Court Opinion

ID: 2806463
Source: CourtListenerOpinion
Date Created: 2015-06-09 15:03:06.743825+00
Date Added: 2024-06-11T12:07:24.430225
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 10, 2014              Decided June 9, 2015

                       No. 13-7198

        HOWARD TOWN CENTER DEVELOPER, LLC,
                   APPELLANT

                            v.

                  HOWARD UNIVERSITY,
                      APPELLEE

                            v.

              CASTLEROCK PARTNERS, LLC,
                     APPELLANT

                Consolidated with 14-7029

       Appeals from the United States District Court
               for the District of Columbia
                   (No. 1:13-cv-01075)

    Kenneth C. Smurzynski argued the cause for appellants.
With him on the briefs were John E. Schmidtlein and Masha
G. Hansford.

    Timothy F. McCormack argued the cause for appellee.
With him on the brief was Michelle M. McGeogh.
                              2
    Before: BROWN, Circuit Judge, and WILLIAMS and
GINSBURG, Senior Circuit Judges.

    Opinion for the Court filed by Senior Circuit Judge
GINSBURG

     GINSBURG, Senior Circuit Judge: Howard University
leased a parcel of land in Washington, D.C. to Howard Town
Center Developer, LLC. After the Developer failed to make a
rental payment of $1,475,000 on May 30, 2013, the
University terminated the lease agreement. The Developer
sued, and the district court entered a summary judgment in
favor of the University. Because we agree with the Developer
that there is a genuine dispute whether a rental payment was
due on May 30, 2013, we vacate the judgment of the district
court and remand this case for further proceedings in that
court.

                       I. Background

    Howard University owns a “long-neglected” parcel of
land in Washington, D.C. that it sought to transform into an
upscale “mixed-use residential/retail development.” In 2010
the University entered into several related agreements with
Castlerock Partners, LLC, which later assigned its interest in
the agreements to Howard Town Center Developer, LLC.
Three of those agreements are relevant to this appeal: the
Ground Lease, the Development Agreement, and the
Amendment to the Development Agreement.

     The Ground Lease provides that the University will lease
the property to the Developer for 99 years. In exchange, the
Developer will make rental payments of $525,000 on January
22, 2010 and of $1,475,000 on March 15, 2011, followed by
periodic rental payments in an amount to be determined by a
                               3
formula specified in the lease. Section 16.2 of the Ground
Lease describes the process by which the University may
terminate the lease if the Developer fails to pay rent:

    Should Tenant at any time be in default with respect to
    any rental payments or other charges payable by Tenant
    under this Lease, and should such default continue for a
    period of ten (10) days after written notice from Landlord
    to Tenant … then Landlord may treat the occurrence …
    as a breach of this Lease (an “Event of Default”), and in
    addition to any or all other rights or remedies of Landlord
    under this Lease or as otherwise permitted by law, it shall
    be, at the option of Landlord

    …

    [t]he right of landlord to terminate this Lease and to
    declare the Lease term ended .…

    …

    [P]rior to exercising any right to terminate this Lease on
    account of any Event of Default, Landlord shall provide
    Tenant and each Leasehold Mortgagee with a written
    notice (in addition to any notice of default provided for in
    this Section 16.2 … ), specifying IN BOLD FACE
    CONSPICUOUS TYPE, that Landlord intends to
    terminate the Lease if the Event of Default is not cured
    within ten (10) days. Upon the expiration of such ten
    (10) day period, and if such Event of Default has not
    been cured, Landlord shall have the right, at its sole
    option, thereafter to elect to terminate this Lease ….

    The Development Agreement outlines the plans for
developing the parcel. It describes, among other things, the
                             4
type of buildings the Developer must construct on the
property and the timeline for doing so.

     The Amendment to the Development Agreement
allocates the cost of cleaning up environmental toxins
discovered on the site. It modifies the Ground Lease by
directing the Developer to make the first two rental payments
— of $525,000 and $1,475,000 — to an escrow account
rather than to the University directly. The money in the
escrow account will be used to satisfy the University’s
obligation to cover its share of the cost of cleaning up the
toxins, and any remaining funds will be released to the
University.

     After signing these three agreements, the University and
the Developer created an escrow account, and the Developer
made the first rental payment of $525,000 into the account.
The Developer did not, however, make the second rental
payment of $1,475,000 by March 15, 2011 as required by the
Ground Lease. The University extended the deadline for the
second rental payment, but it remained concerned with the
Developer’s progress and demanded assurances that the
Developer would stay on schedule. The Developer did not
respond and, on September 26, 2011, the University advised
the Developer it was in default under the Ground Lease and
the Development Agreement. On February 3, 2012 the
University again notified the Developer it was in default and
the University would regard the Developer’s failure to pay
$1,475,000 within ten days as an “Event of Default” under the
parties’ agreements. On March 5, 2012 the University
informed the Developer it intended to terminate the Ground
Lease and the Development Agreement if the Developer did
not cure the “Event of Default” within ten days.
                               5
    In an effort to save the project, the parties returned to the
negotiating table and drafted a Second Amendment to the
Development Agreement. The proposed Second Amendment
— which the parties never signed — provided the Developer
would make the $1,475,000 rental payment by May 30, 2013.

    Although the parties had not signed the Second
Amendment to the Development Agreement, on April 6, 2012
they signed a Term Sheet, which includes the following
provisions:

    The letters entitled “Notice of Default and Notice of
    Intent to Terminate” dated February 3, 2012 and again on
    March 6, 2012 are hereby withdrawn. The defaults
    related to the timetable for development will be revised
    and documented in amendments to the Development
    Agreement and Ground lease. The timetable for cure of
    the monetary default is defined herein.

    …

    The new timetable for development is as follows:

    1) Execute this Term Sheet: April 6, 2012, or at such later
    time as both parties execute the Term Sheet, which shall
    be deemed to be the Effective Date.

    2) Execute Ground Lease Amendment and [Second]
    Development Agreement Amendment by Monday, April
    30, 2012.

    3) Execute amendment to Escrow agreement such that
    $525,000 held in escrow for the purposes of
    environmental remediation will be released upon
    execution of this Term Sheet.
                              6
    4) Payment of past due ground rent in the amount of
    $1,475,000 shall be as follows: (a) no later than ten (10)
    days after execution of this Term Sheet, a payment of
    $100,000 will be made, and (b) the balance of $1,375,000
    will be paid no later than ninety (90) days after the
    execution of the Ground Lease and Development
    Agreement Amendments.

Two of the obligations set forth in the Term Sheet remain
unfulfilled: the Developer did not make either rental payment,
and the parties did not execute the Second Amendment to the
Development Agreement.          The parties did, however,
terminate the escrow agreement, thereby releasing $525,000
to the University.

     The parties continued to negotiate the terms of the
Second Amendment to the Development Agreement into
early 2013. On February 1, 2013 the University advised the
Developer it would “take no further action in support of the
current developer” unless three conditions were satisfied, one
of which was that a “rental payment of $1.4 million has been
made to Howard University by May 30, 2013.” On March 27,
2013 the University sent the Developer a revised draft of the
Second Amendment to the Development Agreement. On
April 1, 2013 the Developer proposed two “non-negotiable”
revisions to the proposed Second Amendment. On April 15,
2013 the Developer sent the University a letter warning “that
the $1,475,000 ground lease payment to be tendered on or
before May 30, 2013 is now a potential issue.” The
Developer was concerned about applications pending before
the D.C. Historic Preservation Board to classify as historic
landmarks the vacant buildings on the property. The
University replied that the applications did not affect the
Developer’s obligations. On May 23, 2013 the Developer
informed the University it would not make any rental
                               7
payments until the applications for landmark designation had
been resolved.

      On June 3, 2013 the University sent the Developer a
letter with the headers “Notice of Default” and “Notice of
Intent to Terminate.” The letter, which was “issued pursuant
to Section 16.2 of the Ground Lease,” advised the Developer
it “is in default of the Ground Lease by reason of its failure to
pay to the University the sum of $1,475,000.00 due December
8, 2011 … which due date was extended by the University
through May 30, 2013.” The University further warned it
“intends to terminate the Ground Lease if that failure is not
cured by the payment in full of the sum of $1,475,000.00 by
the Developer to the University within ten (10) days after this
notice.” Eleven days later, on June 14, 2013, the University
informed the Developer “that the University hereby
terminates the Ground Lease and declares the Ground Lease
term ended.” On June 19, 2013 the Developer, in an effort to
cure the alleged breach, created a new escrow account and
deposited $1,475,000 into that account. The University did
not enter an escrow agreement with the Developer and did not
have access to the funds in the account.

     On July 15, 2013 the Developer filed a complaint
alleging, among other things, that the University improperly
terminated the Ground Lease. The University filed a
counterclaim seeking the $1,475,000 rental payment. The
University moved for summary judgment, and the district
court granted the motion. The court concluded the University
properly terminated the Ground Lease and awarded the
University $1,475,000 in damages.
                              8
                         II. Analysis

     The Developer contends the district court erred in
deciding that the $1,475,000 rental payment was due on May
30, 2013: It would have been required to pay $1,475,000 by
that date under the Second Amendment to the Development
Agreement, but the parties never executed the Second
Amendment. The University argues the Developer was
nevertheless obligated to make the $1,475,000 payment by
May 30, 2013 because the Developer confirmed in an email, a
letter, and a telephone conversation that it would do so. The
district court agreed with the University, saying it decided to
“follow the understanding of the parties as shown in their
correspondence that the $1,475,000 payment was due no later
than May 30, 2013, as contemplated in the plaintiff’s
requested Second Amendment[] to the Development
Agreement.” Howard Town Center Developer, LLC v.
Howard Univ., 7 F. Supp. 3d 64, 74 (D.D.C. 2013).

     Under D.C. law — which governs this dispute pursuant
to a choice-of-law provision in the Ground Lease — “[f]or a
contract to be enforceable, the parties must (1) express an
intent to be bound, (2) agree to all material terms, and (3)
assume mutual obligations.” Dyer v. Bilaal, 983 A.2d 349,
356 (D.C. 2009). With respect to the first element, “the
ultimate issue is whether, by their choice of language … [the
parties] objectively manifested a mutual intent to be bound
contractually.” 1836 S St. Tenants Ass’n v. Estate of B.
Battle, 965 A.2d 832, 837 (D.C. 2009). Because we are
reviewing a summary judgment in favor of the University, we
must view all facts in the light most favorable to the
Developer. See Holcomb v. Powell, 433 F.3d 889, 895 (D.C.
Cir. 2006).
                               9
     In the email, which is dated April 1, 2013, the Developer
described the payment term in the proposed Second
Amendment to the Development Agreement, but it did not
manifest its intent to be bound by the term regardless whether
the parties executed the Second Amendment. The Developer
explained that “the only monetary amount owed pursuant to
Paragraph 11 of the Second Amendment is the initial Ground
Lease payment of $1,475,000 on or before May 30, 2013.” It
also mentioned that if the Developer did not deliver the
payment by May 30, 2013, then “the agreement automatically
terminates” and the University is “free to pursue any and all
legal remedies for non-payment.” As the Developer explains,
however, these statements were made in the course of
negotiating the terms of the Second Amendment. The
Developer began the email by noting it was “still
contemplating a response to the University’s response to [the
Developer’s] last ground lease revisions.” It then identified
the two proposed revisions to the Second Amendment that it
considered “non-negotiable.” Far from expressing its intent
to be bound, the Developer conveyed that it would not agree
to the terms of the Second Amendment — one of which is
that the Developer pay $1,475,000 to the University by May
30, 2013 — unless the University agreed to the Developer’s
proposed revisions.

     In its letter, which is dated April 15, 2013, the Developer
informed the University “that the $1,475,000 ground lease
payment to be tendered on or before May 30, 2013 is now a
potential issue” because of the applications pending before the
D.C. Historic Preservation Board. The Developer then
advised that, although it has “every intent to make that ground
lease payment by the date specified,” it is “discomforted by
the notion that a material change to the development program,
which has been beyond [the Developer’s] control, will surely
impact the economics of this project.” Read in isolation,
                               10
these statements suggest the Developer had already
committed to make a rental payment by May 30, 2013. We
must bear in mind, however, that the statements were made in
the course of negotiating the terms of the Second
Amendment. See Simplicio v. Nat’l Sci. Personnel Bureau,
Inc., 180 A.2d 500, 502 (D.C. 1962) (“The language of the
letter, taken as a whole, clearly indicates that the appellant did
not intend to be bound to do so until a written agreement had
been signed by both sides covering acceptable terms…. The
letter was merely a part of the preliminary negotiations
looking toward the execution of a contract in writing.”).
Furthermore, as a practical matter, it is unlikely the Developer
would spend months negotiating the fine points of the Second
Amendment, and then suddenly promise to tender the
$1,475,000 payment without either insisting the University
agree to its “non-negotiable” concessions or at least noting
that it was no longer insisting upon them.

     At oral argument the University claimed the Developer
also agreed to pay $1,475,000 by May 30, 2013 during their
telephone conversation on February 1, 2013. For its part, the
Developer says there “was no discussion … pertaining to
payment of the $1,475,000” during the call. We are in no
position to weigh the credibility of the parties, and, in any
event, the Ground Lease and the Development Agreement by
their terms may not be amended except by a written
agreement executed by both parties.

     Viewing the facts in the light most favorable to the
Developer, we cannot conclude the Developer agreed to pay
$1,475,000 by May 30, 2013. A reasonable juror might find
the parties contemplated that the Developer would be bound
by the May 30, 2013 deadline only if the parties executed the
Second Amendment to the Development Agreement. The
district court erred by deciding as a matter of law that the
                              11
Developer, in its correspondence with the University, made a
legally enforceable promise to tender the payment by that
date.

     The University next argues the Developer conceded in its
complaint that it agreed to pay $1,475,000 by May 30, 2013.
The statements to which the University refers were made in
the course of describing the unsigned Second Amendment to
the Development Agreement. For example, the complaint
avers

    the parties discussed making certain modifications to the
    Lease and Agreement (“Second Amendment”). During
    these discussions, [the Developer] and [the University]
    agreed that [the Developer] would not be obligated to
    tender the Payment called for under the Amendment until
    May 30, 2013.

A few sentences later, the complaint adds that “despite [the
Developer’s] above efforts and repeated requests to [the
University], [the University] failed and refused to execute the
Second Amendment.” Taken together, these statements
explain that the Developer would have been required to pay
$1,475,000 by May 30, 2013 under the proposed Second
Amendment, but they do not imply the Developer promised to
make the payment regardless whether the parties executed the
Second Amendment.

     The University also contends the Developer breached the
parties’ agreement even if the Developer did not promise to
pay $1,475,000 by May 30, 2013. If the Second Amendment
does not dictate the deadline for the $1,475,000 payment,
then, according to the University, the Ground Lease provides
the operative deadline. Recall the Ground Lease obligates the
Developer to make the payment by March 15, 2011, and,
                             12
when the Developer failed to do so, the University notified
the Developer in February and March of 2012 that it intended
to terminate the Ground Lease.

     The parties addressed these matters in the Term Sheet,
which they executed on April 6, 2012. The Term Sheet
provides that “[t]he letters entitled ‘Notice of Default and
Notice of Intent to Terminate’ dated February 3, 2012 and
again on March 6, 2012 are hereby withdrawn.” It then sets
forth a revised schedule for the $1,475,000 rental payment:

    Payment of past due ground rent in the amount of
    $1,475,000 shall be as follows: (a) no later than ten (10)
    days after execution of this Term Sheet, a payment of
    $100,000 will be made, and (b) the balance of $1,375,000
    will be paid no later than ninety (90) days after the
    execution of the Ground Lease and [Second]
    Development Agreement Amendments.

The Developer argues the Term Sheet amended the Ground
Lease and therefore supplies the operative deadlines for the
rental payments. Because the parties never executed the
Second Amendment to the Development Agreement, the
deadline set forth in the Term Sheet for the payment of
$1,375,000, viz., 90 days after the execution of the Second
Amendment, has not yet arrived.

    The University responds that “[e]ven if the Term Sheet
were considered a binding and enforceable contract, the
Developer breached the Term Sheet” by not making a
$100,000 payment within ten days after executing the Term
Sheet. Appellee’s Br. at 28. Although the Developer
acknowledges it did not make the $100,000 payment, it
argues failure to do so was not a breach of the Ground Lease.
The Ground Lease provides that “[s]hould Tenant at any time
                              13
be in default with respect to any rental payments … and
should such default continue for a period of ten (10) days
after written notice from Landlord to Tenant … then Landlord
may treat the occurrence … as a breach of this Lease (an
‘Event of Default’).” If the Term Sheet is an enforceable
contract that modifies the Ground Lease, then the Developer
is indeed “in default with respect to” its promise to pay
$100,000 within ten days of executing the Term Sheet. The
default is not “a breach of th[e] Lease,” however, because the
University did not provide written notice that the Developer’s
failure to pay $100,000 within ten days of executing the Term
Sheet constitutes a default. The notice issued by the
University on June 3, 2013 alleges the Developer defaulted by
failing to pay $1,475,000 on May 30, 2013, but it does not
mention the obligation to pay $100,000 within ten days after
the parties executed the Term Sheet.

     Furthermore, the University did not properly terminate
the Ground Lease even if the letter it issued on June 3, 2013 is
construed as a notice that the Developer was in default of the
lease as a result of its failure to pay $100,000 within ten days
after the parties executed the Term Sheet. Section 16.2 of the
Ground Lease provides the University must send two notices
to the Developer before it may terminate the lease. First, the
University must issue a notice advising the Developer it is “in
default with respect to” a rental payment. If the Developer
does not cure the default within ten days, then the University
may treat the default “as a breach of th[e] Lease” (i.e., an
“Event of Default”). After an “Event of Default” occurs, the
University may terminate the Ground Lease by issuing a
second notice and waiting an additional ten days:

    [P]rior to exercising any right to terminate this Lease on
    account of any Event of Default, Landlord shall provide
    Tenant … with a written notice (in addition to any notice
                             14
    of default provided for in this Section 16.2 … ),
    specifying … that Landlord intends to terminate the
    Lease if the Event of Default is not cured within ten (10)
    days.

The University did not follow this two-step process when it
purported to terminate the Ground Lease in June 2013.
Instead, the University sent the Developer a combined
“Notice of Default” and “Notice of Intent to Terminate” on
June 3 and then terminated the lease on June 14.

     The University argues, in the alternative, that the Term
Sheet “simply established an agreement to agree” and “did
not modify the Ground Lease’s requirement that the rent be
paid no later than March 15, 2011.” Appellee’s Br. at 26.
The district court posited it “need not determine whether the
Term Sheet was merely an ‘agreement to agree’ or itself a
stand-alone contract, since neither party purports to hold the
other to the terms of the Term Sheet in the instant action.”
Howard Town Center Developer, 7 F. Supp. 3d at 73. It is
true that the Developer’s primary argument before the district
court did not rely upon the Term Sheet; indeed, at one point,
the Developer went so far as to urge the district court to
disregard the document altogether. See Pl.’s Opp’n to Mot.
for Summ. J. at 7 & n.8. In an alternative argument, however,
the Developer explained the effect of the Term Sheet upon the
deadline for the rental payment:

    If the Term Sheet controls as once intimated by [the
    University] … then the Default Notice [delivered by the
    University on June 3, 2013] was woefully improper. The
    Term Sheet stated that [the Developer] was to pay
    $100,000 to [the University] within ten (10) days of
    execution of the Term Sheet and the remaining
    $1,375,000 Payment was not due until ninety (90) days
                              15
    after execution of the Second Amendment documents….
    Since the Second Amendment documents to this day
    have not been executed, the Payment has yet to become
    due. Absent a due date, it is axiomatic that [the
    University] could not issue a default notice based on an
    event that has yet to occur. [The University] never issued
    a default notice for the non-payment of the initial
    $100,000 because the parties were continuing to work
    together to address a myriad of issues, including the
    timing [of the] payment.

Id. at 21 n.16. The Developer went on to reiterate that “[i]f
the Term Sheet controls, then as argued earlier, the time to
cure has not even begun.” Id. at 24 n.17.

     The district court offered a second reason for declining to
resolve whether the Term Sheet is an unenforceable
“agreement to agree” — as the University would have it — or
a valid contract that governs the deadline for the $1,475,000
rental payment, as the Developer contends. The court
rejected the Developer’s alternative argument on the ground
that it “is specious reasoning to concede, on the one hand, that
the Term Sheet is not binding … and, on the other hand, that
the Term Sheet worked to delay indefinitely the due date of
the second rent payment…. The plaintiff cannot have this
both ways.” Howard Town Center Developer, 7 F. Supp. 3d
at 73. A plaintiff may, however, logically present inconsistent
arguments in the alternative, which is all the Developer did
here. Nothing could be more common in litigation.

    We leave it to the district court on remand to determine in
the first instance whether the Term Sheet is a legally
enforceable contract under D.C. law and, if so, how the Term
Sheet affects both the Developer’s claim that the University
improperly terminated the Ground Lease and the University’s
                              16
counterclaim that it is entitled to collect $1,475,000. The
Developer also raises three other arguments: (1) it was
impossible to make the $1,475,000 rental payment in
accordance with the terms of the Ground Lease because the
parties had terminated the escrow account designated to
receive the payment; (2) the Developer cured the alleged
breach by depositing $1,475,000 into an escrow account on
June 19, 2013; and (3) the district court erred by allowing the
University to terminate the lease in addition to requiring the
Developer to pay rent. We do not reach these three arguments
because they are not material unless the district court
determines on remand that the Developer was obligated to
make a rental payment on or before May 30, 2013.

                       III. Conclusion

    There is a genuine dispute whether the Developer was
required to pay the University $1,475,000 by May 30, 2013,
and, therefore, whether the University was entitled to
terminate the Ground Lease and to collect $1,475,000 in
damages. The judgment of the district court is, therefore,
vacated and the matter is remanded to that court for further
proceedings consistent with this opinion.

                                                   So ordered.