Court Opinion

ID: 806647
Source: CourtListenerOpinion
Date Created: 2012-08-15 13:39:26+00
Date Added: 2024-06-11T18:00:21.038817
License: Public Domain

In the

United States Court of Appeals
               For the Seventh Circuit

No. 11-3124

C ITADEL G ROUP L IMITED, a Delaware Corporation,

                                                  Plaintiff-Appellant,
                                  v.

W ASHINGTON R EGIONAL M EDICAL C ENTER,

                                                 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.

      A RGUED A PRIL 11, 2012—D ECIDED A UGUST 15, 2012

  Before W OOD , W ILLIAMS, and T INDER, Circuit Judges.
  T INDER, 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 pro-
ceed 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 corpo-
ration 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 devel-
oper. Washington Regional planned to execute a long-
term 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 Wash-
ington 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 third-
party financing of the building. See Citadel, 536 F.3d at
759. Citadel included a “comprehensive development
proposal” with an appended “Authorization to Pro-
ceed.” 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 “Pre-
liminary 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 con-
    siderations. 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 (esti-
mated, 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 cor-
respondence, 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 prac-
tice, $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 rea-
sonably 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 Wash-
ington 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, ex-
cept that it added the last sentence to the following ap-
pended “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 bal-
    ance 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 Re-
   gional] at Project funding. [Washington Regional]
   will only be responsible for architectural and engineer-
   ing 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 Septem-
ber and informed the Washington Regional board
members that Citadel “is moving forward and construc-
tion 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 financ-
ing. All the while, the parties continued to negotiate
lease terms. In March 2006, Adam Lynch from Citadel
sent Hutchison an email attaching “a preliminary cal-
culation for [the building’s] lease rates.” The email in-
cluded 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 ex-
plained that the final set of drawings had been cir-
culated 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 ex-
pressing 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 mar-
ket. 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 rea-
sonable costs and fees. Washington Regional also
refused to pay these expenses unless it received “deliver-
ables” from Citadel, specifically the architectural, en-
gineering, 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 con-
cluding 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. Be-
cause 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

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 Authoriza-
tion, 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 com-
pleted the project and leased the building back to Wash-
ington Regional. Both parties apply Illinois law, and
thus, so do we.1

1
  We “do not worry about conflict of laws unless the parties
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...)
No. 11-3124                                                13

  A “preliminary writing that reflects a tentative agree-
ment contingent upon the successful completion of negoti-
ations 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 agree-
ment 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 sig-
nificance”).
  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

1
   (...continued)
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).
14                                              No. 11-3124

parties structured each of the transactions in such a
way that preparation and execution of a more compre-
hensive 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 incom-
plete.” 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 eventu-
ally be executed does not necessarily render prior agree-
ments 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’ inten-
tions 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

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 agree-
ment. 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 perfor-
mance. 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

2
   Neither party addresses Illinois’ parol evidence rule and
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 comple-
tion of the project.
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 con-
tract unenforceable when the court cannot reasonably
supply the missing term through contraction interpreta-
tion, for example, by referencing an agreed upon for-
mula. 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 de-
pending, 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 lan-
guage to financing contingencies. Instead, the terms
sheet states that it is subject to “changing market condi-
tions 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 sub-
sequent negotiations, Washington Regional agreed to a
formula for calculating rental rates which gave Washing-
ton 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 compre-
hensive 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 num-
erous 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 Wash-
ington Regional was nothing less than optimistic about
the parties’ long-term relationship. As Washington Re-
gional’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 con-
stituted a definite offer. As Citadel explains, Washing-
ton 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-million-
dollar 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 distinguish-
able. 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 be-
tween” 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 situ-
ation where Citadel proposed rental rates and Wash-
ington 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 Wash-
ington 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’ subse-
quent 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 agree-
ment supported finding that no contract existed). Al-
though the parties negotiated lease terms, those negotia-
tions 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 well-
pleaded 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 en-
forceable 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 agree-
ment.” 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 contem-
plated, see Feldman v. Allegheny Int’l, Inc., 850 F.2d 1217,
1223 (7th Cir. 1988); we should not read into the agree-
ment 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 manufac-
ture [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 agree-
ment). 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 com-
plete 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 disadvan-
tageous 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 Wash-
ington 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 Re-
gional 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 A FFIRM 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