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Howard Town Center Developer, LLC v. Howard University

United States District Court, District of Columbia

January 31, 2017

HOWARD TOWN CENTER DEVELOPER, LLC, Plaintiff-Counter Defendant,
v.
HOWARD UNIVERSITY, Defendant-Counter Plaintiff-Third Party Plaintiff
v.
CASTLEROCK PARTNERS, LLC, Third Party Defendant.

          MEMORANDUM OPINION

          BERYL A. HOWELL CHIEF JUDGE

         This case returns to the Court for reconsideration of the appropriateness of summary judgment in favor of either the defendant/counter-plaintiff Howard University (“the University”), which owns property that it seeks to develop, or the plaintiff/counter-defendant Howard Town Center, LLC, (“the Developer”) and the third-party defendant Castlerock Partners, LLC, another developer. The D.C. Circuit concluded that a “term sheet” (the “Term Sheet”) -which the Developer previously urged this Court to disregard but, in an about-face, characterized on appeal as controlling the outcome of the present dispute-might affect the parties' respective claims in this case and, for this reason, vacated the entry of summary judgment in favor of the University and remanded the case for consideration of the significance of the Term Sheet. The parties have now filed cross-motions for summary judgment. See Mot. Def. Howard Univ. Summ. J. Am. Compl., Counterclaim, & Third-Party Compl. (“Def.'s Mot.”), ECF No. 86; Plaintiff & Third- Party Def.'s Mot. Summ. J. (“Pl.'s Mot.”), ECF No. 87. In those motions, the University seeks a rental payment originally due in 2011 from the Developer, which for the past eight years has been unsuccessful in developing the property, while the Developer seeks yet more time to fulfill its contractual obligations with respect to the property. For the reasons set forth below, the motions are denied.

         I. BACKGROUND

         The factual and procedural history underlying the present dispute is fully set out in this Court's prior Memorandum Opinion granting summary judgment in favor of the University, see Howard Town Ctr. Developer, LLC v. Howard Univ., 7 F.Supp.3d 64, 66-76 (D.D.C. 2013), as well as in the D.C. Circuit's decision vacating that judgment and remanding the case, see Howard Town Ctr. Developer, LLC v. Howard Univ., 788 F.3d 321, 323-25 (D.C. Cir. 2015), and, consequently, will be summarized only briefly.

         The parties' now contentious relationship began over eight years ago, in December 2008, when the University executed a development agreement with the third-party defendant to develop for mixed use a parcel of land in Washington, D.C. that the University agreed to lease for this purpose. Def.'s Statement Undisputed Material Facts Supp. Mot. Summ. J. (“Def.'s SMF”) ¶¶ 1-2, ECF No. 86.[1] In January 2010, the University and the third-party defendant executed a ground lease for the parcel, along with a second development agreement, both of which agreements the third-party defendant assigned on the same day to the Developer, a newly created entity in which the third-party defendant and its principal hold interests. Id. ¶¶ 4, 7, 9, 11.[2] The ground lease provided for payments to the University on the following schedule: $525, 000 on January 22, 2010; $1, 475, 000 no later than March 15, 2011; and monthly installments of rent thereafter. Id. ¶ 8. The development agreement provided that construction would begin on the parcel no later than March 15, 2011, with substantial completion by March 15, 2013. Id. ¶ 10.[3] The agreements also provided for their termination upon the occurrence of certain events to be considered defaults, with provisions requiring notice and an opportunity to cure be given to the defaulting party.

         In accordance with these agreements, the Developer made the first rental payment of $525, 000 into an escrow account. Id. ¶ 23. Yet, March 15, 2011, the key date for payment of the second rental payment, came and went with the Developer neither paying the University the $1, 475, 000 required under the lease agreement, nor beginning construction on the project as provided in the development agreement. Id. ¶ 29. According to the Developer, this failure is attributable to a myriad of factors relevant to an analysis of its contractual obligations under the agreements existing at that time, including “the financial crisis, ” that made securing financing difficult. Pl. & Third-Party Def.'s Statement Material Facts Not Gen. Disp. (“Pl.'s SMF”) ¶ 52, ECF. No. 87. As it became clear that construction would not commence as agreed in the lease and development agreements, the parties began to discuss alternative timelines and alterations to the building project, which discussions continued after March 15, 2011, and included the University's proposal of December 8, 2011, as an amended deadline for commencement of construction and payment of the second installment of rent. Def.'s SMF ¶ 32. The Developer never formally accepted in writing the University's offer of an amended schedule, failed to comply with this offered extended schedule, and did not respond to the University's August 30, 2011, demand for assurances of the Developer's ability and willingness “to fulfill its contractual commitments to the University.” Id. ¶¶ 34-37. Consequently, on September 26, 2011, the University sent the Developer a notice of default under the lease and development agreements, citing eight distinct defaults, including the Developer's failure to make progress on improvements to the property, as well as its failure to give the University requested assurances as to its ability to make a rental payment on December 8, 2011. Def.'s SMF ¶ 39; Pl.'s SMF ¶ 65.

         Following the notice of default, the Developer failed to cure any of the cited defaults or to make the second rental payment of $1, 475, 000, which was originally due by March 15, 2011, by the University's proposed extended date of December 8, 2011, or to commence construction on the project. Def.'s SMF ¶ 40. Four months after issuance of the first default notice, the University sent the Developer, on February 3, 2012, a second notice of default and notice of intent to terminate both the lease and development agreements, citing the Developer's failure to make the requisite payment by December 8, 2011. Id. ¶ 45.

         By the time of the second default notice, the parties had begun to discuss a way to resolve the Developer's enumerated defaults. These discussions resulted in execution, on February 14, 2012, id. ¶ 48, of a “Pre-Negotiation Agreement” to govern “discussions relating to the obligations the Developer owes to the University pursuant to the Ground Lease and Development Agreement dated January 22, 2010, ” Def.'s Mot., Ex. 24 (“Pre-Negotiation Agreement”) at 1, ECF No. 86-24. The Pre-Negotiation Agreement provided, inter alia, that the content of the discussions would remain private; any additional binding agreements must be reduced to writing; and the negotiations could be terminated at any time. Pre-Negotiation Agreement at 1-2. Notwithstanding the agreement to negotiate, on March 5, 2012, the University sent the Developer a third notice of default and notice of intent to terminate both the lease and development agreements due to the Developer's continuing failure to make the second rental payment of $1, 475, 000, which was now almost one year overdue. Def.'s SMF ¶ 50.

         In the course of the parties' negotiations under the Pre-Negotiation Agreement, on April 6, 2012, the parties executed the Term Sheet, drafted and forwarded to the University by the Developer. Id. ¶ 51-52.[4] The Term Sheet provides that the notices of default sent in February and March 2012 “are hereby withdrawn” but “[t]he timetable for cure of the monetary default is defined herein.” Def.'s Mot., Ex. 26 (“Term Sheet”) at 1, ECF No. 86-26. Specifically, the “timetable” provided in the Term Sheet for “RENT, SCHEDULE, AND OTHER ITEMS, ” required (1) execution of the Term Sheet itself by April 6, 2012; (2) execution of an amendment to the escrow agreement such that the $525, 000 in escrow would be released to the University upon execution of the Term Sheet; (3) execution of amendments to the lease and development agreements by April 30, 2012; (4) commencement of construction by April 15, 2013, with certain phasing of the project permitted; (5) automatic termination of the lease if the “Developer fails to break ground by September 15, 2013, ” at which point “both parties agree that all actions, by either party, prior to the execution of the Ground Lease Amendment shall not be grounds for litigation”; and (6) “[p]ayment of past due ground rent in the amount of $1, 475, 000, ” with $100, 000 to be paid “no later than ten (10) days after execution of th[e] Term Sheet” and “the balance of $1, 375, 000” to be paid “no later than ninety (90) days after the execution” of the amendments to the lease and development agreements. Id.

         Only the first two requirements of the Term Sheet-execution of the Term Sheet itself and dissolution of the escrow agreement releasing the $525, 000 to the University-occurred. Specifically, following the execution of the Term Sheet, the parties executed an amendment terminating the separate escrow agreement between the parties, thereby releasing the funds in that account to the University. Pl.'s SMF ¶ 101; Def.'s SMF ¶ 64. Notwithstanding the Developer's payment requirements in the Term Sheet, the Developer made no further payments to the University, including no payment of the $100, 000 due within ten days of execution of the Term Sheet. Def.'s SMF ¶ 64.

         Moreover, despite the Term Sheet's requirement that amendments to the lease and development agreements be concluded on a short time-table, by April 30, 2012, i.e., within the same month as execution of the Term Sheet, see Term Sheet at 2, negotiations regarding these amendments continued over the next nine months. The parties circulated numerous draft documents, emails, and other communications, yet executed no amendments to either the lease or development agreements. See Def.'s SMF ¶¶ 60-76; Pl.'s SMF ¶¶ 97-125. Finally, on February 1, 2013, the University sent the Developer an email stating that “Howard University will take no further action in support of the current developer . . . [unless, inter alia, ] [t]he developer has obtained sufficient financing from a reliable source [and] [a] rental payment of $1.4 million has been made to Howard University by May 30, 2013, ” Def.'s Mot., Ex. 41 at 2, ECF No. 86-41, which is the date the Developer had promised would be “the outside date to ‘true up' on the initial ground lease payment of $1.425 [sic] million, ” Def.'s SMF ¶ 72 (quoting Ex. 38, Jan. 1, 2013, email from Eric Siegel, Developer's representative).

         On February 7, 2013, the D.C. Preservation League notified the University of pending applications to designate as historic two buildings on the property, with the result that they could not be razed, and the University, in turn, immediately notified the Developer. See Pl.'s Mot, Ex. 71 at 2, ECF No. 87-74. After a further round of communications regarding the amendments to the lease and development agreements, on April 15, 2013, the Developer sent a letter to the University explaining that “the $1, 475, 000 ground lease payment to be tendered on or before May 30, 2013 is now a potential issue because we do not know what we are building as a result of [the pending historic applications].” Def.'s Mot., Ex. 53, ECF No. 86-53. Then, on May 23, 2013, the Developer sent the University a letter stating that “until the[] historic issues are resolved, we do not intend to make any further monetary payments to Howard University.” Id., Ex. 55 at 1, ECF No. 86-65. By this point, the only monetary payment made to the University by the Developer or the third-party defendant over the prior five years since the execution of the initial development agreement was the first rent payment of $525, 000 released from the escrow account in May 2012. See Pl. & Third-Party Def.'s Resp. Def.'s SMF (“Pl.'s Resp. Def.'s SMF”) ¶ 120, ECF No. 90 (stating the Developer “has paid [the University] the only ground rent payment due to date, which was $525, 000”).

         Consistent with its unilateral notice of intent not to make the second rental payment, the Developer failed to make a rental payment on May 30, 2013, prompting the University to send the Developer a fourth notice of default and notice of intent to terminate on June 3, 2013. See Def.'s SMF ¶¶ 101-02. On June 14, 2013, the University sent the Developer a notice of election to terminate the ground lease and, three days later, the University terminated the development agreement. See Id. ¶¶ 108-09. Even after the University's transmittal of the fourth default notice, intent to terminate, and notice of termination of the lease and development agreements, the Developer sent the University, on June 22, 2013, a further round of draft amendments to the lease and development agreements, as well as an email assuring the University that the Developer had ready the $1, 475, 000 necessary to make the rental payment and attaching, as proof, a receipt from the Developer's agent, Closeline Settlements, indicating Closeline's receipt of the Developer's check for $1, 475, 000 and the deposit of those funds into an interest bearing account in the Developer's name. See Pl.'s Mot., Exs. 88-90, ECF Nos. 87-91-93.[5]

         On July 15, 2013, the Developer instituted the instant lawsuit along with a motion for a preliminary injunction, contending that the University improperly terminated the lease and development agreements and requesting reinstatement of those agreements. See Pl.'s Mem. Supp. Mot. TRO and/or Prelim. Inj., ECF No. 6-1. In support of its motion, the Developer argued that the University's “terminations of the [l]ease and [a]greements were improper” because the Developer “cured any alleged default within the applicable cure period, ” citing the Developer's check held by Closeline for $1, 475, 000. Id. at 18. With the consent of the University, the Developer requested an extended briefing schedule on its motion, which this Court granted. See Min. Order, dated July 30, 2013. The University then filed a counterclaim seeking $1, 475, 000 for the second rental payment, originally due under the lease agreement by March 15, 2011, and moved for summary judgment on October 15, 2013, which motion this Court granted on December 19, 2013, while denying the Developer's motion for injunctive relief. See Order, ECF No. 38.

         After the Developer filed an appeal to the D.C. Circuit, the University filed an application, on January 3, 2014, for a writ of attachment for the $1, 475, 000 held by Closeline, ECF Nos. 46; Def.'s SMF ¶ 115, which writ was issued by the Clerk of this Court on January 6, 2014, ECF No. 48. Before the writ was served on Closeline on January 8, 2014, see Aff. of Service of Writ, ECF No. 50, however, at the Developer's direction, Closeline returned the $1, 475, 000 to the Developer on January 6, 2014, the same date the writ had issued, Def.'s SMF ¶¶ 116-17.[6]

         On appeal, the D.C. Circuit vacated the grant of summary judgment to the University and remanded for the Court to determine “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 and the University's counterclaim. Howard Town Ctr. Developer, 788 F.3d at 329. As noted, the Developer and the University then filed cross-motions for summary judgment, which are now ripe for review.

         II. LEGAL STANDARD

         Federal Rule of Civil Procedure 56 provides that summary judgment shall be granted “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). The moving party bears the burden of demonstrating the “absence of a genuine issue of material fact” in dispute, CelotexCorp. v. Catrett, 477 U.S. 317, 323 (1986), while the nonmoving party must present specific facts supported by materials in the record that would be admissible at trial and that could enable a reasonable jury to find in its favor, see Anderson v. Liberty Lobby, Inc. (“Liberty Lobby”), 477 U.S. 242, 256 (1986); Allen v. Johnson, 795 F.3d 34, 38 (D.C. Cir. 2015) (noting that, on summary judgment, the appropriate inquiry is “whether, on the evidence so viewed, a reasonable jury could return a verdict for the nonmoving party” (internal quotation marks omitted)); see also Fed. R. Civ. P. 56(c), (e)(2)-(3). When parties file cross-motions for summary judgment, each motion is viewed separately, in the light most favorable to the non-moving party, with the court determining, “for each side, whether a judgment may be entered in accordance with the Rule 56 standard.” Auto-Owners Ins. Co. v. Stevens & Ricci, Inc., 835 F.3d 388, 402 (3d Cir. 2016) (quoting 10A Charles Alan Wright et al., Federal Practice and Procedure § 2720 (3d ed. 2016)); see also Fox v. Transam ...


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