Carr Office Park, LLC v. Charles Schwab & Co., Inc.

FILED
United States Court of Appeals
Tenth Circuit
August 29, 2008
UNITED STATES COURT OF APPEALS
Elisabeth A. Shumaker
TENTH CIRCUIT Clerk of Court
CARR OFFICE PARK, LLC, a Delaware
limited liability company,
Plaintiff - Appellant,
No. 07-1277
v. (D. Colorado)
CHARLES SCHWAB & CO., INC., a (D.C. No. 05-CV-2572-EWN-BNB)
California corporation,
Defendant - Appellee.
ORDER AND JUDGMENT *
Before MURPHY, HARTZ, and GORSUCH, Circuit Judges.
Plaintiff Carr Office Park, LLC (Carr) and defendant Charles Schwab &
Co., Inc. (Schwab) are, respectively, landlord and tenant in a corporate center
located in Colorado. Numerous leases and agreements regulate the relationship
between the parties. This dispute arose out of an agreement that obligated Carr to
build an office complex and associated parking garage, which Schwab was then
*
This order and judgment is not binding precedent except under the
doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
Cir. R. 32.1.
obligated to lease. Changed circumstances led the parties to alter the agreement
so that it covered a multiple-tenant parking garage, rather than an single-tenant
office complex. After completion of the parking garage, Carr and Schwab were
unable to agree on the terms governing the lease of the garage. Carr filed this suit
in Colorado state court, claiming Schwab was in breach of contract for its failure
to pay rent for the garage. Schwab removed the action to the Federal District
Court for the District of Colorado. The district court, with diversity jurisdiction
pursuant to 28 U.S.C. §§ 1332 and 1441, determined that essential elements of the
parking garage lease were ambiguous and the agreements between the parties
constituted only an unenforceable agreement to agree. The district court
accordingly granted Schwab’s motion for summary judgment. This court has
jurisdiction under 28 U.S.C. § 1291 and AFFIRMS the judgment of the district
court.
I. Background
Carr owns and operates an office park in Arapahoe County, Colorado
known as Panorama Corporate Center. In 1997, Carr and Schwab entered into a
lease (Building III Lease) for a building known as Panorama III in the Corporate
Center. At the same time, Carr and Schwab entered into an Option Agreement.
Under the Option Agreement, Schwab was entitled to exercise five Expansion
Notices, which would trigger Carr’s obligation to construct a new building and
Schwab’s obligation to lease the newly constructed premises. The Option
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Agreement specified that after the exercise of an expansion option, Carr would
deliver a lease for the new building (New Building Lease). The Option Agreement
also specified that the failure of the parties to agree to a New Building Lease
would not affect the validity of the Expansion Notice. Rather, absent an
agreement to alternate terms, the New Building Lease would contain, as a default,
the same terms and conditions expressed in the Building III Lease. In December
of 2000, the parties entered into the Second Amendment to the Option Agreement.
That Amendment replaced the default lease terms from the Building III Lease
with the terms negotiated for a different, prior lease between the parties for the
Panorama VIII development. This new default lease was termed the Lease Form
for New Buildings (Lease Form).
In June of 2000 Schwab exercised its expansion option, requiring Carr to
build a new office site and parking garage known as Panorama IV. After the
exercise of this option, Carr was approached by the Regional Transportation
District (RTD) regarding the proposed construction of a light rail stop and
parking facilities near the Panorama IV building site. Carr and RTD, with
Schwab’s knowledge, entered into an agreement under which the Panorama IV
parking garage (Shared Parking Facility) would be shared by RTD and Schwab.
Carr and Schwab entered into the Third Amendment to the Option Agreement, by
which Schwab formally approved the agreement between Carr and RTD and
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agreed that Carr would not be in breach of the Option Agreement by performing
its contractual obligations to RTD.
Subsequently, Schwab determined that, due to current economic conditions,
it no longer wished to go forward with the Panorama IV expansion. The parties
agreed in the Fourth Amendment to the Option Agreement (Fourth Amendment)
that Schwab could revoke its exercise of the expansion option with respect to the
office building in exchange for payments in excess of seven million dollars. 1 The
Fourth Amendment specified that the revocation did not apply to Schwab’s lease
of the Shared Parking Facility. It stated, “[u]pon completion of the Shared
Parking Facility, [Schwab] shall be required to lease from [Carr] the parking
spaces which are contained in two lowest levels of the Shared Parking Facility
(the ‘Parking Spaces’).” The Fourth Amendment further provided that,
within [sixty] days after [Schwab’s] receipt of [Carr’s] notice of
commencement of construction of the Shared Parking Facility, [Carr]
and [Schwab] shall, in good faith, negotiate and finalize a lease
document (the “Garage Structure Lease”) based on the Lease Form
for New Buildings . . . concerning [Schwab’s] lease of the Parking
Spaces which requires [Schwab] to pay to [Carr] an annual triple net
rent for use of the Parking Spaces calculated as a product of the Total
Project Costs (as such term is defined in the Lease Form) for [Carr’s]
cost of the construction of [Schwab’s] portion of the Shared Parking
Facility and the Return Rate for Panorama IV . . . . [Carr] estimates
that such rent will equal $502,200.00 per annum (triple net) assuming
a Total Project Cost of $5,400,000.00 for [Schwab’s] portion of the
Shared Parking Facility.”
1
Schwab ultimately made a termination payment of $7,142,777 to Carr.
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In addition, the Fourth Amendment dictated that “[i]n the event of any conflict
between the terms and provisions of the Option Agreement, as it has previously
been amended, and the terms and provisions of this Fourth Amendment, the terms
and provisions of this Fourth Amendment shall control.”
In January of 2004 Carr notified Schwab that it would commence
construction of the Shared Parking Facility in February. As agreed to in the
Fourth Amendment, this notification triggered negotiations between the parties
for a Shared Parking Facility lease. On March 5, 2004, Carr representative Lisa
Foyston sent Schwab a proposed lease (March 5 Draft). The March 5 Draft was
redlined against a previously proposed draft lease for the entire Panorama IV
complex, with changes intended to convert the lease into one for only the parking
garage. Included in those changes were deletions of terms that would allow
Schwab to purchase the premises (Article 33) and giving Schwab a right of first
offer on the parking garage (Article 34). Schwab rejected the March 5 Draft and
the parties continued their negotiations. The negotiations between the parties
included discussions on issues such as the premises covered by the lease, which
party bore the maintenance obligations for the structure, rental of excess space by
Schwab, and whether an extension option would exist.
The parties failed to resolve these issues. The Shared Parking Facility was
completed and delivered on December 3, 2004, but Schwab has never occupied
the Facility nor paid rent. Carr brought suit on November 29, 2005, alleging
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Schwab was in breach of contract. In the district court, the parties filed cross
motions for summary judgment. Carr argued the existing agreements obligated
Schwab to pay rent on the Shared Parking Facility and its failure to do so
constituted breach. Schwab claimed no such agreement existed because material
elements, such as rent, remained unresolved. It further argued that the Fourth
Amendment constituted an unenforceable “agreement to agree.” The district
court agreed that unresolved material terms to the lease rendered any agreement
unenforceable and granted summary judgment to Schwab on Carr’s breach of
contract claim.
II. Discussion
This court reviews a district court’s grant of summary judgment de novo,
applying the same legal standards as the district court. Jones v. Denver Post
Corp., 203 F.3d 748, 751 (10th Cir. 2000). We examine the factual record and
reasonable inferences therefrom in the light most favorable to the nonmoving
party, in this case, Carr. Concrete Works of Colo., Inc. v. City & County of
Denver, 36 F.3d 1513, 1517 (10th Cir. 1994). Summary judgment is appropriate
only “if the pleadings, the discovery and disclosure materials on file, and any
affidavits show that there is no genuine issue as to any material fact and that the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). The
moving party must show the absence of evidence supporting the nonmoving
party’s case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). If this burden
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is met, the nonmoving party must then show a genuine issue of material fact
exists. Fed. R. Civ. P. 56(e)(2). In so doing, it may not rely solely on the
allegations made in its pleadings, but must set out specific facts demonstrating a
genuine issue for trial. Id. When sitting in diversity, this court applies the law of
the forum state, here Colorado. Woolard v. JLG Indus., Inc., 210 F.3d 1158, 1168
(10th Cir. 2000).
To create an enforceable and binding contract, all essential elements must
be settled or a method of settlement must be agreed upon. Greater Serv.
Homebuilders’ Inv. Ass’n v. Albright, 293 P. 345, 348 (Colo. 1930). “If the
writing leaves the agreement of the parties vague and indefinite as to an essential
element thereof, it is no contract and cannot be made one by parol.” Id. at 348-
49. “To have an enforceable contract it must appear that further negotiations are
not required to work out important and essential terms.” New York Life Ins. Co.
v. K N Energy, Inc., 80 F.3d 405, 409 (10th Cir. 1996) (applying American
Mining Co. v. Himrod-Kimball Mines, Co., 235 P.2d 804, 807-08 (Colo. 1951) (en
banc)). When parties have entered into an “agreement to agree,” the purported
contract is unenforceable because the court cannot force parties to reach an
agreement and therefore no remedy is available. Griffin v. Griffin, 699 P.2d 407,
409 (Colo. 1985) (holding that an agreement by two parents to “negotiate and
reach agreement at some future time concerning their child’s education” was
unenforceable). “[C]ontract interpretation is a question of law that is reviewed de
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novo.” Ad Two, Inc. v. City & County of Denver, 9 P.3d 373, 376 (Colo. 2000)
(en banc). Evidence beyond the language of the instrument itself is admissible
only where there is an ambiguity in the terms of the contract. Id.Carr argues the Option Agreement specified all essential terms of the lease
and therefore was unambiguous and enforceable. Carr contends that Colorado
law specifies only four essential elements of a valid lease: (1) the boundaries of
the property to be leased, (2) the term of the lease, (3) the amount of rent to be
paid, and (4) the rent commencement date. 2 Carlson v. Bain, 182 P.2d 909, 911
(Colo. 1947). Because the agreements between the parties contained these
essential term, Carr argues, an enforceable lease exists. Schwab maintains that
the district court correctly determined that neither the Lease Form nor the Option
Agreement contained a final accord concerning rent for the Shared Parking
Facility and, as a result, no binding contract existed.
We agree. The agreements between the parties constitute only an
unenforceable “agreement to agree.” The Fourth Amendment unambiguously
states that Schwab and Carr “shall, in good faith, negotiate and finalize a lease
document . . . concerning [Schwab’s] lease of the Parking Spaces which requires
2
Schwab contests Carr’s assertion that any lease with these four elements is
enforceable under Colorado law. Schwab argues that these elements are
necessary, but not always sufficient. We find it unnecessary to resolve this
dispute because Carr cannot show that all of the elements it acknowledges are
necessary existed in its agreements with Schwab.
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[Schwab] to pay [Carr] . . . rent” (emphasis added). The Fourth Amendment also
provides “[t]he Garage Structure Lease will require [Schwab] to agree to an initial
lease term of 15 years” (emphasis added). These provisions demonstrate that the
Garage Structure Lease was a document to be negotiated and agreed to at a future
date.
Furthermore, unlike the previous agreement between the parties, the Fourth
Amendment did not designate lease terms to be used in the event of a failure to
reach an accord on a new lease. The Option Agreement explicitly states that, in
the event a New Building Lease cannot be negotiated, “[t]he lease of the New
Building shall be on (and the New Lease shall contain) the same terms and
conditions of the [Lease Form].” In contrast, the Fourth Amendment requires
only that the parties negotiate a Shared Parking Facility lease “based on the Lease
Form for New Buildings.” Unlike the unamended Option Agreement, the Fourth
Amendment does not provide a fully negotiated fallback lease. The Fourth
Amendment specified that in the event of a conflict between the Option
Agreement and the terms of the Fourth Amendment, the Fourth Amendment
would control. As a result, the Fourth Amendment constitutes only an agreement
to agree, which is “unenforceable because the court has no power to force the
parties to reach agreement and cannot grant a remedy.” Griffin, 699 P.2d at 409.
The ambiguities concerning the amount of rent to be paid on the Shared
Parking Structure further supports this conclusion. Carr argues the Fourth
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Amendment itself was a fully negotiated agreement specifying all essential
elements of the lease for the Shared Parking Facility. In particular, it claims the
Fourth Amendment provided a method for calculating the Shared Parking Facility
rent. It points to the parties’ agreement that “an annual triple net rent for use of
the Parking Spaces calculated as a product of the Total Project Costs (as such
term is defined in the Lease Form) for [Carr’s] cost of the construction of
[Schwab’s] portion of the Shared Parking Facility and the Return Rate for
Panorama IV . . . .” Carr argues that this provision constitutes an enforceable
agreement on rent. It acknowledges that “Total Project Costs” is defined by
reference to the Lease Form, but maintains the Fourth Amendment’s definition is
nevertheless unambiguous.
The calculation of rent agreed to in the Fourth Amendment, however,
leaves two ambiguities which render the formula for rent meaningless absent
further negotiations. First, as defined in the Fourth Amendment, one element of
the formula is “[Carr’s] cost of the construction of [Schwab’s] portion of the
Shared Parking Facility.” Yet the Fourth Amendment provides no definition for
Schwab’s portion of the Shared Parking Facility. It could arguably be defined as
only the Parking Spaces themselves or include areas used for ingress and egress,
land surrounding the garage, structural elements of the garage, and the land
underneath the garage. Without an agreement between the parties as to how to
determine Schwab’s portion of the Shared Parking Facility, rent cannot be
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calculated. An agreement that is “vague and indefinite as to an essential element”
cannot be enforced. Albright, 293 P. at 348-49.
Second, Total Project Costs, an element of the rent calculation, is defined
in the Lease Form. The definition includes land costs, construction hard and soft
costs, construction of infrastructure on the land, and “the cost of operating and
maintaining the Premises.” The definition of construction hard costs included
“Building Cost,” “Parking Structure,” and “Site Costs for the Premises.” The
Lease Form defines “Premises” as “the Land, the Building, the Parking Lot and
the Parking Structure appurtenant thereto, and all other improvements on the
Land.” All provisions, however, contemplate a single-owner office complex and
do not address the allocation of costs for a parking structure with two tenants.
Thus, the Fourth Amendment and the Option Agreement do not specify how much
of the land originally allocated for the Panorama IV complex is properly included
in the cost of constructing only the Shared Parking Facility. Nor do the
documents explain how the construction and maintenance costs of shared portions
of the garage should be allocated between the two tenants. Without these
components, rent cannot be calculated and the agreements are ambiguous as to an
essential element.
Carr attempts to refute this conclusion by arguing that “both parties
understood that the ‘Tenant’s portion of the Shared Parking Facility’ means all of
the lowest two floors of the parking garage and the associated improvements” and
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that this is also the definition of Premises that should be used to calculate rent.
Carr does not point to anything in the record, however, to show this
understanding existed. Rather, the record shows that Carr took the position in
lease negotiations that the Premises meant “the Land (subject to the ‘RTD
Easement’ as such term is defined in the RTD Agreement), the Parking Structure
and those certain other improvements located on the Land which provide access
(ingress and egress) to the Parking Structure.” Carr argues that it took this
position only as a negotiating tactic and it has no bearing on the Fourth
Amendment’s default definition of Schwab’s portion of the Shared Parking
Facility. This assertion is belied, however, by Carr’s calculations of rent for its
damages exhibit before the district court. Carr admitted before the district court
that its calculation of rent relied on a definition of Premises that included the cost
of the land upon which the Shared Parking Facility was situated, including
“ingress and egress and anything that relates to the garage.” In earlier
negotiations, Schwab had contested this characterization of “Premises.” Carr’s
contention that the parties had a shared understanding of “Tenant’s portion of the
Shared Parking Facility” or “Premises” is not supported by the record.
Carr also argues that the Option Agreement, as amended, evinces the
parties’ intent to bind themselves to a lease for the garage. It notes the parties’
agreement in the Fourth Amendment that Schwab’s obligation to lease the Shared
Parking Facility “cannot and shall not be revoked.” The district court’s decision,
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Carr maintains, does not give effect to the intent of the parties as evidenced by
the clear language of the agreement. While it is true the parties agreed Schwab
had an obligation to lease a portion of the Shared Parking Facility from Carr
pursuant to a yet to be negotiated Shared Parking Facility Lease, this court cannot
force the parties to come to an accord on essential elements that are left
ambiguous. See Griffin, 699 P.2d at 409.
In the alternative, Carr argues that the district court erred by granting
summary judgment because a genuine dispute of material fact existed regarding
the parties’ agreement on what “Premises” were leased to Schwab. A dispute of
material fact is genuine “if the evidence is such that a reasonable jury could
return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 248 (1986). Carr maintains that a triable issue of fact exists concerning
whether the parties agreed upon the Premises leased to Schwab. See United
States v. Hess, 194 F.3d 1164, 1174 (10th Cir. 1999) (“[W]here interpretation of a
contract requires examination of extrinsic evidence to determine intent, and where
more than one inference may be drawn therefrom, a question of fact is
presented.”).
Here, however, Carr has not pointed to any extrinsic evidence that an
agreement between the parties existed as to the bounds of the Premises in the
Fourth Amendment. Rather, Carr relies only on the “plain language of the Fourth
Amendment” as support for its position. Contract interpretation, however, is a
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matter of law. Ad Two, Inc., 9 P.3d at 376. As explained above, this court holds
that as a matter of law the Fourth Amendment is ambiguous with respect to the
extent of the Premises and the only extrinsic evidence in the record indicates that
an agreement on the meaning of the term did not exist. Absent any extrinsic
evidence suggesting there was an agreement as to the Premises to be leased, there
is no genuine issue of fact for trial.
III. Conclusion
For the foregoing reasons, the judgment of the district court is
AFFIRMED.
ENTERED FOR THE COURT
Michael R. Murphy
Circuit Judge
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