In the

United States Court of Appeals

For the Seventh Circuit

No. 11-3124

CITADEL GROUP LIMITED, a Delaware Corporation,

Plaintiff-Appellant,

v.

WASHINGTON REGIONAL MEDICAL CENTER,

Defendant-Appellee.

Appeal from the United States District Court 

for the Northern District of Illinois, Eastern Division.

No. 1:07-cv-1394—Marvin E. Aspen, Judge.

ARGUED APRIL 11, 2012—DECIDED AUGUST 15, 2012

Before WOOD, WILLIAMS, and TINDER, Circuit Judges.

TINDER, Circuit Judge. This is a diversity case arising from

the breakdown of contract negotiations between Citadel

Group Limited and Washington Regional Medical Center

over the development, construction, and lease-back

arrangement of a medical office building. Washington

Regional entered into a contract with Citadel to proceed with pre-construction project development, which
2 No. 11-3124

contemplated the subsequent execution of ground and

space leases. Yet, negotiations over the leases proved

unfruitful and Washington Regional decided to move

forward on construction internally (without an outside

developer). Citadel sued for its costs and lost profits

on the deal.

We found in a previous opinion that the district court

had personal jurisdiction over Washington Regional to

resolve this dispute. See Citadel Grp. Ltd. v. Washington

Reg’l, 536 F.3d 757 (7th Cir. 2008). On remand, the

district court dismissed Citadel’s claim for failure to

negotiate in good faith at the pleading stage and granted

summary judgment in favor of Washington Regional on

Citadel’s claim for breach of contract (lost profits). The

parties settled Citadel’s claims for costs and fees incurred

pre-construction. Citadel appeals the district court’s

dismissal and summary judgment ruling. We affirm.

Citadel failed to show that Washington Regional entered

into a binding agreement to complete the lease-back

arrangement in the absence of executed leases. At the

time the parties’ relationship ended, they still had not

agreed on essential lease terms, most notably, rental rates.

Citadel’s breach of contract claim for lost profits

therefore fails as a matter of law. Citadel’s claim for

breach of the duty to negotiate in good faith also fails

because no language in the parties’ agreement required

them to engage in good faith negotiations, nor did it

establish a framework for the negotiation process.

Absent such language, we do not infer a duty.
No. 11-3124 3

I. FACTS

Washington Regional is a non-profit organization that

operates medical facilities in Arkansas. Citadel is a corporation engaged in real estate development with a focus

on the healthcare industry. In early 2005, Washington

Regional sought to develop a medical office building

through a lease-back arrangement with an outside developer. Washington Regional planned to execute a longterm ground lease on the property to the developer. The

developer would then design (according to Washington

Regional’s specifications), finance, construct, and own

the medical facility, while leasing back building space

to Washington Regional. This structure allowed Washington Regional to avoid incurring substantial debt on

its balance sheet. Washington Regional CEO William

Bradley placed Senior Vice President Tami Hutchison in

charge of the project. Hutchison issued a “Request for

Proposal” to several developers, including Citadel. The

request indicated that Washington Regional was

interested in executing a “long-term ground lease” for the

purpose of developing a 30,000 square foot medical

facility. Washington Regional proposed a 30-year ground

lease starting at $1,812 per month and increasing every

five years.

Citadel submitted a proposal in response, whereby it

would assume responsibility for the project and thirdparty financing of the building. See Citadel, 536 F.3d at

759. Citadel included a “comprehensive development

proposal” with an appended “Authorization to Proceed.” It noted that “[t]he Project’s exact construction cost
4 No. 11-3124

will be driven by [Washington Regional’s] specifications”

and provided an anticipated interest rate and fee on

the project loan. If Washington Regional chose Citadel,

the letter requested Washington Regional to sign the

Authorization to Proceed and return it along with the

requested deposit.

Attached to the proposal letter was a three-page “Preliminary Leasing Terms Sheet.” The terms sheet was

prefaced by the following language:

The following terms reflect interest rates as of

May 9, 2005. This terms sheet is subject to credit

review, commitments committee approval and

changing market conditions among other considerations. The project costs as well as structural

terms are subject to change following review of

the final project design along with architect’s

and construction manager’s final cost estimate. 

The sheet stated that Project Cost was “$5,000,000 (estimated, final budget to be determined by the Hospital’s

facility design specifications).” It further provided that

“Citadel will provide development services for a fee

of 4% to be included in the Project Cost.” In later correspondence, Citadel informed Washington Regional

that there was no mark-up on construction costs other

than the fee for project development.

The terms sheet set forth the lease term, the square

feet of leased space, the tenant improvement allowance,

and a variable and fixed lease rate for a primary care

practice, ambulatory surgery center, and medical office

space. Citadel proposed the following fixed term lease
No. 11-3124 5

rates: $11.20 per square foot for the primary care practice, $18.27 per square foot for the ambulatory surgery

center, and fair market value for the medical office

space. Citadel noted flexibility with respect to the ground

lease term, suggesting a 60-year term, with two 10-year

extension options and a fair market lease rate, as reasonably determined by Washington Regional.

Washington Regional subsequently requested additional

information about Citadel’s proposal, asking Citadel to

make various assumptions. Citadel provided a detailed

development budget of $6,200,000 with developer’s fees

of $248,000 (4 percent) in response. Citadel CEO and

President David Varwig testified that he informed Washington Regional that the Preliminary Terms Sheet set

forth an economic formula for determining lease rates

so that Washington Regional had flexibility in deciding

the type of building it wanted. (Citadel described this

as a “build-to-suit” lease-back arrangement.) The

formula: Total project cost x the capitalization rate (8.84

percent) ÷ total square feet = average rent per square foot.

Under this formula, the building lease rates fluctuated

depending on the project costs, which were dependent in

large part on Washington Regional’s chosen building

specifications (including size and interior layout). Varwig

also testified that a “whole host of things” could cause

the total project cost to fluctuate, including cost of raw

materials, cost of labor, financing fees, interests rates,

etc. But the formula cannot be found anywhere in

the Preliminary Terms Sheet or any other document

exchanged between the parties. According to Varwig, he
6 No. 11-3124

informed Washington Regional that “when you go to the

closing you’ll be able to look at the lease and look back

here and mathematically tie it together.” Hutchison

testified that she understood that the higher the cost

of construction, the higher the lease rates.

Bradley presented Citadel’s and another developer’s

proposal to Washington Regional’s board members in July.

Citadel’s budget presented to the board reflects the

increased cost of $6,200,000 and corresponding revised

building rental rates. It is not clear how Washington

Regional obtained the corresponding higher rental

rates. Bradley recommended Citadel’s proposal and the

Board approved moving forward on the project with

Citadel, authorizing payment of the $60,000 deposit.

Around this time, Citadel sent Hutchison a further

revised budget showing a total project cost of $8.5 million.

The following month, Citadel presented Washington

Regional with a letter identified as its “comprehensive

development proposal.” This second letter was similar

to Citadel’s initial proposal in all material respects, except that it added the last sentence to the following appended “Authorization to Proceed”:

[Washington Regional ] authorizes Citadel . . . to

proceed with Project development at a fee of

four percent (4%) of project costs according to

the following schedule: (i) a 1% good faith deposit

upon execution of this proposal, and (ii) the balance from Project funding. [Washington Regional]

is responsible for all legal expenses and other

costs associated with Project development, except
No. 11-3124 7

architectural and engineering fees, whether or not

the project is ultimately developed. Project costs

and expenses may be included in the Project’s

budget and hence, refunded to [Washington Regional] at Project funding. [Washington Regional]

will only be responsible for architectural and engineering fees in the event [Washington Regional] does not

execute its space leases and ground lease. 

(emphasis added). Bradley, on behalf of Washington

Regional, signed the Authorization to Proceed in September and informed the Washington Regional board

members that Citadel “is moving forward and construction should begin in March or April 2006.”

Citadel began working on the project. It hired attorneys,

architects, engineers, refined building plans, engaged in

zoning review, and began the process of securing financing. All the while, the parties continued to negotiate

lease terms. In March 2006, Adam Lynch from Citadel

sent Hutchison an email attaching “a preliminary calculation for [the building’s] lease rates.” The email included a document with a summary of costs for the

project of $10.8 million and higher lease rates (e.g., the

primary care space had a revised fixed rate of $28

per square foot). The document compared the original

lease rates with the new lease rates; Lynch explained

to Hutchison that it was a “proportional change.”

Citadel included a formula explaining how the new

lease rates were calculated as the product of cost per

square foot ÷ original cost per square foot x original

average lease rate. After receiving this email, Hutchison
8 No. 11-3124

responded to Lynch saying, “Wow, this is a big difference.

We need to discuss.”

An email from Lynch the following month stated that

Citadel was refining the project budget and expected it

to be lower given certain cost revisions. Lynch also explained that the final set of drawings had been circulated and that “the construction costs will be finalized

in the near future.” Hutchison responded, referencing

Citadel’s proposal of a $30 per square foot rate in its

draft lease: “[W]e [Washington Regional] have to have

a lease rate that is fair market value, or we aren’t going

to give you the support you’ll need in order to

close by May 15th. We’ll need to be assured that the

$30/s[quare] f[oot] that is illustrated in the draft lease

can be reduced by about 25% in order for this to get

back into a comfort zone for us.” Hutchison testified that

a fair market value lease rate would be between $22

and $25 per square foot.

On May 4, 2006, Hutchison sent Lynch an email expressing serious concern over the projected costs of

construction and explaining that “the overall project cost

remains higher than it should be compared to other

projects we have going on.” Hutchison informed Lynch

that Washington Regional was considering the cost of

terminating their relationship. Hutchison sent Varwig a

letter the next day seeking additional documentation

itemizing project costs because there was concern “that

the preliminary costs that Citadel has presented reflect

a total project cost that is not competitive with the market. As the Board may determine not to proceed with the
No. 11-3124 9

Project based on current cost projections we would

direct Citadel not to incur any further costs . . . .”

Hutchison also requested an estimate of actual costs

incurred to date on the project. Varwig responded that

Citadel had incurred $722,200 in costs. Subsequently, on

May 10, Lynch sent Hutchison the requested budget

that presented two options based on different tenant

improvement options. The first option showed a total

budget of $7,117,400, a lease rate of $19.70 per square

foot, and a tenant improvement allowance of $40 per

square foot. The second option showed a total budget

of $8,547,500, a lease rate of $23.66 per square foot, and

a tenant improvement allowance of $74.85.

At Washington Regional’s May 16, 2006 board meeting,

Hutchison and Washington Regional’s Chief Financial

Officer, Dan Eckels, made a presentation comparing

the second option outlined in Citadel’s May 10th budget

to the cost of developing the medical office building

without an outside developer. The comparison showed

that the board could save $2,466,000 by completing

the project internally. The minutes further stated that

“Hutchison advised that were the Board to decide

to pursue development . . . on its own, [Washington

Regional] would have to negotiate separation costs with

[Citadel] . . . .” Washington Regional decided it no

longer needed to use a third-party developer; its

concern about debt on its balance sheet had dissipated.

Hutchison recommended that Washington Regional

complete construction without Citadel; the Board

agreed. Washington Regional informed Citadel that it

was terminating their relationship. At the time, Citadel
10 No. 11-3124

had completed the development stage of the project and

was preparing to commence construction.

The parties could not agree on “separation costs.” Citadel

was seeking all of its costs, and Washington Regional

asserted that it was only obligated to pay certain reasonable costs and fees. Washington Regional also

refused to pay these expenses unless it received “deliverables” from Citadel, specifically the architectural, engineering, and construction plans for the building. Citadel

filed suit. Washington Regional then entered into

contracts with the architect and engineer Citadel had

retained for the project. Washington Regional paid them

to release their claims against Citadel, used their plans,

and built the medical facility.

II. ANALYSIS 

Citadel originally filed suit in state court for breach of

contract seeking costs incurred in the pre-construction

phase of the project. After Washington Regional removed

the case to federal court under diversity jurisdiction,

Citadel amended its complaint to assert additional

claims, only two of which are at issue here: breach of

contract for lost profits (Count II) and breach of the duty

to negotiate in good faith (Count III). The district court

granted Washington Regional’s request for dismissal

of Count III and later granted summary judgment in

favor of Washington Regional on Count II.
No. 11-3124 11

A. Breach of Contract (Count II)

The district court granted Washington Regional’s

motion for summary judgment on Count II after concluding that the parties did not enter into a binding

contract to complete the proposed lease-back arrangement

and instead, were still negotiating key terms. The district

court reasoned that the scope of the Authorization

to Proceed addressed only the initial development stage

of the project and contemplated the execution of ground

and space leases before construction could begin. Because those leases were never executed, the court found

no contract.

Our review is de novo. McCoy v. Harrison, 341 F.3d 600,

604 (7th Cir. 2003). Summary judgment is appropriate

only if “the movant shows that there is no genuine

dispute as to any material fact and the movant is

entitled to judgment as a matter of law.” Fed. R. Civ.

P. 56(a). We construe all facts and reasonable inferences

in the light most favorable to the non-moving party.

Spivey v. Adaptive Mktg. LLC, 622 F.3d 816, 822 (7th Cir.

2010). When the material facts are not in dispute, the

existence and interpretation of a contract are questions

of law that the court may decide on a motion for

summary judgment. See Echo, Inc. v. Whitson Co., Inc., 121

F.3d 1099, 1102 (7th Cir. 1997); cf. Winforge, Inc. v. Coachmen

Indust., Inc., No. 10-3178, 2012 WL 3064726, *9 (7th Cir.

July 30, 2012) (appellate review after bench trial where

facts are disputed is for clear error). Even when a

contract is ambiguous, as long as the extrinsic evidence

bearing on the interpretation is undisputed and leads to
12 No. 11-3124

We “do not worry about conflict of laws unless the parties

1

disagree on which state’s law applies.” Auto-Owners Ins. Co. v.

Websolv Computing, Inc., 580 F.3d 543, 547 (7th Cir. 2009)

(quotations omitted); see also United States v. Kashamu, 656 F.3d

679, 685 (7th Cir. 2011). Further, “when neither party raises a

(continued...)

only one reasonable interpretation, we can decide the

matter on summary judgment. See Cont’l Cas. Co. v. Nw.

Nat. Ins. Co., 427 F.3d 1038, 1041 (7th Cir. 2005).

Washington Regional concedes that it entered into a

legally enforceable contract with Citadel when signing

the Authorization to Proceed. The question on appeal

is the scope of the parties’ agreement. The Authorization, which expressly allowed Citadel to begin project

development, acknowledged that the parties still

needed to execute space and ground leases. Washington

Regional was responsible for all legal expenses and

other costs associated with project development “whether

or not the project [was] ultimately developed,” and was

responsible for architectural and engineering fees “in the

event [Washington Regional] does not execute its

space leases and ground lease.” Citadel received a

$60,000 good faith deposit to begin project development

with the balance due from project funding at closing,

which never occurred. The parties settled Citadel’s

claim for pre-construction costs and fees; Citadel now

seeks the lost profits it would have enjoyed had it completed the project and leased the building back to Washington Regional. Both parties apply Illinois law, and

thus, so do we.1
No. 11-3124 13

(...continued) 1

conflict of law issue in a diversity case, the federal court

simply applies the law of the state in which the federal court

sits.” R.E. Wood v. Mid-Valley Inc., 942 F.2d 425, 426 (7th

Cir. 1991).

A “preliminary writing that reflects a tentative agreement contingent upon the successful completion of negotiations that are ongoing, does not amount to a contract

that binds the parties.” Ocean Atl. Dev. Corp. v. Aurora

Christian Schs., Inc., 322 F.3d 983, 995-96 (7th Cir.

2002) (Illinois law). Although Citadel is correct that the

Authorization does not expressly state that the parties’

agreement was subject to a more definitive document,

magic words are not required. “[T]he parties need not

recite a formula to demonstrate that a definitive agreement lies in the future. Words expressing contingency

or dependence on a subsequent event or agreed-on

element will do.” PFT Roberson, Inc. v. Volvo Trucks N.A.,

Inc., 420 F.3d 728, 732 (7th Cir. 2005) (Illinois law); see

also Ocean Atl., 322 F.3d at 999 (stating that the absence

of a “subject to” clause does not “carry talismanic significance”).

As we have said, “[i]f the parties’ written words do

not show a clear intent be bound, then they will not be

held to a preliminary agreement.” Ocean Atl., 322 F.3d at

996 (quotations omitted); see id. at 997 & 1002 (holding

that the offer letter accepted by the defendant setting

forth “some of the parameters” for the sale—perhaps even

the most important terms—was not binding where the
14 No. 11-3124

parties structured each of the transactions in such a

way that preparation and execution of a more comprehensive contract was a prerequisite to the deal). “Illinois

permits parties to . . . reach[ ] agreement in stages without

taking the risk that courts will enforce a partial bargain

that one side or the other would have rejected as incomplete.” PFT Roberson, 420 F.3d at 731. “[T]he omission

of crucial terms is powerful evidence that no contract

was intended.” See Haslund v. Simon Prop. Grp., Inc., 378

F.3d 653, 655 (7th Cir. 2004) (Illinois law).

We acknowledge that just because “a formal written

document is anticipated does not preclude enforcement

of a specific preliminary promise.” Dawson v. Gen. Motors

Corp., 977 F.2d 369, 374 (7th Cir. 1992). “The fact that

parties contemplate that a formal agreement will eventually be executed does not necessarily render prior agreements mere negotiations, where . . . the ultimate contract

will be substantially based upon the same terms as the

previous document.” Quake Constr., Inc. v. Am. Airlines,

Inc., 565 N.E.2d 990, 993 (Ill. 1990) (quotations omitted).

“Under Illinois law, courts focus on the parties’ intentions to determine whether an enforceable contract comes

into being during the course of negotiations, or whether

some type of formalization of the agreement is required

before it becomes binding.” A/S Apothekernes Laboratorium

for Specialpraeparater v. I.M.C. Chem. Grp., Inc., 873 F.2d

155, 157 (7th Cir. 1989). We consider, among other

things, the complexity of the agreement, the amount of

money involved, whether the agreement requires a

formal writing for full expression of its terms, and
No. 11-3124 15

Neither party addresses Illinois’ parol evidence rule and 2

both rely on extrinsic evidence in support of their arguments.

See CFC Inv., LLC v. McLean, 900 N.E.2d 716, 722-23 (Ill. App.

Ct. 2008) (explaining the rule). We do not need to delve into

the implications of the parol evidence rule here because

even considering the extrinsic evidence, Citadel cannot show

that the parties entered into a binding agreement for completion of the project.

whether the negotiations indicate that a formal written

document is contemplated. See Quake Const., 565 N.E.2d

at 994. Importantly, the intent to be bound is “measured

objectively, by the parties’ words and conduct,” not their

stated subjective intent as to the meaning of the agreement. Block v. Magura, 949 N.E.2d 1261, 1267 n.2 (Ill. App.

Ct. 2011); see also Empro Mfg. Co. v. Ball-Co Mfg., Inc., 870

F.2d 423, 425 (7th Cir. 1989) (Illinois law).2

Parties in Illinois can reach agreement in phases—and

here, Citadel and Washington Regional entered into a

contract only as to pre-construction development. The

Authorization set the stage for further negotiations on

lease terms necessary for completion of the lease-back

arrangement; the parties’ lack of agreement on those

terms constituted a failure of negotiation, not performance. The evidence in the record simply does not

support a finding that Washington Regional intended to

be bound to complete the project with Citadel before the

material terms of the leases had been hammered out and

the leases executed. See Abbott Labs. v. Alpha Therapeutic

Corp., 164 F.3d 385, 388 (7th Cir. 1999) (Illinois law)

(finding that agreement on general terms requiring
16 No. 11-3124

future negotiation to hammer out more specific terms

did not constitute a binding contract).

A contract requires mutual assent (determined by the

parities’ objective conduct) as to all material terms. See

id. at 387; see also Nat’l Prod. Workers Union Ins. Trust v.

Cigna Corp., 665 F.3d 897, 901 (7th Cir. 2011) (Illinois

law). Indefiniteness of a material term renders a contract unenforceable when the court cannot reasonably

supply the missing term through contraction interpretation, for example, by referencing an agreed upon formula. See ATA Airlines, Inc. v. Fed. Exp. Corp., 665

F.3d 882, 886-87 (7th Cir. 2011), pet. cert. filed 80 U.S.L.W.

3669 (U.S. May 22, 2012) (No. 11-1416); see also Haslund,

378 F.3d at 654. “A contract may be enforced even

though some contract terms [are] missing or left to be

agreed upon, but if essential terms are so uncertain that

there is no basis for deciding whether the agreement has

been kept or broken, there is no contract.” Milex Prods., Inc.

v. Alra Lab., Inc., 603 N.E.2d 1226, 1233 (Ill. App. Ct. 1992).

To enter into a valid lease under Illinois law, parties

must agree (at a minimum) to the space, term, rent

amount, and time and manner of payment. See Millennium

Park Joint Venture, LLC v. Houlihan, 948 N.E.2d 1, 19

(Ill. 2010).

Citadel argues that the parties agreed on the essential

terms through the Preliminary Leasing Terms Sheet. Both

parties, however, readily acknowledge that the lease

sheet provided only estimates. For example, the building

lease rates were based on an estimated construction

cost that the parties assumed would fluctuate depending, among other things, on the building layout
No. 11-3124 17

chosen by Washington Regional. Thus, the Preliminary

Terms Sheet was exactly that: preliminary. It expressly

states that it is subject to change following review of the

final project design along with the final cost estimate.

Citadel argues this statement meant subject to change

for financing contingencies, but nothing limits the language to financing contingencies. Instead, the terms

sheet states that it is subject to “changing market conditions among other considerations.” (emphasis added).

“The parties decide for themselves whether preliminary

negotiations will bind them, and they do so through

their words.” Abbott Labs., 164 F.3d at 388.

Citadel argues that through the terms sheet and subsequent negotiations, Washington Regional agreed to a

formula for calculating rental rates which gave Washington Regional flexibility in choosing the building it

wanted. The formula, however, is not set forth in any

document exchanged between the parties. As the

district court stated, if the parties’ agreement centered

around this formula, its omission from the comprehensive proposal, terms sheet, and any other written

document, including correspondence between the

parties, is glaring. See 784 F. Supp. 2d 949, 962 (N.D. Ill.

2011). The facts taken in favor of Citadel may

reasonably support a finding that Washington Regional

was aware of the formula (or at least the relationship

between costs and lease rates), but awareness does not

equate with agreement. No evidence supports a finding

that Washington Regional agreed to be bound by any

rental rate (no matter how high) the formula generated.

The major input into Citadel’s formula—construction
18 No. 11-3124

costs—was constantly fluctuating, dependent on numerous variables (some of which were beyond the control

of either party), and not constrained by any defined

bounds. Cf. Sonnenblick-Goldman Corp. v. Murphy, 420

F.2d 1169, 1173 (7th Cir. 1970) (finding binding

contract even though the amount of reserves was left to

the discretion of the lender where the contract expressly

required a “reasonable reserve”).

The initial estimated project cost of $5 million was

revised to $6.2 million before Washington Regional

signed the Authorization to Proceed. At this point, the

evidence shows that the parties anticipated entering

subsequent leases for the construction phase and Washington Regional was nothing less than optimistic about

the parties’ long-term relationship. As Washington Regional’s specifications and Citadel’s cost estimates

changed, though, so did Washington Regional’s desire

to use Citadel as the project developer. Citadel revised

the estimate upward to $8.5 million, then to $10.8

million, and finally back down to $7.1/$8.5 million

during the parties’ negotiations. Given the unsettled

material terms of the parties’ agreement, we agree with

the district court that Washington Regional was not

“assenting to whatever output the formula generated

when the key input, total project cost, was so obviously

in flux.” 784 F. Supp. 2d at 962.

This is further evident from the parties’ continuing

negotiations. When Citadel presented the $10.8 million

cost estimate with correspondingly higher building

rental rates, Washington Regional responded: “Wow, this
No. 11-3124 19

is a big difference. We need to discuss.” In response

to Citadel’s proposed rental rate of $30 per square foot,

Washington Regional stated that the lease rate had to be

fair market value and thus, reduced by about 25 percent.

After Washington Regional informed Citadel that it

was considering the cost of terminating the relationship,

Citadel proposed rates that were more aligned with

fair market value. Washington Regional did not accept

Citadel’s proposal.

To be sure, Citadel’s proposed terms may have constituted a definite offer. As Citadel explains, Washington Regional used those terms to compare the cost of

developing the medical office building internally versus

with Citadel. What Citadel fails to realize, though, is

that Washington Regional’s use of Citadel’s figures does

not mean that Washington Regional accepted Citadel’s

offer. Quite the opposite, Washington Regional rejected

that offer after comparing the costs.

Citadel’s contention that the parties intended to enter

into a complex multi-million dollar construction project

and long-term lease-back arrangement without first

signing leases with set price terms and instead, based on

a formula that was subject to a myriad of contingencies

and not set forth in the parties’ written exchanges,

simply defies logic. See PFT Roberson, 420 F.3d at 730

(stating that one of the parties “wanted a complete and

formal arrangement before being bound,” and that

“[s]uch caution is to be expected in a multi-milliondollar deal that would last for many years.”). Citadel

relies on our decision in Dawson, 977 F.2d at 374, to
20 No. 11-3124

support its position but that case is readily distinguishable. In Dawson, franchisor General Motors led

franchisee Dawson to believe that it would not raise

rent above a certain set amount and Dawson relied on

this “assurance.” Id. at 371. We held that when “[p]laced

in the context of the prior dealings and discussions between” the parties, whether GM offered to cap lease

rates was ambiguous. Id. at 373. We also explained

that “one party’s acquiescence in the other’s reliance

on the preliminary agreement is a factor that supports

enforcement.” Id. at 374.

Unlike in Dawson, Citadel and Washington Regional

did not have a preexisting relationship and the parties

were in constant negotiations over building rental rates.

Citadel had not yet begun the construction phase of the

project when Washington Regional terminated their

relationship. We are therefore not presented with a situation where Citadel proposed rental rates and Washington Regional acquiesced in Citadel’s reliance on

those rates. Further, the lease rate cap in Dawson was a

fixed mechanical figure, whereas Citadel’s purported

formula relied on cost of construction that was subject

to numerous fluctuating variables. At no point did Washington Regional agree to pay whatever figures were

generated from this inconspicuous formula. In fact,

Washington Regional objected when the estimated

rental rates continued to rise significantly.

The Authorization to Proceed and the parties’ subsequent dealings evidence Washington Mutual’s intent to

use Citadel to construct the building only after the

parties agreed on rental rates and executed ground and
No. 11-3124 21

space leases. See, e.g., Winforge, Inc., 2012 WL 3064726, at

*11 (Virginia law) (evidence that parties continued to

negotiate scope of work after signing preliminary agreement supported finding that no contract existed). Although the parties negotiated lease terms, those negotiations proved unfruitful. It is not our function to step in

as a negotiating party and fill in material terms that

the parties could not agree on. See Haslund, 378 F.3d at

655 (“[I]f the choice of price could be delegated to a

court it would be the court and not the parties that was

the contract maker.”); ATA Airlines, 665 F.3d at 886-87

(“Courts interpret and enforce contracts; they don’t make

contracts.”). Citadel’s breach of contract claim for lost

profits therefore fails. 

 B. Breach of Duty to Negotiate in

Good Faith (Count III)

Citadel alleged in Count III that Washington Regional

breached the covenant of good faith and fair dealing by

not negotiating the ultimate leases for the project in

good faith. Washington Regional moved to dismiss

Count III because the covenant of good faith and fair

dealing is not an independent cause of action under

Illinois law separate from breach of contract. See APS

Sports Collectibles, Inc. v. Sports Time, Inc., 299 F.3d 624, 628

(7th Cir. 2002). The district court, however, construed

the complaint liberally to include a claim for the breach

of duty to negotiate, which Illinois does recognize as

an independent cause of action. See A/S Apothekernes

Laboratorium, 873 F.2d at 158 & 159 n.2. The district
22 No. 11-3124

court nevertheless found that Citadel failed to state a

claim under Rule 12(b)(6) because Citadel could not

point to any language in the Authorization that limited

the parties’ behavior while negotiating the leases.

We review dismissals under Rule 12(b)(6) de novo.

See Santana v. Cook Cnty. Bd. of Review, 679 F.3d 614 (7th

Cir. 2012). We construe the amended complaint in the

light most favorable to Citadel, accept Citadel’s wellpleaded facts as true, and draw all reasonable inferences

in Citadel’s favor. See Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009). The complaint must contain enough facts to state

a claim for relief that is plausible on its face. See id. In

deciding a motion to dismiss for failure to state a claim

we may consider documents attached to or referenced

in the pleading if they are central to the claim. See

Brownmark Films, LLC v. Comedy Partners, 682 F.3d 687,

690 (7th Cir. 2012).

An agreement to negotiate in good faith is a contract.

See Venture Assoc. Corp. v. Zenith Data Sys. Corp., 96 F.3d

275, 278 (7th Cir. 1996) (“[A]greements to negotiate

toward the formation of a contract are themselves enforceable as contracts if the parties intended to be legally

bound.”). This duty prevents a party “from renouncing

the deal, abandoning the negotiations or insisting on

conditions that do not conform to the preliminary agreement.” Milex Prods., 603 N.E.2d at 1234. For example, “a

party might breach its obligation to bargain in good

faith by unreasonably insisting on a condition outside of

the scope of the parties’ preliminary agreement, especially

where such insistence is a thinly disguised pretext for
No. 11-3124 23

scotching the deal because of an unfavorable change in

market conditions.” Id.

Unlike the duty of good faith imposed on parties in

contract performance, there is no inherent duty of good

faith with respect to contract formation. Whether a party

has agreed to negotiate in good faith and the scope of

that duty are determined by the terms or framework

established in the parties’ preliminary agreement. Id.; see

also A/S Apothekernes, 873 F.2d at 159 (stating that in the

absence of any agreed upon terms or even a general

framework within which to conduct the negotiations,

parties are free to insist on or reject any proposed terms

that they wish). Language in the relevant document

must indicate that good faith negotiations were contemplated, see Feldman v. Allegheny Int’l, Inc., 850 F.2d 1217,

1223 (7th Cir. 1988); we should not read into the agreement terms that do not exist, see A/S Apothekernes, 873

F.2d at 159 n.2.

A duty may be based on explicit language, see Venture

Assocs., 96 F.3d at 277, and language that is less so, see

Milex, 603 N.E.2d at 1233 (the agreement stated that

the defendant would “have the exclusive right to manufacture [a] product for [plaintiff] (at a negotiated price) . . .”

(emphasis added)); see also A/S Apothekernes, 873 F.2d

at 156, 158 (finding a duty where the parties signed a

letter of intent setting forth some terms and agreeing to

negotiate exclusively for a period of time to hammer

out the remaining terms and consummate an agreement). The Authorization could have been structured to

require good faith negotiations or an established frame-
24 No. 11-3124

work for the negotiation process, but it did not. Instead,

it expressly contemplated that the parties may not complete the deal and provided Citadel with a remedy if

Washington Regional failed to execute the leases. This

language did not bind Washington Regional to good

faith negotiations; what it did was provide Washington

Regional with an out. Washington Regional was free to

end the negotiations when the deal became disadvantageous as long as it paid Citadel the architectural

and engineering fees incurred (and possibly surrendered

the $60,000 “good faith deposit”). Cf. Milex, 603 N.E.2d

at 1233 (finding a valid contract where evidence showed

that the parties intended to contract in the absence of

a settled price).

“In a business transaction both sides presumably try

to get the best of the deal.” Feldman, 850 F.2d at 1223. In the

absence of contract terms limiting the ability to act with

self-interest, a party is not prohibited from bargaining to

its own economic advantage. See Milex Prods., 603 N.E.2d

at 1234-35. The parties here negotiated and were

optimistic that they could reach an agreement, but Washington Regional never promised that the negotiations

would ultimately be successful. See id. It negotiated

with Citadel, but when Citadel’s proposed rental rates

increased significantly at a time when Washington Regional was no longer concerned with carrying debt on

its balance sheet, Washington Regional chose to back out

of the negotiations. Nothing prohibited Washington

Regional from so acting in its business interest. 
No. 11-3124 25

III. CONCLUSION

For the reasons stated, we AFFIRM the district court’s

judgment in favor of Washington Regional and against

Citadel on Counts II and III of its amended complaint.

8-15-12