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RECP IV WG Land Investors LLC v. Capital One Bank (USA), N.A.

Supreme Court of Virginia

April 5, 2018

RECP IV WG LAND INVESTORS LLC
v.
CAPITAL ONE BANK (USA), N.A.

          FROM THE CIRCUIT COURT OF FAIRFAX COUNTY John M. Tran, Judge

          PRESENT: Lemons, C.J., Goodwyn, McClanahan, Powell, Kelsey, and McCullough, JJ., and Koontz, S.J.

          OPINION

          ELIZABETH A. MCCLANAHAN JUDGE.

         This case involves a dispute over contractual provisions in a real estate purchase agreement ("Agreement") allocating future development rights for properties located near a new Metro rail station in Tysons Corner. Appellant RECP IV WG Land Investors LLC ("WG Land") is an assignee of certain rights of the seller under the Agreement and appellee Capital One Bank (USA), N.A. ("Capital One") is the assignee of the purchaser. WG Land challenges the circuit court's dismissal of its suit against Capital One instituted on allegations that Capital One breached the Agreement and certain related covenants by Capital One's development of the property acquired under the Agreement. WG Land also challenges the court's award of attorney's fees to Capital One. Concluding there is no reversible error in the judgment of the circuit court, we affirm.

         I.

         A.

         In 2000, WG Land's predecessor, West*Group Properties, LLC ("West*Group"), subdivided an office park ("Office Park Property") in the Tysons Corner area of Fairfax County and sold approximately 29 acres of the park ("Capital One Property") to Capital One's predecessor, Capital One Financial Corporation ("Capital One Financial"), pursuant to the terms of the Agreement and a related Supplemental Declaration and Restrictive Covenant ("Declaration"). At the time of the sale, the Office Park Property was subject to a numerical cap on the development density under Fairfax County's Comprehensive Plan by the allocation of a maximum amount of floor area ratio ("FAR") for the properties in that area. FAR is the relationship between the total amount of a building's usable floor area and the total area of the parcel upon which the building stands. For example, a FAR of 1.0 means the gross floor area of the building(s) must not exceed the area of the parcel, whereas a FAR of 2.0 means the gross floor area of the building(s) must not exceed twice the area of the parcel. Thus, with this cap on FAR in place, an allocation of more FAR for the Capital One Property meant that less FAR would be available for West*Group's remaining parcels, and vice versa. FAR is commonly expressed in square footage and using that formulation, as set forth in the Agreement and recorded Declaration, West*Group transferred 1.1 million square feet of FAR to Capital One Financial from the total amount of FAR allocated for the Office Park Property by the County.

         The parties included provisions in the Agreement and Declaration restricting Capital One Financial's use and development of the Capital One Property. An eight-year restriction on Capital One Financial's right to apply for additional FAR rights from the County was imposed. West*Group was also given the right to repurchase the Capital One Property if Capital One Financial sought to sell or lease it, including any FAR associated with it, within a ten-year period.

         Furthermore, because the parties anticipated that the Metro rail system's expansion would result in the County allowing more development density in the area, they included a specific mathematical formula ("FAR formula") to apportion between West*Group and Capital One Financial any additional FAR that might become "available" to the Capital One Property. Under this "shar[ing]" formula, Capital One Financial would receive the first 200, 000 square feet of such FAR and the remainder would be fractionally divided between the two parties. The Agreement in § 28.7(b) and the Declaration in 4 contain identical language in setting forth the FAR formula. Significantly, the FAR formula incorporated a portion of Fairfax County's 2000 Comprehensive Plan ("2000 Plan") entitled "Transit Station Areas, " which specified the expected fixed amount of FAR that would be available to properties located around a new Metro rail station in Tysons Corner such as the Capital One Property and neighboring properties. Pursuant to the 2000 Plan, the FAR for the Capital One Property would range from 1.0 to 1.5 within what the FAR formula referred to as the County's "Existing Metro Overlay" district.

         In 2010, West*Group assigned its rights under the Agreement and Declaration to WG Land and transferred to WG Land ownership of the remaining parcels comprising the Office Park Property. WG Land immediately assigned and transferred the same to various special purpose entities of which WG Land was the majority owner. Those entities subsequently assigned their intangible rights under the Agreement back to WG Land, including the right to receive a portion of new FAR allocated to the Capital One Property. But those entities did not transfer title to their respective properties. Thus, WG Land does not hold title to any of the neighboring properties benefited by the Declaration ("Neighboring Properties").

         Also in 2010, the County amended its Comprehensive Plan ("2010 Plan") with an "Amended Metro Overlay" district, which lifted the cap on FAR for properties located around the new Metro rail stations in Tysons Corner. More specifically, the Amended Metro Overlay provided that "[t]he highest intensities in Tysons should be built in areas closest to the Metro station entrance. . . . [T]he intensity of redevelopment projects within 1/4 mile of the Metro stations should be determined through the rezoning process; in other words, no individual site within these areas should be subject to a maximum FAR." (Emphasis added.) Such areas included the Capital One Property and the Neighboring Properties owned by the above-referenced special purpose entities.

         Capital One, as Capital One Financial's assignee and the owner of the Capital One Property, subsequently filed rezoning requests with the County for additional FAR, and in 2012 received approval to develop an additional 3.8 million square feet of FAR on the Capital One Property, which was then the location of Capital One's headquarters.[1] Capital One thereafter began construction in furtherance of its plans approved by the County to use this additional FAR for expansion of its corporate campus and other mixed-use development of the Capital One Property.

         B.

         WG Land, in 2015, filed suit against Capital One based on Capital One's use of its additional FAR rights acquired from the County. The special purpose entities holding title to the Neighboring Properties did not join the suit. WG Land alleged that additional FAR became "available" under the terms of the FAR formula as a result of Capital One's zoning requests, and that Capital One breached its obligations under the FAR formula in the Agreement and Declaration by developing the Capital One Property without allocating and conveying a portion of those FAR rights to WG Land. WG Land's complaint set forth three counts, all of which were based on this alleged breach of contract. In Count I, WG Land sought a declaratory judgment that the FAR allocations in the Agreement and Declaration were enforceable and Capital One's development activities violated the FAR formula governing those allocations. In Count II, WG Land sought a prohibitory injunction to preserve the status quo and a permanent injunction against the development of the Capital One Property in excess of the development rights granted under the Agreement and Declaration. In Count III, as an alternative to the injunction, WG Land sought $120 million in damages against Capital One for this alleged breach of the Agreement and Declaration.

         For its response, Capital One initially filed a demurrer and plea in bar. Capital One asserted in the demurrer, inter alia, that WG Land's request for declaratory judgment should be dismissed because WG Land was not simply requesting a declaration of the parties' rights and obligations. Rather, WG land sought a finding that Capital One had actually breached the Agreement and Declaration by failing to allocate and convey FAR rights to WG Land. Having thus alleged a claim that had "accrued and matured, " WG Land was not entitled to a declaratory judgment, Capital One argued.

         In support of the plea in bar, Capital One asserted as one of its principal defenses that the changes in the County Comprehensive Plan in 2010 with the removal of the FAR cap through an Amended Metro Overlay defeated the purpose of the FAR formula and rendered it impossible to perform. Capital One argued that with this removal of the cap on development density for the Capital One Property and the Neighboring Properties, there was no basis for the Neighboring Properties to secure from Capital One an extra share of what was previously a maximum amount of development density rights for the area. Moreover, Capital One argued, the removal of the cap made the equations in the FAR formula impossible to calculate in the absence of a set number for a maximum FAR. Thus, according to Capital One, its performance under the FAR formula was excused by the doctrine of impossibility, thereby barring WG Land's action against it.

         Capital One also asserted in its plea in bar that property ownership was a requirement under the FAR formula, which expressly provided that FAR may only be "conveyed, allocated or otherwise made available to [West*Group or its successors], for their use in connection with properties now or then owned by them in the area." Because WG Land did not hold title to any of the Neighboring Properties, Capital One argued, WG Land had no contractual right, i.e., standing, to seek enforcement of the FAR formula against Capital One, thereby presenting an additional bar to WG Land's action against it.

         The parties subsequently filed cross-motions for summary judgment on the issue of liability. As stated in WG Land's supporting memorandum, "[t]he parties agree that this case turns on the interpretation of [the Agreement and Declaration]" and that interpretation presents a "purely legal" issue "ripe for adjudication." Furthermore, WG Land asserted, "because [its] principal claims for declaratory and injunctive relief are equitable and do not depend on disputed issues of fact, there is no reason to proceed to a trial on the merits; rather summary judgment should be granted in [its] favor." According to WG Land, the FAR formula plainly provided that the "available" FAR should be determined by reference to actual development density Capital One received through a rezoning application, and not by reference to the development density available under the County Comprehensive Plan.

         Conversely, in support of its motion for summary judgment in regard to its interpretation of the FAR formula, Capital One reiterated the central argument supporting its plea in bar. Capital One again argued that the "available" density development under the FAR formula was expressly based on the maximum FAR available under the County Comprehensive Plan's Metro Overlay; and when the 2010 Plan removed the FAR cap through an Amended Metro Overlay, the FAR formula became impossible to calculate and perform.

         In further support of its motion for summary judgment, Capital One repeated the above-stated argument supporting its plea in bar that WG Land had no contractual right to enforce any of the rights or remedies under the Agreement or Declaration because WG Land was not a fee simple owner of the Neighboring Properties. Also, Capital One argued that WG Land's claim for damages was invalid because it was not based on any legally recognized theory of damages.[2]

         C.

         The circuit court issued a 26-page letter opinion in which it ultimately ruled in Capital One's favor on these dispositive motions and denied WG Land's motion for summary judgment. The opinion was later incorporated by reference into the final order.

         As a preliminary matter, the circuit court agreed with Capital One that WG Land, as a non-landowner, lacked standing to enforce the Declaration under Virginia law.[3] However, contrary to Capital One's assertions, the court ruled that WG Land had standing to enforce the Agreement as an assignee of West*Group.[4]

         Turning to the merits of the three counts in WG land's complaint, the circuit court first sustained Capital One's demurrer to WG Land's request for declaratory judgment under Count I. The court did so on the basis that, as alleged in the complaint, "Capital One has proceeded with development [of the Capital One property] under its interpretation of the [Agreement] and the rights of the parties have been fully invaded, " due to Capital One's alleged "wrongful retention of excess FAR" in the course of that development. Thus, the court concluded, WG Land was not entitled to declaratory judgment because its claims had "accrue[d] and mature[d]."

         The circuit court then sustained Capital One's plea in bar and granted its motion for summary judgment as to Counts II and III. The court ruled, as a matter of law, that WG Land had not established grounds for an injunction based on an alleged breach of contract under Count II, and had not established, in the alternative, grounds for a breach of contract and damage award under Count III. The court so ruled upon concluding that Capital One had not breached the FAR formula because it was impossible to calculate and perform.

         The circuit court framed the issue as follows:

Capital One argues that the [FAR] Formula is impossible to perform because the additional FAR available is infinity. WG Land argues that the actual number of FAR received in Capital One's Rezoning Application . . . is the "Additional Metro FAR Number." This issue turns on whether the phrase "If . . . additional FAR is ever available to the [Capital One] Property" means square footage made available due to a change in the FAR value (e.g., a change from a FAR of 1.5 to a FAR of 3.5 in a metro overlay), or the amount approved for development in a re-zoning application submitted to the County.

         Upon a plain reading of its terms, the court reasoned, the FAR formula was rendered impossible to perform when "the County eliminated the cap on FAR" in 2010 (for the first time) under the terms of an Amended Metro Overlay, which was incorporated into the FAR formula by reference. "[G]iven the now uncapped FAR associated with the Property, " the court determined, "the value of 'additional' FAR under the Formula is infinity, which is no longer a numerical value capable of being multiplied. As Capital One states, any number multiplied by infinity equals infinity." The court went on to explain that the FAR formula "depended on the existence of a fixed value of FAR. As the removal of the cap has rendered the Formula unworkable, Capital One is ...


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