NCO Financial Systems, Inc. v. Montgomery Park, LLC

Filing

PUBLISHED AUTHORED OPINION filed. Originating case number: 1:11-cv-01020-GLR. [999976668]. [15-1988, 15-2071]

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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 15-1988

NCO FINANCIAL SYSTEMS, INC., now known as EGS Financial
Care, Inc.,
Plaintiff - Appellee,
v.
MONTGOMERY PARK, LLC,
Defendant - Appellant.

No. 15-2071

NCO FINANCIAL SYSTEMS, INC., now known as EGS Financial
Care, Inc.,
Plaintiff - Appellant,
v.
MONTGOMERY PARK, LLC,
Defendant - Appellee.

Appeals from the United States District Court for the District
of Maryland, at Baltimore.
George L. Russell, III, District
Judge. (1:11-cv-01020-GLR)

Argued:

September 21, 2016

Decided:

November 29, 2016

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Before GREGORY, Chief Judge, and NIEMEYER and HARRIS, Circuit
Judges.

Affirmed in part, reversed in part, and remanded by published
opinion. Judge Niemeyer wrote the opinion, in which Chief Judge
Gregory and Judge Harris joined.

ARGUED: Howard G. Goldberg, GOLDBERG & BANKS, P.C., Baltimore,
Maryland, for Appellant/Cross-Appellee.
Andrew David Levy,
BROWN
GOLDSTEIN
&
LEVY,
LLP,
Baltimore,
Maryland,
for
Appellee/Cross-Appellant.
ON BRIEF: John E. McCann, Jr., Ranak
K. Jasani, MILES & STOCKBRIDGE P.C., Baltimore, Maryland, for
Appellant/Cross-Appellee.
Joshua R. Treem, Kevin D. Docherty,
BROWN
GOLDSTEIN
&
LEVY,
LLP,
Baltimore,
Maryland,
for
Appellee/Cross-Appellant.

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NIEMEYER, Circuit Judge:
This appeal involves disputes between parties to a 12-year
commercial lease of office space in Baltimore, Maryland.

NCO

Financial Systems, Inc., the lessee, contends that it properly
exercised a right of early termination of the lease and that,
during the course of the lease, it was overcharged for rent
based on erroneous calculations of the space’s square footage.
Montgomery Park, LLC, the lessor, contends that NCO failed to
satisfy the lease’s specific conditions for early termination
and that NCO now owes rent for the remainder of the lease term.
The district court concluded that NCO effectively exercised
its right to terminate the lease early.

It also concluded that

NCO was not overcharged or, in any event, that its overcharge
claim

was

barred

by

Maryland’s

three-year

statute

of

limitations.
On appeal, we reverse the district court’s ruling that NCO
effectively exercised the right of early termination, and we
affirm

its

Accordingly,

ruling
we

remand

rejecting
for

NCO’s

further

overcharge

proceedings

on

claims.
Montgomery

Park’s claim that NCO breached the lease agreement in failing to
pay rent.

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I
Beginning

on

March

15,

2003,

Montgomery

Park

leased

“approximately 106,267” square feet of office space to NCO in a
building

located

Maryland.

on

Washington

Park

Boulevard

in

Baltimore,

The base rent for the first year was $15 per square

foot, or $1,594,005 per year, which thereafter would increase as
determined
included

by

a

NCO’s

formula

tied

proportionate

to
share

inflation.
of

real

The
estate

rent

also

taxes

and

operating expenses for the common areas of the building.
The initial term of the lease was 12 years, subject to
renewal for an additional 8 years.

The lease, however, gave NCO

a limited right to terminate the lease after 8 years, provided
that

NCO

gave

termination fee.

timely

notice

and

made

timely

payment

More specifically, the lease provided:

§ 1.05
Limited Right of Early Termination.
Tenant shall have a one-time, conditional right to
terminate
this
Lease
(the
“Termination
Right”),
effective on that date which is eight years after the
Commencement Date (the “Termination Effective Date”),
upon Tenant's strict compliance with all of the
following requirements: (a) Tenant shall deliver to
Landlord (not later than ten (10) months prior to the
Termination Effective Date (such notice deadline, the
“Termination Notice Deadline”)) a written notice (the
“Termination Notice”) stating that Tenant elects to
exercise this Termination Right; and (b) Tenant shall
pay to Landlord (50% simultaneously with delivery of
the Termination Notice and the remaining 50% balance
at least three (3) months prior to the Termination
Effective Date), a termination fee (the “Termination
Fee”) equal to ten (10) times the monthly installment
(which will be in effect as of the Termination
Effective
Date)
of
Rent
(including,
without
4

of

a

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limitation, all Additional Rent on account of Taxes or
Operating Expenses).
If (and only if) Tenant both
timely delivers the Termination Notice and timely pays
the Termination Fee as required above, then the Lease
will be terminated effective on the Termination
Effective Date. Tenant shall not have the right to
terminate this Lease if it fails either timely to
deliver the Termination Notice or timely to pay the
Termination Fee.
By

letter

dated

May

12,

2010,

NCO

gave

Montgomery

Park

notice that it was exercising its right of early termination,
effective

March

$779,964.15,

15,

2011.

representing

At
50%

the

of

same

the

time,

it

termination

remitted

fee,

which

§ 1.05 of the lease specified was equal to 10 months’ rent.
On December 15, 2010, NCO remitted the second payment of
the

termination

fee,

but

the

amount

it

remitted

was

only

$697,100.55, which was $79,067.70 less than the first payment
that

it

had

made

the

previous

May.

NCO

explained

the

discrepancy, stating that it had reduced the termination fee by
the amount of a janitorial services credit described elsewhere
in the lease.
own

Under that provision, if NCO elected to hire its

janitorial

service

in

lieu

of

using

Montgomery

Park’s

service for NCO’s own leased premises -- as distinct from such
services that Montgomery Park provided for the common areas -Montgomery Park would provide NCO with an annual allowance of up
to $1.00 per square foot per year.
Montgomery Park responded to the discrepancy, stating that
because

NCO

had

failed

to

remit
5

the

second

half

of

the

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termination fee on December 15, 2010, it had not satisfied the
specified condition for early termination and therefore had not
terminated the lease.
upon

NCO’s

Montgomery Park stated that it would,

acknowledgment

of

this

fact,

return

to

NCO

the

payments that NCO had made in May and December.
NCO
that

disagreed

it

had

with

“timely

Montgomery
and

Park’s

completely

position,

fulfilled

asserting

all

of

the

requirements set forth in Section 1.05 of the Lease,” and it
considered

the

lease

properly

terminated.

Accordingly,

it

vacated the premises on May 31, 2011, and did not pay rent
thereafter.

Montgomery Park advised NCO that it considered NCO

to be in default of the lease for the failure to pay rent.
In

2010,

after

NCO

had

first

provided

notice

of

early

termination, the parties discussed the alternative possibility
of reducing the size of rented space, and, in furtherance of
those discussions, Montgomery Park provided NCO with computergenerated drawings of the building containing the leased space.
Receipt of those drawings prompted NCO to question the amount of
rent that it had been paying under the lease.

It disputed the

calculation of “usable square feet,” which, when multiplied by a
factor of 1.12, determined “rentable square feet,” the basis for
computing the rent.

NCO contended that it should have paid rent

for only 100,800 rentable square feet instead of “approximately
106,267”

rentable

square

feet,
6

a

difference

of

5,467

square

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feet.
the

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To make its claim, NCO relied on standards published by

Building

Owners

and

Managers

Association

(“BOMA”),

which

would exclude from “usable square feet” restrooms within NCO’s
leased space, areas holding mechanical equipment serving NCO’s
space, a 13-square-foot room holding fire protection equipment,
and an elevator lobby used by NCO within its leased space.

NCO

also disputed the inclusion in its leased space of a 562-squarefoot area called the “Bridge.”
NCO commenced this diversity action against Montgomery Park
in

February

2011,

alleging

breach

of

contract,

unjust

enrichment, and fraud based on the allegation that NCO had been
overcharged for rent.

NCO also sought a judgment declaring that

the

effectively

lease

had

been

terminated

termination right contained in § 1.05.

under

the

early

Montgomery Park filed a

counterclaim, seeking a judgment declaring that the lease was
still in effect and demanding contract damages for NCO’s failure
to pay rent after May 31, 2011.
After the completion of discovery, NCO and Montgomery Park
filed cross-motions for partial summary judgment.

NCO sought a

partial summary judgment on its claims that the premises did not
include the Bridge; that NCO had properly terminated the lease;
and that “usable square footage” should be determined according
to the standards published by BOMA.

Montgomery Park sought a

partial summary judgment dismissing NCO’s overcharge claims on
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the ground that they were barred under Maryland’s three-year
statute of limitations.
The district court granted NCO’s motion in part, agreeing
that the leased premises did not include the Bridge and that NCO
had

effectively

denied

NCO’s

exercised

motion

on

the

its

early

termination

overcharge

issue to trial of disputed facts.

claim,

right.

It

deferring

that

It also deferred to trial

Montgomery Park’s motion claiming that NCO’s overcharge claim
was barred by the applicable statute of limitations.
In granting a partial summary judgment to NCO on the early
termination issue, the court concluded, as a matter of law, that
the

janitorial

allowance

claimed

by

NCO

was

not

a

credit

properly applied against the early termination fee because it
was not a component of rent that defined the fee.

Therefore,

NCO’s deduction of the allowance from the termination fee was
improper.

Nonetheless, the court found that NCO had properly

exercised its early termination option.

Even though the court

recognized that the words of the early termination provision
“clearly
option

and

unambiguously

required

“strict

provide[d]”

compliance

with

that

exercising

specified

the

conditions

precedent,” it determined that the payment amount required was
not a condition but instead a “non-material covenant” that did
not need to be strictly satisfied.

The court reasoned that,

while parts of the lease made full payment of the termination
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fee a condition, other phrases were less clear.

At bottom it

held that it would be unreasonable to require NCO to correctly
calculate the termination fee in order to exercise its early
termination right.
Following a bench trial on the overcharge claim, the court
held that “usable square feet” included the square footage of
internal restrooms, the area holding mechanical equipment, the
room holding fire protection, and the elevator lobby.

The court

reasoned that the word “usable” was not ambiguous in the context
of the lease, and it accordingly applied the normal meaning of
that term, finding that NCO had exclusively possessed and used
the areas that BOMA would, if applied, have deemed unusable.
Additionally, the court found that NCO had had inquiry notice of
its

overcharge

commenced

this

claim

for

action,

more

such

than

that

three

its

years

claim

Maryland’s three-year statute of limitations.

before
barred

was

it
by

The court thus

dismissed NCO’s overcharge claim by judgment dated August 19,
2015.
Montgomery
district

court

Park
erred

filed
in

this

appeal,

concluding

that

contending
NCO

had

that

the

effectively

terminated the lease under the early termination provision, and
NCO

filed

a

cross-appeal,

challenging

denial of its overcharge claim.

9

the

district

court’s

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II
With

respect

to

Montgomery

Park’s

appeal,

both

parties

accept the district court’s conclusion that the lease’s early
termination provision required NCO to provide timely notice and
to pay in two equal payments a termination fee equal to 10
months’ rent.

Both parties also accept the district court’s

conclusion that, although NCO gave timely notice and made its
first payment in the correct amount, NCO failed to make the
second of these equal payments in the correct amount because it
improperly deducted $79,067.70 for a janitorial services credit.
Montgomery Park, however, challenges the court’s conclusion that
NCO had nonetheless exercised its right of early termination on
the

reasoning

amount

was

required.

a

that,

under

covenant

the

with

lease,

which

payment

strict

in

the

compliance

correct
was

not

Montgomery Park contends that payment in full was an

express condition of the option’s exercise and NCO’s attempt to
terminate early was therefore ineffective.
district

court’s

contrary

It argues that the

interpretation,

based

on

its

conclusion that the correct amount of the termination fee was
not part of the condition for early termination but merely a
non-material covenant, ignored the plain language of the early
termination provision and violated key principles of contract
construction under Maryland law.

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NCO contends that the district court “correctly analyzed
the language of the lease to conclude that matching precisely
Montgomery Park’s calculation of the termination fee was not a
condition precedent to NCO’s exercise of its option.”

Relying

on

Limited

Beckenheimer’s

Partnership,

611

Inc.

A.2d

v.

105

Alameda

(Md.

1992),

Associates
it

asserts

that

the

inadequate payment of the termination fee was a breach of a
covenant, not the failure to satisfy a condition, and that the
district court therefore properly applied principles of equity
to

conclude

under

§

that

1.05,

NCO

even

effectively
though

it

terminated

did

not

pay

the
the

lease

early

full

early

termination fee.
Under Maryland law, which applies in this diversity case,
when the terms of an option impose conditions on its exercise,
those

conditions

effective.
2008).

must

be

exactly

matched

for

exercise

to

be

See Elderkin v. Carroll, 941 A.2d 1127, 1133 (Md.

In determining whether an option has been exercised, the

Elderkin court articulated a three-part test to be applied.
at 1135.

Id.

First, a court must evaluate whether the exercise

exactly matched the terms specified by the offer.

Second, if

the match is not exact, the court must consider whether any
variance is covered by a number of highly specific exceptions,
none of which applies to the present case.

Finally, the court

must determine whether any breach was of a covenant or of a
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condition.

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Id.

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The determination of whether requirements for

exercising an option are conditions or covenants is a question
“of construction dependent on the intent of the parties to be
gathered from the words they have employed.”

Chesapeake Bank of

Md. v. Monro Muffler/Brake, Inc., 891 A.2d 384, 391 (Md. Ct.
Spec. App. 2006) (quoting Chirichella v. Erwin, 310 A.2d 555
(Md. 1973)).

The Chesapeake Bank court noted that conditions

are

by

indicated

words

that,” and “when.”
Applying
language

phrases

such

as

“if,”

“provided

Id.

these

could

and

principles

hardly

be

more

to

the

clear

lease

that

§

before
1.05

us,

the

reveals

an

intent to impose two conditions on the exercise of the right of
early termination: (1) that the lessee give 10 months’ notice
prior to the specified early termination date; and (2) that the
lessee

make

payment

--

in

two

equal

installments

“termination fee” defined to equal 10 months’ rent.

--

of

a

As § 1.05

states, the right to early termination can be exercised only
“upon strict compliance” with the two requirements.
lease

then

uses

language

indicative

of

a

And the

condition

describing how early termination can be effected.

when

The lease

states that termination will be effective “[i]f (and only if)
Tenant both timely delivers the Termination Notice and timely
pays the Termination Fee as required above.”

(Emphasis added).

And thereafter, it makes unmistakably clear that the lease is
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imposing

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conditions

by

Pg: 13 of 19

stating

the

obverse

--

that

early

termination is not exercised “if [Tenant] fails either timely to
deliver the Termination Notice or timely to pay the Termination
Fee.”

(Emphasis added).

Applying Maryland law, which provides

that the use of the word “if” is indicative of a condition, we
therefore conclude that § 1.05 of the lease imposes conditions,
as it uses “if” three different times when referring to the two
requirements

and,

“only

to

if”

on

one

of

emphasize

those

the

occasions,

conditional

uses
nature

“if”

with

of

the

requirements.
In short, we conclude that the lease unambiguously imposes
two

conditions

termination

--

termination fee.
payment

of

the

on

NCO’s

timely

exercise

notice

of

and

its

timely

right
payment

of
of

early
the

Because NCO undisputedly failed to make full
termination

fee,

it

did

not

satisfy

those

conditions and therefore did not successfully exercise the right
of early termination.
The district court expressed a concern that reading the
requirement of full payment as a condition to early termination
would be potentially unreasonable as it would require NCO to
properly calculate the termination fee.

Following this vein,

NCO argues that it satisfied the requirement of payment even
though it did so in the wrong amount, because paying the proper
amount was not part of the condition.
13

It asserts that because

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the calculation of the termination fee could be difficult, any
inadequate payment, regardless of its cause, must therefore be
excused as the failure to satisfy a covenant, not treated as the
failure to satisfy the condition.

The flaw in this argument is

its underlying assumption that the calculation of the amount of
the termination fee was somehow at issue.
When

NCO

paid

the

first

50%

But it never was.

installment,

it

remitted

$779,964.15, and Montgomery Park never expressed any reservation
or disagreement with the accuracy of that amount.
the

second

installment

differed

only

because

NCO

Similarly,
made

the

decision, as it explained, to set off against that amount the
janitorial services credit, as if it were rendering an account,
not paying a specifically defined fee.
second
that

installment
required

to

$697,100.55,

payment

of

the

It thus reduced the

contrary

defined

fee

to
in

the

condition

equal

parts.

Because NCO’s underpayment derived not from any miscalculation
but

from

payment,

NCO’s
any

deliberate
concerns

decision

about

to

the

offset

posited

an

unrelated

difficulty

of

calculation are irrelevant.
In sum, the clear and unambiguous language of the lease
agreement

made

payment

in

full

of

condition, and NCO failed to satisfy it.

14

the

termination

fee

a

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III
Because NCO failed effectively to exercise its right of
early termination, the lease continued in force after March 15,
2011,

and

Montgomery

Park

is

thus

entitled

to

pursue

its

counterclaim against NCO for breach of the lease agreement for
failing to pay rent.

In response to this conclusion, NCO argues

that Montgomery Park’s claim for rent should be barred by the
equitable doctrine of election of remedies because, after the
district court found that NCO had properly exercised its early
termination option, Montgomery Park pursued the unpaid balance
of the termination fee, rather than refusing that remedy in the
hope

that

a

favorable

holding

on

appeal

would

election

of

remedies,

enable

it

to

has

no

pursue the unpaid rent.
The

doctrine

of

however,

application here because Montgomery Park did not have multiple
remedies

available

from

which

to

balance of the termination fee.

choose

when

it

pursued

the

To interpret the doctrine as

NCO urges would force claimants to forego the only remedy made
available to them by the court in hopes of obtaining a favorable
result on appeal.

This harsh interpretation is inconsistent

with Maryland law.
Maryland law recognizes that “[t]he doctrine of election of
remedies is quite technical and should not be lightly employed
by a court.”

Surratts Assocs. v. Prince George’s Cnty, 408 A.2d
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1323, 1330 (Md. 1979).

Pg: 16 of 19

Moreover, the doctrine is available only

“where there are two or more coexistent remedies available to
the litigant at the time of election which are repugnant and
inconsistent.”

Shoreham

Developers,

Inc.

v.

Randolph

Hills,

Inc., 305 A.2d 465, 472 (Md. 1973) (emphasis added) (quoting 25
Am. Jur. 2d, Election of Remedies §§ 10-12 (1966)).
In this case, when Montgomery Park pursued the balance of
the termination fee, the district court had already found that
NCO

had

early.

validly

exercised

its

right

to

terminate

the

lease

At that point, Montgomery Park had no remedy other than

claiming the balance of the termination fee that NCO had failed
to remit.

Because Montgomery Park did not have two or more

coexistent remedies from which to make an election, the doctrine
has no applicability.

IV
In

its

counterclaim,

misrepresented

or

NCO

misstated

contends

in

the

that

lease

Montgomery

the

Park

usable-square-

footage portion of the total space for which NCO paid rent.

The

lease used 94,881 as the number of “usable square feet” and then
applied

to

that

number

a

factor

of

1.12

to

“rentable square feet” of 106,267 square feet.

calculate

the

The rentable

square footage was then used to determine the rent.

NCO argues

that 94,881 overstated the usable square footage of the premises

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because it included internal restrooms, areas holding mechanical
equipment

serving

equipment,

and

offices.

NCO

NCO

the

space,

a

elevator

argues

that

room

lobby

those

holding
used

areas

by

fire

protection

NCO

should

within

its

have

been

not

included in the total number of usable square feet, as they were
not “usable” under standards published by the Building Owners
and Managers Association or BOMA.

When those areas are excluded

from “usable square feet,” NCO contends, the “rentable square
footage” becomes 100,800, instead of the leases’ provision of
“approximately 106,267,” a difference of 5,467 square feet.
furtherance
evidence

of

from

this

argument,

several

NCO

witnesses

introduced
who

at

In

trial

testified

parol

that

they

understood the lease to be measuring “usable square feet” under
the standards published by BOMA.
Even though the district court heard the parol evidence at
trial, it did not apply the BOMA standards to define “usable”
because it found that the term “usable,” “in the context of the
agreement, [was] unambiguous,” and therefore it could not use
parol evidence to overcome the unambiguous contract terms.

See

Sy-Lene of Wash., Inc. v. Starwood Urban Retail II, LLC, 829
A.2d 540, 544 (Md. 2003).

In addition, the court noted that the

lease’s integration clause suggested that the parties were not
relying on a technical meaning not defined in the lease.
court

concluded,

“using

its

own
17

common

sense

and

The

everyday

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experience as a finder of fact[,] . . . that the term ‘usable’
means to use, occupy, or possess.”

And when it applied that

meaning to the facts, it found that NCO “certainly possessed and
occupied and used exclusively the bathroom areas, the mezzanine
area, and as well the valve room.”

In addition, it noted that

NCO’s use and possession of the bathrooms was further evidenced
by NCO’s taking over the janitorial services for the bathroom
areas of which it had exclusive use.
We conclude that the district court did not err in its
construction of the lease and that its finding that the disputed
areas were used and possessed exclusively by NCO was not clearly
erroneous.
square

When these disputed areas are included in the usable

feet,

misrepresent

as
or

the

court

misstate

concluded,
that

the

the

lease

premises

did

not

constituted

“approximately 106,267” rentable square feet. *
NCO argues that this conclusion is erroneous because it
ignores the parol evidence NCO offered to show that BOMA should
be consulted to supply the meaning of “usable” in the lease.

*

NCO also argues that the inclusion of some 562 square feet
for the area called the Bridge was improper. The district court
agreed, ruling that the Bridge’s square footage should not have
been included in the definition of the leased premises. But the
court also ruled that in the context of a 106,000-square-foot
premises, the Bridge area was not material, especially in light
of the lease’s use of “approximately 106,267” square feet, as
well as the testimony of NCO’s witnesses that 562 square feet
was not material. We agree with the district court’s ruling.
18

Appeal: 15-1988

Doc: 45

Filed: 11/29/2016

Pg: 19 of 19

This argument, however, misunderstands the court’s position on
that evidence.

The district court, in fact, received the parol

evidence as to the BOMA standards during trial but concluded not
to use it in light of the court’s conclusion that the term
“usable” was unambiguous.

This was not error.

See Sy-Lene, 829

A.2d at 544.
At bottom, we conclude that the district court did not err
in concluding that NCO was properly charged for “approximately
106,267” square feet.

In reaching this conclusion, we do not

address NCO’s claim that the district court erred in applying
Maryland’s three-year statute of limitations as an alternative
basis for denying NCO’s overcharge claim.
*
For
ruling

the

that

reasons
NCO

*

given,

we

satisfied

the

*
reverse

the

lease’s

conditions

termination;

we

affirm

its

ruling

claims;

we

remand

for

further

and

rejecting

district

NCO’s

proceedings

on

court’s

for

early

overcharge
Montgomery

Park’s claim that NCO breached the lease agreement by failing to
pay rent after May 31, 2011.
AFFIRMED IN PART,
REVERSED IN PART,
AND REMANDED

19