CR–RSC Tower I, LLC v. RSC Tower I, LLC

• Decision Date: 05 January 2012
• Docket Number: Nos. 280,2010.,Sept. Term,2535,s. 280
• Citation: 32 A.3d 456,202 Md.App. 307
• Parties: CR–RSC TOWER I, LLC, et al., v. RSC TOWER I, LLC, et al.
• Court: Court of Special Appeals of Maryland

202 Md.App. 307

32 A.3d 456

CR–RSC TOWER I, LLC, et al.,

v.RSC TOWER I, LLC, et al.

Nos. 280

2535

Sept. Term

2010.

Court of Special Appeals of Maryland.

Oct. 26, 2011.Reconsideration Denied Jan. 5, 2012.

Andrew J. Graham (Kramon and Graham, Baltimore, MD and Dale A. Cooter, Cooter, Mangold, Deckelbaum & Karas, LLP, Washington, D.C., on the brief), for appellant.

Brian L. Schwalb (Mitchell Y. Mirviss, Samantha M. Williams, Venable LLP, on the brief), Rockville, MD, for appellee.

Panel: KRAUSER, C.J., EYLER, JAMES R. and GRAEFF, JJ.

EYLER, JAMES R., J.

CR–RSC Tower I, LLC, Second CR–RSC Tower I, LLC, CR–RSC Tower II, LLC, and Second CR–RSC Tower II, LLC, (appellants or CR–RSC), appeal from a judgment entered by the Circuit Court for Montgomery County in favor of RSC Tower I, LLC and RSC Tower II, LLC, (appellees or RSC). The court entered judgment after a jury verdict in favor of appellees, finding breach of two contracts for which appellants were jointly and severally liable and awarding damages for lost profits and expenses incurred in reliance on the contracts. Appellants contend that the circuit court erred in not granting their motion for judgment. In the alternative, appellants contend that the court erred in permitting certain evidence to be introduced, in its instructions to the jury, and in the wording of the verdict sheet. In addition, appellants contend that the court erred in awarding attorneys' fees and costs to appellees.

We conclude that appellants are not jointly and severally liable. Thus, we shall remand to the circuit court with instructions to enter the judgment in favor of RSC Tower I, LLC against CR–RSC Tower I, LLC and Second CR–RSC Tower I, LLC only and the judgment in favor of RSC Tower II against CR–RSC Tower II, LLC and Second CR–RSC Tower II, LLC only. On all other issues, we shall affirm.

Factual and Procedural Background

Appellants own a 53–acre tract of land in Montgomery County. On June 16, 2004, appellants as landlords entered into two 90–year ground leases with appellees as tenants. Appellees are partially owned and controlled by the Penrose Group, a real estate development company. One lease was for approximately three acres, and the other lease was for approximately two acres, together with easements to use certain common areas in the rest of the tract. The parties executed a “DECLARATION OF EASEMENTS AND RELATED AGREEMENTS” on June 16, 2004. At that time, the parties contemplated that appellants would develop the portion of the tract not subject to the ground leases. Indeed, in 2003, the owners of the entire tract, appellants' assignors, and Penrose Development Company, LLC entered into a Development Services Agreement pursuant to which Penrose Development Company, LLC agreed to act as a consultant to the owners in connection with development of the tract.

Pursuant to the terms of the ground leases between the parties herein, each appellee agreed to construct an apartment building (hereinafter Tower I and Tower II) on its respective site. After construction and initial rental, the parties contemplated that appellees would sell the buildings. The parties projected that construction on Tower II would begin approximately two years after construction of Tower I. The leases contained provisions obligating the parties to cooperate with each other in the development of the apartment buildings and the rest of the tract.

After executing the leases, in late 2004 and early 2005, the parties modified their agreements to permit development of condominium buildings, a hotel, and spa rather than apartments (the “Canyon Ranch project”). The parties executed several agreements in furtherance of the Canyon Ranch project, but in September 2006, the parties abandoned the project and entered into a termination agreement. Appellees then obtained county approval to revert to the original plan to build apartments. Appellees also arranged financing with Northwestern Mutual Life Insurance Company (“NML”) to construct Tower I.

In late September, appellees requested appellants to execute estoppel certificates in which appellants would represent that appellees were not in default under the ground leases. The project's financing terms required that appellees provide such estoppel certificates and the leases required appellants to execute such certificates to the appellees. Specifically, paragraph 14.6 in both leases provided:

Estoppel Certificate. Each party agrees from time to time, upon no less than fifteen (15) days' prior written request of the other, to execute, acknowledge, and deliver to the other a statement in writing certifying (i) that this Lease is unmodified and in full force and effect (or, if there have been any modifications, that the same is in full force and effect as modified and stating the modifications), (ii) the Lease Commencement Date and Fixed Rent Commencement Date, (iii) the then current amount of the Fixed Rent, (iv) the dates to which the Fixed Rent and Additional Rent has been paid, (v) to such party's knowledge, whether there exists any uncured default by the other party and, if so, the nature of such default, and (vi) such other matters relating to this Lease as the party requesting the statement may reasonably require. Any such statement delivered pursuant to this Section 14.6 may be relied upon by any prospective purchaser or mortgagee or any prospective holder of a sublease from Tenant or any prospective assignee of any such holder of a mortgage or sublease.

Appellants disagreed with the language in the proposed certificates. The parties attempted to reach agreement on the language, were unable to do so, and appellants did not execute the certificates. Appellants also initiated proceedings to challenge the county's approval of appellees' site plans and building permits.

On November 8, 2006, appellees filed suit against appellants ¹ in the Circuit Court for Montgomery County, alleging that appellants had breached the leases, and seeking declaratory and injunctive relief (the 2006 action), which would require appellants to perform their obligations under the leases. On January 16, 2007, the court issued a preliminary injunction, ordering appellants to deliver executed estoppel certificates to appellees. On January 26, 2007, appellees filed a motion for summary judgment. On April 4, 2007, the court entered summary judgment in favor of appellees. The court, inter alia, ruled that appellants breached their obligations under the ground leases; the breaches prohibited appellees from obtaining financing; and appellees could not obtain equity investment or financing without a final order in their favor. The court ordered appellants to specifically perform their obligations under the leases, extended the term and certain due dates in the leases, and suspended payments required by appellees pending the entry of a final non-appealable order. The order included the following paragraph:

Nothing in this Order prohibits Plaintiffs from pursuing any other remedies or rights they may have, including claims for monetary damages or claims under the Force Majure provision of the Ground Leases, resulting from these or other breaches by Defendants of Plaintiffs' rights and/or the Ground Leases.

On April 16, 2007, appellants delivered estoppel certificates to appellees along with a cover letter reserving all rights under all agreements and all rights that they had asserted in the litigation. Appellees' position was that the certificates did not comply with the terms of the leases, and no one, including lenders, could or would rely on them.

On April 11, 2007, appellants appealed to this Court, arguing that the circuit court had erred in issuing the injunction and in granting summary judgment. In an unreported opinion, this Court affirmed the judgment. Camalier Limited P'ship v. RSC Tower I, LLC, No. 2704, September Term 2006 (Md.Ct.Spec.App. Aug. 4, 2008). On September 3, 2008, this Court issued its mandate. After issuance of the mandate, appellants abandoned their challenge to the county approvals of the project.

On September 8, 2008, in the 2006 action, appellees filed an “Amendment by Interlineation of Plaintiffs' Amended Verified Complaint” and a “Motion for Supplemental Relief.” In the amendment by interlineation, appellees amended their requests for relief, to include, for the first time, a claim for monetary damages “in an amount no less than $30 million, plus interest” and the costs and expenses of litigation including attorneys' fees, to adjust the terms of the ground leases and certain due dates in the ground leases, and to suspend appellees' payment obligations under the leases pending the obtainment of financing.

In the motion for supplemental relief, appellees, inter alia, alleged that the real estate and credit markets had deteriorated subsequent to the April 4, 2007 order and appellees had not been able to obtain financing for the apartment project. In addition, they alleged that Montgomery County no longer considered its prior approvals of the project to be valid. Appellees requested monetary damages and supplemental equitable relief. Appellees' requests tracked the amended requests for relief in the amendment by interlineation. Appellees also asked the court to extend the due dates contained in the leases and to require appellants to pay certain fees and costs while appellees determined whether the project was still viable.

On December 23, 2008, appellants filed a motion to dismiss or, in the alternative, to strike appellees' amendment by interlineation and appellees' motion for supplemental relief. The memorandum in support of that motion is not in the record extract, but we assume that at least one of the grounds argued was that the requested relief was not available procedurally in the 2006 action.

On March 3, 2009, appellees filed a new complaint against appellants in the Circuit Court for Montgomery County (the 2009 action). On December 8, 2009, appe...