would spend months negotiating the fine points of the Second 

Amendment, and then suddenly promise to tender the 

$1,475,000 payment without either insisting the University 

agree to its “non-negotiable” concessions or at least noting 

that it was no longer insisting upon them. 

At oral argument the University claimed the Developer

also agreed to pay $1,475,000 by May 30, 2013 during their 

telephone conversation on February 1, 2013. For its part, the 

Developer says there “was no discussion ... pertaining to 

payment of the $1,475,000” during the call. We are in no 

position to weigh the credibility of the parties, and, in any 

event, the Ground Lease and the Development Agreement by 

their terms may not be amended except by a written 

agreement executed by both parties.

Viewing the facts in the light most favorable to the 

Developer, we cannot conclude the Developer agreed to pay 

$1,475,000 by May 30, 2013. A reasonable juror might find 

the parties contemplated that the Developer would be bound 

by the May 30, 2013 deadline only if the parties executed the 

Second Amendment to the Development Agreement. The

district court erred by deciding as a matter of law that the 

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Developer, in its correspondence with the University, made a 

legally enforceable promise to tender the payment by that 

date.

The University next argues the Developer conceded in its 

complaint that it agreed to pay $1,475,000 by May 30, 2013.

The statements to which the University refers were made in 

the course of describing the unsigned Second Amendment to 

the Development Agreement. For example, the complaint 

avers 

the parties discussed making certain modifications to the 

Lease and Agreement (“Second Amendment”). During 

these discussions, [the Developer] and [the University] 

agreed that [the Developer] would not be obligated to 

tender the Payment called for under the Amendment until 

May 30, 2013.

A few sentences later, the complaint adds that “despite [the 

Developer’s] above efforts and repeated requests to [the 

University], [the University] failed and refused to execute the 

Second Amendment.” Taken together, these statements 

explain that the Developer would have been required to pay 

$1,475,000 by May 30, 2013 under the proposed Second 

Amendment, but they do not imply the Developer promised to 

make the payment regardless whether the parties executed the 

Second Amendment.

The University also contends the Developer breached the 

parties’ agreement even if the Developer did not promise to

pay $1,475,000 by May 30, 2013. If the Second Amendment 

does not dictate the deadline for the $1,475,000 payment, 

then, according to the University, the Ground Lease provides 

the operative deadline. Recall the Ground Lease obligates the 

Developer to make the payment by March 15, 2011, and, 

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when the Developer failed to do so, the University notified 

the Developer in February and March of 2012 that it intended

to terminate the Ground Lease.

The parties addressed these matters in the Term Sheet, 

which they executed on April 6, 2012. The Term Sheet 

provides that “[t]he letters entitled ‘Notice of Default and 

Notice of Intent to Terminate’ dated February 3, 2012 and 

again on March 6, 2012 are hereby withdrawn.” It then sets 

forth a revised schedule for the $1,475,000 rental payment:

Payment of past due ground rent in the amount of 

$1,475,000 shall be as follows: (a) no later than ten (10) 

days after execution of this Term Sheet, a payment of 

$100,000 will be made, and (b) the balance of $1,375,000 

will be paid no later than ninety (90) days after the 

execution of the Ground Lease and [Second] 

Development Agreement Amendments.

The Developer argues the Term Sheet amended the Ground 

Lease and therefore supplies the operative deadlines for the

rental payments. Because the parties never executed the 

Second Amendment to the Development Agreement, the 

deadline set forth in the Term Sheet for the payment of 

$1,375,000, viz., 90 days after the execution of the Second 

Amendment, has not yet arrived. 

The University responds that “[e]ven if the Term Sheet 

were considered a binding and enforceable contract, the 

Developer breached the Term Sheet” by not making a 

$100,000 payment within ten days after executing the Term 

Sheet. Appellee’s Br. at 28. Although the Developer

acknowledges it did not make the $100,000 payment, it

argues failure to do so was not a breach of the Ground Lease. 

The Ground Lease provides that “[s]hould Tenant at any time

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be in default with respect to any rental payments ... and 

should such default continue for a period of ten (10) days 

after written notice from Landlord to Tenant ... then Landlord 

may treat the occurrence ... as a breach of this Lease (an 

‘Event of Default’).” If the Term Sheet is an enforceable 

contract that modifies the Ground Lease, then the Developer 

is indeed “in default with respect to” its promise to pay 

$100,000 within ten days of executing the Term Sheet. The

default is not “a breach of th[e] Lease,” however, because the 

University did not provide written notice that the Developer’s 

failure to pay $100,000 within ten days of executing the Term 

Sheet constitutes a default. The notice issued by the 

University on June 3, 2013 alleges the Developer defaulted by 

failing to pay $1,475,000 on May 30, 2013, but it does not

mention the obligation to pay $100,000 within ten days after 

the parties executed the Term Sheet. 

Furthermore, the University did not properly terminate 

the Ground Lease even if the letter it issued on June 3, 2013 is 

construed as a notice that the Developer was in default of the 

lease as a result of its failure to pay $100,000 within ten days 

after the parties executed the Term Sheet. Section 16.2 of the 

Ground Lease provides the University must send two notices 

to the Developer before it may terminate the lease. First, the 

University must issue a notice advising the Developer it is “in 

default with respect to” a rental payment. If the Developer 

does not cure the default within ten days, then the University 

may treat the default “as a breach of th[e] Lease” (i.e., an 

“Event of Default”). After an “Event of Default” occurs, the

University may terminate the Ground Lease by issuing a 

second notice and waiting an additional ten days:

[P]rior to exercising any right to terminate this Lease on 

account of any Event of Default, Landlord shall provide 

Tenant ... with a written notice (in addition to any notice 

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of default provided for in this Section 16.2 ... ),

specifying ... that Landlord intends to terminate the 

Lease if the Event of Default is not cured within ten (10) 

days.

The University did not follow this two-step process when it 

purported to terminate the Ground Lease in June 2013. 

Instead, the University sent the Developer a combined 

“Notice of Default” and “Notice of Intent to Terminate” on 

June 3 and then terminated the lease on June 14.

The University argues, in the alternative, that the Term 

Sheet “simply established an agreement to agree” and “did 

not modify the Ground Lease’s requirement that the rent be 

paid no later than March 15, 2011.” Appellee’s Br. at 26. 

The district court posited it “need not determine whether the 

Term Sheet was merely an ‘agreement to agree’ or itself a 

stand-alone contract, since neither party purports to hold the 

other to the terms of the Term Sheet in the instant action.” 

Howard Town Center Developer, 7 F. Supp. 3d at 73. It is 

true that the Developer’s primary argument before the district

court did not rely upon the Term Sheet; indeed, at one point, 

the Developer went so far as to urge the district court to

disregard the document altogether. See Pl.’s Opp’n to Mot. 

for Summ. J. at 7 & n.8. In an alternative argument, however, 

the Developer explained the effect of the Term Sheet upon the 

deadline for the rental payment:

If the Term Sheet controls as once intimated by [the 

University] ... then the Default Notice [delivered by the 

University on June 3, 2013] was woefully improper. The 

Term Sheet stated that [the Developer] was to pay 

$100,000 to [the University] within ten (10) days of 

execution of the Term Sheet and the remaining 

$1,375,000 Payment was not due until ninety (90) days 

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after execution of the Second Amendment documents....

Since the Second Amendment documents to this day 

have not been executed, the Payment has yet to become 

due. Absent a due date, it is axiomatic that [the 

University] could not issue a default notice based on an 

event that has yet to occur. [The University] never issued 

a default notice for the non-payment of the initial 

$100,000 because the parties were continuing to work 

together to address a myriad of issues, including the 

timing [of the] payment.

Id. at 21 n.16. The Developer went on to reiterate that “[i]f 

the Term Sheet controls, then as argued earlier, the time to 

cure has not even begun.” Id. at 24 n.17.

The district court offered a second reason for declining to 

resolve whether the Term Sheet is an unenforceable 

“agreement to agree” — as the University would have it — or 

a valid contract that governs the deadline for the $1,475,000 

rental payment, as the Developer contends. The court 

rejected the Developer’s alternative argument on the ground 

that it “is specious reasoning to concede, on the one hand, that 

the Term Sheet is not binding ... and, on the other hand, that 

the Term Sheet worked to delay indefinitely the due date of 

the second rent payment.... The plaintiff cannot have this 

both ways.” Howard Town Center Developer, 7 F. Supp. 3d 

at 73. A plaintiff may, however, logically present inconsistent

arguments in the alternative, which is all the Developer did 

here. Nothing could be more common in litigation.

We leave it to the district court on remand to determine in 

the first instance whether the Term Sheet is a legally 

enforceable contract under D.C. law and, if so, how the Term 

Sheet affects both the Developer’s claim that the University 

improperly terminated the Ground Lease and the University’s 

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counterclaim that it is entitled to collect $1,475,000. The 

Developer also raises three other arguments: (1) it was 

impossible to make the $1,475,000 rental payment in 

accordance with the terms of the Ground Lease because the 

parties had terminated the escrow account designated to 

receive the payment; (2) the Developer cured the alleged 

breach by depositing $1,475,000 into an escrow account on 

June 19, 2013; and (3) the district court erred by allowing the 

University to terminate the lease in addition to requiring the 

Developer to pay rent. We do not reach these three arguments 

because they are not material unless the district court 

determines on remand that the Developer was obligated to 

make a rental payment on or before May 30, 2013. 

III. Conclusion

There is a genuine dispute whether the Developer was 

required to pay the University $1,475,000 by May 30, 2013,

and, therefore, whether the University was entitled to 

terminate the Ground Lease and to collect $1,475,000 in 

damages. The judgment of the district court is, therefore,

vacated and the matter is remanded to that court for further 

proceedings consistent with this opinion.

 So ordered.

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