FRANCIS M. ALLEGRA, Judge.
This government contract case is before the court following trial in Washington, D.C. In this case, 5860 Chicago Ridge, LLC (Chicago Ridge or plaintiff) challenges a termination for default by the General Services Administration (GSA) of a lease of a building built to provide office space to the Internal Revenue Service (IRS). The lease was for ten years; the IRS left after less than four. It is undisputed that there were problems with the building in terms of leaks, as well as heating and air conditioning. The question is whether the degree, nature and repetition of these problems — as well as the inadequacy of plaintiff's response thereto — was such as to support the termination for default. The court holds that it was — that is to say, that defendant correctly terminated the lease in question for default. Nevertheless, defendant owes Chicago Ridge certain damages for deductions in lease payments that were improperly made.
Chicago Ridge is owned by Drew Ridge, LLC (Drew). Initially, the building was managed by a subsidiary of Drew, BCD Management, LLC. Effective May 5, 2005, however, Chicago Ridge hired Chicagoland Commercial (Chicagoland) to manage the property.
On July 26, 2002, GSA and Chicago Ridge entered into Lease No. GS-05B-17003 (the Lease), for a building to be constructed by Chicago Ridge at 5860 W. 111th St., Chicago, Illinois. The Lease was for a base term of ten years — from May 1, 2003 through April 30, —. The yearly base rent under the Lease was $536,475, payable by GSA at the rate of $44,706.25 per month in arrears.
The two-story building (the Building) was built according to GSA's specifications, with 17,250 rentable and 15,750 usable square feet on its first and second floors (assigning the government all of the occupiable space). The Lease specified a number of the Building's features. It required, for example, that it have a "brick veneer exterior" and a sloped roof, i.e., "a gable, shed or hip roof with a pitch of 3/12 or greater and with metal standing seam or asphalt shingle roofing." The Lease authorized GSA to review the owner's initial schematic drawings showing the footprint of the Building, including the proposed location of, inter alia, core elevators, stairwells and mechanical rooms. Subsequently, interior alterations to the space (i.e., the locations of walls and other tenant improvements) had to be made according to GSA's "approved design intent drawings;" Chicago Ridge had 180 days after receiving these drawing to make the necessary changes. GSA and IRS representatives periodically visited the Building during its construction. The Building passed all local inspections and Chicago Ridge received an unconditional certificate of occupancy for the Building. GSA accepted the Building after it was constructed and conducted a walk-through inspection of the Building before the IRS took possession and moved in on or about June 25, 2004.
A number of other provisions in the Lease are relevant here. Section 7.7 of the Lease stated that "[a]ll equipment and systems shall be maintained to provide reliable energy efficient service without unusual interruption, disturbing noises, exposure to fire or safety hazards, uncomfortable drafts, excessive air velocities, or unusual emissions of dirt." To amplify this point, the Lease incorporated, by reference, a number of FAR clauses. Among these was FAR § 552.270-6, Maintenance of Building and Premises — Right of Entry (SEP 1999), which states:
48 C.F.R. § 552.270-6. Another FAR clause incorporated into the Lease was General Clause 15, FAR § 552.270-10, which stated that —
48 C.F.R. § 552.270-10.
The Lease also included the standard disputes clause found at FAR § 52.233-1. In addition, it incorporated various remedy clauses. One of these, GSAR 552.270-25 (Jun 1994), stated:
Another potential remedy was provided by General Clause 16, the termination for default clause found in FAR § 552.270-22, Default by Lessor During the Term (SEP 1999), which provided:
48 C.F.R. § 552.270-22. The Lease did not contain a termination for convenience clause.
The parties agree that the FAR clauses incorporated in the Lease required Chicago Ridge to maintain the Building's roof in good repair and condition. In addition, section 4.7 of the Lease indicated that "[a]ll the windows shall be weather tight."
Yet, as reflected in a GSA inspection report, the IRS began experiencing problems with leaks in the Building beginning no later than November 19, 2004 — barely five months after it began its occupancy. The leaks tended to arise in certain parts of the Building, primarily on the second floor. The following chart summarizes the record evidence concerning the areas of the Building that were affected, the times when the leaks occurred, and the severity of the leaks encountered:
Several observations about this chart are in order: The chart reflects seventy-five instances of some form of leakage — thirty-seven of which involve some degree of water dripping into occupied space, with the rest involving wet or stained ceiling tiles. Setting aside complaints in which the specific areas leaking were not identified, it appears that in the three years and eight months that the IRS occupied the Building, leaks, in varying degrees, occurred in at least eight units, the break room and two halls. Three common areas — the northwest and northeast halls, as well as the break room — account for one-third of the complaints (25 of 75), while one of those offices (#214) alone accounts for twenty percent of the complaints (15 of 75).
A variety of other facts about the leaks can be distilled from the record and are relevant here. While at no point did major portions of the roof ever fail, some of the leaks encountered were significant. A color-coded map, found in the appendix to this opinion, shows the areas of the second floor that were affected by the leaks, as well as the nature and frequency of the leaks encountered. That map reveals that, over the IRS's period of occupancy, nearly half of the offices on the perimeter of the second floor experienced some form of leakage, with the offices of IRS managers (which, not surprisingly, had windows) disproportionately affected. The most significant of these leaks occurred in the northeast quadrant of the Building, directly underneath the heating, ventilation and air conditioning (HVAC) unit on the roof (also known as the Roof Top Unit or RTU). These leaks affected not only individual offices,
At least initially, the leaks did not correlate with any obvious weather patterns, i.e., they did not occur only when it rained or snowed. Eventually, Chicago Ridge postulated that some of the leaks were not the result of water infiltrating from the roof, but rather occurred when condensation formed on the underside of the roof over some of the untempered suspended ceiling areas and the water then dripped down. Occurrences of the latter phenomenon were believed to be more dependent upon the ambient outside temperature than on the presence of natural precipitation.
Each round of leaks was followed by attempts by Chicago Ridge to remedy the problems.
In early December of 2006, Chicago Ridge hired a contractor which replaced the curb around the roof-top HVAC unit. In February of 2007, Chicago Ridge concluded that the other leaks had masked a faulty architectural design that had given rise to the condensation problem discussed above.
The Building was never closed entirely because of leaks. Many, but not all, of the leaks appeared to stop in the latter part of August of 2007, approximately five months before the IRS permanently vacated the Building. However, the problems involving Ms. Prophet's office were unrelated to the other problems experienced with the roof and related to a grout issue in the expansion joint above a window. This problem was not diagnosed and solved until after the Building was vacated in 2008. Although it repeatedly threatened to do so, GSA never invoked the portions of the Lease that would have allowed them to take over the leak repair work themselves.
Section 6.7(a) of the Lease stated that "[t]emperatures shall conform to local commercial equivalent temperature levels and operating practices in order to maximize tenant satisfaction," adding that "[t]hese temperatures must be maintained throughout the leased premises and service areas, regardless of outside temperatures, during the hours of operation specified in the lease." The CO considered the Building Owners and Managers Association (BOMA) standards, specifically American Society of Heating, Refrigeration and Air Conditioning Engineers (ASHRAE) Standard 55, to be the commercial equivalent temperature levels and operating practices applicable to the Building. The ASHRAE temperature range is 68 to 74 degrees in winter and 73 to 79 degrees in summer.
From November 29, 2004 to August 2, 2007, there were 71 temperature-related employee complaint (ERC) tickets — some complaining that temperatures were too hot; others that they were too cold. The following chart summarizes these complaints:
Only about a third of these complaints — twenty-five, to be precise — listed specific temperatures that were outside the ASHRAE range discussed above. It is unclear how these temperatures were measured. Some may have been estimates. Other readings may have come from a variety of sources, including: (i) thermometers provided by the IRS; (ii) control boxes attached to the HVAC central unit; or (iii) thermometers brought from home by the IRS employees. GSA records reflect that all of these tickets were closed, meaning that at some point the complaints were deemed resolved. Still other temperature-related complaints (not reflected in the chart above) were made by the IRS employees and their managers using emails and other communications that did not cause a formal ticket to be opened.
A few of these complaints plainly were bona fide. For example, the Building was closed on November 26 and November 29, 2004, because temperatures were too low; at least some IRS employees also left the Building on December 28, 2004, for the same reason. On other days, such as January 14, 2005, there were multiple complaints indicating that temperatures were far below the ASHRAE range. To deal with the low temperatures in the Building during such days, Chicagoland officials instructed their maintenance crews to set up space heaters. On January 25, 2005, the local chapter of the National Treasury Employees Union filed a grievance relating to the temperature in the Building. Nevertheless, it appears that other tickets and complaints may have overstated the conditions being encountered, i.e., that a given complaint reflected the temperature tastes of the individuals involved and did not necessarily reflect a temperature outside the ASHRAE range discussed above. Moreover, as the chart above reveals, three employees accounted for more than third of all the tickets filed; just six accounted for more than half the tickets filed.
Throughout the period in question, GSA inexplicably failed to conduct systematic tests to confirm how many of these complaints were bona fide or otherwise to document the fluctuations of temperature inside the Building — even though GSA had the technology (e.g., temperature/ humidity data loggers) to conduct such studies. According to defendant's HVAC expert, given the volume of complaints received, GSA's failure to perform a temperature study did not accord with industry practice.
As with the leaks, Chicago Ridge responded to these HVAC complaints by hiring a series of contractors and consultants.
On June 6, 2006, GSA sent Chicago Ridge a cure letter regarding the water leakage and HVAC issues at the Building. In a letter dated August 16, 2006, the GSA contracting officer (the CO) summarized the problems with leakage and HVAC, asserting that "[t]his building is not in compliance with the lease." She indicated that if the leak problems were not remedied by August 23, 2006, GSA would begin reducing the rent payments. On August 18, 2006, Chicagoland responded to this letter indicating that it was awaiting a report from RIS and would address "the findings of the report in a timely manner." In an email dated August 24, 2006, GSA, responding to a leakage event reported by the IRS that day,
Prompted by still more leaks that arose in the early part of October, GSA sent Chicago Ridge a letter on October 6, 2006, demanding that it "show cause why the Government should not default the contract" in the form of a "plan of corrective action."
As reflected in the chart above, the leaks continued through the winter of 2007, with various emails documenting exchanges between Chicago Ridge and GSA regarding these events. One of those exchanges occurred on February 20, 2007, when IRS, GSA and Chicagoland representatives walking through the Building witnessed water-soaked carpeting, water stains on the walls, and wallpaper peeling from the walls. On April 5, 2007, Chicago Ridge provided GSA with the "short term plan" that GSA had previously requested. On April 27, 2007, GSA sent Chicago Ridge a letter "regarding the continuing water leakage issues at the IRS Leased facility located in Chicago Ridge, Illinois." This letter summarized the leakage problems from the inception of the Lease through April of 2007. The letter stated that this was the "FINAL warning before you will be declared in default of the lease" and then quoted the default termination clause in the Lease. (Emphasis in original.) The letter stated that "[a]t this point, the only remedy to resolve this prolonged issue. . . is the complete remediation of the water leakage that MUST be resolved by May 11, 2007."
On May 4, 2007, GSA issued a pre-solicitation notice for a new space.
On August 30, 2007, GSA entered into a lease for reprocurement premises — the Orland Square Professional Center, built in 2007, and located in Orland Park, Illinois. The IRS remained in the Building through January 2008 — nine months after the Lease was terminated and sixteen months after the IRS made the decision to leave the Building.
On September 20, 2007, plaintiff filed a complaint in this court with three counts: (i) breach of contract and failure to comply with applicable regulations resulting from GSA's failure to give Chicago Ridge proper notice and opportunity to cure; (ii) unjustified termination for a non-material default; and (iii) the arbitrary and capricious termination of the Lease for default by the CO. In its answer, filed December 19, 2007, defendant pled constructive eviction as an affirmative defense. On September 2, 2009, plaintiff filed a second suit seeking to recover on a claim of $2,855,146 that had been denied by the CO; on September 25, 2009, the court consolidated that suit with this case. After discovery closed in this case, on December 22, 2010, defendant filed its second amended answer, in which it asserted two compulsory counterclaims. First, defendant sought the $734,919.63 demanded by the CO on February 22, 2010, as the government's reprocurement costs for this Lease. That sum reflects the difference in rent between the Chicago Ridge lease and the subsequent Orland Park lease, as well as the administrative costs of the reprocurement. Second, defendant sought $88,827.22 for GSA's alleged overpayment of real estate taxes and payment of unused tenant improvements.
Trial in this case was held in Washington, D.C. from April 5-7, 2011, with closing arguments delivered after post-trial briefing on October 6, 2011. Subsequent to these arguments, the parties each filed color-coded diagrams showing the alleged leaks at the Building during plaintiff's occupancy. Those charts have been revised and combined to create the chart found in the appendix.
Default termination is a "drastic sanction." J.D. Hedin Constr. Co. v. United States, 408 F.2d 424, 431 (Ct. Cl. 1969) (citing Schlesinger v. United States, 390 F.2d 702, 709 (Ct. Cl. 1968)). It is "a species of forfeiture" — "a remedy to which the Government should not lightly resort." Decker & Co. v. West, 76 F.3d 1573, 1580 (Fed. Cir. 1996); see also DeVito v. United States, 413 F.2d 1147, 1153 (Ct. Cl. 1969) ("default terminations — as a species of forfeiture — are strictly construed"); Becho, Inc. v. United States, 47 Fed. Cl. 595, 600 (2000). "[T]he proper interpretation of the default provision," nevertheless, "should strike a balance between the judicial aversion to default terminations and the fact that `the Government, just as any other party, is entitled to receive that for which it contracted." McDonnell Douglas Corp. v. United States, 323 F.3d 1006, 1015 (Fed. Cir. 2003) (quoting Cascade Pac. Int'l v. United States, 773 F.2d 287, 291 (Fed. Cir. 1985)).
When a contractor challenges a default termination, the government bears the burden of establishing the validity of the termination. See Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 765 (Fed. Cir. 1987); see also Aptus Co. v. United States, 61 Fed. Cl. 638, 646 (2004) ("When a contractor challenges the government's default termination of his contract, the government bears the burden of proof as to the propriety of said termination."). The government, therefore, must establish that the default termination was based on "good grounds and on solid evidence." J.D. Hedin Constr. Co., 408 F.2d at 431; see also McDonald Douglas Corp., 323 F.3d at 1016; Moreland Corp. v. United States, 76 Fed. Cl. 268, 284 (2007); Becho Inc., 47 Fed. Cl. at 600. As this court recently observed, "[t]hese principles apply with equal force where the Government has terminated a lease." Moreland, 76 Fed. Cl. at 284.
The answer is — it depends. No case answers this question definitively for all types of cases. That said, there is little doubt that the United States, like any other contracting partner, has the right to enforce the terms of its contracts. As such, a sound argument exists that defendant is obliged to demonstrate only that a failure to perform arose that warranted, under the relevant contract clauses, a termination for default and need not show, in addition, that the failure amounted to a "material breach." The Federal Circuit indicated this in Kelso v. Kirk Bros. Mechanical Contractors, Inc., 16 F.3d 1173 (Fed. Cir. 1994). At issue there was whether the contractor's failure to maintain pay records as required by the "Payrolls and Basic Records" clause of the contract warranted a termination for default. The contract's "Termination/ Debarment" clause warned that noncompliance with this payroll clause constituted grounds for termination for default. Notwithstanding, the Armed Services Board of Contract Appeals held that the failure to maintain pay records was not grounds for termination because it appeared that the contractor's failures to maintain those records were "inadvertent." The Federal Circuit reversed. It held that even though the recordkeeping requirements were "not related to contract performance," they were "not mere technicalities" and "as incorporated into strict contract terms, bind a contractor." 16 F.3d at 1176. As such, it concluded, the contractor's failure to comply with these standards "may justify a default termination." Id. Importantly, in reaching this conclusion, the Federal Circuit "did not discuss, or even mention, the material breach requirement." Ralph C. Nash & John Cibinic, "Default Termination for Failure to Comply with `Other Provisions:' Requiring Contractors to Do the Complete Job," 8 No. 4 Nash & Cibinic Rep. ¶ 24 (1994).
Kelso thus stands for the proposition that defendant may terminate a contract for default based upon the specific terms of the contract, even if the failure giving rise to that default is not a "material breach" under the common law. While, under this rule, the provision whose violation gives rise to the default may not be a mere technicality, the breach itself need not be "material," in the sense that it represents a failure of consideration. Support for this view may be found in cases, like Kelso, that have sustained terminations based upon specific default clauses in a contract, with no discussion about whether the failure also constituted a "material breach."
Accordingly, the burden of proof placed on defendant in a given case depends upon the particular contract clause involved and, specifically, whether thereunder the default arises from: (i) a failure to perform a contract requirement enumerated in the default provision (as was the case in Kelso); or (ii) a failure to perform one of the "other provisions" in the contract. Cibinic & Nash, "Default Termination for Failure to Comply with `Other Provisions," supra. In the former instance, defendant need not show that the failure constituted a material breach; in the latter, it must show that the breach was material.
This conclusion makes particular sense given the anomalous consequences that would flow if plaintiff's contrary position were adopted. Except as modified by statute or regulation, the "rights and duties" contained in a government contract "are governed generally by the law applicable to contracts between private individuals." Lynch v. United States, 292 U.S. 571, 579 (1934); see also United States v. Winstar Corp., 518 U.S. 839, 887 (1996). This is a two-way street: while the United States is "as much bound by [its] contracts as are individuals," The Sinking Fund Cases, 99 U.S. 700, 719 (1879), so too the United States "has rights . . . similar to those of individuals who are parties to such instruments." Perry v. United States, 294 U.S. 330, 352 (1935); see also Maxima Corp. v. United States, 847 F.2d 1549, 1552 (Fed. Cir. 1988). On the latter count, it is well-accepted that defendant may, via the common law, abandon a contract if its contracting partner commits a material breach.
Often, then, determining whether a termination is appropriate is a two-stage process: First, the court examines whether defendant has demonstrated that the default was proper under clauses in the contract providing for specific events of default. If defendant makes such a showing, the liability phase of the case ends. If it does not or cannot, the focus shifts to whether the contractor's failure to perform constituted a material breach, so as to excuse defendant's abandonment of the contract under either a generic "other provisions" default clause or under the common law.
So the first question here is whether a specific provision in the Lease authorized the termination. The default termination clause in the Lease listed two events that could be viewed as default by plaintiff: (i) the failure to maintain, repair, operate or service the premises as and when specified in this lease, provided any such failure remained uncured for a period of thirty (30) days after plaintiff's receipt of cure notice; or (ii) the repeated and unexcused failure by plaintiff to comply with one or more requirements of the Lease even if one or all of those failures were timely cured. Defendant claims that its termination of the Lease for default was authorized by both of these clauses.
Turning to the first of these provisions, it might appear, at first blush, that the termination here was improper because of lack of notice. That provision states that a default occurs where the failure "shall remain uncured for a period of thirty (30) days" after the Lessor received a "notice thereof from the Contracting Officer . . ." Here, however, the CO gave plaintiff only two weeks to cure the alleged default. At trial, she conceded this was an error. Indeed, it is well-accepted that "the termination of [a] contract by defendant without giving the plaintiff the [specified] written notice as required by the . . . contract constitute[s] a wrongful termination of the contract." Bailey Specialized Bldgs., Inc. v. United States, 404 F.2d 355, 363 (Ct. Cl. 1968); see also Kisco Co., Inc. v. United States, 610 F.2d 742, 751 (Ct. Cl. 1979); DeVito, 413 F.2d at 1154-55; NCLN20, Inc. v. United States, 99 Fed. Cl. 734, 755 (2011); Composite Laminates, Inc. v. United States, 27 Fed. Cl. 310, 317 (1992).
But, there are important exceptions to this rule. Among them is the concept that where a contractor renounces performance or indicates an inability or unwillingness to cure, the cure period need not be honored. See, e.g., Kennedy v. United States, 164 Ct. Cl. 507, 539-40 (1964); Zoda v. United States, 180 F.Supp. 419, 424 (Ct. Cl. 1960).
Under this first provision, a default arose when the lessor failed to maintain, repair, operate or service the premises as and when specified in the Lease. Like the one at issue in Kelso, this provision is one that lists specific events of default. Accordingly, defendant may demonstrate that this provision was triggered without showing that plaintiff's conduct effectuated a material breach of the contract.
There is no debate that the requirement to repair and maintain the Building was a key and material requirement of the Lease. The parties, however, dispute the magnitude (and corresponding impact) of plaintiff's failures to perform this requirement. While defendant claims that these failures occurred in several different areas involving maintenance and repair, it principally focuses upon two: (i) plaintiff's failure to address serious leaks that hampered the Building; and (ii) its failure to address various problems experienced with respect to the Building's heating and air conditioning. The court will consider these matters seriatim.
Throughout its nearly four-year occupancy that ended in February of 2008, the IRS was plagued by persistent and recurring roof leaks, as well as water seepage from an improperly sealed window. Prior to the default termination, in fact, there were at least thirty-six recorded instances of leaking water in the Building, twenty-five of which occurred in the year leading up to the default termination. The accompanying timeline, which lists the date and essential nature of the leaks, provides a sense of the periodicity of these events:
(A full-page version of this graphic also appears in the appendix to this opinion). As can be seen, the problems experienced by the IRS reached a crescendo in April of 2007, shortly before the decision was made to send plaintiff a cure notice.
Of course, this timeline only begins to tell the story of the impact that these leaks had on the IRS. For one thing, the entries on the timeline tend to understate the problem: they sometimes correspond to multiple leaks experienced on a given day or to leaks continuing over more than one day (e.g., the five leaks that occurred on April 24-25, 2007). Moreover, while this graphic roughly distinguishes between stained tiles and minor leaks (depicted in green) and more significant leaks (depicted in blue), this color-coding captures neither the full magnitude of the leaks nor their impact on the IRS personnel affected. A second graphic, the color-coded map that is attached to this opinion, helps to paint more of that picture, showing that the leaks affected nearly one out of two occupied offices on the perimeter of the second floor, and disproportionately impacted the supervisor offices that were located on those outer walls.
So how bad were these leaks? To be sure, some of them were minor and only resulted in discolored ceiling tiles. Others, however, caused major disruptions, impacting significant areas of the second floor, including common areas, like hallways and the break room. These major leaks created, at times, a soggy mess — water running down walls and puddling on desks; soaked ceiling tiles that sometimes bulged and, in other instances, collapsed; wide circles of saturated carpeting fed by water from ceiling leaks; and, as might be expected in an office building, wet desks and equipment. The repeated leaks caused some IRS personnel to move — some temporarily, others for longer periods. In other instances, IRS employees had to relocate their computers and furniture to other parts of their relatively small offices to escape the water hazards. Hours accumulated into days as IRS and GSA employees were forced to deal with these leaks instead of doing their assigned work — forced to use waste paper baskets, trash bins and, in one instance, shower curtains, to catch dripping water; shifting equipment around and among offices to escape damage; placing plastic over computers and other electrical equipment; and responding to many dozens of service calls. These leaks created what at least appeared to be unsafe working conditions — with water leaking down through light fixtures and the damp conditions causing at least one instance of mold.
In the court's view, the cumulative effect of these many irregularities deprived defendant of a critical aspect of the Lease — the safe and reliable work environment for which it bargained in the contract.
In response to this litany, plaintiff boldly asserts that it should not be held responsible because it did all that it could to address the leak problem. The record indicates otherwise.
Surely, plaintiff made a great number of attempts to repair the leaks in the Building. But, that number, in a sense, is damning, for it hints at what the rest of the record demonstrates: that plaintiff's efforts were often untimely, unsystematic, incomplete and, not surprisingly, ineffective. During the less than four years the IRS occupied the Building, plaintiff hired at least eight different contractors to analyze and repair the roof. Of course, one reason this succession occurred is because the leaks persisted. Another reason is because the firms hired by Chicago Ridge were mostly not up to the tasks at hand. Defendant's expert on building envelopes, Niklas Vigener, convincingly testified about these points. He thoroughly discredited the notion that there were any inherent flaws in the design of the roof, demonstrating that proper execution of the GSA-approved design by a qualified contractor would have prevented any leaking. Reviewing, in detail, the initial construction of the roof, as well as the subsequent repairs made thereto, he identified and explained various shortcomings in Chicago Ridge's management of the process, including, in particular, its failure to conduct a full investigation into the sources of the leaks and its correlative tendency to approach repairs on a piecemeal basis. He also testified that most of the firms plaintiff hired were general contractors or otherwise ill-trained to investigate and address the specialized problems presented by the roof of the Building.
The record confirms Mr. Vigener's view. For example, it reveals that the problems in Ms. Prophet's office were visible to the naked eye — an email from a GSA property manager indicates that daylight could be seen through a seam in her wall — yet were not repaired until the IRS vacated the Building in 2008. The record also corroborates that early efforts to repair the roof were not preceded by adequate study of why the roof was failing — leading to a series of half-measures and patches that did not work because they failed to address the fundamental issues associated with the roof design, particularly the placement and drainage around the roof-top HVAC unit. A numbing repetition of leaking, patching, testing, and premature declarations of success — followed by more leaking, patching, testing, etc., played over and over again, like a broken record. Moreover, when plaintiff was presented with comprehensive solutions, it hesitated. Such was the case with early proposals to rechannel the water around the roof-top HVAC unit and to install insulation under the roof to deal with the condensation problem — proposals that were not pursued well after they were first proposed. Chicago Ridge, moreover, did not offer up the possibility of replacing the entire roof until it was staring down at GSA's cure notice. And, indeed, Chicago Ridge never followed through on this replacement — notable because plaintiff's successor in ownership, upon further investigating the problems with the roof, discovered an improperly sealed vent that led it to install an entirely new roof on the Building. At which point, tellingly, the leaks stopped.
But, to a certain extent, this discussion misses the point: for the relevant clauses in the Lease did not merely command plaintiff's diligence in responding to the Building's leaks; they demanded an effective response that would stop the leaks. Defendant did not contract only for plaintiff's best efforts — it leased a building that was not supposed to leak in a way that, over a period of years, impaired the IRS' ability to use the premises for their intended purposes. That is the contract plaintiff signed and the one to which it must be held. Accordingly, even if plaintiff believes that it deserves an "A" for effort (a debatable point, to be sure), it definitely earns an "F" for effectiveness, at least when measured in terms of meeting the contract's requirement that the Building be kept in "good repair," so as not to disrupt defendant's "occupancy, possession, use and enjoyment of the premises." Because of this, defendant was within its rights in terminating the Lease for default.
In arguing to the contrary, plaintiff makes several flawed assertions. The first is a repetition of its banner claim that, to prove the termination was proper under the Lease terms, defendant must show that the leaks served to render the Building untenantable. But, as has been demonstrated, defendant need not prove that the IRS was constructively evicted in order for this court to conclude that the termination for default here was proper.
Plaintiff's next faulty premise is that defendant was required to exercise less severe remedies under the Lease, such as repairing the roof on its own, before it could invoke the default clause. But, nothing in the Lease establishes such an absolute hierarchy of remedies. Per contra. The clause that authorized the repair remedy emphasized flexibility, stating that the remedies listed therein "are not exclusive and are in addition to any other remedies which may be available under this lease or at law." Of course, GSA did invoke — albeit unsuccessfully — the other remedy provided by this same clause, namely, the rent reductions. Certainly, nothing in the decisional law required defendant to cycle up through every lesser remedy in the Lease before it could declare a default. See Union Chem. Co., 85-3 B.C.A. ¶18,489 (1985); see also Washington Dev. Group-JWB, LLC v. Gen. Serv. Admin., 03-2 B.C.A. ¶ 32,319 (2003). As was said in another case involving a leaky roof, "[w]ere we to hold [that defendant had an obligation to repair the roof], we would be requiring the Government to give up a right it had bargained for, namely, the right to have the premises maintained by lesser." Kwok, 90-1 B.C.A. ¶ 22,292. Nor is plaintiff remotely correct suggesting that because GSA elected to pursue one remedy, i.e., rent reductions, it could not pursue a default unless the leaks worsened. This forbearance argument is akin to a waiver argument typically made — and rejected — in default cases. See Olson Plumbing & Heating Co. v. United States, 602 F.2d 950, 955 (Ct. Cl. 1979) (government did not waive right to terminate for default when it first assessed liquidated damages); Indemnity Ins. Co. of N. Am. v. United States, 14 Cl. Ct. 219, 224-25 (1988) (same); see also Pelliccia v. United States, 525 F.2d 1035, 1043 (Ct. Cl. 1975); DeVito, 413 F.2d at 1153-54.
Finally, plaintiff argues that while each failure to stop a leak was technically a default, these failures neither individually nor collectively constitute a substantial failure to perform the requirements of the contract, so as to warrant a default termination. This argument might be more persuasive were this case about a single leak, or perhaps a scattering of leaks that occurred over years. But, this case involves nearly six dozens leaks or sets of leaks that occurred repeatedly over more than three years — many at the same locations and with significant consequences to the Building's occupants. It is the accumulated impact of these leaks that leads the court to conclude that plaintiff failed to repair and maintain the Building in the fashion anticipated by the Lease. As was said by this court in Cervetto Building Maintenance Co. v. United States, 2 Cl. Ct. 299 (1983), in upholding the government's termination of a janitorial services contract —
Id. at 301; see also Mut. Maint., Inc., 91-1 B.C.A. ¶ 23,287 (1990) ("although it would not be appropriate to terminate for default a contract of this nature for minor instances of inadequate performance, a high level of aggregate deficiencies may eventually justify such action"); Pulley Ambulance, 84-3 B.C.A. ¶ 17,655 (1984); C.S. Smith Training, Inc., 83-1 B.C.A. ¶ 16,301 (1983); Cibinic, Nash & Nagle, supra, at 903. Contrary to plaintiff's claims, under the Lease, the IRS and GSA were not obliged to suffer through a full ten years of leaks that plainly disrupted the IRS' operations simply because no one instance of those leaks was serious enough to drive the IRS from the Building.
In sum, the court finds that the extensive problems that defendant experienced with leaks in the Building, and plaintiff's ineffective response thereto, constituted a failure to maintain, repair, operate or service the premises as and when specified in this Lease, thereby authorizing defendant to terminate the Lease for default.
Although both GSA and IRS had previously complained about the HVAC system in the Building, the notice of default sent by GSA to Chicago Ridge did not cite this problem. However, as noted above, the court may sustain a default termination based on "the circumstances that existed at the time of termination," regardless of whether that reason was listed in either the cure notice or termination decision. See Empire Energy Mgmt. Sys., Inc. v. Roche, 362 F.3d 1343, 1357 (Fed. Cir. 2004); Kelso, 16 F.3d at 1175; Joseph Morton Co., 757 F.2d at 1277. Accordingly, the court may consider the impact that the problems with the HVAC system had on defendant's decision to terminate the Lease for default.
The Lease contains several HVAC performance requirements, among them section 6.7(a), which required that "[t]emperatures shall conform to local commercial equivalent temperature levels." It is essentially undisputed that the phrase "local commercial equivalent temperature levels" refers to ASHRAE Standard 55, which requires temperatures in the heating season to range from 68 degrees to 74 degrees and in the cooling season to range from 73 degrees to 79 degrees.
The record contains numerous complaints from GSA and IRS personnel regarding the temperatures experienced in the Building, including seventy-one separate maintenance tickets that were filed between November 2004 and August 2007 complaining of temperatures that were either too hot or too cold. Some of those complaints plainly reflect temperatures that did not conform to the ASHRAE standard and thus were outside the range specified in the Lease. Plaintiff, for example, does not contest that, on November 26, 2004, and December 28, 2004, many IRS employees were sent home because temperatures on the second floor dipped below 62 degrees. Nor does it deny that on other days in January of 2005 the temperatures in the Building were well below the ASHRAE standard. Indeed, during this month, Chicagoland employees set up space heaters in the Building to counteract the lack of heat. Claims that the Building was too cold during this period are also corroborated by the grievance filed by the local chapter of the National Treasury Employees Union on January 25, 2005. The question, though, is not whether the Building was too hot or cold in 2004 or 2005, but whether the temperature problems persisted until May of 2007, the time of the termination decision. Defendant has not shown adequately that the latter is the case.
For one thing, unlike with the leaks, the evidence suggests that Chicago Ridge changed the HVAC system in a way that appears to have significantly addressed the problems that were previously experienced. Thus, the number of complaints about the HVAC system dropped precipitously beginning in December of 2005, when Chicago Ridge purchased and began adding to the HVAC system thirteen perimeter in-line duct heaters. True, there were further complaints after this installation and before the default termination in 2007. But, unlike for the period prior to December of 2005, defendant has not shown that any significant degree of these claims actually correspond to temperatures that were outside the ranges specified in the Lease. Indeed, only three of the eleven temperature-related tickets filed in the first four months of 2007 — all filed by the same individual in the first week of February — actually list a temperature outside the acceptable Lease range. There is no indication in the record how these temperatures were measured and thus no way to know whether the claims were accurate.
Accordingly, the court concludes that defendant has not shown that plaintiff's handling of the temperature issues in the Building constituted a further failure under the Lease that supports the termination for default.
Via its counterclaim, defendant seeks excess reprocurement costs in the amount of $280,962, the wide majority of which relates to relocation expenses ($172,215) and the cost differential between the lease at plaintiff's building and that at Orland Park, the building to which the IRS moved when it left the Building.
"[E]xcess reprocurement costs may be imposed only when the Government meets its burden of persuasion that the following conditions (factual determinations) are met: (1) the reprocured supplies are the same as or similar to those involved in the termination; (2) the Government actually incurred excess costs; and (3) the Government acted reasonably to minimize the excess costs resulting from the default." Cascade Pac. Int'l, 773 F.2d at 293-94; see also Armour of Am. v. United States, 96 Fed. Cl. 726, 759 (2011). If defendant sustains its burden, the burden then shifts to the plaintiff for rebuttal. See Seaboard Lumber Co. v. United States, 308 F.3d 1283, 1300-01 (Fed. Cir. 2002).
Under the first prong of this test, that the reprocured item is "the same or similar to those involved in the termination," the court must compare "the item reprocured with the item specified in the original contract." Cascade Pac. Int'l, 773 F.2d at 294; see also Lassiter v. United States, 60 Fed. Cl. 265, 271 (2004). As used in this context, the word "similar" means "similar in physical and mechanical characteristics as well as functional purpose." Armour of Am., 96 Fed. Cl. at 760 (quoting Envtl. Tectonics Corp., 78-1 B.C.A. ¶ 12,986 (1978)).
The record suggests that the Building and the Orland Park building leased under the reprocurement are materially different. First, at GSA's request, all the critical documents regarding the procurement that resulted in the selection of Orland Park specifically indicated that the facility had to be a "Class A" building, signaling the highest quality of buildings in the market. By comparison, the Chicago Ridge solicitation documents did not require that the facility be a "Class A" building, but stated instead only that "[o]ffers must be for space located in a quality building of sound and substantial construction." Plaintiff's expert on this topic, Gary DeClark, a professional real estate appraiser, testified that the Building, in fact, was not a Class A property. Mr. DeClark also testified that there were substantial differences between the neighborhoods in which the two buildings in question were located, with the neighborhood around Orlando Park having more desirable features, including being closer to more restaurants, services and a major mall.
Defendant's expert on reprocurement costs, Ms. Redding, is also an appraiser and presumably could have provided detailed opinions regarding the comparability of the two buildings at issue. But, she did not, instead limiting her testimony on this point to calculating the different costs between the two leases. For that purpose, Ms. Redding did not adjust her calculations to take into account differences in the quality of the buildings, but merely made adjustments to account for the fact that the Orland Park had more rented square footage than the Building.
In regards to the relocation costs, defendant also failed, in the court's estimation, to show, with adequate proof, "what it spent in reprocurement." Cascade Pac. Int'l, 773 F.2d at 294. Under this factor, defendant must not only provide proof of the expenses it incurred as a result of the default termination, but must also "demonstrate the propriety of such costs." Rhocon Constructors, 91-1 B.C.A. ¶ 23,308 (1990). To determine the relocation expenses, Ms. Redding started with GSA's reimbursable work authorization and supposedly reconciled that document with invoices and payment slips for the period between November 29, 2007, and March 25, 2008. She then removed a few expenditures to arrive at a figure of $172,215. While Ms. Redding attached to her various reports the various invoices she used in making her calculations, neither she nor any other of defendant's witness analyzed those invoices to determine whether, and to what extent, the costs reflected therein were necessary for the relocation. Rather, Ms. Redding simply presumed that all the "moving" costs identified by GSA and the IRS that were incurred between November 29, 2007 and March 25, 2008, were appropriately recovered. But, the law in this regard requires proof, not blithe assumptions.
Finally, to establish that it was entitled to reprocurement costs, defendant had to prove that it had obtained the new building and associated moving costs at a "reasonable price" and had otherwise mitigated its losses. Cascade Pac. Int'l, 773 F.2d at 294; see also Astro-Space Labs., Inc. v. United States, 470 F.2d 1003, 1018 (Ct. Cl. 1972). But, defendant provided no corroboration of the reasonableness of the rents it agreed to pay at Orland Park. In particular, it offered no explanation as to why those rents varied so dramatically over the term of the lease — beginning at $650,000 per year, then going up to $719,797 in the third year of the lease, only to then drop off dramatically to $507,000 in the final two option years of the lease. As compared to the $546,307 flat annual rent provided in the Lease, the highest rent for Orland Park thus was twenty-two percent higher, but the lowest rent was ten percent lower. Further complicating this picture, the only witness to testify for defendant on this issue, the afore-mentioned Ms. Redding, again testified that a reasonable market rent for Chicago Ridge at the time of default was $24.00 per square foot — a figure considerably lower than the figure paid by GSA for the first three years of the Orland Park lease. Accordingly, if, as defendant contends, the two properties are the same or similar, there is indication that the rent paid by GSA for Orland Park was excessive.
Likewise, defendant provided insufficient evidence as to the reasonableness of the relocation expenses that it seeks. In this regard, Ms. Redding admitted that she and her staff did not examine the individual expenses to exclude items that were not properly includible in damages. She also admitted that they did not get "market based fluid costs" to determine whether those expenditures were actually reasonable. In these circumstances, the expenses in question are not recoverable. Where, as here, the request for reprocurement costs contains "no independent assessment" of reasonableness, any attempt by the court to determine the actual value of the reprocured work on the basis of the evidence before it would be pure speculation." PBI Elec. Corp. v. United States, 17 Cl. Ct. 128, 140 (1989). Contrary to defendant's intimations, the court will not assume that the prices paid by defendant for the moving expenses and, for that matter, the lease at Orland Park were reasonable simply because those items were procured via a government procurement process. See Armour of Am., 96 Fed. Cl. at 762; CJP Contractors, 45 Fed. Cl. 345, 385-86 (1999). Concluding otherwise would essentially drop the reasonableness inquiry out of the reprocurement cost analysis because all items and services reprocured by defendant necessarily occur in the context of some aspect of the government procurement process and, in defendant's view, would, therefore, be reasonable, per se.
Defendant failed to provide any significant evidence to substantiate the remaining three components of its reprocurement costs — $19,549.42 for tenant improvements at the Building, and $8,675 for tenant improvements and $59,794 in a tax credit for Orland Park.
The first charge derives from the contention that defendant paid $30,867.50 for tenant improvements to be used over the ten years of the Lease, but only enjoyed those improvements for three years and eight months. Defendant thus claims that it should be entitled to a ratable refund ($30,867.50 x 63.33 percent (unexpired Lease term) = $19,549.42). There are a number of problems with this claim. For one thing, the record fails to document adequately what these improvements were, suggesting only that these amounts corresponded to electrical work (phone and data outlets), supplemental air conditioning, mini-blinds, and signage. Nothing in the record suggests the useful life of these improvements — defendant merely presumes that they would last for the entire ten-year term of the Lease and thus that the "lost" portion of their cost should be recouped. Wholly apart from this, neither the CO's decision nor anything else in the record identifies the Lease provision that authorizes this recoupment. And there is a good reason for this — as there is no such provision. Rather, the Lease deals with this subject by providing that GSA could remove certain tenant improvements upon the termination of the Lease. No explanation has been provided as to why that did not happen here. Under these circumstances, the court is unwilling to permit defendant to recover these costs.
As for the latter two costs ($8,675 for tenant improvements and $59,794 in a tax credit), the record reveals very little beyond the fact that these amounts were paid with respect to Orland Park. Attachments to Ms. Redding's expert report indicate that the tenant improvements were for "HVAC, Front Doors Saturday, Dr. Signage." Nothing in the record or in defendant's briefs explains why these costs were somehow chargeable as a cost related to the default termination. Further attachments to Ms. Redding's report suggest that the tax credit arose from negotiations between GSA and the owner of Orland Park. Again, though, no clear explanation has been given as to why this credit is chargeable to Chicago Ridge.
Accordingly, based upon the record, the court finds that defendant has failed to establish that it was entitled to any excess reprocurement costs.
Another issue in this case involves the propriety of the rent reductions that GSA effectuated beginning in August of 2006. As the accompanying chart reveals, these deductions had two components, one corresponding to the rent associated with the square footage effected by leaks, and the other, an administrative charge:
Plaintiff challenges both components. It claims that the overall rent reductions were improper because GSA deducted amounts for workspaces that were not abandoned because of the Building's leakage problems. Alternatively, it claims that if the deductions are proper at all, they should be reduced: (i) to reflect the exact number of days that IRS personnel were unable to use the affected space; and (ii) to eliminate the administrative costs.
The Lease incorporated, by reference, FAR § 552.270-10, Failure in Performance, which gave defendant at least two options "[i]n the event of any failure by the Lessor to provide any service, utility, maintenance, repair or replacement required under the lease." Under the first of these options, defendant was authorized "by contract or otherwise," to "perform the requirement and deduct from any payment or payments under this lease, then or thereafter due, the resulting cost to the Government, including all administrative costs." Under the second option, defendant could "deduct from any payment under this lease, then or thereafter due, an amount which reflects the reduced value of the contract requirement not performed." It was this second option that defendant invoked when it began to make rent deductions in August of 2006.
In the court's view, the amount of rent deducted by GSA reasonably corresponded to the reduced value of the Lease resulting from plaintiff's repeated failure to remedy the leaks. In arguing that defendant should be limited to deducting the amount of rent that corresponded to the exact days that IRS personnel were unable to use the affected space, plaintiff again seeks to reintroduce into this case concepts associated with the doctrine of constructive eviction. The provision in question, however, does not condition the use of rent reductions on given portions of the space becoming untenantable. Rather, they allowed GSA to deduct the "reduced value of the contract requirement not performed." Given the serious nature of the problems experienced, the reduction for the square footage associated with four offices represented a fair, if not conservative, approximation of the value of the requirement not performed, particularly since GSA did not also deduct for the square footage of the common space that was affected by the leaks, such as the Northeast and Northwest Hallways of the second floor of the Building.
The same cannot be said, however, of the deduction that GSA made for administrative costs. There are several problems with this deduction. Most importantly, it does not appear to be authorized by the Lease. Unlike the provision which authorized GSA to deduct the cost of performing a given requirement under the Lease, the provision that authorized rent reductions did not authorize GSA to deduct "all administrative costs." In the court's view, the absence of this language cannot be viewed as incidental and must be construed to indicate that administrative costs are not recoverable as reductions in the Lease payments. Moreover, assuming arguendo, that the administrative costs are recoverable, defendant has presented no evidence that shows that the administrative costs GSA and IRS experienced with respect to the leakage problems approximated the $3,332.52 per month that GSA deducted from the rent. When asked about this calculation at trial, the CO essentially admitted that she lacked the records that would allow her to estimate accurately the administrative costs incurred by GSA and IRS officials in dealing with the leak problems. Unlike other contracts, the Lease did not authorize the imposition of liquidated damages — and defendant could not impose the equivalent of such a remedy by slapping an arbitrary fee onto its rent reductions, even if the CO was justifiably frustrated by the continuation of the leaks. Accordingly, the court finds that GSA improperly deducted administrative costs from its monthly rent payments during the period from September 2006 through February 2008. Plaintiff thus is entitled to recover $59,985.36, plus appropriate interest, on this count of its complaint.
The Lease contained a series of provisions essentially requiring GSA to make payments designed to offset any increase in property taxes owed by plaintiff as time progressed. The parties disagree as to whether defendant paid the amounts appropriately owed under these clauses, with plaintiff claiming that it is owed reimbursement for taxes and defendant asserting that it overpaid these taxes.
Clause 1.16 of the Lease provided that "[t]he Government shall make a single annual lump sum payment to the Lessor for its share of any increase in real estate taxes during the lease term over the amount established as the base year taxes." For this purpose, "base year taxes" were defined as "the real estate taxes for the first twelve (12) month period coincident with full assessment, or may be an amount negotiated by the parties that reflects an agreed upon base for a fully assessed value of the property." Under this provision, a "full assessment" occurred when "the taxing jurisdiction has considered all contemplated improvements to the assessed property in the valuation of the same," adding that "[p]artial assessments for newly constructed projects or for projects under construction, conversion, or renovation will not be used for establishing the Government's base year for taxes." Finally, under this provision, Chicago Ridge was required to provide the CO with all notices and evidence of payment relating to the taxes, including all tax bills. And, indeed, the provision repeated several times that defendant would not make any tax payments were this documentation not provided to the CO. Finally, the provision indicated that "[i]f the lease terminates before the end of a tax year, payment for the tax increase due as a result of this section for the tax year will be prorated based on the number of days the Government occupied the space."
The Building was completed and occupied in mid-2004. The following chart summarizes the tax payments that were made by Chicago Ridge and defendant over the term of the IRS' occupancy of the Building.
Defendant contends that the first "full assessment" of the property did not occur until it was fully occupied in 2005 and that defendant, therefore, should not have reimbursed Chicago Ridge for any tax increase in 2006. Thereafter, in defendant's view, the base year tax should have been $157,793.49 (the assessment for 2005), not $116,245.38 (the assessment for 2004). By defendant's calculations, it should not have paid Chicago Ridge $88,796.86, as it owed only $20,519.06 for the entire term of occupancy.
The parties did not negotiate an amount to reflect the base year taxes for the fully assessed property. Therefore, the "base year taxes" are the real estate taxes for "the first twelve-month period coincident with full assessment." Sixth and E Assocs., LLC v. Gen. Serv. Admin., 09-2 B.C.A. ¶ 34,179 (2009). So when was the "full assessment" here? Defendant assumes, for this purpose, that the first "full assessment" of the property did not occur until January 1, 2005, because, prior to that date, the assessed value of the Building reflected an "occupancy factor" of 43.0 to 45.2 percent. But, defendant fails to explain how this occupancy factor worked, either in terms of its impact on the assessed value of the Building or on the calculation of the tax owed thereon.
How the occupancy factor worked could be important here. The mismatching of the figures listed above raises questions as to whether the "occupancy factor" temporarily reduced the assessed value of the property or was some form of a rebate that reduced the amount of tax that was owed thereon. Several cases suggest this could make a difference under a clause like the one found in the Lease. See Bradley v. S.S. Kresge Co., 214 F.2d 692, 694 (7th Cir. 1954) (suggesting that a different result might occur under a tax escalation clause depending upon whether a tax increase was involved); Design Studio Int'l, Inc. v. Chicago Title & Trust Co., 541 N.E.2d 1166, 1169-70 (Ill. App. 1989) (same). The record indicates that the assessed value of the property jumped from $462,983 in 2004 to $671,599 in 2005 — an increase that again does not correlate to the occupancy factor percentage, i.e., $462,983 is not 43 percent of $671,599 ($288,787.57 is). The Lease says nothing about an assessment not being "full" if the taxing jurisdiction reduces the assessment or tax rate for low occupancy, but rather states that an assessment is "full" if it reflects "all [the] contemplated improvements to the assessed property" and is not a "[p]artial assessment for newly constructed projects."
At least one interpretation of this clause suggests that the first "full assessment" of the Building occurred some time in 2004, at which point the twelve-month period in the tax clause was triggered. But, that is not how defendant calculated the overpayment that it claims is due; instead, defendant assumes that no taxes were owed by defendant until 2007. Plaintiff's parsing of these same provisions also comes up short. It assumes that the taxes for 2004 represented a "full assessment," triggering a significant tax payment by defendant in 2006. But, without more evidence, it would appear that a portion of the 2004 assessment likely related to the value of the Building before it was completed in May of 2004. And, if that is true, neither the $462,983 assessed value of the Building for 2004, nor the $116,245.38 in taxes paid thereon, correspond to a "full assessment" that reflected "all [the] contemplated improvements to the assessed property." In short, neither of the figures supplied by the parties can serve as the "base year" upon which further tax payments owed by defendant are calculated under the Lease.
Logic suggests that the amount of taxes properly charged to defendant lies somewhere in between the two amounts the parties claim — more than what defendant claims, but less than what plaintiff seeks. Without knowing more about the calculation of the property tax here and how the occupancy factor affected that calculation, the court is in no position to determine whether the amount defendant has already paid is greater or lower than what it should have paid. Contrary to what may be the parties' expectations, the court will not engage in an exercise of guesswork here. While mathematical exactitude is not required in determining damages, see Franconia Assocs. v. United States, 61 Fed. Cl. 718, 746 (2004), any recovery here must "be met by evidence and judicial findings, not by guesswork, or assumptions, or `judicial knowledge' of crucially relevant facts, or by unproved probabilities or possibilities." Daniel v. Paul, 395 U.S. 298, 309-310 (1969) (Black, J. dissenting); see also Penn. R. Co. v. Chamberlain, 288 U.S. 333, 342-43 (1933). These are boundaries the court cannot transgress. As such, the court finds that neither party has sustained its burden of proof on this issue.
Perspective is a highly underrated commodity. Capturing that sentiment, Will Rogers, the cowboy philosopher, once said that "[e]verything is funny as long as it is happening to somebody else, but when it happen to you, why it seems to lose some of its humor, and if it keeps on happening, why the entire laughter kinder fades out of it." Will Rogers, Warning to Jokers: Lay Off the Prince, in The Illiterate Digest I-3 75 (1974).
If we view this case from plaintiff's perspective, we see the loss of a valuable lease based upon leaks that affected only about ten of the offices and common areas in a large, two-story structure — one that was constructed specifically to suit the IRS' needs. How can such simple defects, albeit lingering, be enough to allow defendant to walk away from the last six years of a ten-year lease, plaintiff asks? From defendant's perspective, though, particularly from the perspective of the IRS employees who worked in the Building, and especially from the perspective of those who all-too-often found water dripping or raining down into their offices, break room and hallways, those same leaks did not seem so minor. When they kept happening (over a period of years), they increasingly led to frustration, distraction and loss of productivity — or to put in terms of the Lease, the loss of "use and enjoyment." Was this loss sufficient to warrant a default? From its perspective — based upon the record as a whole and viewed through the prism of the rights and obligations created by the Lease — the court thinks so.
Based on the foregoing, the court finds that plaintiff is entitled to damages in the amount of $59,985.36. The Clerk shall enter an appropriate judgment. No costs.
The Building suffered another series of especially severe leaks in February of 2007. As described by a Drew official in his testimony, on this occasion, "[t]here was a significant amount of water on the floor of 12-foot diameter or so on the carpet which was saturated. There were multiple other stains that I had not seen on ceiling tiles occur in the past." Contemporaneous documentation from a Chicagoland employee reflected that on this occasion, "there were a number of ceiling tiles down, bulging, and stained throughout the top floor," as well as water stains on the walls, rendering "four work stations . . . unusable." Pictures in the record further document this damage.
The letter indicates that following these repairs, Volpe conducted water tests and could not recreate the leaks.
The result in these cases makes sense in light of cases holding that a default termination may be justified "by the circumstances at the time of termination, regardless of whether the Government originally removed the contractor for another reason." Kelso, 16 F.3d at 1175; see also Empire Energy Mgmt. Sys., Inc. v. Roche, 362 F.3d 1343, 1357 (Fed. Cir. 2004); Joseph Morton Co. v. United States, 757 F.2d 1273, 1277 (Fed. Cir. 1985). The latter rule has been regularly applied even though the contractor, by definition, is not afforded a notice to cure the alternate grounds. Reconciling these cases with those enforcing the cure notice requirement, courts have held that use of an alternate ground to support a termination is appropriate where it is clear that the contractor could not have cured the alternate default within the cure period. See, e.g., Glazer Constr. Co., Inc. v. United States, 52 Fed. Cl. 513, 530 (2002); McDonnell Douglas Corp. v. United States, 35 Fed. Cl. 358, 374 (1996), rev'd in part, vacated in part and remanded on other grounds, 182 F.3d 1319 (Fed. Cir. 1999), cert. denied, 529 U.S. 1097 (2000). A similar rationale applies here.
