Washington Metropolitan Area Transit Authority v.  Potomac Investment Properties, Incorporated

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 WASHINGTON METROPOLITAN AREA
TRANSIT AUTHORITY,
Plaintiff-Appellee,
v. No. 06-1187 
POTOMAC INVESTMENT PROPERTIES,
INCORPORATED,
Defendant-Appellant. 
Appeal from the United States District Court
for the District of Maryland, at Greenbelt.
Peter J. Messitte, District Judge.
(8:04-cv-01381-PJM)
Argued: October 24, 2006
Decided: February 1, 2007
Before WIDENER, KING, and SHEDD, Circuit Judges.
Affirmed by published opinion. Judge Widener wrote the opinion, in
which Judge King and Judge Shedd concurred.
COUNSEL
ARGUED: James Bradford McCullough, LERCH, EARLY &
BREWER, CHARTERED, Bethesda, Maryland, for Appellant.
Joseph John Zimmerman, WASHINGTON METROPOLITAN
AREA TRANSIT AUTHORITY, Office of General Counsel, Wash-
ington, D.C., for Appellee. ON BRIEF: Stanley J. Reed, LERCH,

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EARLY & BREWER, CHARTERED, Bethesda, Maryland, for
Appellant. Carol B. O’Keeffe, General Counsel, Edward J. Maginnis,
Associate General Counsel, WASHINGTON METROPOLITAN
AREA TRANSIT AUTHORITY, Office of General Counsel, Wash-
ington, D.C., for Appellee.
OPINION
WIDENER, Circuit Judge:
This is a contract case. Plaintiff WMATA sued the defendant Poto-
mac Investment Properties in the district court for the District of
Maryland asking for a declaratory judgment that the contract between
the parties has been fully performed and is no longer in force, an
order to quiet title in the disputed parcel of land, and in the alternative
for a rescission of the contract. The district court granted summary
judgment to the plaintiff, and the defendant appealed. We have juris-
diction under 28 U.S.C. § 1291.
I.
Washington Metropolitan Area Transit Authority is an agency and
instrumentality of the States of Maryland and Virginia and the District
of Columbia. The agency was created by interstate compact, approved
by Congress, and codified in Md. Code Ann. Transp. § 10-207. The
compact confers jurisdiction over lawsuits to which WMATA is a
party on United States District Courts. Md. Code Ann. Transp. § 10-
207, Art. 81. WMATA is a plaintiff-appellee in the present action.
Potomac Investment Properties (Potomac or Potomac Investment)
is a developer. Over the course of years, Potomac Investment and
WMATA variously contracted with respect to some of WMATA’s
property adjacent to WMATA’s Grosvenor-Strathmore station in
Montgomery County, Maryland. One of the agreements between the
parties with respect to the part of the property involved in this litiga-
tion was a Right of First Refusal Agreement. The First Refusal Agree-
ment gave preferential purchasing, leasing, and development rights to
Potomac Investment. The relevant parts of the agreement follow:
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1.2 Election to Purchase Lease or Develop. For a period of
ninety (90) days following date of Notice ("the Notice
Period"), Purchaser [Potomac Investment] shall have the
exclusive option to purchase, lease or develop the Subject
Interest specified in the Notice and Purchaser shall respond
to WMATA pursuant to the terms stated in the Notice. If
Purchaser elects to purchase, lease or develop the Subject
Interest, it must so notify WMATA in writing (the "Exercise
Notice") within said Notice Period. If Purchaser fails to send
an Exercise Notice within said 90-day period it shall be
deemed to have elected not to purchase, lease or develop the
Subject Interest. If Purchaser sends an Exercise Notice in
accordance with this Section 1.2, WMATA and Purchaser
shall promptly negotiate a Letter of Intent and thereafter
execute a Sales Agreement, Lease Agreement or Develop-
ment Agreement with respect to the North Parcel [the Sub-
ject Property] pursuant to the terms set forth in the Notice.
If the parties, acting in good faith, do not reach agreement
on the terms of a Sales Agreement, Lease Agreement or
Development Agreement within six months from the execu-
tion date of the Letter of Intent, this Right of First Refusal
shall become null and void.
1.3 Sale, Lease or Right to Develop to Third Party. If Pur-
chaser fails to exercise its right to purchase, lease or develop
the subject Interest in accordance with the terms of this
Agreement, or if Purchaser exercises its right to purchase,
lease or develop but subsequently fails to purchase, lease or
develop (via a development agreement) the Subject Interest
within the time specified, then WMATA shall have the
right, for nine (9) months after the expiration of the Notice
Period, to obtain a bona fide, binding contract for that sale,
lease or development of such Subject Interest to the third
party on terms and conditions consistent with the Notice
which are no less favorable to WMATA than those stated in
the Notice. . . .
1.4 Reinstatement of Right of First Refusal. In the event
WMATA fails within the time specified in Section 1.3 to
consummate such proposed sale, lease or development
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agreement, or if the terms of such proposed sale, lease or
development agreement shall be less favorable to WMATA
than those stated in the Notice, WMATA shall, prior to any
subsequent proposed sale, lease or development agreement
of the Subject Interest, be required to extend to the Pur-
chaser, and Purchaser shall have sixty (60) days within
which to enter into a sales, lease or development agreement
upon the same terms and conditions as WMATA has negoti-
ated with the third party.
J.A. 16-17.
On January 26, 2001, WMATA gave Potomac Investment written
notice that it intended to lease the property. On February 11, 2002,
WMATA and Potomac Investment signed a Letter of Intent. On May
23, 2003, the parties entered into a Ground Lease Agreement.1 The
lease has two provisions relevant to this litigation. Section 2.02 of that
lease states:
In accordance with the terms of this Lease, for sixty (60)
day period following the Effective Date, Tenant [Potomac
Investment] shall have a Study Period to conduct such tests,
investigations and/or studies as Tenant deems necessary or
desirable to evaluate the leased property (each, a "Study"
and, collectively, the "Studies"). . . . On or before the sixti-
eth (60th) day of the Study Period, and consistent with Sec-
tion 18.01, Tenant [Potomac Investment] may elect to
terminate this Lease for any reason, or no reason, in Ten-
ant’s sole discretion. Upon any such termination, the Secur-
ity Deposit shall be promptly returned to Tenant, subject to
Site Restoration, and WMATA and Tenant shall be released
from any further liabilities and obligations under this
Lease. . . .
J.A. 60 (emphasis added).
1Although the lease was a lengthy document of more than 90 pages,
the parties failed to agree on the fair market rental value and had that
issue arbitrated. J.A. 145-150.
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Section 18.01 provided that
If after concluding the Studies in accordance with Section
2.02 or after assessing the feasibility of the Project, Tenant
[Potomac Investment], in its sole discretion, shall have the
right to cancel this Lease by giving written notice to
WMATA. Cancellation of the Lease shall be effective the
date of such notice. WMATA shall promptly return the
Security Deposit to Tenant subject to Site Restoration and
neither party shall have any further obligation to the other,
except for obligations, such as indemnification, that
expressly survive termination.
J.A. 118 (emphasis added).
The effective date of the lease was October 25, 2003. On December
15, 2003, Potomac Investment informed WMATA that it was exercis-
ing its rights under Section 2.02(A) of the ground lease to terminate
the ground lease. J.A. 187 By the same letter, Potomac advised
WMATA that it "reserves all rights it has under the Right of First
Refusal Agreement. . . ." WMATA responded by a letter dated
December 15, 2003 that it believed that Potomac no longer had any
rights under the First Refusal Agreement or any further liability to
Potomac. On April 30, 2004, WMATA filed the present suit in the
district court seeking a declaratory judgment and an order to quiet title.2
Both parties moved for summary judgment. The district court
denied summary judgment to Potomac Investment and granted sum-
mary judgment to WMATA. Potomac Investment appealed.
On appeal, as it did below, Potomac Investment argues that by ter-
minating the lease agreement, it "failed to lease" the subject property
within the meaning of Section 1.3 of the First Refusal Agreement.
Consequently, according to Potomac Investment, it is entitled to the
2As an alternative remedy, in Count III, WMATA sought rescission of
the First Refusal Agreement to the extent that the court believed that
Potomac Investment retained any rights under that agreement. The dis-
trict court granted Potomac Investment’s motion to dismiss Count III on
March 8, 2005. This decision is not appealed.
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benefit of a reinstated right of first refusal under Section 1.4 of the
First Refusal Agreement.
II.
We review a district court’s grant of summary judgment de novo.
Xoom, Inc. v. Imageline, Inc., 323 F.3d 279, 282 (4th Cir. 2003).
The parties are in agreement that Maryland law governs this case.
"Under Maryland law, the interpretation of a contract, including the
determination of whether a contract is ambiguous, is a question of
law." Gresham v. Lumbermen’s Mut. Cas. Co., 404 F.3d 253, 260
(4th Cir. 2005) (internal quotations omitted).
A court faces a conceptually difficult task in deciding
whether to grant summary judgment on a matter of contract
interpretation. Only an unambiguous writing justifies sum-
mary judgment without resort to extrinsic evidence, and no
writing is unambiguous if susceptible to two reasonable
interpretations. The first step for a court asked to grant sum-
mary judgment based on a contract’s interpretation is, there-
fore, to determine whether, as a matter of law, the contract
is ambiguous or unambiguous on its face. If a court properly
determines that the contract is unambiguous on the disposi-
tive issue, it may then properly interpret the contract as a
matter of law and grant summary judgment because no
interpretive facts are in genuine issue. Even where a court,
however, determines as a matter of law that the contract is
ambiguous, it may yet examine evidence extrinsic to the
contract that is included in the summary judgment materials,
and, if the evidence is, as a matter of law, dispositive of the
interpretative issue, grant summary judgment on that basis.
If, however, resort to extrinsic evidence in the summary
judgment materials leaves genuine issues of fact respecting
the contract’s proper interpretation, summary judgment
must of course be refused and interpretation left to the trier
of fact.
Goodman v. Resolution Trust Corp., 7 F.3d 1123, 1126 (4th Cir.
1993) (internal citations and quotations omitted).
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Therefore, summary judgment is appropriate when the contract in
question is unambiguous or when an ambiguity can be definitively
resolved by reference to extrinsic evidence.
III.
Maryland follows "the principle of the objective interpretation of
contracts." Walker v. Dep’t of Human Res., 842 A.2d 53, 61 (Md.
2004). Thus, "[t]he purpose of contract interpretation is to determine
and effectuate the intent of the parties, and the primary source for
identifying this intent is the language of the contract itself." Gresham,
404 F.3d at 260.
Ultimately, the dispositive issue in the present case boils down to
the question of whether or not Potomac Investment actually leased the
subject property.
Potomac Investment argues that it merely entered into an agree-
ment to lease, but subsequently failed to actually lease the property
because it terminated the ground lease during the study period. There-
fore, according to Potomac Investment, a failure to actually lease
would trigger Section 1.3 of the First Refusal Agreement. Potomac
argues that Section 1.3 was triggered, and, accordingly, WMATA had
only nine months in which to negotiate with an alternate lessee. It
argues that upon the expiration of this period, Potomac would enjoy
a "reinstated right of first refusal" pursuant to Section 1.4 of the First
Refusal Agreement.
WMATA, on the other hand, argues that under the very terms of
the Ground Lease Agreement and by occupying the subject property
between October 25, 2003 and December 15, 2003, Potomac Invest-
ment did enter into a lease, thus completing the sequence of events
contemplated by Section 1.3 of the First Refusal Agreement. Accord-
ing to WMATA, the termination of the lease, and cancellation of the
remainder of the lease, is not a failure to lease the property, rather it
is a relief by Potomac Investment of long-term obligations consistent
with the lease. Thus, according to WMATA, the First Refusal Agree-
ment was performed and Potomac Investment retained no rights under
it.
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WMATA has the better of the argument. Under the terms of the
First Refusal Agreement, the following events needed to occur in
order for the agreement to be fulfilled:
1. WMATA giving notice to Potomac Investment that it
intends to lease the property; J.A.15
2. Potomac’s exercise of its option to lease (made within
90 days from WMATA’s notice); J.A.16
3. Signing of a letter of intent between WMATA and
Potomac Investment; J.A.16
4. A period of negotiations not exceeding 6 months culmi-
nating in J.A. 16
5. An agreement to lease. J.A.16
If all of these events occurred, the First Refusal Agreement had
been fully completed, and neither party had any remaining rights
under it. However, if steps (1)-(4) were completed, but step (5) did
not occur, then WMATA would have had nine months to negotiate
with another party and upon the expiration of those nine months,
Potomac Investment would have regained a reinstated right of first
refusal as specified in Section 1.4 of the First Refusal Agreement.
A reinstated right of first refusal under Section 1.4 of the First
Refusal Agreement, under the facts before us, would have occurred
when Potomac, having exercised its refusal right, failed to consum-
mate a lease agreement within six months after execution of the letter
of intent.
A.
The exercise of the right of first refusal to lease occurred when
Potomac Investment notified WMATA that it would like to enter into
the negotiations on the terms of WMATA’s offer. There is no dispute
but that Potomac exercised its right of first refusal and entered into
negotiations with WMATA. There is also no dispute but that these
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negotiations concluded with the signing of the ground lease agree-
ment. Potomac Investment, however, argues that it did not actually
lease the subject property and therefore is entitled to the reinstated
right of first refusal. That contention is without merit.
Our conclusion that the subject property was actually leased from
the date of the lease, and not from some future date is supported by
the rights conferred upon Potomac Investment by the lease agreement.
On October 25, 2003, WMATA delivered to Potomac possession of
the subject property "free and clear of any and all tenancies and occu-
pancies" as required by the lease. J.A. 141. As of that date, Potomac
enjoyed a right to quiet enjoyment of the estate as well as a right to
conduct whatever tests and studies it deemed appropriate. Potomac
was not a trespasser on the property and WMATA had no right or
authority (except insofar as provided for in the lease) to dispossess
Potomac of its estate had it wished to do so. This is the very definition
of a leasehold estate. Restatement (Second) of Property, for example,
lists the following requirements for the formation of landlord-tenant
relationship: (1) space having a fixed location, (2) transfer of the right
of possession, and (3) legal capacity of each party to enter into the
agreement. Restatement (Second) of Property §§ 1.1-1.3. Unquestion-
ably, all of the above requirements have been met, and therefore,
under the settled definition, Potomac did lease the subject property.
This is also illustrated by the cancellation provision § 18.01 in the
lease which Potomac cancelled. "Cancellation of the Lease shall be
effective the date of such notice." That notice was dated December
15, 2003, some 51 days after October 25, the effective date of the
lease. Thus, Potomac Investment occupied the property under the
lease for at least 51 days, proof positive of the existence of a lease.
B.
In the alternative, Potomac argues that the cancellation of the lease
within the 60-day study period was tantamount to the rescission of the
lease, and, therefore, Potomac cannot be deemed to have ever been
a lessee. This argument fails.
As an initial matter, the provision of the ground lease that allows
for cancellation interchangeably uses "cancellation" and "termina-
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tion." Thus, in context of the ground lease agreement "cancellation"
does not mean rescission, rather it means early, penalty-free termina-
tion of the agreement. Potomac relies on Guardian Life Ins. v. U.S.
Tower, 714 A.2d 204 (Md. Ct. Spec. App. 1998) in arguing that under
Maryland law, "cancellation" and "rescission" are legally identical. In
reaching this conclusion, Potomac misconstrues Guardian Life.
In Guardian Life, the court was not construing or defining the term
"cancellation." 714 A.2d at 210. Instead, the court considered
whether, as a matter of statutory construction, a provision in a Mary-
land insurance statute concerning "statutory cancellation" was
intended to be the equivalent of a rescission. Guardian Life, ante at
210 (emphasis added). The court there held that in the context before
it, the terms were synonymous. 714 A.2d at 210. The Maryland court
quoted the following definition of "rescission of contract:"
A ‘rescission’ amounts to the unmaking of a contract, or an
undoing of it from the beginning, and not merely a termina-
tion, . . .
Thus, while the court found that in the context of the statute at issue,
cancellation and rescission were synonymous, the court limited its
conclusion to the particular statutory language before it. Guardian
Life, ante at 210 ("Under section 387C, a party has ten days from
receipt of the policy to ‘cancel’ the policy. The words ‘cancel’ and
‘rescind,’ in this context, are synonymous.")(emphasis added). More-
over, the definition of "rescission" quoted by the court in reaching its
conclusion recognizes that while the terms "cancellation," "termina-
tion," and "rescission" are interrelated, they are not synonymous. In
all events, the very policy involved provided that if returned under the
statute, "The policy will be void from the beginning," 714 A.2d at
206, hardly a Maryland common law definition of rescission.
We thus conclude that the district court correctly held that Guard-
ian’s holding did not require a holding in this case that the ground
lease agreement had been rescinded.
Because the language of the contract is unambiguous; the plain
meaning of the terms "cancel" and "terminate" is simply "to end," and
not "to treat as if it never existed;" and because the meaning Potomac
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proffers is not supported by Maryland law, we conclude that Poto-
mac’s cancellation of the contract was not the legal equivalent of a
rescission. Thus, because the contract was terminated, and not
rescinded, we conclude and hold that the lease actually occurred
although its existence was only a matter of weeks.
Consequently, the conditions specified in the First Refusal Agree-
ment have been met. Both sides performed under that agreement and
no additional rights were retained by either party.
The judgment of the district court is accordingly
AFFIRMED.
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