Court Opinion

ID: 4653111
Source: CourtListenerOpinion
Date Created: 2021-01-21 18:01:44.286955+00
Date Added: 2024-06-11T08:01:51.857055
License: Public Domain

In the United States Court of Federal Claims
                                           No. 18-1798C
                                      Filed: January 21, 2021 1

    7800 RICCHI, LLC,
                                                       Keywords: Contracts; Contract
                                    Plaintiff,         formation; Letter of Intent; Offer
    v.                                                 and acceptance; Breach of express
                                                       contract; Breach of implied-in-fact
                                                       contract; Breach of duty of good
                                                       faith and fair dealing.
    THE UNITED STATES,
                                    Defendant.

Matthew A. Lafferman, Trial Attorney, Dentons US LLP, Washington, D.C., with whom were
William D. Dunn and John David Blakely, Of Counsel, Dunn Sheehan LLP, for Plaintiff.

Joshua A. Mandlebaum, Trial Attorney, Steven J. Gillingham, Assistant Director, Robert E.
Kirschman, Jr., Director, and Ethan P. Davis, Assistant Attorney General, Commercial
Litigation Branch, Civil Division, United States Department of Justice, with whom were Wendy
A. Harris, Commercial and Appellate Litigation, United States Postal Service, Washington,
D.C., for Defendant.

                          MEMORANDUM OPINION AND ORDER

TAPP, Judge. 2

       This case presents a basic issue regarding contract formation. The parties’ disagreement
involves an extension of a longstanding lease agreement between Plaintiff, 7800 Ricchi, LLC
(“Ricchi”), and Defendant, United States, through the United States Postal Service. (See
generally Compl., ECF No. 1). Despite negotiations to extend a lease agreement for 18 months
and execution of a Letter of Intent, Ricchi claims that the United States breached its agreement
by vacating the premises before the end of the amended lease. (See Compl.).

       Before the Court is the United States’ Motion for Summary Judgment. (Def.’s Mot., ECF
No. 33). As explained below, the Court finds that the parties did not form a valid contract to

1
 This Order was originally filed under seal on December 28, 2020, (ECF No. 36). The Court
provided parties the opportunity to review this opinion for any proprietary, confidential, or other
protected information and submit proposed redactions. The Joint Status Report of January 11, 2021,
(ECF No. 38), indicated that the parties propose no redactions. Thus, the sealed and public versions
of this Order are identical except for the publication date and this footnote.
2
 The case was originally assigned to Senior Judge Loren A. Smith and transferred to the
undersigned on December 3, 2019. (ECF No. 25).
extend the existing lease beyond November 30, 2018. As such, the United States’ Motion for
Summary Judgment is GRANTED.

                                         I.   Background

        Since 1993, the United States Postal Service (“USPS”) has rented space located in Dallas,
Texas. (DA281; PA447). 3 This building, previously owned by 7800 Stemmons LP, 4 served as
headquarters for USPS’s Southern Area Office. (DA2; PA447). USPS entered its most recent
lease agreement for that space in November of 2013. (DA1–55). That lease was for a five-year
term ending on November 30, 2018. (DA4).

        During that lease term, USPS experienced numerous issues with the building causing
them to explore relocation. (DA56–58, 67–80, 202, 292). USPS intended to buy an existing
building owned by Nokia of America Corporation (“Nokia”) in Plano, Texas, but that plan
folded in early 2018. (DA67–80, 81–85). Subsequently, USPS changed course and planned to
construct a new building on USPS-owned land. (DA117–23). In order to continue operation
during construction, USPS sought to obtain a 12-month extension of its lease with Ricchi.
(DA81–86). Ricchi resisted entering a lease for less than 18 months. (DA96, 102). Therefore, as
part of the negotiations, USPS tried to secure a right of termination. (DA96, 102). On February
28, 2018, USPS, through its broker, sent Ricchi a Letter of Intent outlining the terms of an 18-
month lease renewal. (PA90). On March 5, 2018, Ricchi responded with a revised Letter of
Intent that instead listed three “options” for lease terms of 60, 36, or 18 months. (PA90, 288–90;
DA108–110). On the last page of the revised Letter of Intent, there was a blank for USPS to
select one of the options followed by signature lines for a USPS representative. (DA108–110).

        Diana Alvarado, a USPS contracting officer, chose the third option (18 months) and
signed Ricchi’s revised Letter of Intent, returning it on March 12, 2018. (DA106–110).
Contemporaneous to returning the Letter of Intent, USPS included a two-page unsigned Lease
Amendment to officially extend the term of the lease through May 31, 2020. (DA106, 111–13).
The Letter of Intent stated it was subject to Ricchi’s lender’s approval, and Ricchi had previously
communicated that it would not sign the Lease Amendment “until after USPS signs/notarizes 2
originals of the Lease Amendment [and] delivers them to [Ricchi].” (DA110, 104). Ricchi was
also aware that, over its objections, it would likely be June of 2018 before USPS would obtain
proper approval to sign the Lease Amendment. (DA104–05, 106, 114).

        On May 1, 2018, before the Lease Amendment with Ricchi was signed, USPS received
notice of a second opportunity to buy the Nokia building it had sought to purchase earlier.
(DA128, 221). USPS did not disclose this information to Ricchi. (PA106). USPS immediately
began negotiating to purchase the Nokia building and, on July 19, 2018, USPS and Nokia fully
3
 Both parties have attached consecutively paginated appendices as exhibits to their briefs. (See
ECF Nos. 33-1, 33-2; 34-1, 34-2). The Court will refer to Ricchi’s Appendix as (“PA_”) and the
United States’ as (“DA_”).
4
    7800 Stemmons LP transferred its interest in the property to Ricchi in 2015. (Compl. at 3).

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executed a Purchase and Sale Agreement. (DA128, 131–32, 221–52, 253). While these purchase
negotiations were ongoing, Ricchi continuously pressed USPS for updates as to their Lease
Amendment. (See, e.g., DA218–220). On or about July 26, 2018, Ricchi discovered that USPS
was making other arrangements for its operations beginning in October of 2018 and sent a letter
to USPS asserting it was “relocating without proper notice,” and contacted them regarding that
discovery. (DA253, 257, 258, 259–64). Alvarado informed Ricchi via telephone call that “USPS
[was] in the process of making a decision about [the] lease extension.” (PA349). On August 1,
2018, Alvarado sent a letter to Ricchi assuring it that USPS “intends to honor the Lease dated
November 30, 2013, through its expiration date of November 30, 2018.” (DA267). The letter
further stated USPS’s position was that “[w]ithout a binding, executed agreement to renew the
Lease or move forward with one of the newly offered options, there is no contractual lease
requirement for the [USPS] to continue its tenancy.” (DA267). Finally, the letter provided that
“there [had] been no formal internal decision on relocating” and that “[t]he review and approval
process is still ongoing.” (DA267).

         On August 15, 2018, the Postmaster General finally approved the funding to buy the
Nokia building in Plano coveted by USPS. (DA277). On August 17, 2018, Ricchi submitted its
certified claim to the contracting officer, stating that USPS was obligated to lease from Ricchi
from December 1, 2018, to May 31, 2020. (DA295–302). USPS closed on the Nokia property on
September 6, 2018, (DA303–09), and the contracting officer denied Ricchi’s certified claim the
next day. (DA310–11). In its letter of denial, USPS “formally notif[ied]” Ricchi that USPS
would vacate by November 30, 2018, the current lease’s expiration date. (DA310). This
litigation followed. In its Complaint, filed November 12, 2018, Ricchi brings claims alleging (1)
breach of contract (Count I); (2) breach of an implied-in-fact contract (Count II); and (3) breach
of the duty of good faith and fair dealing (Count IV). (Compl. at 7–9). Under Count III, Ricchi
also seeks a declaratory judgment that USPS executed a valid contract to extend its lease for 18
months. (Compl. at 8–9).

                                         II.   Analysis

       The United States has moved for summary judgment, arguing that the parties did not
form either an express or implied-in-fact contract during their negotiations. (Def.’s Mot. at 11).
The United States further submits that Ricchi’s claim for breach of the duty of good faith and fair
dealing is actually a claim for misrepresentation, which is a tort and thus outside the scope of this
Court’s subject matter jurisdiction. (Id. at 12). Ricchi counters that the Letter of Intent and Lease
Amendment are valid and binding contracts, either express or implied-in-fact. (Pl.’s Resp. at 14,
ECF No. 34). Additionally, Ricchi argues that there is a fact issue that precludes summary
judgment on its breach of the duty of good faith and fair dealing claim. (Id. at 26). Ultimately,
the Court finds that a valid contract did not exist, thus no genuine issue of material fact precludes
summary judgment as to each count of the Complaint.

         Summary judgment is appropriate “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.” RCFC 56(a).
The moving party bears the initial burden of proof, but this burden may be discharged by
showing the absence of evidence supporting the opposing party’s claim. See Celotex Corp. v.
Catrett, 477 U.S. 317, 325 (1986). In moving for summary judgment of non-infringement, “all
that is required is ‘notice to the party with the burden of proof that she had to come forward with

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all of her evidence.’” Exigent Tech., Inc. v. Atrana Solutions, Inc., 442 F.3d 1301, 1308 (Fed.
Cir. 2006) (quoting Celotex Corp., 477 U.S. at 326) (internal alterations omitted). In other words,
“nothing more is required than the filing of a summary judgment motion stating that the patentee
had no evidence of infringement and pointing to the specific ways in which accused systems did
not meet the claim limitations.” Id. at 1309.

        If the moving party makes such a showing, the burden shifts to the non-moving party to
present such evidence. Id. at 324. The nonmoving party “must do more than simply show that
there is some metaphysical doubt as to the material facts,” it must come forward with “specific
facts showing that there is a genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 586–87 (1986) (emphasis and citations omitted). “A nonmoving party’s
failure of proof concerning the existence of an element essential to its case on which the
nonmoving party will bear the burden of proof at trial necessarily renders all other facts
immaterial and entitles the moving party to summary judgment as a matter of law. Dairyland
Power Co-op v. United States, 16 F.3d 1197, 1202 (Fed. Cir. 1994) (citing Celotex Corp., 477
U.S. at 323).

   A. Ricchi and USPS Never Formed a Contract

        The Court’s initial inquiry here is whether the parties actually formed a contract. As
stated above, Ricchi asserts that its communications with USPS and the signed Letter of Intent of
March 2018 amounted to a contract for the extension of the lease beyond November 30, 2018.
(Pl.’s Resp. at 14). The United States argues here that the Letter of Intent did not rise to the level
of a contract, express or implied-in-fact, with Ricchi. (Def.’s Mot. 13–14).

        To prove the existence of a contract, a plaintiff must establish four elements: “(1)
mutuality of intent to contract; (2) offer and acceptance; (3) consideration; and (4) a government
representative having actual authority to bind the United States.” Hometown Fin., Inc. v. United
States, 409 F.3d 1360, 1364 (Fed. Cir. 2005). “A failure of any of these requirements precludes
the existence of a valid contract.” McLeod Group LLC, v. United States, No. 2020-1389, 2020
WL 7393229, at *2 (Fed. Cir. Dec. 17, 2020). The United States’ motion contests only the
second and fourth elements. The United States argues that negotiations surrounding the Letter of
Intent did not amount to an offer or an acceptance because the drafted Lease Amendment
document was never signed by USPS and because the negotiators for both sides were not
authorized to make a final agreement. (Def.’s Mot. at 11). Furthermore, the United States asserts
that Alvarado’s statements and actions could not have bound USPS because the contemplated
rent for the lease extension exceeded the limit of her warrant. (Def.’s Mot. at 11 (citing DA64)).
Ricchi disagrees, arguing in sum that the Letter of Intent satisfies the requisite elements to form
an enforceable contract, either express or implied-in-fact. (Pl.’s Resp. at 14–21).

         The Court first looks to whether there was an offer or acceptance. The facts of this case
are similar to that of Neenan v. United States, 112 Fed. Cl. 325 (2013), aff’d 570 Fed. Appx. 937
(Fed. Cir. 2014). There, another judge on the Court of Federal Claims found that no contract was
created when the government forwarded an extension of a lease agreement to the plaintiff, which
the plaintiff signed and returned, but the contracting officer never countersigned. Id. at 330.
There, the Court found that forwarding the proposed lease extension “is plainly not, in itself, an
offer. It merely forwarded the draft agreement.” Id. The plaintiff in Neenan also pointed to the

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contracting officer’s apparent assent to the bargain when they stated, “It’s a deal,” in reference to
the agreement. Id. at 329. Even considering that outward, verbal agreement, the Court went on to
hold that it “cannot ignore the fact that the enclosed draft lease was not signed” and found that
“[o]nly after the contracting officer’s final review of the lease and proof of authority, followed
by a signature, would there be final approval.” Id.

        Subsequently, another judge of this Court applied the Neenan rationale to JEM Transp.,
Inc. v. United States, 120 Fed. Cl. 189 (2015), a case in which a transportation services provider
alleged that USPS failed to recognize a purported contract extension for mail delivery. The
plaintiff relied on an email from the contracting officer stating that “[t]his contract has been
renewed full term.” JEM Transp., 120 Fed. Cl. at 195. Despite that affirmation, as
in Neenan, USPS sent the extension document to the plaintiff with the contracting officer’s
signature block left unsigned. Id. The Court found that the unsigned document indicated the
Plaintiff “ha[d] reason to know that [USPS] [did] not intend to conclude a bargain until [it] has
made a further manifestation of assent.” Id. (citing Linear Tech. Corp. v. Micrel, Inc., 275 F.3d
1040, 1050 (Fed. Cir. 2001)). Ultimately, the Court found that JEM had no right to an extension
beyond the expiration date of the underlying contract it actually signed. JEM Transp., 120 Fed.
Cl. at 196.

         Applying these principles, a review of the record makes clear that the Letter of Intent is
not binding or a valid extension of the lease. The United States is correct in claiming that offer
and acceptance do not exist here. “A manifestation of willingness to enter into a bargain is not an
offer if the person to whom it is addressed knows or has reason to know that the person making it
does not intend to conclude a bargain until he has made a further manifestation of assent.” Linear
Tech., 275 F.3d at 1050 (quoting Restatement (Second) of Contracts § 26 (1981)). As expressed
in the comments to the Restatement, it is “common” to use “promissory expressions or words of
assent in unsigned documents or letters where the document is intended not as an offer but only
as a step in the preliminary negotiation of terms . . ..” Restatement (Second) of Contracts § 26,
cmt e.

        It is undisputed that the parties executed the Letter of Intent with the understanding that
the extension would be effectuated upon the signing of the Lease Amendment. There would be
no other reason that the Lease Amendment included a blank space left for the contracting
officer’s signature. The March 5, 2018 Letter of Intent signed by Alvarado stated that it was
subject to approval by Ricchi’s lender, (DA110), and Ricchi explained that it could not commit
to being bound until after obtaining such approval. (DA107, 917 (stating “[T]here was
significant discussion regarding the lender on the building’s need to approve the lease before
allowing his client the Landlord to execute the lease . . ..”)). Ricchi further stressed that it would
not sign a lease amendment until after USPS signed it. (DA104 (“Landlord will not sign USPS
Lease Amendment for the 18-month extension until after USPS signs/notarizes 2 originals of the
Lease Amendment & delivers them to the Landlord.”); DA106 (“I have told USPS that [Ricchi]
will not sign this Amendment until after it is signed by USPS.”); see also DA107 (“Leo said if
you get the amendment signed rather than LOI signed is ok and he will sign as soon as he gets
lender approval – if you guys want to go that way.”)). The record further indicates that Ricchi
was aware of USPS’s need to obtain approval, and the timing associated with that before it could
commit to a binding agreement. (See DA104–05 (“[Ricchi] was not happy about the June
timeframe . . ..”); DA114 (“I don’t think USPS can speed up their timing beyond the June

                                                  5
execution for the Amendment.”)).

         Thus, there can be no dispute that Ricchi had reason to know that USPS did not intend to
conclude a bargain until it had made a further manifestation of assent. See Linear Tech., 275 F.3d
at 1050. Further, and more compelling to the Court’s decision, the clearest evidence that USPS
never committed to being bound is that USPS never signed the drafted lease-amendment
document. (DA113 (unsigned lease amendment); DA275 (lease amendment attached to demand
letter)). As in Neenan, this Court cannot ignore the fact that the enclosed draft Lease Amendment
was not signed.

         The Court recognizes that the Letter of Intent in this case is more formal than Neenan’s
“It’s a deal,” and the emailed affirmation illustrated in JEM Transport. However, it is clear from
the record that the binding document which would extend the lease was the Lease Amendment,
not the Letter of Intent itself. The Letter of Intent’s purpose was explicit: to “authorize [Ricchi]
to immediately prepare a lease amendment to be signed by the United States Postal Service upon
mutual acceptance of the language contained in the amendment document.” (DA110). As it
applies in this case, the Letter of Intent represents a step in the preliminary negotiation of terms
but is not an offer. Because there was no express contract in this case, the claim that the United
States has breached such a contract must fail. Therefore, the United States is entitled to summary
judgment on Count I. Because the Court concludes no express contract was formed, the Court
need not consider whether the contracting officer possessed the requisite authority to enter into
the alleged contract.

        In the alternative to its theory that an express contract was created and breached, Ricchi
alleges the creation and breach of an implied-in-fact contract. (Compl. at 7–8). A contract
implied-in-fact differs from an express contract only in that a written instrument is not required if
the party trying to prove formation can otherwise show the existence of all the elements which
are required in forming an express contract. Trauma Serv. Grp. v. United States, 104 F.3d 1321,
1325 (Fed. Cir. 1997) (“The general requirements for a binding contract with the United States
are identical for both express and implied contracts.”); Russell Corp. v. United States, 537 F.2d
474, 482 (Ct. Cl. 1976) (“The fact that an instrument was not executed is not essential to
consummation of the agreement.”). “An implied-in-fact contract is one founded upon a meeting
of minds and is inferred, as a fact, from the conduct of the parties showing, in the light of the
surrounding circumstances, their tacit understanding.” Turping v. United States, 913 F.3d 1060,
1065 (Fed. Cir. 2019) (quoting Hanlin v. United States, 316 F.3d 1325, 1328 (Fed. Cir. 2003)).
Ricchi’s alternative theory is that the conduct of the parties evinces a contract that can be
implied-in-fact and contains the same terms as the Letter of Intent.

        As with Count I, Ricchi cannot succeed on an implied-in-fact contract claim. As
explained above, Ricchi cannot show offer and acceptance because, at every stage, the parties
clearly had not consummated the deal. Because Ricchi cannot show an offer and acceptance
necessary to prove the existence of an express contract, and it asserts no additional arguments or
evidence supporting its implied contract claim, that claim must also fail. The only contract
between Ricchi and USPS expired on November 30, 2018. No inference of an implied contract
can be drawn without offer and acceptance, thus the United States cannot be liable for breach.

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Consequently, the United States is entitled to judgment on Count II.

   B. USPS Did Not Breach its Duty of Good Faith and Fair Dealing

        Ricchi further asserts that USPS breached its duty of good faith and fair dealing when it
“announc[ed] its intention to abandon the Premises on November 30, 2018 . . . despite its
agreement to renew the Lease.” (Compl. at 9). The United States argues that USPS did not
breach the duty with respect to the existing lease contract, that the duty does not attach to
contracts not-yet-formed, and that Ricchi’s theory of recovery is grounded in misrepresentation,
which is a tort and thus outside the jurisdiction of this Court. (Def.’s Mot. at 11, 17–18; Def.’s
Reply at 7–8, ECF No. 35). Ricchi responds that whether USPS breached the duty of good faith
and fair dealing is a factual issue and thus, summary judgment should be denied. (Pl.’s Resp. at
26–27).

         In every contract, including government contracts, both parties maintain an implied duty
of good faith and fair dealing. See Alabama v. North Carolina, 560 U.S. 330, 351 (2010);
Metcalf Constr. Co. v. United States, 742 F.3d 984, 990 (Fed. Cir. 2014); Bell/Heery v. United
States, 739 F.3d 1324, 1334-35 (Fed. Cir. 2014); Precision Pine & Timber, Inc. v. United States,
596 F.3d 817, 828 (Fed. Cir. 2010); Centex Corp. v. United States, 395 F.3d 1283, 1304 (Fed.
Cir. 2005); Restatement (Second) of Contracts § 205 (Am. Law Inst. 1981). The “implied duty of
good faith and fair dealing” can also be understood as the “implied duty not to hinder and the
implied duty to cooperate.” Precision Pine, 596 F.3d at 827. “Government actions that are
unreasonable under the circumstances” are sufficient to constitute a breach of the implied duty
not to hinder performance. Tecom, Inc. v. United States, 66 Fed. Cl. 736, 770 (2005). Failure to
fulfill the implied duty of good faith and fair dealing “constitutes a breach of contract,” the same
as if an explicit contractual provision was violated. Metcalf, 742 F.3d at 990. The implied duty of
good faith and fair dealing exists “because it is rarely possible to anticipate in contract language
every possible action or omission by a party that undermines the bargain.” Id. at 991.

        The United States is correct that the duty of good faith and fair dealing does not extend to
“the formation of a contract.” Scott Timber Co. v. United States, 692 F.3d 1365, 1372 (Fed. Cir.
2012) (quoting Restatement (Second) of Contracts § 205). Furthermore, the exercise of a
legitimate contractual right cannot constitute a breach of the duty of good faith and fair dealing.
Scott Timber Co., 692 F.3dat 1375 (quoting David Nassif Assocs. v. United States, 644 F.2d 4, 12
(Ct. Cl. 1981) (“[T]he assertion of a legitimate contract right cannot be considered as violative of
a duty of good faith and fair dealing.”)).

        The United States is entitled to summary judgment on Count IV for two reasons. First,
USPS was not obligated to renew its lease agreement with Ricchi and ultimately did not agree to
do so. When the underlying lease ended, so did the parties’ obligation to one another. USPS
elected to pursue other leasing arrangements for its tenancy following the expiration of its lease
agreement with Ricchi. “[T]he covenant [of good faith and fair dealing] imposes obligations . . .
not to act so as to destroy the reasonable expectations of the other party regarding the fruits of
the contract.” Centex Corp., 395 F.3d tat 1304 (citations omitted). The “fruits” of the contract
were obtained by both parties: USPS secured a physical location for its Southern Area Office,

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and Ricchi was financially compensated for USPS’s tenancy. Nothing more was owed or
required of either party.

       Second, the facts Ricchi alleges are in dispute go to whether USPS was truthful in
negating a new lease contract to extend its tenancy. The scope of the implied duty of good faith
must be “tether[ed] to” and “grounded in” the terms of the existing contract and do not attach to
negotiations. See Dobyns v. United States, 915 F.3d 733, 740–41 (Fed. Cir. 2019), cert. denied,
140 S. Ct. 1106 (2020) (“Inferring an implied duty . . . without a tether to the contract terms,
would fundamentally alter the balance of risks and benefits associated with the . . . agreement
and cannot be the basis of a claim for breach of the implied duty of good faith and fair dealing.”).
As the Court has explained, the negotiations produced no contract and, without a contract, there
were no contractual terms to which the duty of good faith and fair dealing could be tethered.
Therefore, the United States is entitled to summary judgment on Count IV.

                                       III.    Conclusion

       For the foregoing reasons, the United States’ Motion for Summary Judgment is
GRANTED. The Clerk is directed to enter judgment accordingly. Each side shall bear its own
costs.

        Pursuant to the Protective Order in this case, (ECF No. 21), the Court has filed this ruling
under seal. The parties shall confer to determine proposed redactions to which all the parties
agree. By no later than January 11, 2021, the parties shall file a joint status report indicating their
agreement with the proposed redactions, attaching a copy of those pages of the Court’s ruling
containing proposed redactions, with all proposed redactions clearly indicated. The parties also
shall, by the same date, file any redacted versions of briefing they filed under seal in this case to
the extent such redacted versions have not already been filed.

       IT IS SO ORDERED.

                                                                       s/  David A. Tapp
                                                                       DAVID A. TAPP, Judge

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