Fort Howard Senior Housing Associates, LLC v. United States , 121 Fed. Cl. 636 ( 2015 )

In the United States Court of Federal Claims
No. 10-553C
(Filed: May 29, 2015)
)
FORT HOWARD SENIOR )
HOUSING ASSOCIATES, LLC, )
)
Plaintiff, )
Enhanced-Use Lease; Department of
)
Veterans Affairs; Termination for Default;
v. ) Breach of Contract; Excuse; Force
) Majeure; Reformation; Mutual Mistake;
THE UNITED STATES, ) Impossibility
)
Defendant. )
)
Steven H. Jesser, Glenview, IL, for plaintiff.
Sheryl Lynn Floyd, Civil Division, U.S. Department of Justice, Washington, DC,
with whom were Joyce R. Branda, Acting Assistant Attorney General, and Robert E.
Kirschman, Jr., Director, Commercial Litigation Branch, for defendant.
OPINION
FIRESTONE, Judge.
Pending before the court is the government’s motion for summary judgment, filed
pursuant to Rule 56 of the Rules of the United States Court of Federal Claims (“RCFC”).
At issue is whether the Department of Veterans Affairs (“VA”) properly terminated for
default the September 28, 2006 Enhanced-Use Lease (“Lease”) between the VA and
plaintiff Fort Howard Senior Housing Associates, LLC (“FHSHA”) at the Fort Howard
VA Medical Center in Baltimore County, Maryland. The Lease was executed pursuant to
the VA’s authority under 38 U.S.C. §§ 8161-8167 and gave FHSHA the right to occupy
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the property for a term of 65 years, with an option to extend the Lease for 10 additional
years. In exchange for its occupation, FHSHA was required to (1) pay consideration in
the form of rent; (2) design, develop and construct a new 10,000 square foot Community-
Based Outpatient Clinic (“CBOC”) within 39 months; (3) design and construct multi-use
residences onsite in compliance with “applicable” state and local laws, codes, and
regulations; and (4) protect, preserve, maintain, and repair the property.
After several years, the VA became concerned about the status of the project and,
starting in February 2009, the VA began sending notices of default to FHSHA.
Ultimately, the VA determined that FHSHA was in default of the Lease and, on August
17, 2009, the VA terminated the Lease for default on the primary grounds that FHSHA
had failed to (1) commence construction of the new CBOC such that it would be
completed with the timeframe required under the Lease,1 (2) maintain and secure the
property, and (3) pay its proportionate share of the utility bills.
FHSHA filed its initial complaint on August 16, 2010 and an amended complaint
on June 29, 2012.2 In its complaint, plaintiff asserts that the VA’s termination was
wrongful on two main grounds: (1) its failure to build the CBOC was excused by the
force majeure clause in the Lease, and (2) the government otherwise breached the Lease
1
Plaintiff had not yet begun construction.
2
Plaintiff’s amended complaint added a new count for “tortious interference with contractual
relationships and prospective economic advantages” and a claim for money damages based on
costs, fees and expenses and for future development fees and profits. The court dismissed
plaintiff’s money claims for lack of jurisdiction on September 11, 2012, on the grounds that
plaintiff had not submitted its money claims to a contracting officer as required by the Contract
Disputes Act, 41 U.S.C. §§ 7101-7109. Order Granting Motion to Dismiss, Fort Howard Senior
Housing Associates, LLC v. United States, No. 10-553 (Fed. Cl. Sept. 11, 2012).
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on various grounds. In its amended answer, the government counterclaimed for breach of
the Lease and seeks $313,328.45 as the amount allegedly owed to the government under
the Lease.
At the heart of FHSHA’s defense to the termination is its contention that it entered
into the Lease with the understanding that it would be able to build 1,300 housing units
on the site and that VA’s requirement that it comply with Baltimore County zoning
regulations—which without a variance would limit development to 550 units—made the
project economically unviable, requiring renegotiation. FHSHA argues that Baltimore
County’s failure to accept plaintiff’s request for an exemption from local requirements
amounted to a force majeure event under the terms of the Lease. Plaintiff further argues
that the VA’s insistence that plaintiff comply with local laws in connection with the
project amounted to a breach of contract on several grounds and further excused
FHSHA’s obligations under the Lease. Plaintiff argues that the VA, as the federal
government, is not required to comply with local laws and regulations, and thus it was the
VA’s insistence that plaintiff meet local zoning requirements that made the project
economically unviable.
Discovery in the case is now completed. The government has moved for summary
judgment, asking the court to find that the undisputed facts establish that the termination
for default was reasonable and proper and that plaintiff’s nonperformance is not
excusable for any of the reasons advanced by the plaintiff. In response, FHSHA argues
that the government’s motion should be denied on the grounds that there are genuine
issues of material fact as to each of the government’s alleged grounds for termination for
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default and that, even if the termination was correct, FHSHA has presented sufficient
facts to show that the failure to act was excusable under the Lease. For the reasons set
forth below, the court finds that the government is entitled to summary judgment with
regard to the default termination for failing to build the CBOC and that the grounds
asserted by FHSHA for its failure to act do not constitute excuses as a matter of law.
Because FHSHA’s failure to build the CBOC within the time provided for under the
Lease justified a termination for default and the failure cannot be excused, the court does
not reach the alternative grounds for summary judgment set forth in the government’s
motion.
I. STATEMENT OF UNDISPUTED FACTS
The following facts are not disputed. Disputed facts relevant to FHSHA’s defense
that its failure to perform was “excused” are discussed in connection with those claims.
A. The Lease
The authority for the VA to enter enhanced-use leases (“EUL”) such as the Lease
is set forth in 38 U.S.C. §§ 8161-8167. Pursuant to VA Handbook and Directive 7415,
the VA Secretary assigned the Office of Asset Enterprise Management as the office
within VA responsible for oversight of VA’s EUL program and management of
enhanced-use projects identified as VA asset initiatives. Def.’s App’x 295-323, VA
Handbook and Directive 7415.
1. Scope of the Lease
On September 28, 2006, FHSHA and VA entered into an EUL. The Lease
identifies that FHSHA’s role is to serve as the “master developer of the Property, with the
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right and obligation to design, develop, construct, alter, operate, maintain, repair, replace,
sublease, finance, improve and renovate the Property into the Project, and to demolish
any existing buildings, structures and improvements on the Property, in accordance with
the terms of this Lease.” Def.’s App’x 2. The Lease defines “Project” as “[t]he Lessee’s
design, development, construction, demolition, alteration, operation, maintenance, repair,
replacement, subleasing, financing, improvement, and renovation of the Property as
provided in this Lease.” Pursuant to the Lease, the VA leased the “Property” to FHSHA
for a term of 65 years, with a FHSHA option to extend for an additional 10-year period as
long as an uncured Lessee Event of Default did not exist. The Lease defines “Property”
as:
[t]hat certain real property consisting of approximately ninety (90) acres (i)
as described and depicted in Exhibits A, with Attachment 1 to Exhibit A,
and E attached hereto and includes (ii) all buildings, improvements, utilities
and infrastructure either existing or erected or placed thereon, but: (1) will
not include the CBOC Parcel and the CBOC when the CBOC Parcel and
CBOC revert to VA upon the completion of construction and acceptance by
the Department, in accordance with Article 4, paragraph A.4. and (2) will
include the ten contiguous acres for the State of Maryland Veterans Home
described in Exhibit A, with Attachment 1 to Exhibit A, and Exhibit H in
the event that such ten contiguous acres are added to this Lease during the
term by amendment in accordance with Article 4.A.5 of this Lease.
Id. at 7, Article 1. The Lease defines “CBOC” as the 10,000 square foot Community-
Based Outpatient Clinic to be designed, developed and constructed on the Property by
FHSHA for the VA as part of the consideration provided by FHSHA to VA under the
Lease. Id. at 4.
2. FHSHA’s Consideration
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In exchange for VA leasing the Property to FHSHA, FHSHA agreed to provide
VA consideration in the form of “Rent,” and to complete both a housing project and an
outpatient clinic. The Lease defines “Rent” as
[c]onsideration provided to VA for the Lease pursuant to Title 38 U.S.C.
Section 8162 that includes discounts to veterans as described in Exhibit G,
paragraph G.1; and in the event that discounts to veterans are not provided
in accordance with Exhibit G, paragraph G.3, payments to VA as
compensation for such failure to provide such discounts to veterans in
accordance with Article 23.c.3.c.
Id. at 7-8. Article 4 of the Lease identifies the additional items that FHSHA and VA
agreed “constitute fair consideration for the Lease.” Id. at 10; id. at 892, Infantino Dep.
149:4-20, Jan. 23, 2014.
Pursuant to Article 4.A.1 of the Lease, FHSHA agreed to:
Finance, design, develop, construct, demolish, alter, operate, maintain,
repair, replace, sublease, improve, renovate and market the Property into
the “Project” in accordance with this Lease (including but not limited to
Article 10 hereof), all applicable local and State laws, codes and
ordinances, and the National Fire Protection Association (“NFPA”) 101
Life Safety Code.
Id. at 10, Article 4.A.1. Pursuant to Article 4.A.2 of the Lease, FHSHA agreed to:
[(i)] obtain all applicable local and State permits, licenses, and approvals
(including those approvals of VA) necessary for construction and operation
of the Permitted Uses; (ii) comply with all applicable local, State, and
Federal requirements during operation of the Permitted Uses (including the
applicable version of the National Fire Protection Association (NFPA) 101
Life Safety Code); (iii) undertake its construction and operation activities
so as to not unreasonably interfere with the operations, or otherwise deprive
the Department of its quiet use and enjoyment of the CBOC or such other
facilities on the Property as may be under VA possession, control, use
and/or occupancy (“VA Facilities”) and use all reasonable and commercial
efforts to conduct any of its construction activities involving noise, dirt, or
other emissions that could negatively affect activities or operations of VA
Facilities to times falling within normal business hours; and (iv) operate the
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Project in accordance with existing applicable laws pertaining to a drug-
free environment.
Id., Article 4.A.2. Pursuant to Article 4.A.3 of the Lease, FHSHA agreed to
“[a]ccomplish a phased reuse and redevelopment of the Property, not to exceed three (3)
phases, as set forth in the ‘Parcelization Plan’ in the Development Plan hereto, within one
hundred and fifty-nine (159) months after the Effective Date . . . .” Id., Article 4.A.3.
Pursuant to Article 4.A.4 of the Lease, FHSHA agreed to
[d]esign, construct, and develop a 10,000 GSF VA Outpatient Clinic
facility (CBOC) on a parcel of the Property (“CBOC Parcel”) . . . . Lessee
shall complete the construction of the CBOC and obtain final acceptance
thereof . . . no later than thirty-nine (39) months after the Effective Date . . .
. Upon completion of construction of the CBOC and final acceptance by
[the VA], Lessee shall, at no expense or liability to [the VA], transfer all of
Lessee’s right, title and interest in and to the CBOC to [the VA], and
simultaneously Lessee’s leasehold interest in the CBOC Parcel shall
automatically revert to VA at no expense or liability to [the VA] and the
CBOC shall cease being part of the Property.
Id. at 11, Article 4.A.4. Article 10.H.1 further requires that, “Except for the CBOC,
Lessee shall (i) conduct the Project Development so as to comply with all applicable
State and local laws, codes, ordinances, permits and inspections . . . .” Id. at 26, Article
10.H.1.
Articles 4.A.3 and 4.A.4 are subject to the force majeure clause, which the Lease
defines as
[a]ny of the following that directly cause any of Lessee’s obligations
hereunder not to be performed in a timely manner: (1) an earthquake,
hurricane, tornado, flood, or other similar act of God; (2) fire; (3) strikes or
similar labor disputes provided such strike or similar dispute is beyond
Lessee’s control and provided Lessee takes all steps reasonably possible to
remediate such strike or similar dispute; (4) acts of the public enemy; (5)
inability to obtain labor or materials or clear access to the Project or
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unreasonable delay in approving permit applications for the Project by
reason of acts or omissions of any governmental body not caused by
Lessee’s actions or omissions; (6) rebellions, riots, insurrections or civil
unrest; (7) unusually severe weather conditions that actually cause similar
construction or development activities in the area of the Project to be
suspended; or (8) an unknown environmental hazard or unknown hazardous
substance (e.g., one that Lessee did not know of or have notice of by the
Effective Date) affecting the Property.
Id. at 5, Article 1.
In addition to the housing project and outpatient clinic, FHSHA agreed to provide
upkeep services for the property. Pursuant to Article 4.A.7 of the Lease, FHSHA agreed
to “[b]e responsible for the operation, management, and maintenance of the Property in
accordance with the provisions herein . . . .” Id. at 12, Article 4.A.7. Pursuant to Article
4.A.9 of the Lease, FHSHA agreed to “[b]e responsible for maintaining and securing all
necessary access to the Property for construction and operation of the Project and
underlying facilities.” Id. at 13, Article 4.A.9. Pursuant to Article 4.D of the Lease,
FHSHA agreed that, “Throughout the Term, Lessee shall maintain the Property in a good,
clean and safe condition and shall make all repairs thereto, interior and exterior and
structural and non-structural which are required to maintain the Property in a good, clean
and safe condition.” Id. at 15, Article 4.D. Pursuant to Article 4.E of the Lease, FHSHA
agreed that, “During the Term, Lessee shall be responsible for providing or arranging for,
at no cost or expense to VA, the infrastructure (including without limitation, all utility
metering) for all water, gas, electricity, sewer, telephone and other utilities serving the
Property . . . .” Id., Article 4.E.
3. Compliance with Federal, State, and Local Laws
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Consistent with 38 U.S.C. § 8167 (2004), Article 17.A of the Lease states, “The
United States’ fee title interest in the Property and [the VA’s] interest in this Lease shall
not be subject, directly or indirectly, to any State or local laws relative to taxation, fees,
assessment or special assessments.” Id. at 44, Article 17.A.
Article 17.C of the Lease states, “It is understood that the intent of the parties is
that [the VA] shall not be obligated to pay any charges, impositions, or assessments
directly or indirectly made against the Property during the term hereof.” Id., Article
17.C.
Further, Article 33 of the Lease states:
Unless the Lessee can demonstrate to the satisfaction of [VA] in the form
of a written determination or written correspondence from the U.S.
Department of Labor that the Lease or the Project is exempt therefrom,
Lessee shall comply with the requirements of the Davis-Bacon Act, as
amended, 40 U.S.C. Section 3141 et. seq. and the relevant rules, regulations
and orders of the Secretary of Labor applicable thereto.
Id. at 64, Article 33. Additionally, as discussed below, Articles 4.A.1, 4.A.2, and 10.H.1
of the Lease set standards for the specific requirements for FHSHA’s compliance with
local and state laws.
4. Representations, Warranties, and Covenants
Pursuant to Article 6.C.1 of the Lease, FHSHA represented, warranted, and
covenanted that “[VA] has made no representations concerning the Property’s condition,
nor has it agreed to alter or improve the Property.” Id. at 19, Article 6.C.1.
Additionally, pursuant to Article 6.C.2 of the Lease, FHSHA represented,
warranted, and covenanted that
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[VA] has made no representations or warranties concerning the fitness or
suitability for any particular use of the Property and except as provided in
the Lease (including but not limited to provisions in Article 4 and Article 6
pertaining the responsibility of [VA] and United States with respect to
hazardous substances) [VA] shall not be liable for any latent or patent
defect in such Property, nor has it agreed to alter, improve or maintain such
Property.
Id. at 20, Article 6.C.2.
5. The Development Plan
As described in Article 10.A.1 of the Lease, “Lessee has commenced and
completed the Development Plan which sets forth Lessee’s overall plans, including but
not limited to planned Permitted Uses for the Parcels, for developing the Property into the
Project pursuant to this Lease . . . .” Id. at 23, Article 10.A.1.3 The Development Plan
includes, amongst other items, the obligation to construct 1,300 units—including 353
active senior units; 481 independent living units; 165 assisted living units; and 106
skilled nursing units—and 170,000 square feet of amenities and services. Id. at 98, 103.4
Pursuant to Article 4.A.3 of the Lease, FHSHA was required to develop the Property in
accordance with the Development Plan. Id. at 10.
Article 24.H of the Lease states, “[I]n the event of a conflict in interpretation of
provisions of this Lease between the Development Plan at Exhibit E of this Lease, and
Articles 1-31 or any other Exhibit of this Lease, Articles 1-31 or any other Exhibit of this
3
The Development Plan was attached to the Lease as Exhibit E and was never amended by the
parties. Id. at 80-187, Exhibit E, Development Plan.
4
The Development Plan did not reference the Baltimore County Land Use Regulation, which
plaintiff contends would have limited the project to only 550 housing units. See id. at 93, 971.
10
Lease shall control . . . .” Id. at 54, Article 24.H; id. at 915, Infantino Dep., 221:9-222:3,
Jan. 23, 2014.
Article 16.C.11 of the Lease states:
[VA] and the Lessee shall cooperate by considering any and all proposed
Lease amendments which may be requested by any proposed lender, or
may otherwise be reasonably necessary, to implement the provisions of this
Article; provided, however, that any such amendment shall not in any way
affect the Term or the rent nor affect adversely in any material respect any
rights of the Department under this Lease.
Id. at 44, Article 16.C.11. Similarly, Article 24.T of the Lease states:
[VA] and Lessee shall cooperate in including in this Lease by suitable
amendment from time to time any provision which may be requested by
any proposed lender; provided, however, that any such amendment shall
not in any way affect the Term nor affect adversely in any material respect
any rights of the Department under this Lease.
Id. at 57, Article 24.T.
6. Default
Article 23.A of the Lease itemizes what is considered an “Event of Default” by
Lessee. Amongst other items, Events of Default include:
Lessee fails to pay any monetary obligation due under the provisions of this
Lease, and such failure is not cured within the manner and time periods
provided by Article 23.B of this Lease;
Failure of Lessee, its assigns or sublessees, to perform or observe any
material requirement, consideration, covenant, condition and/or
commitment required by this Lease, and such failure is not cured within the
manner and time periods provided for by Article 23.B of this Lease;
[L]essee fails to complete Phase I of the Development Plan as follows: (a)
Construct the CBOC and obtain a Certificate of Acceptance by [VA] within
thirty-nine (39) months of the Effective Date in accordance with
Development Plan, or (b) Complete construction and commence operation
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of the LCC facilities pursuant to Phase I of the Development Plan within
fifty-seven (57) months of the Effective Date.
Id. at 49-50, Article 23.A. Article 23.C.1 of the Lease states:
Upon the occurrence of a Lessee Event of Default in failing to complete
construction of Phase 1 (including failure to complete the CBOC and
convey title to VA), as provided in Paragraph A.6 of this Article 23, which
either (a) continues beyond the expiration of any applicable notice and cure
periods, or (b) is not fully cured after the end of sixty-three (63) months
following the Effective Date, extended by a period equal to the period or
periods of Force Majeure, if any, that prevented such completion of
construction by such period of sixty-three (63) months, whichever event of
clause (a) or (b) of this paragraph C.1 first occurs, VA may,
notwithstanding Article 16 or any other provisions of this Article, terminate
the Lease for such uncured Lessee Event of Default . . . .
Id. at 50, Article 23.C.1. Article 23.C.2 of the Lease states:
In the event that Lessee is in default of Article 23.A.3 of this Lease for
failure to pay Rent to the Department, and Lessee fails to cure the default in
accordance with Article 23.B of this Lease, the Department may,
notwithstanding Article 16 or any other provisions of this Lease, terminate
this Lease for such uncured Lessee Event of Default . . . .
Id. at 51, Article 23.C.2.
B. VA Default Notices and Cure Letters
Plaintiff has affirmed that, in accordance with the procedures outlined in Article
23 of the Lease, the VA sent numerous notices of default and requests to cure to FHSHA
when FHSHA failed to perform its obligations under the Lease. Id. at 640-703, Default
Notice 1; 704-09, Default Notice 2; 710-25, Default Notice 3; 726-34, Default Notice 4;
741-50, 751-56, Requests to Cure.
On February 11, 2009, VA sent FHSHA a its first default notice demanding that,
within thirty days, FHSHA remit in full the sum of $126,530.00. This amount
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represented the total amounts cited in five electric utility bills that the VA previously
issued to FHSHA from September 28, 2006 through November 6, 2007, and one electric
utility bill that the VA issued on September 22, 2008. The government attributed the
$126,530.00 demand to Baltimore Gas & Electric utility services that were provided to,
and thus benefitted, the leased premises, excluding the CBOC used by the VA. Id. at
640-703, Default Notice 1.
On February 27, 2009, in accordance with Article 7.E of the Lease, the VA sent
FHSHA a Request for Information seeking information to help the VA determine
FHSHA’s compliance with Articles 24.Q.1, 10.A.2, 10.A.3, 14, and 31.A of the Lease.
On that same date, in accordance with Article 7.E of the Lease, the VA sent
FHSHA a Request for Information seeking information about deposits FHSHA was
collecting from veterans.
On February 27, 2009, in accordance with Article 23.B of the Lease, the VA sent
FHSHA a second default notice identifying that FHSHA was breaching its obligations
and responsibilities under the following provisions of the Lease:
a. Article 4.A.1 – FHSHA is failing to finance, develop and maintain the
Project as required by Article 4.A.1 of the Lease.
b. Article 4.A.7 – FHSHA is failing to operate, manage and maintain the
Property as required by Article 4.A.7 of the Lease.
c. Article 4.A.9 – FHSHA is failing to maintain and properly secure access to
the Property as required by Article 4.A.9 of the Lease.
d. Article 4.A.12 – FHSHA is failing to pay Rent as required by Article
4.A.12 of the Lease.
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e. Article 4.D – FHSHA is failing to maintain and repair the Property as
required by Article 4.D.
f. Article 6.C.8 – FHSHA has failed to provide VA unaudited income
statements, balance sheets and cash flow statements within the time periods
required by the Lease. In addition, FHSHA failed to notify VA of the
lawsuit filed against FHSHA by STV Incorporated. Both of these actions
are required by Article 6.C.8 of the Lease.
g. Article 12.B.1 – FHSHA is failing to manage, protect, preserve, maintain
and repair the Property as required by Article 12.B.1 of the Lease.
h. Article 12.B.2 – FHSHA is failing to employ a local, designated
representative for emergency management, protection, preservation,
maintenance and repair as required by Article 12.B.2 of the Lease.
i. Article 13.A.1 and Article 13.A.4 – FHSHA has failed to maintain and
deliver to VA a current certificate of insurance or a certified copy of each
policy of insurance, as required by Article 13.A.1 and Article 13.A.4 and
requested by VA on numerous occasions.
Id. at 704-09, Default Notice 2. Default Notice 2 further stated:
[I]n addition to remedying the aforementioned Lease breaches, FHSHA’s
failure to make progress, including its failure to obtain financing and begin
construction of the Project, is endangering FHSHA’s ability to complete
Phase 1 of the Development Plan in the time required by the Lease. VA
hereby demands assurances from FHSHA that it will complete Phase 1 of
the Development Plan in accordance with the Lease, including construction
and acceptance of the CBOC within thirty-nine (39) months of the
Effective Date of the Lease . . . .
Id. On March 3, 2009, the VA sent FHSHA a notice identifying several concerns:
(i) FHSHA has failed to maintain the Property “in a good, clean and safe
condition,” (ii) make timely repairs, and (iii) properly secure the Property . .
. . VA is concerned for the safety of the veterans accessing the Property
and the protection of VA assets. In accordance with Article 12.B.2 of the
Lease, VA hereby notifies FHSHA that if substantial attempts to correct all
deficiencies related to maintenance, repairs and security are not performed
within thirty (30) days on all Parcels, VA will correct such deficiencies at
the sole cost and expense of FHSHA . . . .
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Id. at 759-64. On March 10, 2009, the VA sent FHSHA a third default notice, which
demanded that FHSHA remit to the VA $3,101.55. Id. at 710-25, Default Notice 3. The
VA attributed this amount to certain Baltimore City water services and Baltimore County
sewer services that were provided to, and thus benefitted, the portion of the Leased
Premises, excluding the CBOC used by the VA. Id.On March 16, 2009, FHSHA responded to the VA’s February 27, 2009 Default
Notice 2. The response did not indicate that FHSHA would begin curing any of the
identified defaults, with the exception of identifying a contact person and providing the
requested income statements. The response did not provide assurances that the
construction would be completed within the timelines set forth in the Lease.
On April 24, 2009, the VA sent FHSHA a fourth default notice for failure to
respond to two Requests for Information sent to FHSHA on February 27, 2009. Also on
April 24, 2009, FHSHA sent a letter to the VA stating that FHSHA planned to respond to
each of the letters from the VA on or before the end of May 2009. On May 13, 2009, the
VA sent a letter to FHSHA stating:
[I]n accordance with Article 23.B of the Lease, FHSHA is required to cure
the defaults identified in Default Notice 1 prior to May 18, 2009 and cure
the defaults identified in the Default Notice 2 prior to June 2, 2009. If
FHSHA fails to cure the defaults identified in the Default Notices, VA
intends to exercise VA’s rights under the Lease, which includes, but is not
limited to, termination of the Lease.
Id. at 735-40.
C. Termination of the Lease
On August 17, 2009 at 3:29 pm, the VA sent a Termination for Default Notice
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(“Termination Notice”) to FHSHA via email and certified mail. The effective date of the
termination was August 17, 2009. Id. at 783-866.
The Termination Notice stated:
[FHSHA] was required to cure the defaults identified in Default Notice 1
prior to May 18, 2009 and cure the defaults identified in Default Notice 2
prior to June 2, 2009. VA notified FHSHA that if FHSHA failed to cure the
defaults identified in the Default Notices as required by the Lease and in the
time periods provided in the Lease and the Default Notices, that VA will
exercise VA’s rights under the Lease, which includes, but is not limited to,
termination of the Lease.
Id. The Termination Notice constituted the designated VA Representative’s final
decision that the Lease is terminated in its entirety for the following reasons:
1. The defaults identified in the Default Notices constitute a failure to
pay Rent, as defined in the Lease. The failure to pay Rent is a
material default.
2. FHSHA’s failure to maintain the Property and undertake the
maintenance required by the Lease at the Property, as described in
the Default Notices, are material breaches of the Lease and
constitute a failure to pay Rent.
3. FHSHA’s failure to secure the Property, as described in Default
Notice 2, is a material breach of the Lease and constitutes a failure to
pay Rent.
4. FHSHA’s failure to maintain insurance on the Property, as described
in Default Notice 2, is a material breach of the Lease and constitutes
a failure to pay Rent.
5. FHSHA’s failure to pay for electrical utilities, as described in
Default Notice 1, is a material breach of the Lease.
6. FHSHA has taken no steps to begin the actual development or
construction of the Project. FHSHA did not respond to VA’s request
in Default Notice 2 that FHSHA provide assurances that FHSHA
would complete Phase 1 of the Development Plan in accordance
with the Lease, including construction and acceptance of the CBOC
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within thirty-nine (39) months of the Effective Date of the Lease.
To date (almost thirty-six (36) months after execution of the Lease),
FHSHA has failed to obtain financing for the Project and no lender
has been identified and confirmed that it is ready, willing, and able
to provide FHSHA the requisite financing to enable FHSHA to
construct the CBOC. In addition, no plans have been submitted to
VA or the County for review and approval. Further, FHSHA has not
started construction of the Project. Accordingly, VA has determined
that FHSHA will not be able to meet the deadline of thirty-nine (39)
months after the Effective Date of the Lease (December 28, 2009)
for construction of the CBOC in accordance with the Lease terms.
Id. at 786-87.
D. FHSHA’s Obligations Regarding State and Local Approvals Under the
Lease
As noted above, the lease provided that FHSHA was required to undertake the
development in a manner that satisfied all requirements of “applicable” state and local
laws, as required by Articles 4.A.1, 4.A.2, and 10.H.1 of the Lease.
FHSHA claims that while this was true, under the statutes governing EULs, 38
U.S.C. § 8166, local land use laws and regulations were not “applicable.” 38 U.S.C. §
8166 provides:
(a) Unless the Secretary provides otherwise, the construction, alteration,
repair, remodeling, or improvement of the property that is the subject of the
lease shall be carried out so as to comply with all standards applicable to
construction of Federal buildings. Any such construction, alteration, repair,
remodeling, or improvement shall not be subject to any State or local law
relating to land use, building codes, permits, or inspections unless the
Secretary provides otherwise.
38 U.S.C. § 8166.
Prior to execution of the Lease, the VA and FHSHA discussed the VA’s
expectation that FHSHA comply with all applicable state and local laws. In response to a
17
question regarding larger issues negotiated in the Lease, Mr. Infantino, FHSHA’s
representative,5 explained, “Obviously, the applicable word, the VA wanted to put in
there that you comply with everything. We said, no, it’s got to be applicable because
we’re not complying with certain local jurisdictions . . . but we resolved that by putting
the word ‘applicable’ in.” Def.’s App’x 891-92, Infantino Dep., 141:22-142:6, Jan. 23,
2014.
According to FHSHA, the VA accepted FHSHA’s Development Plan which
included the higher development density, development program, master plan, budgets,
and economic consideration all based on 1,300 units, although County land use
regulations would apparently allow a 550 unit density.
Although Baltimore County never rejected FHSHA’s proposed 1,300 units as
FHSHA never applied for a zoning variance, it is not disputed that 1,300 was not
consistent with the Baltimore County land use regulations in place at the time.
E. FHSHA’s Obligation Regarding Financing
FHSHA sought financing from Starwood Capital, who participated in Lease
negotiations with the VA and FHSHA prior to the execution of the Lease. Id. at 884-85,
Infantino Dep., 71:21-72:3, Jan. 23, 2014.
The VA participated in multiple meetings with FHSHA’s potential lenders. In
response to a question if the VA participated in any meetings with FHSHA’s potential
lenders, Mr. Infantino explained, “Absolutely. They were there for the HUD and GMAC
5
Mr. Infantino is the chief executive manager of Ft. Howard Senior Housing Associates, LLC.
18
lending meetings…and they absolutely participated with Starwood . . . GMAC was
probably two, three meetings . . . . I would have to guesstimate it was somewhere
between 5 to 15 [meetings with Starwood]. It’s a pretty wide range, but it extended over
a long period of time. Enough to generate $700,000 in legal fees . . . [With Enterprise,]
we definitely had conference calls, and I’d say probably three to five conference calls, a
series of e-mail exchanges, and we might have had one or two meetings . . . .” Id. at 919-
20, Infantino Dep., 240:5-241:19, Jan. 23, 2014.
F. Application of the Davis-Bacon Act
Prior to execution of the Lease, FHSHA and the VA discussed that the Davis-
Bacon Act may apply to FHSHA’s activities.6 Mr. Infantino explained, “[W]e told the
VA during the process that Davis-Bacon doesn’t apply to the buildings we built, and they
said they don’t know about that. They are not sure about that . . . .” Id. at 912-13,
Infantino Dep., 193:18-194:2, Jan. 23, 2014.
To resolve this ambiguity, Article 33 of the Lease was drafted to require
compliance with the Davis-Bacon Act unless FHSHA obtained a written determination or
written correspondence from the U.S. Department of Labor (“DOL”) that the Lease or the
Project is exempt therefrom. Id. at 64, Article 33; id. at 891, Infantino Dep., 141:18-20,
Jan. 23, 2014.
6
The Davis-Bacon Act sets standards for the pay of laborers and mechanics for federal contracts,
and in particular requires that workers be paid a minimum wage determined in reference to the
prevailing local rate. 40 U.S.C. §§ 3141-3142.
19
The VA remained neutral on the applicability of the Davis-Bacon Act to the
Project, as the VA believed that the DOL, and not the VA, was the appropriate party to
determine the applicability of this statute to the project. After FHSHA signed the Lease,
FHSHA sought a waiver of the Davis-Bacon Act; however, on June 5, 2008, FHSHA
informed the VA that it would no longer be seeking the waiver. Id. at 867, Email from
John Infantino to Erik Wishneff & Alan Hackman (June 5, 2008, 01:40 EST) (“This
email confirms that there is no reason to cont[i]nue dialogue with Department of labor at
this time. We will not be seeking an immediate decision on this issue.”).
II. DISCUSSION
A. Standard of Review for Summary Judgment
Summary judgment is proper “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.”
RCFC 56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Anderson v. Liberty
Lobby, Inc. v. United States, 477 U.S. 242, 247 (1986). In order to defeat a motion for
summary judgment, the nonmoving party must point to “‘specific facts showing that there
is a genuine issue for trial.’” Celotex, 477 U.S. at 324 (quoting Fed. R. Civ. P. 56(e)).
The nonmoving party must “establish the existence of an element essential to that party’s
case, and on which that party will bear the burden of proof at trial.” Celotex, 477 U.S. at
322. “A genuine dispute is shown to exist if sufficient evidence is presented such that a
reasonable fact finder could decide the question in favor of the non-moving party.”
Opryland USA Inc. v. Great American Music Show, Inc., 970 F.2d 847, 850 (Fed. Cir.
1992) (citing Anderson, 477 U.S. at 248). However, to the extent that actual evidence is
20
presented, “the evidence of the non-movant is to be believed, and all justifiable
inferences are to be drawn in his favor.” Anderson, 477 U.S. at 255.
B. The Legal Standards Governing Terminations for Default and For
Establishing That A Default is “Excused”
In reviewing a termination for default, the court must “strike a balance between
the judicial aversion to default terminations . . . and the fact that ‘the Government, just as
any other party, is entitled to receive that for which it has contracted and the right to
accept only goods that conform to the specification.’” McDonnell Douglas Corp. v.
United States, 323 F.3d 1006, 1015 (Fed. Cir. 2003) (quoting Cascade Pac. Int’l v. United
States, 773 F.2d 287, 291 (Fed. Cir. 1985)) (citing J.D. Hedin Constr. Co. v. United
States, 187 Ct. Cl. 45 (1969)). When a contractor challenges a default termination, the
government bears the burden of establishing the validity of the termination. Lisbon
Contractors, Inc. v. United States, 828 F.2d 759, 765 (Fed. Cir. 1987). These “principles
apply with equal force where the Government has terminated a lease.” Moreland Corp.
v. United States, 76 Fed. Cl. 268, 284 (2007) (citation omitted). Where, as here, the
termination for default regarding construction of the CBOC involves the failure to
perform the work, the government must establish that there was “a reasonable belief on
the part of the contracting officer that there was ‘no reasonable likelihood that the
[contractor] could perform the entire contract effort within the time remaining for
contract performance.’” Lisbon, 828 F.2d at 765 (quoting RFI Shield-Rooms, ASBCA
Nos. 17374, 17991, 77-2 BCA (CCH) ¶ 12,714, 61,735) (citing Discount Co. v. United
States, 554 F.2d 435, 441 (Ct. Cl. 1977), cert. denied, 434 U.S. 938 (1977)).
21
Even if the government sustains its burden of showing a proper termination for
default, the termination will be converted to a termination for convenience only if the
delay was “excusable” under the terms of the default provision of the contract. Sauer Inc.
v. Sec’y of the Navy, 224 F.3d 1340, 1345 (Fed. Cir. 2000). In addition, a contractor’s
failure to perform will be excused and the termination for default converted to a
termination for convenience if the contractor can establish that the government materially
breached the contract. See Murdock Mach. & Engineering Co. of Utah v. United States,
873 F.2d 1410, 1413 (Fed. Cir. 1989) (citing Malone v. United States, 849 F.2d 1441,
1446 (Fed. Cir. 1988)).
Tested by these standards, the court now turns to the questions of whether the
government’s decision to terminate the Lease for default was justified and if so whether,
as the government argues, the plaintiff’s claims of “excuse” fail as a matter of law.
C. The Termination for Default Regarding Construction of the CBOC
The following facts are not disputed. FHSHA did not begin construction of the
CBOC by the time that the termination for default was issued. Under the terms of the
Lease, failing to construct the CBOC in accordance with the Lease terms would be
grounds for default unless the time for constructing the CBOC was extended by
agreement or due to a force majeure event. However, it is undisputed that the time for
constructing the CBOC was not extended by agreement. Further, it is also undisputed
that when the VA, in accordance with the Lease, sent a cure letter to FHSHA on May 13,
2009 asking FHSHA to provide assurances that it could comply with Lease and construct
the CBOC in accordance with the Lease terms, FHSHA failed to respond by the date
22
provided. When the VA had not heard from FHSHA, it began its initial steps to
terminate the Lease for default. Finally, it is not disputed that, although FHSHA
responded to some of the VA’s concerns in a letter it sent to the VA on August 17, 2009,
FHSHA did not commit to constructing the CBOC in accordance with the schedule set
forth in the Lease and the notice of termination for default was sent on that same day.
In light of these undisputed facts, the court finds that the termination for default
based on FHSHA’s failure to timely construct the CBOC was justified under the terms of
the Lease. Under the undisputed facts as laid out above, FHSHA was unable to construct
the CBOC by the date required by the Lease. Indeed, FHSHA had not begun
construction. Accordingly, unless, as FHSHA argues, there are disputed issues of fact
which if proven would establish that FHSHA’s failure to perform was excused by a force
majeure event,7 as provided for in the Lease or by a material breach of the lease by the
VA, it will be affirmed.
1. As a Matter of Law, the VA Did Not Breach Its Duty to
Cooperate or Violate Any Implied Warranties by Requiring
Compliance with State and Local Land Use Laws and Taxes.
FHSHA contends that the VA breached its duty to cooperate and violated implied
warranties in two ways: (1) by requiring FHSHA to comply with state and local land use
and construction requirements and state and local taxes, and (2) by then failing to assist
FHSHA to resolve issues that arose out of FHSHA’s obligations to comply with local
7
At oral argument, counsel for plaintiff conceded that, if there was no force majeure event, then
there is no dispute that FHSHA materially breached the lease.
23
zoning laws. According to plaintiff, these actions excuse its failure to begin construction
on the CBOC. Plaintiff recognizes that the Lease states that FHSHA would comply with
“applicable local and State laws, codes and ordinances,” but argues that the Federal
government’s exemption from such laws means that none of the state or local
requirements or taxes are “applicable.”
The government argues that it did not breach its duty to cooperate or violate any
implied warranties because the VA, in the terms of the Lease, exercised its statutory
authority to require such compliance. The government argues that the version of 38
U.S.C. § 8166(a)8 in effect at the time the parties entered into the Lease gave the VA the
“discretion” to require a lessee that enters into an EUL to comply with state or local
requirements relating to land use, building codes, permits or inspections and thus the VA
was entitled to require compliance with state and local laws and regulations.
Specifically, the government relies on the second sentence of § 8166(a), contending that
it expressly states that any construction, alteration, repair, remodeling, or improvement”
is not subject to state or local “land use, building codes, permits, or inspections unless the
Secretary provides otherwise.” 38 U.S.C. § 8166(a) (emphasis added). The government
8
The version of 38 U.S.C. § 8166(a) in effect at the time the parties entered into the Lease states:
Unless the Secretary provides otherwise, the construction, alteration, repair,
remodeling, or improvement of the property that is the subject of the lease shall be
carried out so at to comply with all standards applicable to construction of Federal
Buildings. Any such construction, alteration, repair, remodeling, or improvement
shall not be subject to any State or local law relating to land use, building codes,
permits, or inspections unless the Secretary provides otherwise.
38 U.S.C. § 8166(a) (2004).
24
argues that the Lease by its terms demonstrates that the Secretary of the VA did not
exempt FHSHA from complying with state and local laws, instead stating in Articles
4.A.1, 4.A.2, and 10.H.1 that FHSHA is subject to all applicable laws. According to the
government, “applicable” laws include the local Baltimore County zoning requirements.
The court agrees with the government. While the VA does have discretion under
38 U.S.C. § 8166(a) to determine whether it must comply with state and local law, it is
clear that the VA required compliance under the terms of the Lease. The Lease states:
Lessee hereby agrees to the following, all of which shall constitute fair
consideration for this Lease:
1. Finance, design, develop, construct, demolish, alter, operate, maintain,
repair, replace, sublease, improve, renovate and market the Property into the
“Project” in accordance with this Lease (including but not limited to Article
10 hereof), all applicable local and State laws, codes and ordinances, and the
National Fire Protection Association (“NFPA”) 101 Line Safety Code.
2. During the Term of the Lease: (i) obtain all applicable local and State
permits, licenses, and approvals (including those approvals of VA) necessary
for construction and operation of the Permitted Uses; . . .
Def.’s App’x 10, Articles 4.A.1, 4.A.2. Plaintiff argues that the use of “applicable”
allows FHSHA to avoid compliance: as § 8166 generally exempts the government, none
of the laws are applicable. However, such a reading of the Lease would render these
terms mere surplussage, which is disfavored. E.g. Metric Constructors, Inc. v. Nat’l
Aeronautics & Space Admin., 169 F.3d 747, 753 (Fed. Cir. 1999) (“Courts prefer, for
example, an interpretation of a contract that gives effect to all its terms and leaves no
provision meaningless.” (citing United States v. Johnson Controls, Inc., 713 F.2d 1541,
1555 (Fed. Cir. 1983))). Instead, it is clear that these terms unambiguously state that
25
state and local laws are relevant to the project. Plaintiff’s contention that “applicable”
should be read to mean “none” is simply inconsistent with the plain language of the lease
and must be rejected. Accordingly, the VA’s later insistence that FHSHA comply with
state and local laws was not a breach of the lease, but rather entirely consistent with it.
In addition, contrary to FHSHA’s contention, nothing in 38 U.S.C. § 8167suggests that the VA breached any duty in connection with state and local tax obligations
under the Lease. Under 38 U.S.C. § 8167, the United States’ interest in and use of the
property “shall not be subject . . . to any State or local laws relative to taxation, fees,
assessments, or special assessments, except that sales taxes [shall be] charged in
connection with any construction, alteration, repair, remodeling or improvement project
carried out under the lease.” 38 U.S.C. § 8167 (1991). This exemption, however, did not
extend to FHSHA’s interest in the property. The Lease expressly required that FHSHA
pay and discharge, . . . prior to delinquency, all taxes, general and special
assessments, and other charges of every description that during the term of
this Lease may be levied or assessed against the Property and all interests
therein and all improvements and other property thereon, whether
belonging to [the VA] or the Lessee.
Def.’s App’x 44, Article 17.B. Accordingly, if a state or local government imposed taxes
on FHSHA’s interest in the property, FHSHA was obligated to pay such taxes and the
VA did not have the power under § 8167 to exempt FHSHA from paying state or local
taxes.
Given the plain language of the subject Lease provisions, the court finds as a
matter of law that the VA did not breach a duty of good faith and fair dealing or violate
any implied warranties when it (1) required in the Lease that FHSHA comply with state
26
and local land use, building code, permit, and inspection laws, notwithstanding that 38
U.S.C. § 8166(a) permitted the VA to exempt itself from those requirements; or (2)
declined to interpret 38 U.S.C. § 8167 to permit the VA to exempt FHSHA from paying
state and local taxes. In such circumstances, the VA did not have an obligation to work
with FHSHA to help FHSHA avoid its legal obligations. Plaintiff has provided no legal
basis for this court to find that the parties’ agreement to cooperate required the VA to
assist FHSHA in avoiding its responsibilities under the terms of the Lease. For those
reasons, the court finds that the VA acted in accordance with its rights under the law and
did not breach the Lease.
2. The VA Did Not Breach the Lease by Concluding that Baltimore
County Zoning Rules Were “Applicable” Under the Lease.
FHSHA further contends that the VA breached its Lease with FHSHA by
requiring compliance with state and local laws that limited development to 550 units
because the VA knew that if FHSHA had to comply with all local land use rules it would
not be able to build the 1,300 units identified in the Development Plan attached to the
Lease. FSHSA argues that, by approving the Development Plan, the VA must not have
intended that Baltimore County’s 550-unit limit was an “applicable” requirement under
the Lease.
The government argues that FHSHA’s argument fails as a matter of law because
the term “applicable” in Article 4.A.2 of the Lease plainly meant that FHSHA would be
required to comply with all of state and local rules that “apply” to the Project, and
nothing in the Lease suggested that Baltimore County’s density zoning rules were not
27
“applicable.” With regard to FHSHA’s contention that the VA would not have intended
to make a 550-unit local zoning limit “applicable,” the government argues that, by its
terms, the Lease took precedence over the Development Plan.9 Moreover, the
government argues that both the Lease and the Development Plan state that “FHSHA will
obtain all applicable local and State permits, licenses, and approvals (including those
approvals of VA) necessary for construction and operation.” Def.’s App’x 10, Article
4.A.2; id. at 93, Development Plan.
As noted above, the court agrees with the government that the Lease is not
ambiguous with regard to the use of “applicable.” There is no dispute that the housing
project was to be built in Baltimore County. In such circumstances, because the project
was in Baltimore County, Baltimore County’s zoning rules were applicable and therefore
FHSHA was required to comply with them. There is nothing in the Lease or
Development Plan that puts this reading of the Lease into question. Thus, the VA did
not, as a matter of law, breach the lease by requiring FHSHA to comply with local zoning
laws with regard to the density limit on housing units.
To the extent that FHSHA contends that the VA breached the contract by failing to
disclose or discuss Baltimore County’s density limit in advance of FHSHA signing the
9
Specifically, the government refers to Article 24.H, which states in relevant part:
All Exhibits attached to [the] Lease are fully a part of [the] Lease. In the event of
a conflict in interpretation of provisions of [the] Lease between the Development
Plan at Exhibit E of [the] Lease, and Articles 1-31 or any other Exhibit of [the]
Lease, Articles 1-31 or any other Exhibit of [the] Lease shall control.
Def.’s App’x 54, Article 24.H.
28
Lease, the argument also fails as a matter of law. The government acknowledges that
under the “superior knowledge” doctrine it could be liable for a breach if “the
government owes a duty to disclose critical information to a contractor that is necessary
to prevent the contractor from unknowingly pursuing a ruinous course of action.”
McDonnell, 323 F.3d at 1020 (quoting McDonnell Douglas Corp. v. United States, 182
F.3d 1319, 1329 (Fed. Cir. 1999) (internal quotation marks omitted)). FHSHA, however,
fails to provide any factual support for its allegations that the VA knew in advance of
signing the Lease with FHSHA that Baltimore County had zoning restrictions which
would have limited the number of units that could have built on the site. To the contrary,
the undisputed evidence shows that the VA did not learn about Baltimore County’s
zoning restrictions until FHSHA informed the VA after the Lease was signed. Def.’s
Supp. App’x 1253, Hackman Decl. ¶ 14. In such circumstances, the VA lacked the
knowledge necessary to create a duty and FHSHA’s claim of breach based on a “superior
knowledge” claim also fails as a matter of law.
3. FHSHA’s Various Force Majeure Claims Fail As a Matter of
Law.
Under the Force Majeure Clause of the Lease, FHSHA’s delay in completing the
CBOC could be excused
if [a]ny of the following that directly cause any of Lessee’s obligations
hereunder not to be performed in a timely manner: (1) an earthquake,
hurricane, tornado, flood, or other similar act of God; (2) fire; (3) strikes or
similar labor disputes provided such strike or similar dispute is beyond
Lessee’s control and provided Lessee takes all steps reasonably possible to
remediate such strike or similar dispute; (4) acts of the public enemy; (5)
inability to obtain labor or materials or clear access to the Project or
unreasonable delay in approving permit applications for the Project by
29
reason of acts or omissions of any governmental body not caused by
Lessee’s actions or omissions; (6) rebellions, riots, insurrections or civil
unrest; (7) unusually severe weather conditions that actually cause similar
construction or development activities in the area of the Project to be
suspended; or (8) an unknown environmental hazard or unknown hazardous
substance (e.g., one that Lessee did not know of or have notice of by the
Effective Date) affecting the Property.
Def.’s App’x 5, Article 1 (emphasis added). FHSHA contends that various governmental
bodies delayed processing certain of FHSHA’s applications, agreements, and related
documents and that, pursuant to the force majeure provisions in the Lease, these delays
excuse FHSHA’s failure to complete the CBOC on time.
Specifically, FHSHA contends that (1) the VA delayed in assisting FHSHA to
secure an opinion letter from the DOL as to the applicability of Davis-Bacon wages with
regard to its employees at the site, and (2) Baltimore County, the Maryland State Historic
Preservation Office, and the VA failed to act promptly on the applications FHSHA
submitted to these organizations in connection with this project. The government
contends that none of the delays identified by FHSHA constitute a force majeure event.
For the reasons that follow, the court agrees.
a. VA and DOL’s Actions with Respect to the Davis-Bacon
Act Did Not Excuse FHSHA’s Failure to Timely Perform
Under the Force Majeure Provisions of the Lease.
Regarding Davis-Bacon wage requirements, FHSHA is unable to demonstrate that
any of the VA’s or DOL’s actions in connection with FHSHA’s effort to waive such
requirements amounts to a force majeure event. First, Subsection 3 of the definition
states that a force majeure event includes “strikes or similar labor disputes provided such
strike or similar dispute is beyond Lessee’s control and provided Lessee takes all steps
30
reasonably possible to remediate such strike or similar dispute.” Def.’s App’x 4, Article
1. However, FHSHA has not presented any evidence to show that there were any strikes
or similar labor disputes that prevented FHSHA from constructing the CBOC in a timely
fashion.
Second, FHSHA’s allegations regarding VA’s failure to help FHSHA from
obtaining an opinion letter from DOL as to the applicability of the Davis-Bacon Act do
not constitute a force majeure event. The Lease expressly provides that the Davis-Bacon
Act is applicable to FHSHA’s construction on the Fort Howard site unless FHSHA
obtains an exemption. The Lease provides:
[u]nless the Lessee can demonstrate to the satisfaction of the Department in
the form of a written determination or written correspondence from the U.S.
Department of Labor that the Lease or the Project is exempt therefrom,
Lessee shall comply with the requirements of the Davis-Bacon Act, as
amended, 40 U.S.C. Section 3141 et. seq. and the relevant rules, regulations
and orders of the Secretary of Labor applicable thereto.
Id. at 64, Article 33.
The VA told FHSHA prior to finalizing the Lease that the VA was unsure as to
whether DOL would grant a waiver. Id. at 912-13, Infantino Dep. 193:18-194:2, Jan. 23,
2014. Thus, FHSHA took the risk that it might not receive a waiver when it signed the
Lease. Moreover, FHSHA informed the VA that, as of June 5, 2008, it would no longer
seek a waiver from the Davis-Bacon requirements. Id. at 867, Email from John Infantino
to Erik Wishneff & Alan Hackman (June 5, 2008, 01:40 EST) (“This email confirms that
there is no reason to cont[i]nue dialogue with Department of labor at this time. We will
not be seeking an immediate decision on this issue.”).
31
Finally, there is no evidence showing that any delay related to Davis-Bacon
requirements interfered with FHSHA’s ability to complete the CBOC by the date
required in the Lease. For all of these reasons, there is no basis for the court to find that
the VA and DOL’s actions regarding Davis-Bacon Act compliance could as a matter of
law excuse FHSHA’s failure to meets its obligations with regard to the CBOC.
b. FHSHA Is Unable To Establish That The Timing Of The
VA’s And The State And Local Government’s Responses
To FHSHA’s Applications Constituted Force Majeure
Events.
Regarding prompt responses from the VA and state and and local governments,
FHSHA contends that the failure of the VA and various state and local governmental
bodies to act timely with regard to FHSHA’s submissions constituted force majeure
events under the definition of force majeure the Lease. In response, the government
argues that the undisputed facts establish that none of the actions by the VA or state and
local governments actually prevented FHSHA from moving forward with its
responsibilities under the Lease.
First, FHSHA argues that the VA delayed its actions by failing to timely approve
changes to construction plans. The government correctly argues that this argument fails
as a matter of law. Under Article 10.A.3 of the Lease, FHSHA was authorized to
proceed with any construction plan changes if the VA failed to act within 20 days of
FHSHA’s submission of a request for changes.10 In such circumstances, FHSHA cannot
10
The Lease provides:
VA’s failure to respond within twenty (20) business days to such submission of
any plat, plan, specification or application (or, if the response is disapproval, to
32
show that the VA unreasonably delayed FHSHA by failing to approve changes to the
construction plans.11
Second, FHSHA argues that delays in the approval of the Programmatic
Agreement—which was made between FHSHA, the State of Maryland Historic
Preservation Office, and VA—also amounted to a force majeure event that should excuse
FHSHA’s failure to timely construct the CBOC. Again, FHSHA’s argument fails as a
matter of law.
The Lease provides that the Lessee and VA were required to comply with the
provisions of the National Historic Preservation Act and the Archeological Resources
Protection Act, 16 U.S.C. §§ 470-470mm (“NHPA and ARPA”), and to abide by any
agreements the parties entered into with respect to NHPA and ARPA either prior to or
during the terms of the Lease. Def.’s App’x 20, Article 6.C.5. The parties’ undisputed
identify the defects with such specificity that Lessee can correct them) shall be
deemed unreasonable for purposes of this Article 10.A and the Department’s
consent thereto shall be deemed given.
Def.’s App’x 24, Article 10.A.3.
11
In his affidavit and declaration attached to plaintiff’s response, Mr. Infantino made several
allegations regarding the VA’s conduct: (1) that the VA failed to provide a legal description for
the CBOC site; (2) that the VA failed to approve an Updated Schematic CBOC Plan,
Design/Build Process Agreement, or Final Schematic CBOC Plan in writing; (3) that the VA
refused to amend the CBOC plan to be within the 10,000 ground square feet standard in the
Lease; (4) that the VA did not consider or approve requests to relocate the CBOC; and (5) that
the VA failed to provide a scaled-down program necessary to prepare a Final Schematic CBOC
Plan. Pl.’s Am. Mot. for Summ. J., Ex. B, Infantino Aff. ¶¶ 28-37; id., Ex. D, Infantino Supp.
Aff. ¶¶ 23-35. In addition to the provisions of the Lease allowing FHSHA to consider
submissions to be approved by the VA after 20 days, the court finds that plaintiff has provided
no support for the allegations in those declarations. Such uncorroborated statements cannot
defeat a motion for summary judgment. Impresa Construzioni Geom. Domenico Garufi v.
United States, 61 Fed. Cl. 175, 181 (2004) (citations omitted).
33
facts show that the government representatives had negotiated a draft Programmatic
Agreement pursuant to 16 U.S.C. § 470, and were prepared to sign the agreement, but
FHSHA did not sign the Agreement. Def.’s Supp. App’x 1253, Hackman Decl. ¶¶ 16-
19. Rather, on January 6, 2009, after the VA had sent a copy of the Agreement to
FHSHA, the VA received a question from FHSHA12 which appears to have been
previously answered by the VA on June 27, 2008.13 For whatever reason, however,
FHSHA never executed the Programmatic Agreement, and thus it was not executed. Id.Because the undisputed evidence shows that FHSHA contributed to any delay by failing
to sign the Agreement, FHSHA cannot establish that the government’s delay was a force
majeure event under the terms of the Lease. Under the Lease, a qualifying unreasonable
delay could not be “caused by Lessee’s actions or omissions,” Def.’s App’x 5, Article 1,
and therefore FHSHA’s contribution to the delay prevents it from constituting a force
12
On January 6, 2009, Mr. Erik Wishneff of Federal Development sent an email to Mr. Alan
Hackman, VA, to ask whether, “if the PA was terminated that it would not trigger a default under
the Lease and that [FHSHA] would simply have to go through the statutory Section 106
process.” Def.’s Supp. App’x 1195, Email from Erik Wishneff to Alan Hackman & John
Infantino (Jan. 6, 2009, 15:05 EST).
13
On June 27, 2008, Mr. Hackman responded to Mr. Wishneff’s June 23, 2008 email message:
You have asked for clarification as to whether VA would consider FHSHA in
default of the EUL if a party terminates the PA. We do not believe that VA would
find FHSHA in default of the EUL because the PA is terminated by a party.
Should the PA be terminated by a party, VA would, in that event, expect FHSHA
to comply with Section 106 of the NHPA. While the PA is effective, however,
FHSHA would be required to comply with the PA terms in accordance with
Article 6.C.5 of the EUL.
Def.’s Supp. App’x 1165, Email from Alan Hackman to Erik Wishneff & James Wagner (June
27, 2008, 12:06 EST).
34
majeure event.
Third, FHSHA argues that Baltimore County’s failure to approve the Entitlement
Memorandum of Understanding (“Entitlement MOU”)14 that it submitted in 2006 asking
for an exemption from county jurisdiction over development of the Fort Howard site was
a force majeure event. According to FHSHA, the county delayed taking any action on the
Entitlement MOU until the State of Maryland adopted statewide legislation addressing
federal EUL and base realignment and closure projects. FHSHA further contends that,
because state and federal agencies took such a long time to address FHSHA’s
applications and documents in connection with the Entitlement MOU, the VA should
have afforded FHSHA additional time to complete its work.
The government argues that FHSHA cannot establish a force majeure event based
on Baltimore County’s failure to waive its jurisdiction over the Project because FHSHA
was required under the Lease to comply with County requirements or seek a modification
of the requirements. Here, the government argues, it is undisputed that FHSHA never
submitted a formal permit application to Baltimore County requesting approval for 1,300
units or otherwise asking the County to modify the zoning restrictions that limited to 550
the number of units that could be built at the Fort Howard site.
The court again agrees with the government. As an initial matter, as discussed
above, the Lease clearly states that FHSHA itself was required to take the necessary steps
14
FHSHA had submitted an Entitlement MOU to Baltimore County that provided the County
only with review authority over the Ft. Howard project. Pl.’s Am. Mot. for Summ. J., Ex. B,
Infantino Aff. ¶ 84.
35
to “obtain all applicable local and State permits, licensees, and approvals . . . necessary
for construction and operation of the Permitted Uses [of the Fort Howard site].” Def.’s
App’x 10, Article 4.A.2. As this responsibility rested solely with FHSHA, the County’s
refusal to waive jurisdiction cannot be a force majeure event, as it is “caused by Lessee’s
actions or omissions.” Id. at 5, Article 1.
In this connection, however, it is important to note that while FHSHA needed a
waiver of County requirements in order to build the desired number of housing units, it is
undisputed that FHSHA did not need County approval to build the CBOC because it was
a “federal” building to which no state or local zoning restrictions applied. See id. at 26,
Article 10.H.1. There is no evidence that the state or local government failed to act with
regard to any request in connection with construction of the CBOC. Accordingly, the
court must reject FHSHA’s contention that it could not build the CBOC unless it
obtained an exemption from all local requirements from Baltimore County. FHSHA
argues that the uncertainties regarding the housing units prevented it from being able to
construct the CBOC because its financing was based on building 1,300 units. However,
the Lease plainly provided that FHSHA had 39 months to build the CBOC and thus it had
over 3 years to deal with the County and the VA to work out issues regarding the CBOC.
The fact that FHSHA elected to seek an exemption from County rules rather than to seek
a variance from them is, as discussed above, a risk that FHSHA alone bore under the
36
Lease.15 The County’s decision not to exempt FHSHA from local zoning requirements
and any delay in making that decision is not a force majeure event that prevented
construction of the CBOC.
4. VA Did Not Breach Its Duty Of Good Faith And Fair Dealing By
Failing To Discuss Possible Lease Modifications With Potential
Lenders After The Parties Signed The Lease.
FHSHA next contends that the VA breached its duty of good faith and fair dealing
by refusing to discuss possible lease modifications with lenders after the Lease was
signed. The government argues that this argument fails because the Lease expressly
provides that VA is not required to accept a proposed modification which “in any way
affect[s] the Term or the rent [or] affect[s] adversely in any material respect any rights of
the Department under [the] Lease.” Def.’s App’x 44, Article 16.C.11.
There is no dispute that the VA made construction of the CBOC a material term of
the Lease. As a matter of law, the government could not breach the duty of good faith
and fair dealing on the grounds that the government refused to eliminate or change the
CBOC identified in the Lease after FHSHA learned that it would have to comply with
local zoning rules for the housing units.
5. FHSHA Is Unable To Establish That It Is Entitled to
Reformation of the Lease Based on Mutual Mistake.
FHSHA next argues that its failure to construct the CBOC should be excused
because the parties were mutually mistaken regarding two facts underlying their Lease.
15
FHSHA agrees that it did not “undertake local zoning,” the process of obtaining a local zoning
variance. Pl.’s Am. Mot. for Summ. J., Ex. B, Infantino Aff. ¶ 98. According to Mr. Infantino,
“the process to undertake local zoning could have lasted years . . . .” Id.37
First, FHSHA argues that the parties were mutually mistaken in their belief that the
County would approve FHSHA’s construction of 1,300 housing units at Fort Howard
under the Lease. Second, FHSHA argues that the parties were mutually mistaken in their
understanding that “Baltimore County [would] not have authority to issue permits but
[would] be given [only] a courtesy review of site plans.” Compl. ¶ 67.
To establish a mutual mistake of fact, FHSHA must show:
(1) the parties to the contract were mistaken in their belief regarding a fact;
(2) that mistaken belief constituted a basic assumption underlying the
contract;
(3) the mistake had a material effect on the bargain; and
(4) the contract did not put the risk of the mistake on the party seeking
reformation.
Dairyland Power Co-op v. United States, 16 F.3d 1197, 1202 (Fed. Cir. 1994) (citing
Atlas Corp. v. United States, 895 F.2d 745, 750 (Fed. Cir. 1990)). The government
argues that FHSHA was obligated to comply with Baltimore County density
requirements and thus bore the risk of the County not approving the construction of 1,300
units at the Fort Howard site. In such circumstances, the government argues, FHSHA
cannot rely on reformation of the Lease as a basis for finding that its failure to construct
the CBOC was excused.
The court agrees with the government. As discussed above, although the
Development Plan provided that FHSHA intended to build 1,300 units, the Lease
expressly provided that the Lease, not the Development Plan, controlled and stated that
the VA did not represent or warrant that the Fort Howard site would be suitable for any
particular purpose. Def.’s App’x 54, Article 24.H. Thus, the Development Plan’s
38
statement that the proposed site was in keeping with Baltimore County’s intent for the
area is not relevant. Because, as discussed above, the Lease required FHSHA to comply
with state and local requirements associated with the development and construction of the
project, FHSHA was required to obtain county approval to build the full 1,300 units, and
thus assumed the risk that it would not be able to obtain such approval when it signed the
Lease. Accordingly, there was no mutual mistake. In such circumstances, the court finds
that FHSHA cannot establish that it is legally entitled to reformation of the Lease.
6. FHSHA Cannot Establish that Performance Under The Lease
Was Either Impossible Or Commercially Impracticable As A
Matter of Law.
As discussed throughout this opinion, at the heart of FHSHA’s defense to the
termination of default is its contention that it was economically impossible to meet its
obligations under the Lease unless it was permitted to construct 1,300 housing units on
the Fort Howard site. According to FHSHA, 550 total housing units would not generate
a sufficient income stream to begin construction or satisfy other Lease obligations, while
1,300 housing units would. FHSHA therefore argues that its failure to construct the
CBOC must be excused as impracticable. The government argues in response that
plaintiff has failed to carry its burden of introducing disputed facts to show impossibility
or impracticability and thus its argument fails as a matter of law.
The doctrines of impossibility and impracticability “have merged over time, as
courts have construed the term ‘impossibility’ to include ‘impracticability.’” Short Bros.,
PLC v. United States, 65 Fed. Cl. 695, 782-83 (2005) (citing Seaboard Lumber Co. v.
39
United States, 308 F.3d 1283, 1294 (Fed. Cir. 2002)). The Supreme Court has
reformulated the common law doctrine of impossibility as follows:
[W]here, after a contract is made, a party’s performance is made
impracticable without his fault by the occurrence of an event the non-
occurrence of which was a basic assumption on which the contract was
made, his duty to render that performance is discharged, unless the
language or the circumstances indicate the contrary.
United States v. Winstar Corp., 518 U.S. 839, 904 (1996) (quoting Restatement (Second)
of Contracts § 261 (1981)). For a plaintiff to prevail upon a defense of impossibility, the
plaintiff must “show that (i) a supervening event made performance impracticable; (ii)
the non-occurrence of the event was a basic assumption upon which the contract was
based; (iii) the occurrence of the event was not [the plaintiff’s] fault; and (iv) [the
plaintiff] did not assume the risk of occurrence.” Seaboard, 308 F.3d at 1294 (citation
omitted).
Essentially, “[t]he Restatement requires plaintiff to show that the cause of the
impracticability was a fact, the non-existence of which was a basic assumption of the
contract.” Short, 65 Fed. Cl. at 785. This assumes that “the parties will have bargained
with respect to any risks that are both within their contemplation and central to the
substance of the contract.” Winstar, 518 U.S. at 905. “[N]o impossibility defense will lie
where the ‘language or the circumstances’ indicate allocation of the risk to the party
seeking discharge.” Seaboard, 308 F.3d at 1295 (citations omitted). For example, a
contractor that enters into a fixed-price contract for the purchase of timber bears the risk
that the market price will drop. Id. Under such circumstances, “because the non-
occurrence of a market slump was not a basic assumption of both parties and [the
40
contractor] bore the risk, [the contractor’s] impossibility defense fails as a matter of law.”
Id.The government argues that FHSHA’s commercial impracticability defense fails
as a matter of law because FHSHA assumed the risk of occurrence. See Seaboard, 308
F.3d at 1295. As discussed above, the court agrees that the Lease required FHSHA to
obtain Baltimore County’s approval for the development of the property. If FHSHA
knew that it would have to construct 1,300 units rather than 550 units to make the Lease
viable, FHSHA was required at a minimum to try to get permission from the County to
build more than 550 units. The undisputed facts show, however, that FHSHA never
sought a variance from Baltimore County. To the contrary, FHSHA decided not to seek a
variance, but instead sought only an exemption from local land use rules. See supra n.
15. A request for an exemption is not the same as seeking to comply with local land use
requirements through the variance process or otherwise. Because FHSHA bore the risk
under the Lease for complying with Baltimore County’s density requirements and failed
to even attempt to comply with Baltimore County’s zoning code, it cannot show that its
failure to construct the CBOC should be excused because it could not finance the project.
FHSHA simply failed to fulfill its obligations under the Lease. As such, the court finds
that FHSHA’s impossibility defense fails as a matter of law.16
16
The final count in FHSHA’s amended complaint seeks compensation for “Tortious
Interference with Contractual Relations and Prospective Economic Advantages.” Compl. Count
VI. FHSHA contends that “VA had a contractual relationship with FHSHA, with the probability
of future economic benefit to FHSHA, and breached such contract in the manners set forth
above.” Compl. ¶ 81. FHSHA contends that the VA’s decision to terminate the Lease is a
breach of contract and therefore is improper, arbitrary, capricious, and an abuse of discretion.
41
III. CONCLUSION
For the foregoing reasons, the government’s motion for summary judgment is
GRANTED. The parties shall file a joint status report by July 6, 2015 setting forth a
schedule for resolving the government’s counterclaim, which is now the sole remaining
issue in this case.
IT IS SO ORDERED.
s/Nancy B. Firestone
NANCY B. FIRESTONE
Judge
Compl . ¶¶ 50, 57, 63, 74, 79. While this court typically lacks jurisdiction over cases sounding
in tort, 28 U.S.C. § 1491(a), claims are within its jurisdiction where they arise from an alleged
breach of contract. Awad v. United States, 301 F.3d 1367, 1372 (Fed. Cir. 2002); see also Wood
v. United States, 961 F.2d 195, 198 (Fed. Cir. 1992) (“If an action arises ‘primarily from a
contractual undertaking,’ jurisdiction lies in the [Court of Federal Claims] ‘regardless of the fact
that the loss resulted from the negligent manner in which defendant performed its contract.’”
(quoting San Carlos Irrigation and Drainage Dist. v. United States, 877 F.2d 957, 960 (Fed. Cir.
1989))). However, for all of the reasons set forth above, the court has found that the VA did not
breach its contract with FHSHA. Where there is no breach, FHSHA’s claim for tortious
interference fails and must also be dismissed.
42