FEDEQ DV004 LLC v. City of Portland

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FEDEQ DV004, LLC, et al., Plaintiffs, v. CITY OF PORTLAND, Defendant.

No. 2:22-cv-00187-JDL

United States District Court, D. Maine

March 31, 2024

ORDER ON DEFENDANT'S RENEWED MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM; DEFENDANT'S MOTION TO DISMISS/STAY PROCEEDINGS BASED ON FEDERAL ABSTENTION PLAINTIFFS' EMERGENCY MOTION FOR A PRELIMINARY INJUNCTION; AND PLAINTIFFS' MOTION FOR SANCTIONS

JON D LEVY, U.S. DISTRICT JUDGE.

This case concerns a public-private partnership to develop a mixed-use neighborhood in Portland, known as the “Midtown Project,” that would include residential buildings, retail space, and a parking garage. Plaintiffs FEDEQ DV004, LLC, and FEDEQ DV005, LLC, bring a twelve-count Complaint (ECF No. 1) against the City of Portland (“the City”) alleging nine state law claims sounding in contract and tort and three federal law claims all constitutional. The twelve counts arise from disputes involving a series of interrelated contracts between the parties about the Midtown Project. The City moves to dismiss the Complaint for failure to state a claim (ECF No. 33; the “Rule 12(b)(6) Motion”) and based on the doctrine of federal abstention (ECF No. 42; the “Abstention Motion”). Also pending are the Plaintiffs' Emergency Motion for a Preliminary Injunction (ECF No. 50) and Motion for Sanctions (ECF No. 53).

I. FACTUAL BACKGROUND

The following facts are drawn from the Complaint and attachments thereto. See Trans-Spec Truck Serv., Inc. v. Caterpillar, Inc., 524 F.3d 315, 321 (1st Cir. 2008) (“Exhibits attached to the complaint are properly considered part of the pleading ‘for all purposes,' including Rule 12(b)(6).” (quoting Fed.R.Civ.P. 10(c))). I treat the well-pleaded, non-conclusory factual allegations in the Complaint as true and draw all reasonable inferences therefrom in the Plaintiffs' favor. See Back Beach Neighbors Comm. v. Town of Rockport, 63 F.4th 126, 130 (1st Cir. 2023).

A. The Project Agreements

Throughout this Order, Plaintiffs FEDEQ DV004, LLC, and FEDEQ DV005, LLC, are referred to individually as “FEDEQ 04” and “FEDEQ 05,” respectively. This Order uses the term “Federated” to refer to FEDEQ 04 and FEDEQ 05 collectively, together with their predecessors in interest to the contracts underlying this dispute: The Federated Companies, LLC; Legacy Apartments, LLC; and FEDEQ DV001, LLC.^[1] Prior to 2011, the City acquired approximately three acres of land that it subdivided into seven parcels (collectively, the “Development Property”). In 2011, the City selected Federated to acquire the Development Property and convert it into a mixed-use neighborhood (the “Midtown Project”). Between 2011 and 2016, Federated entered into a series of contracts with the City related to the purchase, sale, and development of the Development Property and a subset of that property (“the Project Property”) (collectively, the “Project Agreements”).

Five contracts between the City and Federated comprise the Project Agreements: (1) the Purchase and Sales Agreement (“PSA”); (2) the Parking Garage Contribution and Funding Agreement (“Garage Agreement”); (3) the Somerset Street Agreement (“Somerset Agreement”); (4) the Corporate Guaranty Agreement (“Guaranty”); and (5) the Job Creation Agreement (“Jobs Agreement”).^[2] The table below identifies the effective date^[3] and the City's named contractual counterpart to each Project Agreement and their various amendments:

Agreement

Effective Date

The City's Contractual Counterpart (s)

Original Purchase and Sale Agreement (ECF No. 1-1)

06/23/2011

■ The Federated Companies, LLC

Parking Garage Contribution and Funding Agreement (ECF No. 1-2)

10/15/2012

■ Legacy Park Apartments, LLC

Job Creation Agreement (ECF No. 1-3)

10/15/2012

■ Legacy Park Apartments, LLC

Corporate Guaranty Agreement (ECF No. 1-4)

10/15/2012

■ Legacy Park Apartments, LLC

First Amendment to the PSA (ECF No. 1-5)

10/15/2012

■ Legacy Park Apartments, LLC^[4]

Second Amendment to the PSA, First Amendment to Guaranty, and First Amendment to Garage Agreement (ECF No. 1-6)

10/14/2014

■ Legacy Park Apartments, LLC

■ The Federated Companies, LLC

■ FEDEQ DV001, LLC

Somerset Street Agreement (ECF No. 1-7)

10/14/2014

■ FEDEQ DV001, LLC

Second Amendment to Guaranty (ECF No. 1-8)

02/02/2015

■ Legacy Park Apartments, LLC

■ The Federated Companies, LLC

■ FEDEQ DV001, LLC

Third Amendment to the PSA (ECF No. 1-9)

10/13/2015

■ FEDEQ DV001, LLC

Amended and Restated Third Amendment to the PSA (ECF No. 1-10)

02/22/2016

■ FEDEQ DV001, LLC

Second Amended and Restated Third Amendment to the PSA (ECF No. 1-11)

04/26/2016

■ FEDEQ DV001, LLC

Fourth Amendment to the PSA, Second Amendment to Garage Agreement, Third Amendment to Guaranty (ECF No. 1-12)

05/16/2016

■ FEDEQ DV001, LLC

■ Legacy Park Apartments, LLC (as Guarantor)

■ The Federated Companies, LLC (as Guarantor)

The last and operative versions of the Project Agreements relate to the purchase, sale, and development of the Project Property, which encompasses four of the seven Development Property parcels.^[5]

1. The PSA

Under the PSA, Federated owns the Project Property for the purpose of developing the Midtown Project. Section 6 of the PSA requires Federated to “obtain the permits and approvals . . . necessary or desirable” to develop the Midtown Project, including for a parking garage on Lot 6, and identifies the City as the subdivision applicant for the project. ECF No. 1-1 at 6. Section 8 of the PSA, on “Closing,” allows Federated, if it has not received a building permit before the closing date, to either terminate the PSA or agree to proceed to closing without said permit. Over the course of amending the PSA between 2011 and 2016, Federated and the City agreed to postpone the closing date various times and, ultimately, to June 16, 2016, in recognition that no building permit had issued.

2. The Somerset Agreement

The Somerset Agreement provides for the improvement of the public thoroughfare known as Somerset Street, which is adjacent to the Project Property.

Section 4 of the Somerset Agreement states:

The CONTRACTOR shall furnish to FEDEQ [DV001, LLC] and to the CITY OF PORTLAND, upon execution of the Contract, a Contract Performance Bond and a Contract Labor and Materials Payment Bond each for the full amount of the Contract and issue by a surety company or surety companies authorized to do business in the State of Maine and approved by the City of Portland.... The bonds described in this section shall be deemed to satisfy the performance guaranty requirements for the Project as required by section 14-501 of the City of Portland Code of Ordinances, and no further performance guaranty shall be required.

ECF No. 1 at 28-29, ¶ 179.

3. The Garage Agreement

Under the Garage Agreement, the City agreed to disburse over $9 million in grant funds, obtained in part through a loan from the U.S. Department of Housing and Urban Development (“HUD”), to Federated to build a parking garage (the “Garage”) on Lot 6 of the Project Property. Lot 6 and the Garage to be built on it are central components of the Midtown Project. Without Lot 6, the Midtown Project plans are “worthless.” ECF No. 1 at 20, ¶ 116.

4. The Guaranty

The Guaranty provides for certain guarantees by Federated related to the Midtown Project conditioned on receipt of grant funds from the City to build the Garage contemplated by the Garage Agreement.

5. The Jobs Agreement

Finally, under the Jobs Agreement, which conditionally transferred HUD's jobs creation requirements from the City to Federated, Federated agreed to create forty new full-time positions within two years of receiving a certificate of occupancy for the Garage in exchange for the $9 million in grant funds.

B. Assignment and Assumption Agreements

In addition to the Project Agreements, another set of contracts is relevant to the parties' dispute: the four assignment and assumption agreements transferring the buyer's rights under the PSA among the Plaintiffs' predecessors in interest and, ultimately, to the Plaintiffs. Under the PSA, the buyer has title to the Project Property, “all rights and privileges appurtenant to [the Project Property,] and all improvements located” thereon. ECF No. 1-1 at 2; see also ECF No. 1-12 at 3 (redefining “Land” under the Fourth Amended PSA to comprise four of the seven lots contemplated by the original PSA). Through the first assignment and assumption (ECF No. 1-5 at 7-8), dated June 27, 2011, The Federated Companies, LLC, assigned “all of [its] right, title and interest in, to and under” the PSA to Legacy Park Apartments, LLC (“Legacy”). ECF No. 1-5 at 7. The second assignment and assumption (ECF No. 1-6 at 8-10), dated October 14, 2014, transferred the rights, title, and interest under the PSA from Legacy to FEDEQ DV001, LLC (“FEDEQ 01”). All of the Project Agreements aside from the original PSA incorporate the first assignment and assumption, and all Project Agreements effective on or after October 14, 2014, either expressly or implicitly incorporate these first two assignment and assumption agreements.

Another two assignment and assumption agreements were signed on June 16, 2016, which was also the stated closing date in the last and operative version of the PSA. Under one agreement (ECF No. 73 at 72-73), FEDEQ 01 assigned and transferred “its right, title and interest in and to” Lot 6 of the Project Property to FEDEQ 04. The other agreement (ECF No. 73 at 74-75) transferred FEDEQ 01's rights, title, and interest in the remaining Project Property (Lots 1, 3, and 7) to FEDEQ 05.

C. Approvals and Permits

In or about 2014, the City conditionally approved Federated's initial plan for the Midtown Project. The 2014 Approval was administratively appealed, eventually resulting...