Litman v. Toll Bros., Inc.

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 07-1011
RICHARD C. LITMAN, Trustee, under a Land
Trust Agreement date September 21, 1995,
Plaintiff - Appellant,
and
LITMAN LAW OFFICES, LTD.,
Plaintiff,
versus
TOLL BROS., INC.,
Defendant - Appellee.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. T. S. Ellis, III, Senior
District Judge. (1:06-cv-00476-TSE)
Argued: December 6, 2007 Decided: February 5, 2008
Before MICHAEL and KING, Circuit Judges, and Catherine C. BLAKE,
United States District Judge for the District of Maryland, sitting
by designation.
Affirmed by unpublished per curiam opinion.
ARGUED: William Francis Krebs, BEAN, KINNEY & KORMAN, P.C.,
Arlington, Virginia, for Appellant. Alexander Young Thomas, REED
SMITH, L.L.P., Falls Church, Virginia, for Appellee. ON BRIEF:
James R. Schroll, Thomas W. Repczynski, Christopher A. Glaser,
BEAN, KINNEY & KORMAN, P.C., Arlington, Virginia, for Appellant.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
Richard Litman, as trustee for Litman Law Offices, Ltd.
(“Litman”), appeals the district court’s grant of summary judgment
to Toll Brothers, Inc. (“Toll”), in this dispute between Litman and
Toll stemming from an agreement for the sale of redevelopment
property in Arlington County, Virginia. For the reasons
articulated below, we affirm.
I.
The essential facts are undisputed, and the most relevant are
set forth here. On May 12, 2005, Litman and Toll entered into an
agreement (the “Agreement”) for the sale of land owned by the
1
Litman Law Offices, Ltd. J.A. 18-33. The subject of the
Agreement was a one-acre parcel, with commercial office building,
in Arlington, Virginia - specifically, within the Columbia Pike
Special Revitalization District. Under the Agreement, Litman was
to turn over a vacant building, which Toll would demolish. Because
Toll intended to redevelop the property with mixed residential and
commercial units, the closing was expressly conditioned upon Toll’s
obtaining the appropriate governmental permits.
The Agreement sets out the sale of the Columbia Pike property
from Litman to Toll, at a price of $90 per saleable square foot.
The number of saleable square feet is to be determined by the
“total square footage contained within all condominium units on the
1
An Amendment to the Agreement was executed on June 16, 2005.
J.A. 65-71.
3
Property as shown on and defined in the recorded Condominium
Documents.” J.A. 19. The Agreement set a minimum purchase price,
however, of $13 million.
The document outlines a series of payments to be made by Toll:
within ten days of the Agreement, a $300,000 deposit, to be held in
escrow until after the due diligence period; and a second deposit
of $1 million, half of which would be released by the end of the
due diligence period and half of which would be withheld until the
approval of Toll’s zoning application. The closing date was set as
ninety days after the provision of a written notice of closing; the
Agreement specifies, however, that Toll could not provide such
notice later than February 15, 2006. Accordingly, the latest
possible date anticipated for closing was May 16, 2006. Litman
could, however, elect to extend the closing date to July 31st by
giving Toll written notice within 45 days of receiving Toll’s
closing notice. Section 20 of the Agreement states that “TIME IS
OF THE ESSENCE AS TO ALL PROVISIONS OF THIS CONTRACT.” J.A. 30.
Should Toll fail to perform any of its obligations under the
contract, the $1.3 million deposit could be retained by Litman as
the “sole and exclusive remedy for such breach as liquidated
damages,” provided that Litman had given Toll written notice of the
breach. J.A. 23. Toll’s default also would result in a transfer
to Litman of Toll’s interests in the zoning application, all
architectural and other studies, and all building drawings and
permits.
4
Section 16A of the Agreement expressly conditions Toll’s
obligation to complete closing upon, in relevant part: “(iii) the
receipt by Buyer of final, unappealable Special Exception for the
Property.” J.A. 28. Section 15G defines the Special Exception:
Following the end of the Due Diligence Period, Buyer, at
Buyer’s sole cost and expense, may seek a special
exception for the Property and/or any other government or
other authorizations Buyer deems necessary, in its sole
discretion, to develop the Property for use as
residential and commercial condominium(s) (collectively,
the “Special Exception”).
J.A. 27 (emphasis added).2 That section further provides that
Litman would cooperate with Toll’s attempts to obtain final
approval of the Special Exception. Should the conditions listed
in Section 16A not be satisfied, Section 16C of the Agreement as
amended lists Toll’s options as the following:
If on or before the date Closing [sic] all contingencies
and conditions specified herein are not or cannot be
satisfied, then Buyer shall have the option of (i)
completing Closing hereunder if it so chooses, or (ii)
canceling this Agreement if the Special Exception is
denied and the date for filing an appeal has expired, in
which case this Agreement shall become null and void and
the Deposit shall be returned to Buyer, provided that
any Released Deposit shall be returned to Buyer when and
as provided in the Note, the provisions of which are
incorporated herein by reference, or (iii) in the event
the unsatisfied condition is outside of Buyer’s control,
extending Closing until such condition is satisfied.
J.A. 28, 68.
From the summer of 2005 until November of that year, Toll
pursued the Special Exception through an Arlington County zoning
process known as the Form Based Code (“FBC”). Within the Columbia
2
This provision was later amended but Toll retained discretion.
J.A. 67.
5
Pike Special Revitalization District, properties may be developed
through either of two processes: the FBC process or the
traditional Site Plan Approval Procedure, which is governed by the
Arlington County Department of Community Planning, Housing and
Development Administrative Regulation 4.1 (generally, “4.1
process”). The FBC was developed as a streamlined alternative to
the 4.1 process; its goal is “to codify the community’s vision for
development and redevelopment in the Columbia Pike corridor of the
County.” J.A. 135. The FBC “addresses primarily the form of the
building, rather than just its usage.” J.A. 135. Once a
development is determined to meet the strictures of the FBC,
approval comes quickly; a submission may be processed in anywhere
from 45-60 days.
By contrast, the 4.1 application is more cumbersome: it
requires that the applicant produce a series of studies and
analyses, including, inter alia , a certified survey plat, a
Transportation Demand Management Plan, and a Tree Preservation
Plan. An administrative review period of 120 to 150 days is
required from the date the Arlington County Board (“the Board”)
accepts an application to the date the Board will consider the
application. Applications which include rezoning or vacation
requests that would necessitate changes to the elements of the
General Land Use Plan require a minimum of 150 to 180 days.
Prior to executing the contract, Toll had hired George Dove,
a local architect, to perform initial assessments of the
development prospects for the Litman site; it had also hired
6
Catherine Puskar, a local land use attorney. In late spring or
early summer of 2005, Dove, who had experience working on FBC
projects, undertook informal meetings with Arlington County staff,
including the County’s Deputy Zoning Administrator and Columbia
Pike Initiative Coordinator, Richard Tucker, with respect to the
Toll site. At those meetings, Tucker “did not object” to
conceptual plans regarding the Litman site, which were consistent
with other Dove-designed projects that had been approved under the
FBC. J.A. 135. These plans included occupiable residential
space in the building’s dormers. J.A. 591.
A series of changes in the acceptability of those plans
occurred throughout the fall. The first change involved the
building’s mezzanine level; Tucker informed Dove that because a
mezzanine was part of the first floor, it must meet the use
regulations for that floor - specifically, that the mezzanine must
be retail, and not residential, in nature. According to Dove,
Toll “changed the project accordingly and eliminated [the
mezzanine].” J.A. 572.
The second change, more pertinent to the instant case,
developed in stages and dealt with occupiable space in the
building’s dormers. At some point, the interpretation of the FBC
regarding dormers changed; originally, occupiable space - in the
form of a dormer - was considered appropriate “in order to
encourage varying roof lines.” J.A. 586. Tucker described
dormers as “additional occupiable space that’s available for the
developer to build.” J.A. 588. This interpretation clashed with
7
the FBC’s six-floor limit on developments. To comply with the
six-floor limit, developers could have individual units that were
two stories, with one floor within the unit being a dormer. The
dormer floor could have occupiable residential space, so long as
it was connected to the sixth-story unit and did not have its own
central stairway, hallway or elevator access. Dove referred to
these as “dormer duplexes” and presented the county with an
amended development plan; Tucker noted that the new plan “was, as
far as staff was concerned, acceptable.” J.A. 593.
Arlington citizens did not respond well to the “dormer
duplex” idea; in Tucker’s words, they “felt like six stories
should be six stories, and we shouldn’t have or encourage
development beyond that.” J.A. 587. The Board formed a working
group of citizens and developers to work through the dormer and
other issues; Litman was a member of the group. Throughout the
summer and fall, Tucker and his team formulated a staff report,
ultimately recommending that “dormer” be redefined to exclude all
non-ornamental uses. Tucker states that “by the October time
frame, [Toll] was aware that no occupiable space above the 6th
floor would be allowable.” J.A. 593. Catherine Puskar disputes
this; she claimed that because the Board eventually deferred
several other changes that it was examining at the same time as
the dormer issue, it was not until the official action was taken
at the November 15th board meeting that Toll realized it had lost
the dormer issue.
8
Puskar, Tucker and Dove were unanimous, however, in
describing the Board’s position on the dormer issue as fluid, or
evolving, throughout the fall of 2005. After the November 15th
board meeting, it would not have been possible for Toll to submit
an FBC application; the county simply would not accept
applications that were not in conformity with the code. At that
point, Puskar advised Toll that it should begin to pursue a
Special Exception through the 4.1 process. On December 1, Toll
set a January 2006 submission deadline for its 4.1 application.
On January 16, 2006, Toll submitted a preliminary Major Site
Plan Amendment to the department of planning. Although the
application was not complete, it was deemed “in the best shape, by
far, of any site plan application” that the county employee who
received it had ever checked in. J.A. 806. Litman wrote the
Zoning Administrator to consent to the filing of the application,
J.A. 807, and told Toll’s Vice President that he thought Toll was
“very smart” to pursue the 4.1 process, J.A. 871. In practice,
developers often submitted several rounds of submissions before an
application was deemed complete by the county; the county notified
Toll of several missing elements of the application, including a
Traffic Impact Analysis. Toll requested the traffic analysis in
January and received a completion estimate from the company of
four to six weeks; the field analysis was performed in February.
Toll’s application, which it submitted on March 17th, was deemed
complete and accepted by the county on April 24, 2006.
9
The following day, when it was clear that Toll could not
obtain the Special Exception in time for the May 12 closing date,
Litman sued in the Circuit Court for Arlington County Virginia,
seeking a declaratory judgment that the failure to obtain a
Special Exception within the time frame was within Toll’s control.3
The case was removed to the Eastern District of Virginia under
diversity jurisdiction, and after discovery the parties filed
cross-motions for summary judgment. The district court issued not
one but two decisions in the case; after a hearing on October 27,
2006, Judge Ellis denied Litman’s motion for summary judgment and
granted summary judgment in favor of Toll, carefully explaining
that the material facts were undisputed, that Toll had no control
over the county’s decision to change the FBC, and that the
question was whether Toll had acted unreasonably or in bad faith
in exercising its discretion under the Agreement, which the judge
found that it had not. J.A. 239-53. Judge Ellis nonetheless
invited Litman to file a motion for reconsideration; after another
hearing, the motion to reconsider was denied on similar grounds.
J.A. 323-41. The court’s final order granting Toll’s motion for
summary judgment was entered December 1, 2006, J.A. 350; Litman
noted a timely appeal. J.A. 351.
3
Toll nevertheless gave notice on May 15, 2006, that it sought
to extend the closing date under Section 16C(iii). J.A. 479-81.
It had previously notified Litman, in February 2006, that it was
“highly likely” that Toll would need to exercise its right to
extend the closing, and that Toll would “coordinate with [Litman]
as [it had] more information on the timing of the process for the
Special Exception.” J.A. 72.
10
The county held hearings on Toll’s 4.1 application in July
and a meeting in August; the application ultimately was denied on
October 24, 2006. Litman appealed the denial to the Arlington
County Circuit Court.
II.
The standard of review of a grant of summary judgment is de
novo. M & M Medical Supplies & Serv., Inc. v. Pleasant Valley
Hospital, Inc., 981 F.2d 160, 163 (4th Cir. 1992) (en banc). All
facts and inferences must be viewed in the light most favorable to
the non-moving party. Bank of Montreal v. Signet Bank, 193 F.3d
818, 826 (4th Cir. 1999).
III.
Under Virginia law, “where a contract is complete on its
face, is plain and unambiguous in its terms, the court is not at
liberty to search for its meaning beyond the instrument itself.”
Harris v. Woodrum, 350 S.E.2d 667, 669 (Va. App. 1986) (quoting
Berry v. Klinger, 300 S.E.2d 792, 796 (Va. 1983)). Courts must
be “justly prudent and careful in inferring covenants or promises,
lest they make the contract speak where it was intended to be
silent, or make it speak contrary to what, as may be gathered from
the whole terms and tenor of the contract, was the intention of
the parties.” So. Ry. Co. v. Franklin & Pittsylvania R.R. Co., 32
S.E. 485, 486 (Va. 1899). However, “what is necessarily implied
is as much a part of the instrument as if plainly expressed, and
11
will be enforced as such.” Pellegrin v. Pellegrin , 525 S.E.2d
611, 614 (Va. App. 2000) (quoting Va. Ry. & Power Co. v. Richmond,
106 S.E. 529, 539 (1921).
As the district court noted, the Agreement implicitly
requires Toll, before taking advantage of Section 16C(iii), to
file an application for a special exception. J.A. 246-47. In
Southern Railway, the Virginia Supreme Court determined that the
road lease at issue included the implied condition that the road
be maintained and operated during the entirety of the lease. 32
S.E. at 486. In so concluding, it observed that the other clauses
of the contract demanded such a construction; there would be no
“annual expenses of running the road, and of keeping it and the
equipment in repair, nor receipts to pay them, unless the road was
operated.” Id. at 487. Moreover, the lease imposed an obligation
to furnish rolling stock and equipment for the use and enjoyment
of the road, “and to use it was to operate the road.” Id.
Similarly, the language of the Agreement contemplates that,
should Toll wish to rely upon nonpossession of a Special Exception
as a condition of delaying closing, it must have applied for a
Special Exception. The language of 16A(iii) establishes the
“receipt by Buyer of final, unappealable Special Exception for the
Property” as a condition of closing. J.A. 28. Clearly, in order
for Toll to receive a zoning exception from the Arlington county
government, it must have applied for one. Indeed, the Agreement
contemplates that Toll may make just such an application - Section
15G as amended refers to seeking “(ii) a special exception for the
12
Property and/or (iii) any other government or other authorizations
Buyer deems necessary, in its sole discretion, to develop the
Property.” J.A. 67. The immediately succeeding section, 15H,
notes that “Buyer shall pursue the Approvals and permits necessary
for the satisfaction of the conditions to Closing at its sole cost
and expense.” J.A. 27.
Nowhere in the Agreement, however, is there a condition -
explicit or implicit - establishing a time frame within which Toll
would have to have filed an application for a Special Exception.
Nor is it apparent from the text that the parties intended to
impose such a time frame on Toll. Indeed, the “sole discretion”
language that appears in both the original and amended versions
of Section 15G seems to contradict any rigidity that Litman now
seeks to impose on Toll. J.A. 27, 67.
On appeal, Litman argues that the “time is of the essence”
clause meant that Toll was required to file its application by a
certain date. Litman proposes that although Toll may have had the
“sole discretion” as to “what it submitted and which governmental
approvals it could seek and accept,” the time-essence provision
“limit[ed] the when of any such submissions or requests.”
(Appellant’s Reply at 20.) We disagree. It is not reasonable
that a contract which purports to give Toll “sole discretion” to
act with regard to the seeking of a zoning exception would at the
same time impose external deadlines upon the company, essentially
requiring it to begin the 4.1 process even before it was clear the
FBC application could not succeed. As the district court noted,
13
“the contract says nothing about how or when Toll Brothers applies
for that [] authorization.” J.A. 248; see also J.A. 331-32.
Moreover, were Toll to have been successful in seeking an
exception under the FBC process, the 120 - 150 day deadlines to
which Litman refers would have been irrelevant.
We must next determine what standard applies to Toll’s
exercise of discretion under the Agreement. Toll’s discretion is
not unlimited; “a party may not exercise contractual discretion
in bad faith, even when such discretion is vested solely in that
party.” Virginia Vermiculite, Ltd. v. W.R. Grace & Co., 156 F.3d
535, 542 (4th Cir. 1998) (citing Steven J. Burton & Eric G.
Anderson, Contractual Good Faith 46-47 (1995) (“Thus, contractual
discretion is presumptively bridled by the law of contracts-by the
covenant of good faith implied in every contract.”)) Accordingly,
the determination becomes whether Toll acted reasonably, or in
4
good faith, in deciding to pursue a 4.1 application, and in
filing the application when it did. We conclude that it did.
Litman has attempted to portray the FBC’s position with
regard to the dormer issue as being increasingly negative; it
claims that Toll should have known in the summer of 2005 that the
County would not approve its design. Whether or not this
4
In discussing the standard of discretion to be applied to
Toll’s actions, the district court referred, alternately, to
“unreasonable[ness],” “bad faith” and “[abuse of] discretion.”
J.A. 249. We agree with the district court that “there is a
certain implicit discretion on the part of Toll Brothers to when
and how it applies [for the Special Exception],” J.A. 249, and
Toll’s behavior was acceptable regardless of which phrasing of the
standard is applied.
14
characterization is accurate, what is certain is that Dove’s
initial dormer plans were greeted warmly by Tucker in late
spring/early summer of 2005; that the citizen group’s feelings
about the dormer issue became stronger throughout the summer and
fall; and that despite the best efforts of Litman, among others,
the county disallowed occupiable dormer space under the FBC on
November 15, 2005. As the district court pointed out, “Litman
concedes that the decision to pursue the special exception through
the process at that time made sense.” J.A. 251. Right up until
the official change to the FBC, Litman and the working group
continued to discuss whether there was any way to meet the
community’s demands while providing Toll the project density it
needed. Indeed, as late as December 2005 - after the FBC had been
amended - Litman and Toll encouraged the county to consider a
“loft” level as an acceptable replacement for dormer space.
Emails from Litman to Puskar, Dove, and executives at Toll suggest
that the county took the suggestion seriously, J.A. 1168-72,
though it did not ultimately approve such a change.
Given the state of flux surrounding the dormer issue, Toll
cannot be said to have acted in bad faith in pursuing a special
exception under the FBC process until November 2005.5 The
5
It should also be noted that it was not unreasonable for Toll
to pursue a Special Exception via the FBC, instead of preparing a
4.1 application from the outset; Puskar points out that a “Special
Exception sought for the Property through a 4.1 Site Plan Amendment
application at the outset would have stood no chance at all, as the
FBC itself . . . was designed as the vehicle for redevelopment of
the Columbia Pike Corridor.” J.A. 844.
15
district court referred to the series of events leading up to
November thusly: “for a long time [obtaining approval under the
FBC] was possible. Then in November it became impossible, and
then [Toll] had to put together a new application.” J.A. 331.
The November 15th decision was the first official word from the
county that Toll’s proposed design would be unacceptable, and it
was after that date that Toll began to prepare its 4.1
application. The emails referenced above reveal that Toll pursued
its application even given Litman’s suggestion that lofts might
be an acceptable way to achieve the projected density.
Eight weeks expired between the county’s official revision of
the FBC and Toll’s initial 4.1 submission; Dove states, and Litman
does not dispute, that this was a very short period of time in
which to prepare such an application. According to William
Holmes, a Vice President of Toll, Richard Litman told him that he
thought Toll was “very smart” to file a 4.1 Site Plan Amendment,
because it would force the county to work with Toll on approval
of the initial plans. J.A. 871.
Litman also argues that Toll’s failure to obtain a traffic
impact analysis far enough in advance of the spring submission
deadlines is sufficient to raise a question of Toll’s bad faith.
It remains true, however, that under the 4.1 regulation, a traffic
impact analysis was not due until the final submission of the
application. Of course, had Toll been able to obtain an exception
under the shorter FBC process, a January 2006 request would have
provided ample time for the traffic analysis to be conducted.
16
Although it may have been more prudent for Toll to have requested
the traffic analysis when it first decided to pursue the 4.1
application, the fact that it did not do so is not evidence of bad
faith.
Finally, Litman claims that Toll knew that any 4.1
application that contained either residential mezzanines or
dormers would be denied by the county, and that Toll continued to
seek an exception under 4.1 solely to obtain this denial. Under
the amended Section 16C(ii), this would trigger Litman’s
obligation to return Toll’s deposit.6 The implication appears to
be that the contract obligated Toll to proceed to closing, even
at the cost of scaling back the initial profitability of the
project. This argument is undercut by the very terms of the
Agreement, which identified decisions concerning the Special
Exception as being within Toll’s “sole discretion” in both
Sections 15G, J.A. 67, and 16B, J.A. 28. Moreover, as the
district court observed, “Litman appealed . . . the Zoning Board’s
decision to deny Toll Brothers’ application, alleging that the
board acted in an unreasonable, arbitrary, capricious and
discriminatory manner when it denied Toll’s complete and
acceptable application.” J.A. 336.
The district court concluded that no reasonable jury could
find that Toll acted unreasonably or in bad faith. J.A. 333. In
so concluding, it noted that the parties had filed cross-motions
6
Indeed, Litman’s interest in retaining Toll’s deposit appears
to be a major reason for this litigation.
17
for summary judgment and that the facts were largely undisputed.
J.A. 332. We agree that there are no undisputed material facts,
and the mere fact that it may have been possible for Toll to act
more expeditiously is not sufficient to substantiate Litman’s
claims that Toll breached the Agreement.
IV.
For the foregoing reasons, the decision of the district court
granting summary judgment to Toll is affirmed.
AFFIRMED
18