27-35 Jackson Ave. v. United States

• Decision Date: 12 October 2022
• Docket Number: 16-947
• Parties: 27-35 JACKSON AVE. LLC, Plaintiff, v. THE UNITED STATES, Defendant.
• Court: U.S. Claims Court

27-35 JACKSON AVE. LLC, Plaintiff,
v.
THE UNITED STATES, Defendant.

No. 16-947

United States Court of Federal Claims

October 12, 2022

Jeffrey W.Varcadipane, Varcadipane & Pinnisi, PC, New York, New York, for Plaintiff.

Stephanie A. Fleming, Trial Attorney, Elizabeth M. Hosford, Assistant Director, Patricia M. McCarthy, Director, Commercial Litigation Branch, Brian M. Boynton, Principal Deputy Assistant Attorney General, U.S. Department of Justice, Washington, D.C., Leigh E. Izzo, Senior Assistant Regional Counsel, General Services Administration, of counsel, for Defendant.

MEMORANDUM OPINION AND ORDER

DAVID A. TAPP, JUDGE.

The resolution of every contract claim begins, and often ends, with the agreement itself. Plaintiff, 27-35 Jackson Ave., LLC, ("Jackson"), invites the Court to depart from the discretion it contracted for with the United States in connection with a lease agreement for office space located in New York City. The Court declines to do so.

Here, the parties agreed that the untenantability of the leased premises was to be determined by the United States. After a sprinkler head burst, water damaged the property, and the United States, acting through the General Services Administration ("GSA"), concluded the premises were untenantable and exercised a contractual right to terminate the lease. Jackson challenges this termination. It argues (1) the United States never made a "determination" of untenantability because its decision lacked an objective standard and instead relied on its subjective belief about the adequacy of Jackson's plan to restore the premises; (2) that the decision to terminate the lease was pretextual and therefore violated the implied duty of good faith and fair dealing; and (3) the United States should be equitably estopped from terminating the lease because its own actions contributed to damage to the property.

Because the plain language of the lease provided that untenantability was to be "determined by the Government," the Court finds that the United States did not breach the contract by relying on its own standard to determine untenantability as opposed to a standard supplied by Jackson. Further, even when viewing the evidence in the light most favorable to

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Jackson, the Court finds that Jackson has failed to establish a genuine issue of material fact sufficient to preclude summary judgment as to Jackson's claims for violation of the duty of good faith and fair dealing and equitable estoppel. Accordingly, the Court grants the United States' motion for summary judgment, (ECF No 82), and denies Jackson's cross-motion for summary judgment, (ECF No. 88).

I. Background

GSA leased two floors of space at a building in Long Island City, New York, from Jackson. (Pl.'s Am. Compl. at ¶ ¶ 4-6, ECF No. 13). GSA used these premises to house field offices for the Department of Homeland Security's United States Citizenship and Immigration Services ("USCIS"). (Id. ¶ 7). USCIS used the space for its daily operations, including meeting with members of the public seeking visas and other immigration services. (Def.'s Mot. App. 345). ^[1] To accommodate this use, the United States included requirements of specialized security infrastructure, customized surfaces, and other requirements, together referred to as tenant's improvements ("TI"). (Pl.'s Mot. App. 341, 344, 383).

The lease included a contingency for total or partial destruction of the building. It provided that, "[i]f the entire premises are destroyed by fire or other casualty," the lease "will immediately terminate." (Id. at 64 (Lease GS-02B-23653, General Clauses, ¶17)). Partial destruction, however, did not immediately terminate the lease; instead, the lease provided that: "In case of partial destruction or damage, so as to render the premises untenantable, as determined by the Government, the Government may terminate the lease by giving written notice to the Lessor within 15 calendar days of the fire or other casualty[.]" (Id.).

After executing the lease, the relationship between USCIS and Jackson soured. From the outset, USCIS was dissatisfied with the delays in completing the build-out and its quality, attributing those delays to Jackson. (Pl.'s Mot. App. at 264). In the years leading up to termination of the lease, USCIS was routinely in contact with Jackson about issues that it deemed disruptive to its tenancy, including among others, trucks idling under a nearby bridge, issues related to construction of a hotel next door, disturbances related to construction on the floors above USCIS, and criticisms of the alleged poor quality of the build-out. (Pl.'s Mot. App. at 180, 197-8, 210-11, 389). USCIS also filed complaints with Jackson about leaks, dust, noise, and the possibility of asbestos. (Pl.'s Mot. App. at 574-75). With many of these incidents,

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USCIS's concerns persisted even after Jackson's efforts to address the complaints.^[2] (Def.'s Mot. App. 251-54 (2013 Summary of Issues at 27-35 Jackson)). It is against the backdrop of this cantankerous relationship that the parties frame the incident on January 8, 2015.^[3]

In the early hours of that morning, USCIS staff discovered that portions of the leased space were flooded because of a broken sprinkler head. (Def.'s Mot. App. at 98). At 5:30 a.m., Ruben Vargas, a USCIS staff member, discovered the leak and notified the New York City Fire Department (FDNY) and the MegaCenter, the Government's security alarm service provider. (Def.'s Mot. App. 98). After arriving on the scene, FDNY shut off the water to the location at 5:55 a.m. (Id.). The United States asserts that the water intrusion affected the public reception areas, presentation rooms, the room housing USCIS servers and security infrastructure, and also damaged confidential files and electronic equipment. (Def.'s Mot. App. at 137-92; Pl.'s Mot. App. 430, 356, 404).

The very next day, January 9, GSA notified Jackson it "determined that the entirety of the leased premises is no longer tenantable." (Pl.'s Mot. App. 69). The letter also informed Jackson of GSA's position that, under the untenantability clause of the lease, "the Government ha[d] the unilateral right to terminate the Lease if the Premises has been rendered untenantable . . . ." (Id.). The letter from GSA advised Jackson that the United States "may elect" to exercise that power if Jackson "is unable to remediate the space" and "restore all the tenant improvement to the as built conditions corresponding to the [l]ease commencement date . . . ." (Id.).

On January 12, GSA received Jackson's initial plan for remediation, a plan provided by ServPro, the company recruited by Jackson to address the damage. (Def.'s Mot. App. 138-139). The initial plan submitted by Jackson included a timeline for both remediation and restoration of the spaces; however, even though it included a detailed breakdown of individual remediation tasks to be done by ServPro on a daily basis (such as extracting water, drying equipment, removing walls, ceilings, ceiling tiles, carpets, flooring, drywall, and many other building materials), it did not include a similar detailed breakdown for restoration tasks (such as installing

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new flooring, ceiling, walls, and other items that were customized for the leased space). (Def.'s Mot. App. 104-7, 122). Instead, the plan only stated that Jackson expected restoration to be complete by January 30. (Pl.'s Mot. App. 127).

GSA responded to Jackson's plan the next day, stating that it determined the plan to "be insufficient." (Def.'s Mot. App. 117). In particular, GSA noted that its plan did not "address how [Jackson] plan[s] to restore all tenant improvements to the As-Built conditions" at the time of the beginning of the lease. (Id.) (emphasis added). The following day, GSA further clarified that it was requesting that all "items such as flooring, ceiling, walls and other items that were completed as part of the initial construction," or the tenant improvements, be restored to their original condition. (Def.'s Mot. App. at 122). This letter gave Jackson less than 24 hours to submit a "revised remediation plan and schedule". (Id.).

On January 15, Jackson responded by submitting an updated plan that included more details on the different components of physical remediation of the space, including details on environmental testing and air-monitoring follow-up. (Def.'s Mot. App. 125-26).^[4] This updated plan did not include a similar breakdown of the exact components of the work to be done to restore the spaces or explain how restoration was to be done. (Id.). Jackson's updated plan stated that all work would be completed by February 7. (Pl.'s Mot. App. 86-7). Notably, Jackson's alternate plan projected that the work would be done 8 days after the expiration of the 15-day period which the United States could exercise its termination right under the contract. (Def.'s Mot. App. 50 (Fire and Casualty Clause, ¶17)). On January 20, 12 days following the broken sprinkler head, GSA notified Jackson that it was electing to terminate the lease under the untenantability clause of the lease, because "on January 8, 2015, [the] flood at the…Premises rendered it untenantable." (Def.'s Mot. App. at 193). The notice further expressed the Government's position that the leased premises remained untenantable by the date of the letter. (Id.). After challenging the termination decision before the GSA's contracting officer and receiving an adverse final decision, Jackson brought this claim seeking $10,664,007.98 in damages, comprised of $8,419,016.34 in lost rents and $2,244,991.64 in remaining TI reimbursement payments. (Def.'s Mot. App. at 195-196; Pl.'s Mot. App. 7-13).

II. Analysis

The Court enters summary judgment in favor of a moving party when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. RCFC 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-49...