United States District Court, District of Columbia
L. FRIEDRICH United States District Judge.
UMC Development, LLC, and Jacksophie GSCH, LLC, brought this
suit in 2013 against the District of Columbia, its Mayor, and
a Not-for-Profit Hospital Corporation (NFPHC) created under
D.C. law. Second Am. Compl. ¶¶ 9-13, Dkt. 88.
According to UMC, the District unlawfully foreclosed on land
that UMC eventually expected to own and in which UMC had made
significant investments. Id. ¶¶ 2-6. UMC
filed its latest complaint following a series of D.C. and
federal court proceedings. It alleges violations of the
Takings Clause, the Due Process Clause, and District of
Columbia law, and it seeks, among other things, just
compensation for the taking of its alleged property and
injunctive relief rescinding the foreclosure and transferring
title to the property to UMC. See Id. ¶¶
85-156. Before the Court are two motions to dismiss filed by
the District of Columbia and NFPHC. D.C.'s Mot., Dkt. 93;
NFPHC's Mot., Dkt. 94. For the reasons that follow, the
Court will grant the motions.
Court divides its discussion of the factual and procedural
background into two parts. First, it discusses the formation
of the relevant contractual relationships and the foreclosure
that ultimately prompted this lawsuit. Second, it summarizes
the procedural history. In considering the defendants'
motions to dismiss, the Court accepts as true all material
allegations in the complaint. See Muir v. Navy Fed.
Credit Union, 529 F.3d 1100, 1105 (D.C. Cir. 2008).
Greater Southeast Investments, L.P., Capitol Medical
Center, LLC, and Capitol Medical Center Realty
2007, the District of Columbia attempted to save a failing
hospital in the Anacostia neighborhood by contracting with,
and providing funding to, a private company that would
acquire and rehabilitate the hospital. Second Am. Compl.
¶¶ 14-16, 20-21. To permit the transfer of funds,
the Council of the District of Columbia enacted the East of
the River Hospital Revitalization Emergency Amendment Act of
2007, which authorized the District to enter into a
limited-partnership agreement with Specialty Hospital of
Washington-GSE Holdings, LLC (SHW-GSE), a wholly owned
subsidiary of Specialty Hospitals of America, LLC (SHA).
Id. ¶¶ 19-22. The District, the sole
limited partner, then provided $49 million in equity capital
to the partnership, which became known as Greater Southeast
Investments, L.P. (GSI). Id. ¶ 22. SHW-GSE
served as the sole general partner. Id. ¶ 21.
partnership agreement significantly limited the
District's authority over GSI's dealings. The
District could not, for example, “take part in the
operation, management, or control of the Partnership [or]
transact any business in the Partnership's name.”
D.C.'s Mot. Ex. 1 ¶ 5.2, at 12, Dkt. 93-1. But
SHW-GSE's authority over GSI was not unlimited either.
Most importantly, SHW-GSE could not “cause the
Partnership to sell, transfer or otherwise dispose of any
property or assets in a single transaction or series of
related transactions” without “obtaining the
prior written approval” of the District. Id.
Ex. 1 ¶ 4.2, at 5.
the same time, SHW-GSE's parent company, SHA, established
two limited liability companies to further its development
plans. Second Am. Compl. ¶ 24. It created Capitol
Medical Center, LLC (CMC) to operate the hospital. And it
created CMC Realty to own the real property, including the
land surrounding the hospital. Id.
November 7, 2007, GSI loaned $49 million to CMC and CMC
Realty after executing a series of loan agreements and notes
secured by a Deed of Trust. Id. ¶¶ 25, 27.
The Deed of Trust provided that GSI could foreclose on the
secured property in the event that CMC or CMC Realty
defaulted. Id. ¶ 28; D.C.'s Mot. Ex. 2
¶ 5.1(e), Dkt. 93-2. GSI and the two CMC companies also
executed an Acquisition Loan Agreement that prohibited the
CMCs from “[d]ispos[ing], convey[ing], transfer[ing],
licens[ing] the use of, or encumber[ing], or permit[ting] the
conveyance, transfer or encumbrance of, any part of the
Property” without GSI's “prior approval
(which may be given or withheld in [its] sole and absolute
discretion).” D.C.'s Mot. Ex. 3 ¶ 11, Dkt.
93-3. It is undisputed that, together, these contracts
prohibited the transfer of any part of the relevant property
without the District's prior approval.
UMC Development, LLC
days before these contracts were executed, SHW-GSE contracted
with Jacksophie GSCH, LLC to form a joint venture-later named
UMC Development, LLC-to acquire and develop the land
surrounding the hospital. Second Am. Compl. ¶ 30;
D.C.'s Mot. Ex. 4, Dkt. 93-4. CMC Realty also signed the
Operating Agreement for the joint venture “for the
purpose of confirming its obligations under [the
Agreement].” D.C.'s Mot. Ex. 4 at 25. The Operating
Agreement stated, “It is presently anticipated that CMC
Realty . . . shall initially acquire title to the [l]and upon
the closing of the Asset Purchase Agreement.”
Id. ¶ 3. It went on to state that CMC Realty
was to cooperate with Jacksophie to subdivide the property by
obtaining multiple assessment and tax lots from the D.C.
Office of Tax and Revenue. Id. According to the
Operating Agreement, “promptly following [the]
assignment of separate . . . lots . . ., SHW-GSE and CMC
[Realty] shall convey title to the [d]evelopment [l]ots to
same paragraph, the Operating Agreement referenced the
Acquisition Loan Agreement that prohibited both CMC and CMC
Realty from transferring “any part of the
[p]roperty” without the prior approval of GSI-and, by
extension, the District. D.C.'s Mot. Ex. 3 ¶ 11;
see also D.C.'s Br. at 3-4. The Operating
Agreement stated that “CMC [Realty] acknowledges that
it is funding the acquisition of the [l]and pursuant to the
terms and conditions of the Acquisition Loan.”
D.C.'s Mot. Ex. 4 ¶ 3. And it stated that Jacksophie
and SHW-GSE “acknowledge and agree that it is presently
their intent in accordance with the terms and provisions of
the Acquisition Loan to have [UMC] construct buildings and
other structures on the [d]evelopment [l]and . . . for
medical uses complimentary to the [h]ospital.”
immediately invested significant resources into developing
the land surrounding the hospital. Second Am. Compl.
¶¶ 37-46. For example, it obtained the
District's approval for the creation of multiple tax
lots, it engaged a company to help develop comprehensive
redevelopment plans, it signed a lease agreement and received
rental payments, and it attempted to finalize deals with
other potential tenants. Id.
Jacksophie (collectively, the Developers) allege that the
District participated in weekly meetings about the progress
of their work, id. ¶ 47, that it actively
encouraged them to continue their development activities, and
that it “assured [the Developers] that the
District's approval for transfer of title would promptly
be forthcoming, ” id. ¶ 48. “At no
point prior to [July 2010] did the District indicate to the
Developers that it did not intend to approve the transfer of
title from CMC Realty to the Developers.” Id.
when CMC Realty requested that the District approve the
transfer in 2008, it withheld its consent and
“requested that the Developers provide it with
additional information about their development plans.”
Id. ¶ 50. It also failed to provide its consent
after the Developers wrote to it in 2010 “to make sure
that [it] was still aware . . . that SHW-GSE and CMC Realty
were contractually obligated to convey title to the
development lots to Jacksophie.” Id. ¶ 69
(internal quotation marks omitted). Indeed, the District
“never formally responded to CMC Realty's request
to transfer title to the [d]evelopment [l]and.”
Id. ¶ 51.
The 2010 Foreclosure
Unfortunately, chronic mismanagement of the hospital led the
District to conclude in early 2010 that the hospital was in
“imminent danger of financial insolvency.”
Id. ¶ 65 (internal quotation marks omitted). In
April 2010, the District “unilaterally purported to
declare a default under the Deed of Trust, ” alleging
that the CMC companies “had failed to make required
loan payments in 2009, had failed to disclose material facts
to GSI, had committed fraud against GSI, and had made
material misrepresentations to GSI.” Id.
¶ 67. On June 3, 2010, the District filed a Notice of
Foreclosure that stated that the District was the
“Holder of the Note” secured by the Deed of
Trust. Id. ¶ 72, 74-75. On July 9, 2010, the
District purchased the hospital and land “for a mere
fraction of their actual market value” at a foreclosure
auction at which it was the only bidder. Id. ¶
to the Developers, it is no surprise that the District was
the only bidder in light of the participation requirements
that the District itself imposed. Id. For example,
all bidders other than the District had to post a $1, 000,
000 deposit subject to forfeiture “in the event a final
settlement did not occur within thirty days.”
Id. ¶ 78(a). The District also reserved the
right to block any sale and retain the purchaser's
deposit if, “at any point prior to settlement, ”
the purchaser failed to demonstrate its ability to operate
the hospital “on terms satisfactory” to the
District. Id. ¶ 78(b) (internal quotation marks
omitted). And the District “indicated that it would
announce entirely new transactional terms-known only to the
District-at the auction itself.” Id. ¶
78(c). The parties do not dispute, at least at this stage,
that GSI, not the District, was the holder of the note, and
that the District had no authority under the GSI partnership
agreement (or otherwise) to unilaterally foreclose on the
hospital and the land. See id. ¶ 75-76.
days after the foreclosure sale, the District transferred the
purchased assets to NFPHC, an instrumentality of the District
that was created through the enactment of the Not-for-Profit
Hospital Corporation Establishment Emergency Act of 2010.
Id. ¶¶ 13, 80.