Court Opinion

ID: 1018229
Source: CourtListenerOpinion
Date Created: 2013-07-04 22:17:07.109416+00
Date Added: 2024-06-11T15:36:21.270872
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                              No. 05-1398

ABOVENET COMMUNICATIONS, INCORPORATED,

                                                 Plaintiff - Appellee,

           versus

1807 FARADAY COURT LIMITED PARTNERSHIP; TIGERS
XII CORPORATION,

                                              Defendants - Appellants.

Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Gerald Bruce Lee, District
Judge. (CA-04-1514-1)

Argued:   November 29, 2005                 Decided:   January 20, 2006

Before WILKINSON, MICHAEL, and MOTZ, Circuit Judges.

Affirmed by unpublished per curiam opinion.

ARGUED: David McCrory Estabrook, GORDON & ESTABROOK, R.L.L.P.,
Fairfax, Virginia, for Appellants. Robert Richardson Vieth, COOLEY
& GODWARD, L.L.P., Reston, Virginia, for Appellee.       ON BRIEF:
Anthony A. Stenger, COOLEY & GODWARD, L.L.P., Reston, Virginia, for
Appellee.

Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
PER CURIAM:

     AboveNet   Communications,   Inc.        entered    a   commercial   lease

agreement with 1807 Faraday Court Limited Partnership, allowing

AboveNet to remove the mezzanine level of Faraday’s commercial

office building upon payment of a “Restoration Escrow.”               AboveNet

paid the escrow and demolished the mezzanine.                  We must decide

whether Faraday may retain the Restoration Escrow after AboveNet

purchased the building outright.           The lease specifically provided

that Faraday “shall hold the Restoration Escrow . . . and shall use

it to restore the Mezzanine to a condition similar to that in

existence immediately prior to the Tenant Improvements.”               Because

AboveNet’s purchase of the building obviated the need for Faraday

to perform any restorations of the mezzanine, the very purpose of

the Restoration Escrow, we conclude that AboveNet is entitled to a

return of the escrow payment.     We therefore affirm the judgment of

the district court.

                                      I.

     On June 15, 1999, AboveNet and Faraday executed a twenty-year

lease for Faraday’s multi-story commercial office building in

Reston, Virginia.    AboveNet intended to use the building as a data

center, which required the installation of various generators and

electronic devices.     To accommodate this equipment, the lease

specified   that   AboveNet   would       have   the   right   to   remove   the

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building’s second floor mezzanine.       The second floor comprised

approximately 7600 of the 28,942 square feet of rentable office

space in the building.

     Eliminating the mezzanine reduced the amount of floor space

that Faraday would have to rent to future tenants.   The lease thus

required AboveNet to provide a cash “Restoration Escrow” before

proceeding with any demolition.       Paragraph 11(b) of the lease,

entitled “Tenant Alterations,” governs the escrow payment.         In

relevant part it provides:

     Landlord shall hold the Restoration Escrow without
     interest payable to Tenant and shall use it to restore
     the Mezzanine to a condition similar to that in existence
     immediately prior to the Tenant Improvements, in addition
     to the other remedies available to Landlord. However,
     upon completion of the Tenant Improvements Landlord shall
     promptly return the Restoration Escrow to Tenant, in
     whole or in part, as follows: Landlord shall compare the
     quotient (“Improvement Percentage”) of (I) the value of
     the improvements installed in the Building which, in
     Landlord’s reasonable determination, shall have long term
     value to the Building, shall be useful to a successor
     tenant, and at Landlord’s option shall remain in the
     Building at the end o [sic] the Term (the “Collateral
     Improvements”), divided by (ii) FOUR HUNDRED DOLLARS
     ($400.00), and also divided by the Removed Area; Landlord
     shall return to Tenant the Improvement Percentage (not to
     exceed 100%) of the Restoration Escrow.

AboveNet furnished a $761,500 Restoration Escrow pursuant to this

provision.

     AboveNet thereafter commenced work on the building.         From

October 1999 to March 2000, it removed the mezzanine and performed

a variety of other renovations, which included installing new

heating and cooling systems, replacing the roof, and redesigning

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the building’s interior, all at a total cost of approximately $12

million. When the renovations were complete, AboveNet requested an

early    return     of    the   Restoration       Escrow.       Faraday    refused,

contending that AboveNet’s improvements would not “have long term

value to the Building” or be “useful to a successor tenant” within

the meaning of Paragraph 11(b).                  AboveNet did not agree with

Faraday’s    determination,         but    did   not   immediately   contest    it.

AboveNet filed for bankruptcy in May 2002, but it continued to use

the building as a data center and did not default on the lease.

      The   lease    also    gave    AboveNet     an   option   to   purchase   the

building at a fixed price, approximately $6.5 million.                    On October

28, 2004, AboveNet exercised this purchase option and submitted to

Faraday a purchase agreement and the required deposit.                     It again

requested return of the Restoration Escrow.                  Faraday refused to

relinquish the $761,500 escrow and indicated that it would not

close on the sale of the building until AboveNet waived any rights

to the escrow.

        AboveNet filed a diversity suit in federal district court

against Faraday and its general partner Tigers XII Corporation,

seeking specific performance of the purchase option and return of

the   Restoration        Escrow.     The    district    court    granted    summary

judgment to AboveNet on both grounds.              Faraday thereafter conveyed

the building to AboveNet, giving AboveNet a credit on the purchase

price in the amount of the Restoration Escrow. Faraday now appeals

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only   the    district      court’s   decision     ordering   return    of   the

Restoration Escrow.

                                       II.

       The lease provides that Virginia law shall govern, and the

parties agree that the $761,500 outlay was an escrow payment.                 In

an escrow agreement, a grantor places money or property in trust to

be transferred to a grantee only upon the satisfaction of specified

contractual conditions.           See Winslow, Inc. v. Scaife, 254 S.E.2d

58, 60 (Va. 1979) (per curiam).          “An escrow arrangement, like all

express      trusts,   is     a    contractual     relationship,   in    which

disbursement by the trustee is conditioned upon the happening of a

specified occurrence.”        Old Republic Nat’l Title Ins. Co. v. Tyler

(In re Dameron), 155 F.3d 718, 723 (4th Cir. 1998) (applying

Virginia law). By the same token, when the conditions specified in

the escrow arrangement are not met, the escrow must be returned to

the grantor.     As we held in Dameron, “[i]t is . . . elementary that

when trust conditions are not satisfied the trustee has a duty to

return the property to the trustor.”             Id.

       In the lease before us, Paragraph 11(b) denominates the

payment a “Restoration Escrow,” and clearly provides that Faraday

“shall hold the Restoration Escrow . . . and shall use it to

restore the Mezzanine to a condition similar to that in existence

immediately prior to the Tenant Improvements.” Faraday’s retention

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of the escrow was therefore conditioned upon its need to rebuild

the mezzanine level to recoup additional square footage for use by

future tenants.      AboveNet’s decision to purchase the building

eliminated    any   such   need,   and    Faraday   cannot    now   “use   [the

Restoration   Escrow]      to   restore   the   Mezzanine,”    as   the    lease

instructs.    The conclusion inexorably follows that AboveNet is

entitled to a return of the escrow.                 It is immaterial that

Paragraph 11(b) does not specifically direct Faraday to return the

escrow in the event that restoration is unnecessary, because

restoration was the very condition on which Faraday’s retention of

the escrow was premised.         See Dameron, 155 F.3d at 723 (holding

that trustee had a duty to return the property to the grantor where

applicable conditions were not met).

     Faraday nonetheless argues that the purpose of the Restoration

Escrow was to provide AboveNet with the right to destroy the

mezzanine, and to protect Faraday in a transaction with a lessee of

uncertain financial stability.        We disagree.     While Faraday is of

course correct that the lease required AboveNet to provide a

Restoration Escrow as a condition of demolishing the mezzanine, it

does not follow that AboveNet’s destruction of the mezzanine

represented the condition for Faraday’s retention of the escrow.

Rather, as we discussed above, the plain language of Paragraph

11(b) unambiguously states that Faraday is to use the escrow to

restore the mezzanine.          As AboveNet’s purchase prevented such

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restoration from ever occurring, the escrow must be returned.              See

Dameron, 155 F.3d at 723.

     Nor is it the case that the purpose of the escrow was to

compensate Faraday for its risk in leasing the building to a

potentially insolvent tenant, as the plain language of Paragraph

11(b) provides otherwise.     The parties specifically fashioned this

part of their agreement as a “Restoration Escrow” under the heading

“Tenant Alterations,” rather than as any kind of general payment

for risk incurred.     This is further borne out by the fact that the

lease already required AboveNet to provide an additional $300,000

security deposit separate and distinct from the Restoration Escrow.

Unlike the Restoration Escrow, the security deposit “shall be

security   for   the   performance   by    Tenant   of   all    of    Tenant’s

obligations,     covenants,   conditions    and   agreements     under    this

Lease.”

     Faraday lastly maintains that Paragraph 11(b)’s provision for

early return of the Restoration Escrow represents the exclusive

situation under which Faraday must refund AboveNet.                  While the

lease does specify that Faraday must relinquish the escrow if it

determines that AboveNet has made “Collateral Improvements,” as

defined in the lease, the entire purpose of the escrow is that

Faraday “shall use it to restore the Mezzanine.”               See Lansdowne

Dev. Co. v. Xerox Realty Corp., 514 S.E.2d 157, 161 (Va. 1999)

(“[W]hen considering the meaning of any part of a contract, we will

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construe the contract as a whole.”).   Faraday’s construction would

all but eliminate Paragraph 11(b)’s express requirement that it use

the escrow to rebuild the mezzanine.      Moreover, when AboveNet

exercised its purchase option, the price was fixed in the lease,

and was therefore entirely unaffected by AboveNet’s alterations to

the building.   Allowing Faraday to retain the $761,500 Restoration

Escrow would amount to little more than a windfall gain.

                                III.

     For the foregoing reasons, the judgment of the district court

is

                                                           AFFIRMED.

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