State Ctr. v. Dep't of Gen. Servs.

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STATE CENTER, LLC, et al., v. DEPARTMENT OF GENERAL SERVICES, et al.

No. 2124-2022

Court of Special Appeals of Maryland

April 30, 2024

UNREPORTED ^[*]

Circuit Court for Baltimore City Case No. 24-C-16-006977

Berger, Arthur, Eyler, James R. (Senior Judge, Specially Assigned), JJ.

OPINION

ARTHUR, J.

This case involves another battle in the long-running dispute between the State of Maryland and the developer of the State Center project in Baltimore City.

The Circuit Court for Baltimore City directed the entry of partial summary judgment against the developer on 17 of the 35 counts in its counterclaim and third-party complaint. The developer moved for reconsideration of the decision on six of those 17 counts. The circuit court denied the motion for reconsideration, and the developer took this interlocutory appeal.

Because we lack appellate jurisdiction, we shall dismiss the appeal.

I. Background

A. The Request for Qualifications

In 2005, the Maryland Department of General Services ("DGS") envisioned developing a "transit-oriented, mixed-use community of office, retail, and residential space" to replace the aging State-owned buildings and parking facilities that covered more than 20 acres in midtown Baltimore City. Acting on behalf of the State of Maryland, DGS issued a request for qualifications from interested developers. State Center LLC ("the Developer") submitted the winning response, thereby earning the "exclusive initial right to negotiate" agreements with DGS to develop the property. The parties engaged in preliminary discussions before entering into a Master Development Agreement in June of 2009.^[1]

B. The Master Development Agreement

The Master Development Agreement ("MDA") outlined the process by which the State Center project would proceed. Under the MDA, the parties agreed that the project's development was contingent on many things, including the completion of an Approved Concept Plan. The parties also agreed that the project would be broken down into phases. The parties anticipated that, at each phase, they would enter a "phase ground lease," under which the State would lease the ground associated with the phase to the Developer. The phase ground leases would grant the Developer the right to develop the portions of the property associated with that phase. The Developer would own the buildings that it constructed during that phase and would lease space back to State agencies, among other tenants, by means of "occupancy leases."

In the MDA, the parties included a provision for what they called the Alternative Ground Lease ("AGL"). The AGL provision states that, if the parties fail to reach certain goals, including finalizing the phase ground leases and occupancy leases and agreeing to their terms, the Developer could tender an "AGL Notice." In the AGL notice, the Developer would propose a "general concept plan" that identified the parcel to be developed and the Developer's plans for development. If DGS did not find the AGL concept plan to be acceptable, it could purchase the Developer's development rights and terminate the MDA. In that event, the State would be required to reimburse the Developer for the "commercially reasonable costs" that it had "actually incurred" during a specified time period. The Developer describes the AGL provision as an "off-ramp" that allows it to recoup some of its investment if the project does not go forward to completion.

C. The Phase Ground Leases

The MDA repeatedly refers to the "Approved Concept Plan," which the State^[2]calls "the lynchpin of the project." Yet, as the parties negotiated the phase ground leases in 2009 and 2010, they had not yet reached agreement on the Approved Concept Plan.

On July 28, 2009, the Board of Public Works^[3] approved phase ground leases for two parcels: Parcel G, which would contain an underground parking garage that the State would own and largely finance; and Parcel I-2, on which the Developer would construct offices for two State agencies. Because the parties had yet to agree on the Approved Concept Plan, the phase ground leases stated that they were "holding lease[s]" and that the State would "not deliver possession" of the leased property until "the full execution and delivery of a Component Lease by DGS."^[4] Under the phase ground leases, the Developer had no obligation to pay rent "until the Commencement Date of the First Component Lease." If the component leases were not executed by a certain date (extended by the parties to December 1, 2016), the phase ground leases would be terminable at DGS's discretion.

In the Developer's words, the phase ground leases "provided that no one other than the Developer could be granted possession of the two parcels on which the Developer would be building." The State agrees that the phase ground leases "would preserve the Developer's role in the project and govern the parties as they contemplated their next steps."

Section 1.3.2 of each of the phase ground leases provides as follows:

Except for decisions of the [Board of Public Works] and except as specifically provided, any and all approvals, consents, permission or authorization contemplated in this Lease shall not be unreasonably withheld, delayed or conditioned and shall be subject to any reasonable conditions contained in the consent or approval given.

The parties executed the phase ground leases on September 1, 2009. The leases became effective on that date.

The phase ground leases did not convey any possessory interest in property. Nor did they convey any rights to receive rent from property.

D. The First Amendment to the MDA

On July 28, 2010, the day when the Board of Public Works approved the two phase ground leases, DGS and the Developer executed the First Amendment to the MDA. The Board of Public Works approved the amendment on that same day.

In the amendment, the parties agreed that the State would finance and construct the "Phase One garage," contributing up to $28.3 million to the project. The parties also agreed that the State "need not" close on the financing of the garage, commence the construction of the garage, or execute any component lease-the lease by which the State would deliver possession-until several conditions had been met.

These conditions included the parties' agreement upon and memorialization of all exhibits to the occupancy leases for the space that State agencies would lease in the buildings that the Developer planned to construct. The conditions also included the parties' agreement upon and memorialization of the "Outside Rental Commencement Date"-the date on which the tenant-agencies would be required to begin paying rent- and the collateral that would secure the liquidated damages that the State could pursue if the Developer's affiliate did not substantially complete the first phase in accordance with the terms of the document. And the conditions included Baltimore City's approval of a payment-in-lieu-of-taxes agreement, agreeable in form and substance to both parties, for the two parcels.

E. The Occupancy Leases

Also on July 28, 2010, the Board of Public Works approved what the Developer calls "occupancy leases" and the State calls "occupancy lease forms." Without taking sides in the dispute over nomenclature, we shall, in the interest of brevity, refer to those documents as the "occupancy leases."

The occupancy leases did not include various exhibits and addendums, did not specify when rental payments were to commence, did not name the agencies that were to be the prospective tenants, and were not signed by the prospective tenants. In the ensuing discussions between the parties, the Developer's lawyer asserted that these documents were "meaningless" without the addendum, supplement or amendment . . . that addresses such critical points as [Net Usable Square Footage], the absolute rent start date, excess fitup and fine-tuning of the DGS specs."

The occupancy leases provided that, once they had been executed, the tenant would be required to pay rent beginning on a date certain-the "Outside Rental Obligation Commencement Date"-even if the Developer had not completed the construction and could not deliver the premises. To protect the agencies in case of the Developer's delay, the occupancy leases gave the agencies the right to pursue a claim for liquidated damages in the amount of the rent that they had been required to pay. Under the leases, the Developer's obligation to pay liquidated damages must "be secured by other collateral acceptable to [the agency]," which was to be "memorialized" by the parties "in an appropriate document." The record contains no evidence that the parties ever agreed on or executed any such document.

F. The Supplements to the Occupancy Leases

On December 15, 2010, DGS and the Developer asked the Board of Public Works to approve supplements to the three occupancy leases that it had already approved, as well as a fourth occupancy lease. The supplements amended some of the terms of the documents that the Board of Public Works had previously approved, but did not finalize all of the terms.

On the afternoon before the Board of Public Works met to consider the documents, the Developer's attorney wrote that he "realize[d] that exhibits, and certain documents, w[ould] be finalized after BPW approval." He created a checklist identifying 18 categories of documents that needed to be finalized.^[5]

DGS's attorney responded that even if the Board approved the supplements and the fourth occupancy lease, "the project" would "remain contingent on the satisfactory completion of the various exhibits to the Occupancy and Component Leases, Garage financing, etc., as set out in those documents and/or the MDA as amended." (Emphasis in original.)

The...