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K Street Developers, LLC v. Teachers Insurance and Annuity Association of America

United States District Court, D. Columbia.

September 23, 2014

K STREET DEVELOPERS, LLC et al., Plaintiffs,
v.
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA et al., Defendants

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[Copyrighted Material Omitted]

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For K STREET DEVELOPERS, LLC, UNION NORTH PHASE I, LLC, Plaintiffs, Third Party Defendants, Counter Defendants, Counter Claimants: Dale A. Cooter, Stephen Warren Nichols, COOTER, MANGOLD, DECKELBAUM & KARAS, LLP, Washington, DC.

For TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, TIAA UNION PLACE PHASE I, LLC, TIAA-CREF GLOBAL INVESTMENTS, LLC, Defendants, Counter Claimants: Esther Slater McDonald, Rebecca Woods, Sarah Izfar, SEYFARTH SHAW, LLP, Washington, DC.

For UNION PLACE PHASE I, LLC, ThirdParty Plaintiff: Rebecca Woods, LEAD ATTORNEY Esther Slater McDonald, SEYFARTH SHAW, LLP, Washington, DC.

For TIAA UNION PLACE PHASE I, LLC, TIAA-CREF GLOBAL INVESTMENTS, LLC, TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, ThirdParty Plaintiffs, Counter Claimants, Counter Defendants, ThirdParty Plaintiff: Esther Slater McDonald, Rebecca Woods, SEYFARTH SHAW, LLP, Washington, DC.

For RONALD COHEN MANAGEMENT COMPANY, INC., ALAN COHEN, RONALD COHEN, PMAS, LLC, ADC BUILDERS, INC., Third Party Defendants, Counter Claimants: Stephen Warren Nichols, LEAD ATTORNEY, COOTER, MANGOLD, DECKELBAUM & KARAS, LLP, Washington, DC.

For UNION PLACE PHASE I, LLC, RONALD COHEN MANAGEMENT COMPANY, INC., ALAN COHEN, RONALD COHEN, PMAS, LLC, ADC BUILDERS, INC., Counter Claimant, Counter Defendants: Esther Slater McDonald, SEYFARTH SHAW, LLP, Washington, DC.

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MEMORANDUM OPINION

CHRISTOPHER R. COOPER, United States District Judge.

As the District of Columbia Court of Appeals recently noted, " [i]t is fundamental that in a business transaction between two sophisticated entities involving substantial sums . . . parties are bound by what they sign." Washington Inv. Partners of Delaware, LLC v. Sec. House, K.S.C.C., 28 A.3d 566, 576 (D.C. 2011). This observation certainly applies to this case. Special purpose entities created by K Street Developers, LLC (" K Street" ) and Teachers Insurance and Annuity Association of America (" TIAA" ) entered into a written agreement to construct and manage the first phase of an apartment complex in Washington, D.C., with an option to undertake a second phase.[1] After TIAA opted not to participate in the second phase, and then removed K Street from the management of the first phase, K Street sued. It seeks at least $100 million in damages based on alleged violations of both the written agreement on phase one and a purported unwritten, overarching joint venture arrangement between the parties to develop the entire project. The Court previously dismissed all counts of the complaint except for breach of contract, breach of fiduciary duty, and breach of the covenant of good faith and fair

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dealing. Because K Street, after extensive discovery, has not provided any competent evidence to contradict the substantial documentary support marshalled by TIAA to show that no such breaches occurred, the Court will grant TIAA's motion for summary judgment.

I. Background

Plaintiff K Street is a Washington, D.C.-area real estate development company controlled by Ronald Cohen. Defendant TIAA is a global investment company. In 2006, TIAA and K Street agreed to acquire land in downtown Washington, D.C., to develop the Loree Grand, a ten story apartment complex. Parties' Compiled Statement of Material Undisputed Facts, Responses and Replies (" CSOF" ) ¶ 2. The parties subsequently entered into a written agreement for the first phase of the development (" Phase I" )--titled " Limited Liability Company Agreement of Union Place Phase I, LLC," (" the LLC Agreement" )--which was governed by Delaware law. Defs.' Mot. for Summ. J. Ex. 9. TIAA entered into the LLC Agreement through a special purpose entity called TIAA Union Place as the " Investor Member." CSOF ¶ 4. K Street entered into the Agreement through a special purpose entity called Union North as the " Operating Member." Id.

Under Section 4.14 of the LLC Agreement, titled " Right of First Offer on Phase II," if K Street " elect[ed] to sell . . . or undertake the development of Phase II," TIAA Union Place would have 30 days to choose whether to participate in the development of Phase II as well. Defs.' Mot. for Summ. J. Ex. 9 § 4.14. On November 3, 2010, K Street notified TIAA Union Place that it had elected to undertake development of Phase II and asked whether TIAA was interested in exercising its right of first offer. CSOF ¶ 12. After some back and forth, TIAA responded in a January 27, 2011 letter that it had opted against doing so. Id. ¶ 16. Nonetheless, the parties subsequently engaged in further negotiations to determine if they could find another way to work together to develop Phase II. Id., ¶ 17. These negotiations produced a non-binding letter of intent setting forth the terms under which TIAA " would be willing to consider" entering a joint venture with K Street to develop Phase II. Defs.' Mot. for Summ. J. Ex. 20 at 1. The potential development of Phase II would involve the construction of 525 apartment units, 20,000 square feet of retail space, and associated parking structures. Id. Ultimately, however, TIAA decided not to proceed with Phase II development and conveyed that final decision in a December 9, 2011 letter to Ronald Cohen. CSOF ¶ 24; Defs.' Mot. for Summ. J. Ex. 23. The letter stated in pertinent part:

In accordance with our internal processes for the evaluation of such business opportunities, the acquisitions team considered (i) the uncertainty of the tax credits to be awarded to the project; (ii) your non-responsiveness to our numerous requests for comments to the Development Agreement and Joint Venture Agreement; and (iii) the general sense that we were not getting all of requisite information to make an informed decision notwithstanding a multitude of requests for same, and we determined that it would not be prudent to proceed with this second phase of the development.

Defs.' Mot. for Summ. J. Ex. 23 at 1.

The parties dispute the underlying motivation for this decision and the scope of TIAA's discretion to make it. Id. TIAA argues that it was fully entitled to decline participation in Phase II under the right of first offer provision of the LLC Agreement. Defs.' Mot. for Summ. J. Ex. 9.

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TIAA also contends that K Street clearly recognized TIAA's discretion to decline to proceed with Phase II in an August 2010 affidavit submitted to the District of Columbia Zoning Commission by Ronald Cohen on behalf of K Street. Defs.' Mot. for Summ. J. Ex. 10. That sworn affidavit stated that K Street had failed to secure financial backing for Phase II of the development--a statement that would be false if TIAA was obligated to serve in this role. Id. at 12-13. By contrast, K Street asserts that an unwritten, overarching joint venture existed between the parties obligating TIAA to proceed with Phase II. Pls.' Opp'n. at 3-24. TIAA denies that any such joint venture existed. Defs.' Mot. for Summ. J. at 5-14. But even assuming a joint venture did exist at some point, TIAA maintains that it was either superseded by the written instruments entered into by the parties or its terms were too vague to be binding. Id. at 14-17. K Street responds that one of these written instruments, the Letter of Intent, does not " disclaim that [TIAA has] any other relationship with [K Street], law, equity or otherwise," suggesting that TIAA still could have had an overarching relationship with K Street. Summ. J. Hr'g. Tr. 31: 5-10 (July 8, 2014). K Street thus alleges that TIAA's failure to proceed with Phase II constituted a breach of its fiduciary duty under the purported joint venture (Count I).

Approximately ten weeks after TIAA declined to participate in Phase II of the development, TIAA Union Place removed Union North as the Operating Member of Phase I--meaning that Union North would no longer serve as the day-to-day manager of the building. CSOF ¶ 43. Under Section 4.4 of the LLC Agreement, the Investor Member of the LLC could remove the Operating Member upon the occurrence of one or more specified " Removal Events." CSOF ¶ 26. TIAA identified two Removal Events to justify Union North's removal. First, a Removal Event has occurred under the Agreement " if Operating Member or any Affiliate of Operating Member . . . commingles funds derived from the Property with other funds, unless the misapplication or commingling was not intentional, the amount involved is not material, and Operating Member (or its Affiliate) promptly provides restitution thereof[.]" Defs.' Mot. for Summ. J. Ex. 9 § 4.4(a)(2). TIAA contends that K Street received and deposited into its own accounts a $190,744.70 tax rebate owed to Union Place, which K Street admits it has yet to pay back. Pls.' Opp'n at 27 (" the actual dollars for the tax rebate do still sit in a Cohen Management account" ). Second, a Removal Event takes place under the Agreement if the Operating Member fails " to make any Additional Capital Contribution as set forth in Section 6.2[.]" Defs.' Mot. for Summ. J. Ex. 9 § 4.4(a)(12).[2] TIAA maintains that Union North failed to make capital contributions towards the construction of a restaurant in the Loree Grand. CSOF ¶ 43. K Street contends that it was not required to return the tax rebate or make the capital contributions because it had made certain expenditures on its own for the benefit of the project which it claims were to be offset against monies owed to TIAA Union Place as part of a " true up" agreement between the parties. CSOF ¶ 39. Consequently, K Street alleges that Union North's removal as Operating Member constituted a breach of TIAA's fiduciary duty (Counts I and II), a breach of contract (Count IV), and a

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breach of the covenant of good faith and fair dealing (Count IX).

Finally, K Street alleges that TIAA Union Place's replacement of a construction loan from a third party with a higher interest loan from TIAA also constituted a breach of the covenant of good faith and fair dealing (Count IX). TIAA responds that the LLC Agreement gave it broad discretion regarding major financial decisions, including the terms of company loans, and it replaced the loan due to legitimate concerns about its ability to truthfully reaffirm certain loan covenants in light of various instances of misfeasance by K Street. This alleged misfeasance included using ...


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