U.S. Home Corporation v. Settlers Crossing, L.L.C. et al

Filing 707

MEMORANDUM OPINION. Signed by Chief Judge Deborah K. Chasanow on 7/18/14. (sat, Chambers)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
:
U.S. HOME CORPORATION
:
v.

:

Civil Action No. DKC 08-1863

:
SETTLERS CROSSING, LLC, et al.
:
MEMORANDUM OPINION
After

more

than

generating

over

700

six

years

docket

of

entries,

litigation,
this

in

a

contract

case

dispute

involving the proposed sale of 1,250 acres of land in Prince
George’s County, Maryland, has narrowed to two basic issues:
whether there are materials present on the property of a type,
from

a

source,

environmental

and

to

a

representations

degree
and

sufficient
warranties

to
of

breach
the

the

parties’

contract, and whether the seller’s conduct in responding to a
formal request for entry constituted a material breach.

In

order to resolve those issues, a bench trial was held from March
31

to

adduced

April

15,

at

trial,

2014.
and

Upon
the

consideration

parties’

of

arguments

the

evidence

with

respect

thereto, the court now issues findings of fact and conclusions
of law pursuant to Federal Rule of Civil Procedure 52(a).1

1

Rule 52(a) provides, in relevant part, that “[i]n an
action tried on the facts without a jury . . . , the court must
find the facts specially and state its conclusions of law

I.

Background
On November 15, 2005, Plaintiff/Counter-Defendant U.S. Home

Corporation
Lennar

(“U.S.

Home”),

Corporation

a

subsidiary

(“Lennar”;

of

together

Counter-Defendant
with

U.S.

Home,

“Purchaser”), entered into an agreement to purchase the sole
membership

interest

in

Defendant/Counter-Plaintiff

Washington

Park Estates, LLC (“WPE”), held by Defendant/Counter-Plaintiff
Settlers

Crossing,

(“Purchase

LLC

(“Settlers

Agreement”)

Crossing”).

contemplated

that,

The

at

agreement

the

time

of

settlement, WPE would hold title to approximately 1,250 acres of
undeveloped
known

as

real
the

estate

Bevard

in

Prince

property

George’s

(“the

County,

Maryland,

Property”).

Thus,

by

acquiring Settlers Crossing’s membership interest in WPE, U.S.
Home would acquire the Property, upon which it planned to build
a large residential community.
Agreement,

U.S.

Home

Concomitantly with the Purchase

entered

into

a

contract

with

Defendant/Counter-Plaintiff Bevard Development Company (“BDC”),
pursuant to which BDC was to complete certain development work
on the Property (“Contract for Services”).

The combined price

of the Purchase Agreement and Contract for Services was $200
million,
Defendant

and

U.S.

Steven

Home
Sandler

paid

deposits

(“Mr.

totaling

Sandler”)

–

$20

who

million.

controlled

separately. The findings and conclusions . . . may appear in an
opinion or a memorandum of decision filed by the court.”
2

Settlers

Crossing,

WPE,

and

BDC

(collectively,

“Seller”)

–

personally guaranteed Seller’s obligations under the contracts,
promising repayment of the deposits in the event of a breach.
(ECF No. 649, stipulations).
For several months prior to entering into the agreements,
Purchaser was given free access to the Property in order to
conduct

feasibility

testing.

As

reflected

in

the

Purchase

Agreement, Seller provided U.S. Home with “all site plans, lease
agreements, title reports, surveys, environmental reports, soil
studies,

arch[a]eological

studies,

geotechnical

reports

and

other tests, studies and documents prepared by third parties
pertaining to the Property . . . in [its] possession[.]”
41 ¶ 9).2

(JTX

Those reports included a 2001 Phase I Environmental

Site Assessment (“ESA”) conducted by Schnabel Engineering North,
LLC (“Schnabel”), Schnabel’s September 2004 update to the Phase
I

ESA,

a

Corporation,

Phase
Inc.

I

Archaeological

(“URS”),

and

Survey

reports

by

URS

geotechnical

of

conducted

and

subsurface investigations prepared by Hardin-Kight Associates,
Inc. (“Hardin-Kight”).

(ECF No. 649 ¶ 11).

The stated purpose of Schnabel’s 2001 Phase I ESA was “to
obtain

information

that

would

allow

2

the

development

of

an

The designation “JTX” refers to joint trial exhibits;
“PTX” refers to exhibits offered by U.S. Home and Lennar; and
“DTX” refers to exhibits offered by Seller and iStar.
References to trial testimony are designated by “T.” followed by
the date of the testimony.
3

opinion regarding the potential for ‘recognized environmental
conditions’ being present on or near the site that could present
major development difficulties, liability exposure, or the need
for Phase II sampling and testing.”

(JTX 25, at SCH0000061).

Schnabel defined the term “recognized environmental conditions,”
in accordance with guidelines set by the American Society for
Testing and Materials (“ASTM”), as
the presence or likely presence of any
hazardous substances or petroleum products
on a property under conditions that indicate
an existing release, a past release, or a
material
threat
of
a
release
of
any
hazardous substances or petroleum product
into structures on the property or into the
ground, ground water, or surface water of
the property.
(Id.).

The report noted that “the site and adjacent properties

ha[d] been used agriculturally and mined for sand and gravel
since 1957” and that “Area 1 was heavily mined and replenished
with

fill

material

that

has

the

potential

metals, sludge, and varying debris.”

(Id.

to

contain

heavy

at SCH00000599).3

3

At trial, Richard Beckwitt, Lennar’s President, described
the Property as follows:
There were three parcels that we were
purchasing: Bevard East, Bevard North, and
Bevard West. . . . Bevard East is the
largest one. . . . It encompassed about 565
acres.
Bevard North . . . was 275 acres,
and Bevard West was 410 acres.
(T. 3/31/14, at 88). Schnabel designated the same three parcels
as “Areas 1, 2, and 3” (JTX 25, at SCH00000604), and “Area 1”
4

Schnabel opined that the “[p]otential fill material throughout
Area 1” constituted a “‘recognized environmental condition[]’
under the ASTM guidelines” (id. at SCH00000616), and advised
that the “extent and character of the fill material w[ould] be
identified upon completion of the geotechnical portion of th[e]
investigation” (id. at SCH00000599).
Schnabel

updated

its

Phase

I

ESA

in

2004

“to

document

changes to the site and surrounding area that may have occurred
since

the

00001129).

previous

report

was

issued.”

(JTX

29,

at

ECC

In initially summarizing its prior work, Schnabel

noted the results of its geotechnical investigation:
According
to
the
original
ESA[,]
date[d] May 25, 2001, Area 1 was heavily
mined for sand and gravel approximately 10
years before the original report.
The area
was suspected to contain large amounts of
fill[,] possibly containing debris, sludge,
and
heavy
metals.
Subsequently,
a
geotechnical study was performed by Schnabel
in May and June of 2001 to assess subsurface
conditions of Area 1.
Twenty-two soil
borings were advanced to a maximum depth of
twenty-five feet. Fill/possible fill ranges
in depth from approximately 2.0 to 18.0 feet

corresponds with “Bevard East” (id. at SCH00000618). Through an
interview with Jerry Terhune, who had “farmed the subject
properties for approximately 27 years,” Schnabel learned that
“Area 1 was heavily mined approximately 100 feet below the
current surface elevation” and “replenished with a variety of
debris and fill materials.” (Id. at SCH00000615). Mr. Terhune
reported that “Areas 2 and 3 were not mined as heavily as Area 1
and were not filled in after mining activities had ceased.”
(Id.).
5

below the surface elevation.
However, no
debris, sludge, or heavy metals were noted.
(JTX 29, at ECC 00001138).
changes

to

the

assessment”

subject

(id.

at

Schnabel found “[n]o significant

properties

ECC

00001129);

.

.

.

since

identified

the

no

previous

“recognized

environmental conditions” on the Property (id. at ECC 00001150);
and

recommended

(id.

at

ECC

“no

additional

00001129).

It

environmental

cautioned,

investigations”

however,

that

“[a]ll

conclusions are qualified by the fact that no soil or ground
water

sampling

contract.”

or

chemical

testing

was

conducted

under

this

(Id. at ECC 00001135).

URS provided a report of its Phase I Archaeological Survey
in June 2005, the stated purpose of which was “to evaluate the
presence

or

Property.

absence
(JTX

35,

of
at

archaeological
USH-00029069).

resources”
URS

noted

on

the

that

the

Property was “known to have extensive prehistoric and historic
occupations,” but that “most of the area is also known to have
been mined by the Silver Hill Sand & Gravel Company in the late
twentieth century.”

(Id.).

It generally attributed the lack of

artifacts found on the Property to “disturbed fill layers” and
other

“soil

process[.]”

characteristics
(Id.).

[that]

This

reflected

conclusion

was

the

mining

supported

information it learned regarding the prior mining operation:
The largest pieces of the three property
assemblages are comprised of land purchased
6

by

from descendants of the Bevard family, who
operated Bevard Farms and the Silver Hill
Sand & Gravel Company. . . .
Despite the name Bevard Farms, much of the
project area is known to have been mined for
sand and gravel under the auspices of the
Silver Hill Sand & Gravel Company.
The
following promotional material for the Mud
Cat Dredge describes what took place at the
project area during the cleaning of the
gravel,
and
accounts
for
the
ground
conditions observed there during the recent
survey:
. . . At Silver Hill, the gravel is
scrubbed to remove a 10% clay content.
After the gravel is washed, the slurry
containing suspended clay and mud runs
into a slurry pond where fines settle
out.
In the process of running 2,500
tpd, as much as 500 cu. yds. of the
clay-mud mixture [is] generated and
added daily to the slurry pond.
. . . .
Originally,
the
Silver
Hill
crew
cleaned
the
pond
with
traditional
dragline
and
clamshell
techniques.
Then the company installed a Mud CatTM
portable hydraulic dredge.
According to [Sonny] Bevard, the Mud
CatTM sucks and pumps the clay-mud
mixture a distance of 3,800 ft. through
an 8-in. discharge pipe.
“We decided
to reclaim and raise the level of the
land,” said Bevard, “and the only way
to get the clay substance to dry out
enough for the land to be stable is to
spread [it] out in very thin layers.
We plow furrows, much like forming
ridges for a row of seeds, and direct
the Mud Cat’sTM pipe discharge over the
furrows, pouring the substance in thin
layers over the land.”
7

Once the clay dries, the land is plowed
again to further aerate it before
another layer is added to the surface.
After it is completely reclaimed, the
land
will
be
sold
for
building
development.
(Id. at USH-00029077).

The URS report further observed that a

wastewater treatment plant operated on the Property and that
sludge from that plant had been applied to a small portion:
Running through the project area is the
Piscataway Wastewater Treatment Plant (PWWT)
system, which includes 20 buildings spread
over 300 acres, 15 of which were for water
treatment
purposes.
In
1980-81
the
Environmental Protection Agency [(“EPA”)]
landfarmed an 8 acre plot with sludges, in
the northwest corner of the Bevard Property.
The process is described as follows:
From December 1980 until April 1981,
pickling liquors from [] Bethlehem
Steel’s
Sparrows
Point
Plant
were
transported
to
the
WWTP
[i.e.,
wastewater treatment plant]. The WWTP
was conducting experimental tests on
the spent pickling liquor to determine
the feasibility of using it to remove
phosphates from treated sewage.
WWTP
records indicate [that it] processed
38,000 gallons of pickle liquors during
the experimental period.
The sludges
generated by the WWTP during the influx
of
the
pickling
liquors
were
transported to the Bevard farm where
they were landfarmed along Tinkers
Creek.
The EPA conducted a preliminary assessment
of soils from the location in 1985.
No
significant contaminants were detected, and
no further remedial action was recommended
by the EPA.
Nevertheless, the location is
8

on the state’s Master
hazardous waste sites.

List

of

potential

(Id. at USH-00029077, 78).
Hardin-Kight’s

geotechnical

and

subsurface

studies

“consisted of a field investigation, laboratory testing, review
of geological literature, [] review of a previous investigation
of the site[, and] . . . the performance of . . . standard
penetration soil borings that were drilled to depths ranging
from 15 to 40 feet.”

(JTX 32, at HK00001666).

It “identified

and logged the soil characteristics during drilling and . . .
soil samples were selected and tested in the laboratory for
natural moisture content, grain size distribution and plasticity
characteristics.”

(Id.).

Hardin-Kight noted that “[f]ill or

possible fill” was “encountered in several of the borings,” but
that

the

fill

construction

material

debris

or

indigenous to the site.”

“appear[ed]
deleterious

to

be

clean,

materials[,

(Id. at HK 00001670).

and]

free
.

of
.

.

It advised that

“[f]urther investigation of the fill/possible fill areas should
be conducted when the proposed final site layout is established
if

development

including
confirm

is

proposed

“conducting

that

the

fill

in

sufficient
is

preliminary investigations.”

as

the

identified

test

consistent

(Id.).

9

pits
as

and

fill

areas,”

borings

indicated

by

to
the

Nevertheless, it concluded

that

“[t]he

site

is

suitable

for

the

proposed

development.”

(Id. at HK 00001663).
After

entering

independently

into

the

commissioned

a

Purchase
number

Agreement,

of

U.S.

additional

Home

studies.

Hardin-Kight was retained to conduct further investigations of
soil stability.

It drilled “several hundred” soil borings on

the Property, encountering areas of “uncontrolled fill” material
in the process.

(T. 4/4/14, at 73).

American Infrastructure

was hired “to put some . . . costs together for dealing with . .
. the uncontrolled fill” and directed the excavation of “[t]est
pits” at certain locations.

(Id. at 85-86).

Dewberry & Davis,

LLC, was contracted to complete certain grading and engineering
work on the Property.
retained

Environmental

(DTX 585, 586).
Consultants

Additionally, Purchaser
and

Contractors,

(“ECC”), to conduct an independent Phase I ESA.

Inc.

When asked at

his deposition why Purchaser commissioned another Phase I ESA,
U.S. Home Division President Robert Jacoby explained:
[T]he general policy of Lennar has always
been to have a third-party contracted [] by
us to do environmental studies on a property
and there was a provision for waiving that
and taking a reliance letter from someone
who had worked for the precurrent owner or
the previous owner, and with an investment
of this size we thought doing both was
probably the prudent thing to do and so we
took a reliance letter from [Schnabel] and
we had ECC do one for us.
(DTX 614, Jacoby depo., at 142-43).
10

ECC’s Phase I ESA report, issued May 8, 2006, identified
three “recognized environmental conditions” on the Property:
o Five underground storage tanks (USTs) are
located on the western portion of Bevard
West.
Soil quality in the vicinity of
these tanks is not known.
o A farm dump covering approximately 1,200
square feet is located on the southeastern
portion of Bevard East.
It is not known
if debris in the farm dump has impacted
native soil quality.
o Sand and gravel mining operations were
conducted on the Subject Property until
approximately
fifteen
years
ago.
Reportedly, excavated soil was combined
with soil from off-site sources and used
as backfill.
(JTX 52 § 1.0).

To address these issues, ECC recommended that

Purchaser take a number of actions:
ECC recommends the performance of a Limited
Subsurface Investigation of the Subject
Property to assess soil and groundwater
quality
and
address
the
recognized
environmental conditions identified in this
report.
This investigation would include
excavation of test pits or installation of
soil borings in the vicinity of the former
mines and in the vicinity of the farm dump.
The investigation would evaluate the nature
of fill material in the mined areas,
characterize debris in the farm dump, and
assess native soil quality in both areas.
The
investigation
would
also
include
installation of Geoprobe borings in the
vicinity of the USTs.
In lieu of Geoprobe
installation, the USTs could be removed in
accordance
with
Federal
and
State
regulations.
If evidence of a release is
detected during installation of Geoprobes or
following the removal of tanks, the Maryland
11

Department of the Environment (MDE) should
be notified.
Following notification, the
MDE
may
require
additional
site
investigation.
(Id. (internal emphasis removed)).

The ECC report expressly

“d[id] not address naturally occurring hazardous substances such
as elevated heavy metal concentrations in plants and soil” and
indicated

that

performed[.]”

“[n]o

soil

or

groundwater

sampling

was

(Id. at § 2.0).

Purchaser later retained ECC to “abandon potable wells and
septic

systems,

remove

underground

storage

tanks

and

above-

ground storage tanks, and . . . [conduct] asbestos aba[t]ement”
on the Property.

(T. 4/4/14, at 28).

At least initially,

however, it did not take further steps to assess the soil and
groundwater quality; indeed, it believed such measures were not
necessary.

(DTX 614, Jacoby depo., at 113).

In or around late 2006, Purchaser sought to renegotiate the
Bevard contracts related to a decline in the residential housing
market.

According to Mr. Jacoby:
[T]he market for both homes and land had
deteriorated significantly since the date of
the original agreement.
The crisis hit the State of Virginia
before it hit the State of Maryland, but by
2007, . . . it was well on its way to
impacting both home prices and land prices
in not just Prince George’s County, but all
over the State of Maryland.

12

(Id.

at

49-50).

At

around

the

same

time,

Seller

was

experiencing financial difficulties of its own and sought to
take

out

a

loan

from

Defendant/Counter-Plaintiff

Financial, Inc. (“iStar”), related to the Property.

iStar

(ECF No.

649 ¶ 18; DTX 595, at USH-00005745; T. 4/10/14, at 70-79).
After extensive negotiations, Seller and Purchaser entered
into a Second Amendment to the Purchase Agreement on May 16,
2007

(“Second

Amendment”).

Among

other

things,

the

Second

Amendment significantly reduced the purchase price of Settlers
Crossing’s membership interest in WPE in exchange for a guaranty
of specific performance by Lennar – i.e., a “provision that []
require[d] Lennar . . . to actually close on the purchase of the
[P]roperty, assuming [Seller] had satisfied [its] obligations
under the contract.”

(T. 3/31/14, at 109).4

U.S. Home expressly

“agree[d] and confirm[ed]” that it “ha[d] no actual knowledge”
that any of Seller’s initial representations and warranties were
not true (JTX 56 ¶ 15), and Seller permitted it to begin preclosing

development

work

on

the

Property

–

i.e.,

“clearing,

grading and other activities desired by Purchaser in connection
with

its

proposed

development”

(id.

at

¶

13).

The

Second

Agreement also permitted Settlers Crossing to obtain financing
in an amount not to exceed $100 million, provided that “any and
4

Under the initial Purchase Agreement, by contrast, U.S.
Home could simply abandon the contract and forfeit its $20
million deposit.
13

all deeds of trust, mortgages, assignments, financing statements
or other financing documents . . . that encumber the Property
shall

be

satisfied

and

released

Crossing’s sole expense.”

at

[s]ettlement

(Id. at ¶ 34).

at

Settlers

Settlement under the

Second Amendment was scheduled to occur on December 5, 2007, but
if “any condition precedent . . . [was] not satisfied or waived
in writing by Purchaser at least ten (10) days prior to the
[s]ettlement [d]ate[,] . . . then the [s]ettlement [d]ate [was
to] be automatically extended to that date which is thirty (30)
days after all conditions precedent to [s]ettlement . . . have
been satisfied” (id. at ¶ 21).
On June 19, 2007, consistent with the terms of the Second
Amendment,

iStar

provided

Seller

with

a

$100

million

first

mortgage bridge loan with repayment contemplated from the Bevard
settlement proceeds.

(ECF No. 649 ¶ 20).

As security, iStar

accepted collateral assignments of Seller’s interests under the
Purchase Agreement and Contract for Services.

(Id. at ¶ 21).

On the same date, Seller and Purchaser entered into a third (and
final) amendment to the Purchase Agreement, which provided, in
the event of foreclosure by iStar, that the Purchase Agreement
would

convert

from

a

sale

of

Settlers

Crossing’s

membership

interest in WPE to a sale of the Bevard Property itself.
at ¶ 22).
Estoppel

(Id.

Also on June 19, iStar entered into a Consent and
Agreement

with

Purchaser
14

(“Consent

and

Estoppel

Agreement”), by which Purchaser acknowledged Seller’s assignment
of

rights

and

made

certain

representations

regarding

the

Property and the status of conditions precedent to settlement.
As relevant here, Purchaser warranted that,
[a]s of the date hereof, to the best of
[its] knowledge, having made due inquiry,
(i) [Purchaser] has no existing defenses,
offsets, claims or credits with respect to
the performance of its obligations under the
[Purchase
Agreement
or
Contract
for
Services], (ii) neither [Purchaser], nor any
other party, [is] in default or breach of
any of [its] respective obligations under
the [agreements], (iii) there exists no
condition or circumstance which, with the
giving of notice or the passage of time, or
both, would result in a default by [any
party] under the [agreements, and] (iv)
there exists no condition or circumstance
known to [Purchaser] as of the date hereof
which, with the giving of notice or the
passage of time, or both, would result in a
termination right[.]
(DTX 259 § 3).
At around the same time that Purchaser entered into these
agreements, it was actively seeking a joint venture partner or
land

bank

to

reduce

the

total

asset

value

of

the

Bevard

transaction on its corporate ledger by the end of its fiscal
year.

(DTX 591, at USH_00326906).

In summarizing a proposed

transaction with one joint venture partner, Lennar represented,
inter alia, that “[i]ndependent environmental assessments have
not

identified

any

hazardous

conditions

[on

the

Property]

requiring extraordinary measures or higher level studies.”
15

(T.

3/31/14, at 165; DTX 243).
partner

were

When initial efforts to find a

unsuccessful,

Lennar

began

to

investigate

strategies to delay the scheduled settlement date, if not to
avoid

closing

Purchaser

was

altogether.
engaged

in

At

the

project

substantial

level,

pre-closing

however,

development

work on the Property, spending approximately $6 million in an
effort to “get all of the approvals necessary to develop the
[P]roperty and get all of the engineering positions so that 30
days from that point in time [it] could actually have a grading
permit in [its] hand.”

(DTX 614, Jacoby depo., at 59, 142).

At a meeting with regional managers on October 1, 2007,
Lennar Chief Executive Officer Stuart Miller ordered that all
spending related to the Property be stopped immediately, that
general counsel scrutinize the Purchase Agreement and develop a
strategy to delay closing, and that other managers continue to
search

for

a

partner

to

take

the

Bevard

contracts

off

of

Lennar’s corporate books.

(DTX 589, at USH_00324625; DTX 614,

Jacoby depo., at 57-62).

Mr. Jacoby, who had been primarily

responsible for managing the Bevard project up to that point,
strongly

disagreed

with

this

decision,

but

Miller, “essentially[,] . . . ‘I am the boss.
your position is on this.

was

16

by

Mr.

I don’t care what

Stop spending money.”

Jacoby depo., at 147).

told

(DTX 614,

Following that meeting, there was a shift in management on
Purchaser’s

local

project

managers at U.S. Home to Lennar’s corporate officers.

Lennar

Executive

side

Vice

of

the

transaction

President

Richard

from

the

Beckwitt

had

previously

directed Lennar’s land divisions to “put together . . . various
reports” related to Lennar’s contracts, one of which was “a core
and hit list report.”

(T. 3/31/14, at 124).5

He explained that

if a given project was designated as “core,” it meant that it
did not “need any adjustment to it, the product [wa]s working,
the . . . contract ma[de] sense.”

(Id.).

Transactions on the

“hit list,” on the other hand, were those that “needed some sort
of review or adjustment[.]”

(Id.).

Lennar’s Chief Operating

Officer, Jon Jaffe, had a somewhat different understanding of
the “hit list” designation:
Hit List were communities to identify that
were cash-flow negative or not making any
financial sense[;] didn’t make sense to
Mothball,[6] didn’t make sense to keep moving
forward on the current plan that we were
moving
forward
on
to
identify
what
alternative strategies there were.
Do you
sell the asset?
Do you hold it?
Can you
stop development?
What are the strategies
5

Mr. Beckwitt was Lennar’s president at the time of trial.
Prior to 2011, he was an executive vice president. (T. 3/31/14,
at 77).
6

Mr. Jaffe testified at his deposition that the term
“Mothball” meant “[to] put[] the asset on a shelf and delay[]
any work on it[,] . . . [s]hutting it down so you limit the
amount of capital being put into it.”
(DTX. 614, Jaffe depo.,
at 111).
17

and tactics to put that asset in a better
position?
(DTX. 614, Jaffe depo., at 110-11).

As of September 30, 2007,

the Bevard contracts were on Lennar’s corporate “hit list,” with
its

strategy

being

to

“[s]top

all

engineering

and

other

consulting expenditures” and to “[r]e-review [the] contract for
[an] escape clause[.]”

(DTX 328; T. 3/31/14, at 184).

Lennar

retained “a team of high priced lawyers and consultants [to]
work feverishly at . . . making a case for delaying . . . the
Bevard closing.”

(DTX 380).

By October 15, 2007, Lennar’s

general counsel, Mark Sustana, was specially assigned to the
Bevard

transaction

to

“analyz[e]

the

agreements”

and

another

Lennar executive was charged with “looking at ways to off-load
the deal.”

(DTX 351; T. 3/31/14, at 187).

Seller perceived that something was amiss.

In addition to

observing that Purchaser’s development work on the Property had
ground to a halt, Seller’s principals – namely, Mr. Sandler,
Nathan

Benson,

and

Daniel

Colton

–

learned

from

Purchaser’s

departing project manager that Lennar was seeking to get out of
the

contract.

(T.

4/10/14,

at

55-57).

When

Mr.

Sandler

attempted to inquire further, Mr. Jacoby advised that he would
“get back to [him], and that was the extent of it.”
57).

(Id. at

At around the same time, Seller began transmitting closing

documents in advance of the scheduled December 5 settlement date

18

(DTX 445, 452), but received no response from Purchaser (T.
4/3/14, at 60).

Concerned about Purchaser’s non-responsiveness,

Seller’s counsel, James Brennan, contacted transactional counsel
for Purchaser, Matthew Wineman, to inquire as to whether “U.S.
Home was going to look to get out of the contract and whether
they were going to come to . . . settlement[.]”

(Id. at 49).

Mr. Wineman “wouldn’t give [him] an answer one way or another
and he said he couldn’t talk about it[.]”
A

clearer

indication

of

(Id.).

Purchaser’s

intention

was

communicated by a letter from Mr. Wineman dated November 21,
2007, in which he advised of Purchaser’s position that Seller
had “failed to satisfy the conditions precedent to Settlement in
accordance with the provisions of the [Purchase Agreement,] . .
. including but not limited to those conditions relating to
certain

off-site

easements[.]”

7

(JTX

63,

at

1-2).7

“As

a

As discussed at length in a prior opinion addressing postdiscovery cross-motions for summary judgment (ECF No. 624), the
Purchase Agreement set forth certain conditions precedent to
U.S. Home’s obligation to proceed to settlement.
Issues
regarding the extent to which those conditions had been
satisfied at various dates consistently arose from 2006 until
U.S. Home commenced the instant action in July 2008.
The
Purchase Agreement was silent on the question of how the parties
would determine whether and when those obstacles had been
cleared and, at all times, U.S. Home resisted providing a
definitive list of allegedly unsatisfied conditions.
In its
amended complaint, however, it settled on four: (1) the
acquisition of certain off-site easements, (2) the resolution of
appeals by members of the community from zoning approvals, (3)
the recordation of plats, and (4) the accuracy of Seller’s
representations and warranties regarding the environmental
19

result,”

Purchaser

declared,

“the

Settlement

Date

automatically extended as provided in the Agreement.”
2).

is

(Id. at

Seller insisted that all pre-closing conditions had been

satisfied and demanded a full accounting of those that Purchaser
believed were not.

By a letter dated November 27, Purchaser

identified four specific problems with off-site easements, but
qualified that this “list of unsatisfied conditions precedent to
Settlement [wa]s not exclusive, and d[id] not represent U.S.
Home[’s]

.

.

Settlement.”

.

final

review

of

(JTX 64, at 3).

all

conditions

precedent

to

Moreover, Purchaser asserted,

“[t]he burden to satisfy all of the conditions precedent to
Settlement

rests

upon

the

Seller,

and

U.S.

Home

Corporation

cannot and will not be put in a position to rely upon various
verbal,

unsubstantiated

or

inaccurate

claims

regarding

status of the conditions precedent to Settlement.”

the

(Id. at 3-

4).
Purchaser
continued

to

did

not

refuse

attend

contact

settlement
with

on

Seller’s

December

5,

principals.

and
The

following day, Mr. Jacoby stated in an email to Mr. Beckwitt:
I am inundated by calls from Nathan [Benson]
wanting to know where we’re coming from and
where we’re going. It is not easy (also not
condition of the Property. On summary judgment, the court found
that three of these conditions were satisfied in advance of a
May 2008 settlement date and that the fourth, related to the
environmental representations and warranties, was not a true
condition precedent.
20

impossible) to stonewall a colleague of 10
years with only the suggestion that they
meet the preclosing conditions and no answer
to the question of what happens after that.
(DTX 401).
On December 6, 2007, Seller commenced an action in the
United

States

District

Court

for

the

Eastern

District

of

Virginia (“the initial action”), seeking a declaration as to
what conditions precedent, if any, remained unsatisfied.
590).

(DTX

Notably, the complaint in the initial action did not

allege that Purchaser had breached the Purchase Agreement or any
duty

arising

thereunder;

rather,

Seller

sought

the

court’s

assistance in identifying any obstacles to closing so that it
might address them and proceed to settlement.8
On January 3, 2008, Purchaser, through litigation counsel,
transmitted a letter to Seller requesting permission “to enter
onto the property to perform investigations, studies and tests
that [Purchaser] deem[s] necessary or appropriate.”
iStar00019491).
that

Purchaser

(JTX 66, at

The letter set forth a laundry list of issues
purportedly

sought

to

investigate

–

the

vast

majority of which had previously been addressed by the parties –
and cited as the basis of the request a contractual right to
8

The initial action was later transferred to this court and
dismissed for failure to present a justiciable case or
controversy.
(Civ. No. DKC 08-0267, ECF Nos. 97, 98).
Seller
appealed to the United States Court of Appeals for the Fourth
Circuit, which affirmed. See Settlers Crossing, L.L.C. v. U.S.
Home Corp., 383 Fed.Appx. 286, 288 (4th Cir. 2010).
21

access under § 13(a) of the Purchase Agreement and a right to
discovery

under

Beckwitt,

the

Fed.R.Civ.P.

request

for

34(a)(2).

access

was

According

primarily

to

motivated

Mr.
by

Seller filing the initial action:
I have been in this business for 30
years, and this is the first time I have
ever seen anything like that. . . . [W]e
couldn’t understand it, especially given the
fact that we had [been] through this dance
earlier with regard to . . . closing
conditions back in . . . early ‘07 through
June, May of ‘07. It came as a big surprise
to us. It raised all sorts of eyebrows.
(T.

3/31/14,

at

130).

Asked

what

Lennar

expected

that

its

investigation would find, he testified:
[W]e didn’t know what we’d find.
We had
just gotten sued, which was very unusual.
We knew that we had a right under our
contract to inspect the property and do
testing.
We didn’t know whether we were
going to find anything.
We had, up until
that point, no reason to believe that there
was anything wrong with the property[, but]
. . . the agreement gave us access.
So we
wanted to see what was going on.
(Id. at 132).
Due primarily to residual distrust stemming from the failed
settlement on December 5, and believing that Purchaser’s request
for access was simply pretext for further delay, Seller resolved
to deny the request.
addressing

each

suggesting

that,

Its counsel responded on January 4, 2008,

point
upon

raised
receipt

22

in
of

Purchaser’s
“a

complete

letter

and

statement

of

unsatisfied

conditions

precedent

to

settlement,”

the

parties

would “be in a position to assess what discovery needs to be
done in this case.”
access

was

(DTX 417, at 2).

refused,

U.S.

Home

When a second request for

sought

relief

in

the

initial

action, serving Seller with a motion to compel an inspection of
the Property “pursuant to Rule 34 of the Federal Rules of Civil
Procedure and/or pursuant to the express terms of the parties’
contract.”

(Civ. No. DKC 08-0267, ECF No. 31, at 2).

29,

“proposed

Seller

select]

an

a

independent

compromise
and

.

.

.

unaffiliated

that

firm

[the

to

On April
parties

conduct

an

agreed upon scope of environmental testing on selected portions
of the Property,” but Purchaser declined.

(DTX 565, at 2).

A

“core and hit list” report dated March 31, 2008, reflected that
Purchaser’s

strategy

for

Bevard

as

of

that

date

was

to

“[t]erminate [the] contract and get [its] deposit back via legal
action.”

(DTX 443; T. 3/31/14, at 213).

Meanwhile,

Seller

continued

to

work

toward

closing

by

addressing certain issues that it believed would erase any doubt
that all conditions precedent had been satisfied.

As Mr. Colton

testified, “we made an active decision to knock down every straw
man stood up by Lennar as it related to conditions to closing. .
. . [W]e felt we would go the extra yard or extra mile to answer
every request or every statement we could get from Lennar about
the conditions to closing.”

(T. 4/10/14, at 9).
23

In Seller’s

view, any such issue had been resolved by April 28, 2008, when
it called for settlement to occur on May 27.
days

prior

forwarding

to

that

closing

closing

date,

documents

and

(DTX 445).

however
with

–

the

as

Eleven

Seller

motion

to

began
compel

inspection of the Property still pending – U.S. Home served a
notice of default related to Seller’s refusal to permit access
(ECF No. 649 ¶ 30), thereby triggering cure periods by Seller
under the Purchase Agreement and by iStar under the Consent and
Estoppel Agreement, the latter of which would expire in early
July (JTX 41 § 15(b); DTX 259 ¶ 11).
2008,

U.S.

conditions

Home

advised

precedent

to

Seller

of

Settlement

By letter dated May 23,
its

position

[were],

in

that
fact,

“all
not

satisfied, and as such, Settlement will not occur on May 27,
2008.”

(ECF No. 649 ¶ 31).

On May 30, after U.S. Home failed to attend the scheduled
settlement, Seller served a default notice of its own, asserting
that Purchaser had “wrongfully failed to make [s]ettlement[.]”
(DTX 458).

On the same date, Seller’s counsel responded to U.S.

Home’s notice of default, characterizing its prior requests for
access as a discovery dispute that would be addressed by United
States Magistrate Judge William Connelly in due course.

Insofar

as U.S. Home contended that it had a right to access under the
Purchase Agreement, Seller argued that there could be no default
because U.S. Home had failed to satisfy its own obligations:
24

Section 13(c) of the Agreement expressly
requires that prior to any entry onto the
Property,
U.S.
Home
Corporation
shall
provide WPE and Settlers Crossing with
certificates
of
insurance
evidencing
insurance coverage as required by that
paragraph. [Seller’s] records indicate that
U.S. Home Corporation has not provided this
insurance coverage to WPE and Settlers
Crossing. Accordingly, under the Agreement,
U.S. Home Corporation is not entitled to
enter the Property under any circumstances
until
it
complies
with
Section
13.
Obviously, Settlers Crossing and WPE cannot
be in default of the Agreement for the
alleged refusal of entry since U.S. Home
Corporation
has
not
complied
with
the
Agreement.
(DTX 565, at 2).
On

June

27,

2008,

prior

to

expiration

of

iStar’s

cure

period under the Consent and Estoppel Agreement, Judge Connelly
issued an order finding that “U.S. Home has a contractual right
to inspect the property” pursuant to § 13(a) of the Purchase
Agreement and Fed.R.Civ.P. 34(a)(2).

(DTX 460 ¶ 8).

The court

permitted inspection “for a six week period as detailed in the
March 25, 2008[,] Proposed Scope of Work and Schedule [submitted
by Purchaser’s consultant] Environmental Resources Management,
Inc.”

(Id. at ¶ 10).

came too soon.

From Purchaser’s perspective, this order

In an email to Lennar corporate officers dated

June 25, 2008, Sam Sparks, a regional president, reported that
he

had

“asked

[Purchaser’s

litigation

counsel]

to

file

a

supplemental brief either Friday [June 27] or Monday [June 30],

25

in the hope that filing will raise additional questions and push
an order out past July 3, . . . the date that Sandler and
[iStar’s] right to cure expires[.]”

(DTX 566).

On June 30,

counsel for iStar advised Purchaser that Seller would “comply
with

the

June

resolved

27

Order,”

Purchaser’s

adding

notice

“nothing for [iStar] to cure.”

of

that

the

default

order

because

effectively
there

was

(DTX 461, at 1-2).

Despite the fact that Purchaser had gained the right of
access it purportedly sought, it never availed itself of that
right.

Instead, Purchaser elected to terminate the Purchase

Agreement,

as

it

had

planned

to

request for access was denied.
DTX 566).

do

since

shortly

after

the

(DTX 443; T. 3/31/14, at 213;

By a letter dated July 3, 2008, Purchaser advised:
[O]n May 16, 2008, U.S. Home Corporation
sent a Notice of Default to Seller for
failing to give U.S. Home Corporation access
to the Property that is the subject of the
Agreement for the purpose of conducting
certain investigations, studies, and tests
as it deems necessary and appropriate.
Pursuant to the Agreement, Seller’s cure
period expired on June 2, 2008[,] [a]nd,
pursuant
to
that
certain
Consent
and
Estoppel Agreement . . . dated June 19,
200[7], [iStar’s] cure period expired on
July 2, 2008.
Neither Seller nor [iStar]
has taken action to cure the default.
Accordingly,
pursuant
to
Section
15(b)(iii)(1) of the [Purchase Agreement],
this letter shall serve as written notice of
U.S. Home Corporation’s termination of the
Agreement effective immediately.

26

(JTX 73, at 2).

When Seller and Mr. Sandler did not return the

deposits upon demand, U.S. Home commenced the instant action on
July 17, 2008.9
In its initial complaint, U.S. Home alleged that Seller
breached the Purchase Agreement when it refused the request for
access

to

investigate

the

environmental

condition

of

the

Property, but Purchaser had not yet finally resolved why further
investigation was warranted.

The complaint recited that, in

light of the prior sand and gravel mining operations on the
Property, such investigation was necessary to shelter Purchaser
from any future liability regarding “the release and threatened
release

of

hazardous

materials”

under

the

Comprehensive

Environmental Response, Compensation, and Liability Act of 1980
(“CERCLA”), 42 U.S.C. § 9601 et seq. (ECF No. 1 ¶ 49).

The

express purpose of the Phase I ESAs conducted by Schnabel and
ECC, however, was to satisfy these obligations, and Purchaser
warranted, in both the Second Amendment and the Consent and
Estoppel

agreement,

that,

having

unaware of any environmental issue.
access

and

serving

a

notice

of

9

made

due

inquiry,

it

was

Thus, even after requesting
default

when

permission

was

By a memorandum opinion and order issued March 19, 2009,
the court granted U.S. Home’s motion to dismiss the initial
action; denied as moot Seller’s motion to consolidate the
initial action and the instant case; and denied pre-discovery
cross-motions for summary judgment in the instant case.
(ECF
Nos. 41, 42).
27

denied, Purchaser was, in effect, searching for a firmer basis
upon which to justify its request.
Purchaser’s post hoc strategy began to crystalize in mid2008.

In seeking to avoid the May 27 closing date, Purchaser

“reached

out

to

locating

someone

[local]

earthwork

who

have

may

contractors

[firsthand]

in

hopes

knowledge

of

of
the

[historic sand and gravel mining] operations” on the Property.
(DTX

568).

One

of

those

contractors

advised

that

previous

owners, before WPE, “had a contract with Maryland Environmental
Services . . . to haul treated sludge from the Blue Plains
sewage treatment plant to the Bevard site.”

(Id.).

Although

the parties’ environmental consultants had searched all relevant
databases,

conducted

information

from

interviews,

appropriate

and

agencies,

made
they

requests

did

not

for

discover

that sewage sludge (also known as “biosolids”) had been applied
to the Property.

Upon further investigation, Purchaser learned

that this practice was extensive – from the mid-1970s to the
late

1980s,

thousands

of

tons

of

treated

sewage

sludge

was

transported from various regional wastewater treatment plants
and applied to the Bevard Property.
After

an

internal

report

of

the

sludging

operation

was

initially circulated among Purchaser’s corporate officers, Mr.
Jacoby

“couldn’t

[Purchaser]

could

sleep
have

.

.

.

caught

thinking
this
28

about

earlier.”

whether

or

(DTX

570,

not
at

USH_02035516).
that

he

had

The next day, he reported to Lennar’s managers
“reviewed

all

the

environmental

reports

and

discover[ed] . . . [that] [t]he 2001 Schnabel Phase 1 . . .
contains

a

statement

that

[t]he

fill

material

may

have

the

potential to contain heavy metals, sludge, and varying debris”
and that “[v]arious chemical tests may be required on the fill
material to determine if contamination exists.”
marks

omitted)).

Mr.

Jacoby

further

(Id. (internal

observed

that

although

Schnabel’s geotechnical investigation did not find evidence of
“debris, sludge, or heavy metals[,] . . . [t]he report does not
disclose whether or not the boring samples were tested or just
observed”
report.”

and

“[t]here

are

no

lab

results

appended

to

the

(Id.).10

Despite

Mr.

Jacoby’s

misgivings,

Purchaser

resolved

to

pursue a “toxic route” in court by late 2008 (DTX 561) – in
other words, to rely on a theory that the land application of
sewage sludge on the Property constituted a breach of Seller’s
environmental

representations

and

warranties.

U.S.

Home

unveiled this new theory in a pre-discovery motion for summary
judgment, filed on December 23, 2008:
The irrefutable fact . . . is that, though
never disclosed to U.S. Home, the Property
was used for the disposal of sewage sludge
10

In fact, the Schnabel reports clearly stated that “no
soil or ground water sampling or chemical testing was conducted
under this contract.” (JTX 29, at ECC 00001135).
29

for decades, during which period such sludge
was spread over hundreds of acres of the
Property,
conclusively
establishing
that
[the environmental] representation, warranty
and condition precedent simply cannot be
satisfied – i.e., vast portions of the
Property have “been used for the . . .
disposal of Hazardous Material,” as that
term is expressly defined in the Agreement.
Furthermore,
the
sewage
sludge
itself
contains
certain
material
that
[is]
individually “hazardous,” as well. Finally,
. . . given the immutable nature of the
material dumped on the Property years ago,
there is not and cannot be any genuine
factual dispute that these individually
hazardous materials remain on the Property
even now.
(ECF No. 32-1, at 6-7).
Shortly

after

that

motion

was

denied,

U.S.

Home

was

permitted to file an amended complaint – its operative pleading
in the instant case – in which it added, inter alia, claims of
fraud,

based

operation,
warranties.

on

and

Seller’s
breach

Purchaser

access

the

to

of

(ECF No. 52).

operation,

failure

sampling and testing.

disclose

environmental

the

sludging

representations

and

Armed with knowledge of the sludging

renewed

Property

to

in

its
order

discovery
to

efforts

conduct

to

gain

extensive

soil

Arrangements were made at a discovery

hearing on May 4, 2010, after which Judge Connelly issued an
order providing U.S. Home with a right to inspect the Property
in June and July 2010.
Environ

International

(ECF No. 114).
Corporation

30

Purchaser retained

(“Environ”)

to

conduct

sampling and testing, and the results of Environ’s investigation
revealed the presence of what Purchaser believes are “Hazardous
Materials,” as that term is defined in the Purchase Agreement.
Seller and iStar filed a joint counterclaim on June 30,
2009,

seeking

Purchaser’s

declaratory

obligations

Contract for Services.
an

amended

transaction

relief
under

not

the

(ECF No. 66).

counterclaim.
did

and

(ECF

close

on

No.
the

specific

performance

Purchase

Agreement

of
and

iStar subsequently filed
447).

When

Bevard

date,

Seller

anticipated

the

defaulted on the iStar loan, which permitted iStar to exercise
its

rights

under

collateral

assignments

of

the

agreements.

iStar later exercised those rights by initiating a foreclosure
action

in

Maryland.11

the

Circuit

Court

for

Prince

George’s

County,

On November 17, 2009, the Bevard Property was sold

to Piscataway Road – Clinton MD LLC (“Piscataway”), a limited
liability company of which iStar is the sole member.12

11

Because Seller no longer has any interest in the Property
and iStar’s claims are presented in the amended counterclaim,
the joint counterclaim has been rendered moot and will be
dismissed.
See Otter Point Dev. Corp. v. U.S. Army Corps of
Engineers, 116 F.Supp.2d 648, 651 (D.Md. 2000) (“A case becomes
moot ‘when the issues presented are no longer ‘live’ or the
parties lack a legally cognizable interest in the outcome’”
(quoting County of Los Angeles v. Davis, 440 U.S. 625, 631
(1979)).
12

Despite the court’s suggestion that Piscataway is a
necessary party in this case, iStar has resisted naming it,
insisting that, as the sole member, it will cause Piscataway to
take any necessary action.
31

II.

Findings of Fact and Conclusions of Law
Following

the

court’s

ruling

on

post-discovery

cross-

motions for summary judgment (ECF Nos. 624, 625), two primary
issues

remained

requirements

of

for
§

trial:

11(a)

(1)

of

whether,

in

Purchase

Agreement,

the

light

of

the

Seller

breached the environmental representations and warranties set
forth in § 12.2(d), and (2) whether Seller breached § 13(a) of
the

Purchase

access.

Agreement

by

denying

U.S.

Home’s

request

for

If the answer to either of these questions is in the

affirmative,

U.S.

Home

will

prevail

and

is

return of its deposits pursuant to § 15(b).

entitled

to

the

If both questions

are answered in the negative, iStar wins and may be entitled –
pending resolution of an issue regarding lapsed zoning on a
portion of the Property – to specific performance of Purchaser’s
obligations under the Purchase Agreement pursuant to §§ 15(a)
and (d), as modified by the Second Amendment.
Both questions present claims for breach of contract under
Maryland

law.13

Under

the

objective

theory

of

contract

interpretation, which applies in Maryland, a court must “give
effect to the plain meaning of an unambiguous term, and will
evaluate a specific provision in light of the language of the
entire contract.”

Weichert Co. of Md., Inc. v. Faust, 419 Md.

13

Pursuant to § 18(B), the Purchase Agreement “shall be
construed and enforced in accordance with the laws of the State
of Maryland.” (JTX 41 § 18(B)).
32

306, 324 (2011).

Contract terms must be construed according to

their “customary, ordinary and accepted meaning,” regardless of
the parties’ intentions at the time the contract was formed.
Nova Research, Inc. v. Penske Truck Leasing Co., 405 Md. 435,
448

(2008).

court’s

Therefore,

task

is

to

when

interpreting

“[d]etermine

from

a

the

contract,

language

of

the
the

agreement itself what a reasonable person in the position of the
parties

would

have

meant

at

the

time

it

was

effectuated.”

Calomiris v. Woods, 353 Md. 425, 436 (1999) (internal quotation
marks omitted); see also Capital Select Realtors, LLC v. NRT
Mid-Atl.,

LLC,

197

Md.App.

698,

711

(2011)

(“The

[objective

theory of contract interpretation] thus encourages parties to
use language as precisely as possible, so as to forestall costly
inquiries into their subjective intentions”).
A.

Breach of Environmental Representations and Warranties

In Count VI of its amended complaint, U.S. Home alleges
that

Seller

breached

the

environmental

representations

and

warranties set forth in § 12.2(d) of the Purchase Agreement by
failing

to

disclose

that

“a

massive

sewage

sludge

disposal

operation had been conducted on the Property in the 1970s and
1980s,” and that, as a result, “the Property has been used for
the

disposal

of

Hazardous

Materials

and

contains

Hazardous

Materials, as that term is defined in . . . the Agreement.”
(ECF No. 52 ¶ 143).

In Count VII, it seeks a declaration that
33

it was not obligated to proceed to settlement on May 27, 2008,
because Seller had not satisfied a condition precedent to U.S.
Home’s obligation to close – namely, § 11(a) of the Purchase
Agreement,

which

warranties

had

settlement.

provided

to

be

that

true

(Id. at ¶ 153).

environmental

representations

Seller’s

and

correct

representations
as

of

the

date

and
of

In Purchaser’s view, because the
and

warranties

contained

in

§

12.2(d) were not accurate, it was not required to settle on that
date and its failure to do so did not constitute a default.
(Id. at 38).
In § 12.2(d), Settlers Crossing and WPE made the following
representations

and

warranties

concerning

the

environmental

condition of the Property:
Prior to the date hereof, WPE has delivered
to
Purchaser
a
copy
of
its
existing
environmental report(s).
To the best of
WPE’s and Settlers Crossing’s knowledge,
except as disclosed in the environmental
report(s) delivered to Purchaser, (i) there
are
not
“Hazardous
Materials”
(defined
below) located on or within the Property;
(ii) no portion of the Property has been
used for the storage, use, generation,
treatment
or
disposal
of
Hazardous
Materials;
and
(iii)
there
are
no
underground fuel tanks located upon the
Property.
The term “Hazardous Materials”
means
(A)
hazardous
wastes,
hazardous
substances, and toxic materials prohibited
or regulated by federal, state or local law,
regulation, or order, (B) asbestos, (C) oil
petroleum products and their byproducts, and
(D) polychlorinated [biphenyls] (“PCBs”).

34

(JTX 41 § 12.2.d).14
While

the

accuracy

of

Seller’s

representations

and

warranties under § 12.2(d) is expressly based on its knowledge,
another provision of the Purchase Agreement, § 11(a), purported
to make it a condition precedent to Purchaser’s obligation to
settle that all representations and warranties be “actual[ly]
correct[] as of the time of [s]ettlement[.]”

(Id. at § 11(a)).

On summary judgment, however, the court found that the “actual
correctness” of Seller’s representations and warranties was not
a true condition precedent:
The final sentence of § 11(a) – i.e.,
that “the condition precedent to Purchaser’s
obligation to settle . . . shall depend upon
the actual correctness as of the time of
Settlement of the facts stated in all such
representations and warranties” – does not
mean, as Purchaser argues, that Purchaser’s
obligation to settle was contingent on
Seller showing the actual truth of all
representations at settlement. Indeed, such
an interpretation would lead to an absurd
result,
as
it
would
be
practically
impossible for Seller to make a showing
that, for example, the entire 1,200-acre
property
was
free
of
all
“hazardous
materials.”
Furthermore, it would vest
Purchaser
with
virtually
unbridled
discretion
to
withhold
performance.
Purchaser at least tacitly acknowledges in
its reply papers that virtually all property
in Maryland contains at least some degree of
what might be deemed “hazardous materials”,
and
the
purchase
agreement
itself
14

Seller was required to recertify as to the truth of its
representations and warranties at the time of settlement, and
did so on May 27, 2008. (DTX 454, 455).
35

contemplates, in § 10(f), that Purchaser
might, in its pre-closing development work,
encounter
such
materials
in
amounts
insufficient to constitute a breach of
warranty. If Seller were to be required to
demonstrate at settlement that there were,
in fact, no “hazardous materials” on the
property as a condition precedent, the
presence of even de minimus amounts of such
materials would permit Purchaser to avoid
closing.
A reasonable person in the
parties’ position at the time they entered
into the purchase agreement would not have
understood it to mean this. . . .
Such a rigid interpretation would also
give rise to a conflict in the terms of the
agreement insofar as Seller’s representation
at settlement concerning the environmental
condition of the property could be made
“[t]o the best of [its] knowledge,” under §
12.2(d), while its satisfaction of the
condition
precedent
to
Purchaser’s
obligation to settle would depend on its
ability to show the “actual correctness” of
the same representation under § 11(a). . . .
What the last sentence of § 11(a) does, in
effect, is create a right of Purchaser to
test
the
accuracy
of
Seller’s
representations and warranties.
In other
words, Seller was required to represent
that, to the best of its knowledge, other
than what was disclosed in the environmental
reports it had provided to Purchaser, the
property contained no “hazardous materials,”
but Purchaser was entitled to verify the
truth of that representation prior to being
obligated to close.
(ECF No. 624, at 67-68 (internal citations omitted)).
the

condition

representations

set
and

forth

in

§

warranties,

11(a)
the

related

court

to

Because
Seller’s

determined

that

satisfaction “must be assessed in terms of whether there was a

36

material breach” and “[a]ny breach could only be material if the
environmental condition of the property in some way would have
affected

Purchaser’s

intended

use

for

construction of a residential community.”

the

land

–

i.e.,

the

(Id. at 82).

In light of that interpretation of §§ 11(a) and 12.2(d),
the burden at trial fell on Purchaser to prove that Seller’s
environmental representations and warranties were not true in
fact.

Therefore,

it

was

incumbent

upon

U.S.

Home

to

demonstrate, by a preponderance of the evidence: (1) that there
are

“Hazardous

Materials”

on

the

Property,

as

that

term

is

defined in the Purchase Agreement; (2) that the source of those
“Hazardous

Materials”

was

something

other

than

what

was

disclosed in the environmental reports provided by Seller; and
(3) that those “Hazardous Materials” are present in amounts such
that remediation of the Property is required.
At

trial,

Purchaser’s

theory

was

that

elevated

concentrations of “heavy metals” found on the Property – namely,
arsenic, aluminum, iron, and vanadium – constituted “Hazardous
Materials”; that the elevated concentration of those elements
could only have resulted from the land application of sewage
sludge,

which

was

not

disclosed

in

Seller’s

environmental

reports; and that extensive remediation would be required in
order to construct the planned residential community.

To meet

its burden, Purchaser relied principally upon the testimony of
37

two expert witnesses: Robin Richards, the environmental expert
from

Environ

who

designed

and

implemented

the

sampling

and

analysis plan for the Property; and Karl Kalbacher, who authored
a

2001

document

standards

for

setting

the

forth

Maryland

soil

and

Department

groundwater
of

the

cleanup

Environment

(“MDE”).
Ms.
Purchaser

Richards
in

testified

March

2010

that
“to

Environ

test

the

was

retained

accuracy

of

by
the

environmental representations and warranties provided in Section
12.2(d) of the [Purchase Agreement].”

(T. 4/1/14, at 94).

To

accomplish that goal, she initially developed a “sampling and
analysis plan” for the Property.

(Id. at 67).

Ms. Richards had

developed and implemented “hundreds” of sampling and analysis
plans over the course of her career, many of which focused on
“getting

the

operating

permits

for

the

land

farming

industrial sludges; in particular, refinery sludges.”
67-68).

of

(Id. at

She explained that “land farming” is “a term of art”

referring the process of “tak[ing] sludge, [] apply[ing] it to
the top of the land, spread[ing] it out over the top of the
land,

com[ing]

back

and

disk[ing]

it

into

a

level

of

about

anywhere from three to nine inches, and then [] manag[ing] the
soil to maximize the ability of the natural soil bacteria . . .
to degrade the organic material in these sludges[.]”
68).

(Id. at

Ms. Richards developed sampling and analysis plans in
38

accordance with regulations and guidance issued by the United
States Environmental Protection Agency (“EPA”), which required
“characterizing the land farm site as well as characterizing the
land farm operations, including the sl[u]dge characteristics[.]”
(Id. at 69).

Asked what “characterizing the land farm site”

entailed, she testified:
[W]e had two scenarios.
One was where we
had land farm operations that were brand
new. A site had not already been designated
for a land farm.
And a second scenario is
when we had a land farm operation that had
been occurring but we were now putting it
into the operating process.
Even though we had two different sites,
the guidance that EPA provided on how to
characterize those sites was similar.
What
they wanted us to be able to do was to look
at the impact of sludging on that area;
hence, we needed to characterize or conduct
sampling analysis of the soils that would
represent a background condition, so soils
similar to our land farm site, but in an
upgraded, undisturbed area where we could go
in and define what would be the background
levels for a whole plethora of constituents,
including metals and some organics.
At the land farm site itself, we
conducted a similar sampling analysis plan,
but because we were needing to do a
statistical comparison between the land farm
conditions to the background conditions, the
[EPA] provided specific guidance how we
ought to do that so we generate a database
that can be statistically analyzed.
It’s called a . . . random
method.
So we basically lay out
looks a bit like a bingo card, over
and at the background area, so each
39

sampling
a grid,
the site
grid has

a number.
And then we use a random number
generator off of a program and we say, Hey,
we need ten samples at our land farm site,
ten samples for our background, give me ten
numbers.
And we sample the grid that the
Random Number Generator ends up identifying.
(Id. at 69-71).
Not all of the sampling and analysis plans Ms. Richards
developed

involved

an

assessment

of

“background”

conditions.

She explained:
We had another program . . . [applicable
where] you needed to make sure that you were
operating your land farm appropriately.
So
we are no longer trying to determine whether
our land farm was having the impact on the
environment through the detection monitoring
program, which is what I described earlier.
We were now looking just internal to
the land farm itself, and saying, how well
are we treating the sludges and are any
releases from the sludges occurring in an
unexpected or unsatisfactory manner, so that
we could go in and change operations of the
land farm.
So that program was a very focused,
targeted program where we were looking
specifically at the areas or the cells that
we had sludged to then go in and say, What
are we seeing? . . .
So it was a very targeted program. We
weren’t comparing to background.
We were
looking
at,
once
again,
the
fate
of
chemicals that we put on the land farm to
make sure the land farm was doing what it
was supposed to do, which was degrade and
immobilize samples.

40

(Id. at 72-73).

She developed similar “focused, targeted, [and]

biased” plans in circumstances in which she was investigating “a
suspected

source

of

contamination,”

such

as

when

she

“knew

either from interviews or . . . from historical documents where
a spill or a release had occurred, and we were trying to . . .
find the hot spot and then be able to sample from that hot spot
to determine how far the plume went out so that we could then
figure out what needed to be done for assessing the risk and how
to remediate.”

(Id. at 73).

The sampling and analysis plan that Ms. Richards designed
for

Bevard

primarily

involved

“tak[ing]

soil

samples

in

locations where [she] had strong indication that sludge had been
applied . . . and analyz[ing] them for chemicals that [she]
believed were indicative of the presence of sludge.”
94).

(Id. at

She acknowledged that this was a “biased” sampling plan

and that she was “just trying to find the . . . evidence of
sludge and the release of hazardous substances from the sludge.”
(T. 4/2/14, at 66).

In other words, none of the samples that

Environ tested were “from undisturbed, unsludged areas.”
4/1/14, at 200).
relied

primarily

(T.

In determining where to test, Ms. Richards
on

historical

sludge

permitting

documents

–

based on an assumption that, if the land application of sludge
was permitted in an area, it was likely applied there – and

41

interpretation

of

aerial

photography

and

mapping

provided

by

Aero-Data, a private consulting firm retained by Purchaser.
Ms. Richards said that she tested for “hazardous substances
that [she] felt were indicative of the presence of sludge.”
(Id.

at

95).

She

opined

that

“PCBs

[i.e.,

polychlorinated

biphenyls] . . . were going to be one of [her] best indicators
of whether sludges had been applied to this land and whether
there had been a release of hazardous substances from those
sludges”:
The reason being is that PCBs, during this
time period from 1974 to 1983, were . . .
still being allowed to be in use, and what I
mean by “in use,” is that around 1979, there
was a ban on using PCBs.
So the only
presence of PCBs in equipment was through
being
grandfathered
in.
And
the
significance of that is PCBs [are] found in
transformers, hydraulic fluids, oil-based
paints during this time period, caulking,
and those sources of PCBs get into domestic
wastewater
through
industrial
sources,
commercial sources, as [] well as just storm
water runoff that’s treated by the POTWs
[i.e., publicly owned treatment works].
When PCBs come into a POTW, they don’t
really like water.
They like binding to
particles, whether those particles are soil
and sediment or whether it’s the bacteria
themselves.
As the wastewater is treated
through the wastewater treatment plant, the
PCBs will settle or precipitate down into
the
sludge,
whether
[in
the]
primary
treatment or in the secondary treatment, and
these are the sludges that are then managed
by the [wastewater treatment plants] . . .
and were sent off to the Bevard Properties
for land disposal.
42

The nice thing about PCBs, for the work
we were undertaking, is that because of
their persistence, they tend to stay where
they are placed.
They do not volatilize[;]
they are not biodegraded.
There is not a
way the soil chemistry changes to make them
mobilize down into the groundwater.
They
basically stayed put.
So they were going to be a very good
indicator or signature of sludge disposal at
the Bevard Properties.
(Id. at 100-01).
She also believed that aluminum and iron were “signatures
for sludge”:
[O]nce again, between 1974 and 1984, ’85,
Blue Plains [Wastewater Treatment Plant],
[which] was the major contributor of sludge
to the Bevard Properties, and later on
Piscataway
[Wastewater
Treatment
Plant],
were both being challenged to generate
cleaner effluent to, in the case of Blue
Plains, to the Potomac River. And in doing
so, one of the major focuses was to try to
reduce the nutrient loading, in particular,
phosphorus.
During this time period, one of the
techniques to reduce phosphorus . . . in a
wastewater treatment plant was to add iron
salts, iron chloride, or to add alum. Blue
Plains, during this time period, added one
or the other. Alum is aluminum salt.
The way the chemistry works is that the
iron binds with phosphorus, which makes
phosphorus insoluble, and it precipitates
out into the sludge so you get an . . .
iron/phosphate
precipitating
into
the
sludge.

43

Similarly, with aluminum, the aluminum
reacts with the phosphorus precipitating out
as aluminum phosphate into the sludge, both
insoluble, both end up adding aluminum iron
to the sludge.
(Id. at 102).
Ms. Richards tested for other elements – such as vanadium
and arsenic – simply because they are “hazardous substances”
that

“were

found

at

elevated

levels

in

the

primary

soil

investigations throughout the area . . . as well as at depth.”
(Id. at 95).

She “was not expecting” to find elevated arsenic

levels on the Property, but historical data she subsequently
received “for the sludges from Blue Plains and Piscataway, [as
well as] Western Branch and Parkway [i.e., two other regional
wastewater

treatment

plants

that

contributed

sludge

to

the

Bevard Property], . . . [showed] that arsenic was present in the
sludges.”

(Id. at 96).15

Ms. Richards summarized Environ’s findings as follows:
There were 33 soil borings that I took as
part of . . . what we called the “primary
investigation.”
The results from those 33
soil borings showed wide-spread and elevated
concentrations of arsenic, aluminum, iron,
15

Ms. Richards also testified that she found elevated
levels of manganese, chromium, and copper on the Property. (T.
4/1/14, at 95, 185-86).
Mr. Kalbacher later testified that
manganese was a concern to “a lesser degree,” but did not
include chromium and copper.
(T. 4/2/14, at 151).
During
closing argument, counsel for Purchaser was concerned only with
“arsenic, aluminum, iron, and vanadium” (T. 4/15/14, at 6), and
did not mention any other element; thus, those four elements are
the focus here.
44

vanadium, and PCBs, and in some cases, when
I say “elevated,” I mean above residential
clean-up standards.
Other cases I mean
elevated above what Maryland defines as an
anticipated typical concentration for this
region of the state[.] . . . And [in] other
cases, “elevated” means above what would be
anticipated to be in surficial soils.
(Id. at 93; PTX 274, 517).

She opined that “[t]he only way

there could be elevated levels of those substances was . . . due
to the release from sludging activities, [and] the elevation of
those concentrations indicates hazardous substances are present
at the site.”

(Id.).

Asked by counsel for iStar whether she

“made [any] effort at all to find” background levels – i.e.
“what naturally occurring levels were on the Bevard Property” –
Ms. Richards responded, “I didn’t need to because the Maryland
Department

of

the

Environment

has

already

defined

what

a

background concentration would be for this area in the ATCs.”
(Id. at 187).
The

term

“ATCs,”

or

Anticipated

Typical

Concentrations,

refers to the background levels of various chemical elements
found naturally in the soils of Maryland.

These levels were

initially set forth in a 2001 MDE document entitled “Cleanup
Standards
(PTX

214).

for

Soil
The

and

Groundwater,

principal

author

of

Interim

Final

that

document

Guidance.”
was

Karl

Kalbacher, who testified at trial that the ATCs were derived
from a “natural background study that was undertaken by [his]

45

staff

and

[him]self

to

determine

natural

background

concentration of metals in soil in geologic areas of the state
of Maryland.”

(T. 4/2/14, at 99).

This study was useful to the

environmental community because “there were several metals whose
human health risk-based calculated concentration was lower than
the natural background concentration for metals in soil,” such
that “it would be impossible for anyone to clean up to the human
health

risk-based

concentration
issuance

of

was
the

concentration

higher.”

(Id.

guidelines,”

because
at

he

the

113).

natural

“Prior

the

“there

explained,

to
was

no

established provision for calculation of background outside of
an

individual

(Id.

at

providing
background

conducting

115).
an

The

a

guidelines

indication

levels

of

site-specific

as

addressed

to

certain

what

elements

background
this

study.”

problem

by

naturally-occurring
an

environmental

consultant would expect to find at a given location, thereby
eliminating the need for determining what the background levels
actually were at the site prior to any contamination.

According

to Mr. Kalbacher, “[t]he Soil and Groundwater Cleanup Standards
document is almost exclusively used by the regulated community
to investigate and remediate sites”; the guidelines “are applied
internally as well as externally, and they are used by multiple
divisions within the Maryland Department of the Environment.”
(Id. at 101).
46

The

study

upon

which

the

ATCs

were

based

consisted

of

gathering “analytical data” from “federal and state Superfund
sites” - i.e., contaminated sites that had been remediated by
MDE - and “aggregat[ing] [the data] to calculate an arithmetic
mean

of

the

background

metal

concentrations,

appl[ying] a standard deviation[.]”
were

then

divided

among

three

and

(Id. at 100).
regions

due

then

[]

The results
to

differing

concentrations of metals found in the soils:
The
uniqueness
of
the
geologic
provinces from west to east are that soil,
by
definition,
is
the
result
of
the
weathering of parent crystalline bedrock.
Bedrock is derived from mountains.
Mountains are located in the west, near
Cumberland, the Appalachians.
And so there
is a different soil concentration in the
western part of the state than there is in
the coastal plain portion of the state,
which is also analogous to the beach
environment.
(Id. at 115).

Because mountainous soils are generally less-

weathered, substantially higher concentrations of metals were
found to occur naturally in the soils in the western region of
the

state,

lower

concentrations

were

found

in

the

central

region, and the lowest concentrations were found in the eastern
region.

Mr. Kalbacher explained that the Bevard Property is

located in the eastern geologic region (T. 4/2/14, at 115),
meaning

that

the

Anticipated

47

Typical

Concentrations

of

naturally-occurring metals were the lowest of any region in the
State of Maryland.
In comparing the levels of arsenic, vanadium, iron, and
aluminum found by Environ on the Property to the ATCs for the
eastern region of Maryland, Mr. Kalbacher opined that “the site
is

contaminated

substances[.]”
characterizing

with

the

(Id.
these

at

release
104).

elements

as

of

controlled

Asked
“hazardous

the

hazardous
basis

substances,”

for
he

testified:
Arsenic is defined in the federal law under
the regulations to the Clean Water Act, 40
[C.F.R.] 116.4, as a hazardous substance.
And it has been detected at the site at
concentrations that also exceed risk-based
cleanup standards.[16] In fact, there is one
sample location where there is extremely
high elevated concentration of arsenic.
. . . .
Vanadium’s characterization of a hazardous
substance is found in the same location of
the Clean Water Act. . . . It has also been
detected at elevated concentrations relative
to
background
values
for
the
eastern
Maryland
province,
almost
uniformly
distributed exceedances of the vanadium
samples taken across . . . this site.
. . . .
Iron is classified as a hazardous substance
pursuant to the same regulation that I
16

He explained that “risk-based cleanup standards” means
“the cleanup standards that were provided . . . by the EPA . . .
that was adopted by the Maryland Department of the Environment.”
(T. 4/2/14, at 105).
48

described, the Clean Water Act. . . . Iron
was used as an additive in the production of
sludge that was ultimately applied at this
site, and, therefore, the concentration of
iron is elevated at the site at similar
percentages to that of vanadium.
. . . .
Aluminum, again, is a hazardous substance as
defined
under
the
Clean
Water
Act
regulation.
Aluminum, alum, which is the
common industry term, was added to sludge,
to thicken the sludge.
Alum contains
aluminum.
Aluminum is concentrated in
sludge; sludge was applied at this site.
There
are
elevated
concentrations
of
aluminum throughout the site in a similar
distribution that exists for vanadium and
iron.
(Id. at 105-07).

Asked, hypothetically, how he would advise a

client who found the levels of these elements that Environ found
on

the

Bevard

Property,

Mr.

Kalbacher

testified,

“[m]y

recommendation would be to report the results to the Maryland
Department of the Environment and to seek consultation on how to
effectuate

a

comprehensive

remediation of the property.”

investigation

and

subsequent

(Id. at 128).

The court does not find the testimony of Ms. Richards or
Mr. Kalbacher to be persuasive and, in the case of Ms. Richards,
it

does

not

find

it

credible.17

17

Ms.

Richards’

testimony

iStar moved in limine to exclude Ms. Richards’ testimony
on the ground that it failed to satisfy the requirements for
admissibility set forth in Daubert v. Merrell Dow Pharms., Inc.,
509 U.S. 579 (1993), and its progeny. (ECF No. 645). The court
declined to rule on that motion prior to trial and advised that
49

consisted essentially of the following syllogism: Environ tested
it would hear the testimony and consider its admissibility in
rendering an ultimate decision. (T. 4/1/14, at 89).
Under Federal Rule of Evidence 702, the district court has
“a special obligation . . . to ‘ensure that any and all
scientific testimony . . . is not only relevant, but reliable.’”
Kumho Tire Co. v. Carmichael, 526 U.S. 137, 147 (1999) (quoting
Daubert, 509 U.S. at 589). Rule 702 provides:
If
scientific,
technical,
or
other
specialized knowledge will assist the trier
of fact to understand the evidence or to
determine a fact in issue, a witness
qualified as an expert by knowledge, skill,
experience, training, or education, may
testify thereto in the form of an opinion or
otherwise, if (1) the testimony is based on
sufficient facts or data, (2) the testimony
is the product of reliable principles and
methods, and (3) the witness has applied the
principles and methods reliably to the facts
of the case.
As the United States
Circuit has explained:

Court

of

Appeals

for

the

Fourth

The first prong of this inquiry necessitates
an examination of whether the reasoning or
methodology
underlying
the
expert’s
proffered opinion is reliable – that is,
whether
it
is
supported
by
adequate
validation to render it trustworthy. See
[Daubert, 509 U.S.] at 590 n. 9. The second
prong of the inquiry requires an analysis of
whether the opinion is relevant to the facts
at issue. See id. at 591-92.
Westberry v. Gislaved Gummi AB, 178 F.3d 257, 260 (4th
1999).

Cir.

As will be seen, after considering all of the facts and
evidence, the court does not find that Ms. Richards’ opinion
that sludge is the source of the elevated levels of heavy metals
on the Property is reliable.
50

soil samples exclusively from areas of the Property where sewage
sludge was applied and those tests found elevated concentrations
of heavy metals; therefore, the elevated concentrations of heavy
metals

were

caused

by

a

release

from

sewage

sludge.

The

conclusion does not follow logically from the premises, relying
instead upon the expert’s ipse dixit opinion that “[t]he only
way there could be elevated levels of those substances was . . .
due to the release from sludging activities[.]”
93).18

(T. 4/1/14, at

An initial problem with this construct is that what Ms.

Richards found on the Property was often not what she expected
to find.
very

According to Ms. Richards, PCBs “were going to be a

good

Bevard

indicator

Properties”

or
(T.

signature
4/1/14,

of
at

sludge
101),

disposal
but

at

she

the
also

18

Purchaser’s counsel highlighted this point at a bench
conference related to iStar’s objection that Ms. Richards’
testimony regarding a sludge management “crisis” in the region
in the early 1970s was beyond the scope of her expertise. When
the court inquired as to the purpose of this testimony, counsel
clarified that the witness was offering “two opinions”:
One
is
that
she
found
the
hazardous
substances
on
the
site
through
the
analytical testing she did; and second, she
has the opinion that the . . . substances
discovered in the same soil columns are
indicative of sludge . . . [and] that the
property was sludged so much because of the
crisis in and around that area.
(4/1/14, at 109).
In other words, Ms. Richards testified that
she sampled areas she knew to have been sludged and found
hazardous substances; thus, ipso facto, the hazardous substances
resulted from sludge.
51

acknowledged that PCBs are “ubiquitous in the environment” (id.
at

155);

none

of

the

PCB

levels

she

found

exceeded

cleanup

standards (id. at 154); and she could only speculate as to why
many of the PCB levels detected occurred at depths lower than
where the sludge was expected to have been applied (id. at 18890).

Ms. Richards did not expect to find other elements, such

as arsenic and vanadium, in sewage sludge, but when she found
elevated levels on the Property, she simply assumed the cause
was accumulated sludge based on very limited historical data.
The

historical

testing

data

of

the

contributing

wastewater

treatment plants, moreover, showed that these elements were only
sometimes detected and then only in minute amounts.

(PTX 128,

at EPA00004444-56; PTX 154; PTX 161; PTX 162; PTX 179; PTX 182;
PTX 541; DTX 578; DTX 605; DTX 606, at PISC00045373).

The court

credits

biosolids

the

testimony

of

Dr.

Sally

Brown,

iStar’s

expert, who opined that, “in order for arsenic to be elevated in
biosolids, there would need to be a source for arsenic.
the

treatment

arsenic.”

plants

in

question,

(T. 4/8/14, at 74).19

there

was

no

In all

source

for

Indeed, the testing data for

arsenic at wastewater treatment plants showed levels “close to

19

This memorandum opinion does not provide a detailed
summary of the testimony of iStar’s scientific experts – namely,
Dr. Brown, Lisa Williams, Dr. Walter Lee Daniels, and Dr.
Shahrokh Rouhani – but those witnesses were highly credible and
informative, overwhelmingly so in comparison with Purchaser’s
experts.
52

zero” or “effectively at zero,” and many data points were below
a detection limit of five parts per billion.

(Id. at 57; PTX

128, at EPA00004444).
Dr. Brown and iStar’s soil science expert, Dr. Walter Lee
Daniels, agreed that, like PCBs, arsenic and vanadium were often
found at depths not suggestive of a release from the surface
application of sewage sludge.
206-07).
current

(T. 4/8/14, at 75; T. 4/9/14, at

With respect to vanadium, Dr. Brown testified that
regulations

of

biosolids

do

not

limit

that

element

because it “was never considered to be a risk in a soil system,
and vanadium was never considered as a major contaminant in the
biosolids . . . in the U.S.”

(T. 4/8/14, at 49).

In her review

of historical documents related to the application of sewage
sludge

at

the

Property,

moreover,

evidence of a source of vanadium.”

she

did

“not

(Id. at 83).

see[]

any

Ms. Richards,

by comparison, merely speculated that wastewater associated with
“printing operations” of the Washington Post was “probably a
major source” of vanadium.

(T. 4/2/14, at 48).

Lisa Williams,

another highly credible iStar expert who had worked with the
land application of biosolids from the same wastewater treatment
plants for many years, testified that she had no understanding
of vanadium content in sewage sludge because “we haven’t tested
or been required to test for vanadium in sewage sludge.”
4/9/14, at 83).
53

(T.

While

the

parties’

experts

generally

agreed

that

contributing wastewater treatment plants added aluminum and iron
to the sludges that were applied to the Property, Dr. Brown
testified that aluminum is “ubiquitous and a major constituent
of soil” (T. 4/8/14, at 83); Ms. Williams explained that “iron
and aluminum are naturally in the soils” and that “[h]igh levels
of that are actually added [to the sludge] because it’s a good
thing” (T. 4/9/14, at 99); and Dr. Daniels opined that “[t]he
levels of aluminum and iron . . . in these soils are typical of
soils

of

this

region”

excessive

levels”

(id.

testimony

of

wastewater

treatment

Ms.

and

“do

at

reflect

195-96).

Williams
plants

not

that
in

The

court

quality

question

contamination
credits

controls

have

the

at

remained

or

the

fairly

consistent over time (T. 4/8/14, at 175-77), and the testing
data

demonstrated

that

consistently monitored.

aluminum

and

iron

levels

were

The court further credits the testimony

of Dr. Daniels that “iron and aluminum oxides . . . are well
documented in their affinity to specifically bind and absorb
arsenic and vanadium,” which “would be beneficial to any soil
over time[.]”
report

of

(T. 4/9/14, at 198).

metals

found

in

the

As explained in a 1985

sludge

produced

by

regional

wastewater treatment plants, iron and aluminum do not represent
“a

potentially

serious

hazard

.

.

.

to

plants,

animals,

or

humans” and, although they were added to the sludge, such that
54

the sludge itself often “contain[ed] high levels of iron and/or
aluminum, these elements do not pose a problem [in terms of crop
production or plant accumulation] provided that the application
site is well managed.”
evidence

generally

(DTX 606, at PISC00045353, 54).

reflected

that

the

Bevard

The

application

was

well managed, under the supervision of on-site inspectors and in
compliance with permits.

(DTX 612A, J. Bevard depo.).20

Thus,

aside from the fact that the concentration of these elements
exceeded ATC levels, there is little to suggest that aluminum
and iron pose any real concern.
It is difficult to know what to make of Mr. Kalbacher’s
testimony.
neither

iStar did not specifically rebut this witness, and

party

asked

any

of

20

the

Maryland

environmental

Some of the historical sludge documents related to the
Bevard Property referenced the Property as a “landfill” (PTX
16), which Purchaser interpreted to mean that it was essentially
a
dumping
site,
rather
than
a
site
where
sludge
was
systematically applied.
Ms. Williams dispelled this notion,
testifying that, regardless of the use of the word “landfill,”
the data itself supported that the Property was a land
application site.
(T. 4/8/14, at 202-03).
Various documents
referenced the disposal of “grit” on site and one mentioned the
excavation of “10-by-10-by-6-foot” pits in which grit was to be
deposited.
(PTX 18).
Ms. Williams explained that “[g]rit is
the sand, the solids, the inorganic fragment that comes into the
wastewater treatment plant.”
(T. 4/9/14, at 71).
Over
Purchaser’s objection, Seller was permitted to introduce a
supplemental portion of John Bevard’s videotaped deposition in
which he testified that no grit was disposed of on the Property
and that “grit pits” were never excavated. (T. 4/10/14, at 11516; DTX 612C).
No evidence that “grit” was found on the
Property was presented at trial and the court credits Mr.
Bevard’s testimony that none was applied.
55

consultants who testified if they had a similar understanding of
the import of ATCs.

There is, however, ample reason to conclude

that the ATCs for the eastern region of Maryland cannot serve as
a viable substitute for naturally-occurring background levels on
the Property.

For one thing, the ATCs have never been adopted

by statute or regulation in Maryland, nor is the term mentioned
in case law.

Mr. Kalbacher acknowledged on cross-examination

that the 2001 document setting forth the ATCs merely provides
“guidance” and “is not compulsory.”

(T. 4/2/14, at 164).

The

guidance document itself recognized that the investigation upon
which

the

scientific

ATCs

were

analysis

based

“does

conducted

not

in

a

constitute
controlled

a

rigorous

experimental

setting” and that “ATC reference levels” were intended to “serve
as general indicators of background levels of metals and trace
elements in soil until a more rigorous and thorough background
investigation can be completed.”
at

47).

completed.

To

date,

no

(T. 4/2/14, at 158; PTX 214,

subsequent

investigation

has

been

Moreover, Mr. Kalbacher agreed that the Maryland

Department of the Environment “endorses, runs, and oversees the
Maryland state biosolids program.”
sewage

sludge

contains

elevated

(Id. at 153).

levels

of

heavy

Thus, if
metals,

MDE

could potentially “endorse the inappropriate land application of
hazardous
anomalous.

materials,”
(T.

a

4/2/14,

result
at

that

153).
56

he

agreed

Additionally,

would

be

due

to

substantial differences in the concentrations of elements that
Mr. Kalbacher’s study found in different geological regions of
the state, levels that are presumed to be naturally occurring in
the

western

and

central

regions

would,

according

to

his

testimony, require remediation in the eastern region where the
Bevard Property is located.

(Id. at 160-61).

As Dr. Daniels

explained, metal concentrations in soil can vary widely at a
given property (T. 4/9/14, at 196-97); thus, ATCs, based on a
mean of limited testing data across an entire region of the
state, would seem a poor substitute for site-specific testing to
determine background levels.
The 2001 guidance document authored by Mr. Kalbacher also
points to a more fundamental problem with Purchaser’s evidence.
The

document

suggests

that

“to

determine

if

more

than

one

population of data exists at a property” - such as, for example,
sewage sludge and background soils - “[t]he data collected from
any sampling approach must be evaluated by statistical means[.]”
(PTX 214, at 14; T. 4/2/14, at 15).

Ms. Richards similarly

testified that, in “look[ing] at the impact of sludging” at a
given site, EPA guidance provided that a sampling and analysis
plan should involve “a statistical comparison between the land
farm conditions to the background conditions.”
7).

But

implemented

that

is

at

the

not

what

Bevard

the

sampling

Property
57

did.

and

(T. 4/1/14, at
analysis

While

the

plan

stated

purpose

of

the

environmental

plan

was

to

test

representations

the

and

accuracy

of

warranties,

Seller’s
Environ’s

methodology did not factor in critical language of § 12.2(d) namely,

that

conditions

“disclosed

reports” were specifically excepted.
reports

revealed

that

from

in

Seller’s

environmental

(JTX 41 § 12.2(d)).

approximately

1957

to

Those

1991,

the

Property was extensively mined for sand and gravel and that
large portions were replenished with fill material of unknown
quality.

(JTX 25, at SCH00000599).

Indeed, sewage sludge was

applied to the Property with the intent of improving the quality
of the soil, which had been diminished due to decades of mining
activities.
that

(DTX 612A, J. Bevard depo.).

mining

Piscataway

operations

Wastewater

had

depleted

Treatment

Plant

The URS report noted
the

system

soil,
ran

that

the

through

300

acres of the Property, and that a small portion of the Property
was on the State’s master list of hazardous sites related to an
experimental project by the EPA involving the land application
of sludges generated by the wastewater treatment plant.
35, at USH-00029077-78).21
Phase

I

ESA

nor

the

2004

(JTX

Schnabel cautioned that neither the
update

21

included

soil

sampling

or

While the URS archaeological survey may not constitute an
“environmental report” under the Purchase Agreement, it provided
substantial historical detail related to the environmental
condition of the Property and Purchaser generally agreed at
trial that it was charged with knowledge of what it disclosed.
(T. 4/15/14, at 23).
58

testing (JTX 29, at ECC 00001135), and while it did not visually
observe

evidence

of

questionable

materials

in

the

soil,

Purchaser either knew or should have known that the chemical
content of the soil was an unknown factor, a point alluded to by
Mr. Jacoby when the sludging operation was initially discussed
at Lennar.

(DTX 570, at USH_02035516).

Indeed,
independent

Purchaser
Phase

I

later
ESA,

retained

and

that

ECC

to

conduct

consultant’s

an

specific

recommendation that Purchaser “assess native soil quality” in
certain portions of the Property was largely ignored.
1).

(JTX 52 §

Asked on cross-examination by Purchaser’s counsel whether

any of the items listed in the ECC report were “intended to
alert Lennar that there was heavy metal contamination on the
property,”

Joseph

King,

who

supervised

the

ECC

environmental

site assessment of the Property, responded, “[n]ot specifically
heavy metal contamination, but that there were areas of unknown
conditions

–-

soil

conditions.”

(T.

4/4/14,

at

59).

Nevertheless, Purchaser subsequently represented to Seller (in
the Second Amendment), to iStar (in the Consent and Estoppel
Agreement), and to at least one potential joint venture partner
that it was satisfied with the environmental condition of the
Property.
requested
seeking

As Mr. Beckwitt acknowledged at trial, when Purchaser
access

to

to

the

investigate

Property
any

in

specific
59

early

2008,

environmental

it

was

not

condition.

(T. 3/31/14, at 132).

To the contrary, the evidence strongly

supports that this request was essentially a fishing expedition
designed to delay closing and to search for a reason to avoid it
altogether.
In short, the reports provided by Seller prior to execution
of

the

Purchase

homebuilder,

Agreement

on

inquiry

put

Purchaser,

notice

of

a

the

sophisticated
potential

for

contamination, at least as it related to the historic mining
operation.

See Poffenberger v. Risser, 290 Md. 631, 637 (1981)

(a plaintiff is on inquiry notice when it has “knowledge of
circumstances

which

ought

to

have

put

a

person

of

ordinary

prudence on inquiry (thus, charging the individual) with notice
of

all

facts

which

such

an

investigation

would

in

all

probability have disclosed if it had been properly pursued”).
Thus, to test the environmental representations and warranties,
Environ had to demonstrate the presence of “Hazardous Materials”
related to some other source.

As set forth in its amended

complaint (ECF No. 52 ¶ 143), Purchaser’s late-developing theory
as to the cause of a “release” of heavy metals on the Property
that was not disclosed by Sellers was sewage sludge, but its
expert’s

sampling

and

analysis

plan

could

not

confirm

that

theory because of its “biased” nature.

There was no credible

evidence

dixit

supporting

Ms.

Richards’

ipse

conclusion

that

sewage sludge was the source of any heavy metals on the Property
60

and substantial evidence suggested otherwise.

Counsel for iStar

vigorously cross-examined Ms. Richards regarding her disavowal
of prior statements that certain sampling sites were outside of
the areas where sludge was applied, and two of iStar’s experts Dr. Daniels and Dr. Shahrokh Rouhani - opined that there was
essentially no difference between the quality of soils in these
areas and those that were believed to have been applied with
sludge.

(T. 4/9/14, at 188; T. 4/11/15, at 126).

Ultimately,

however, even assuming that Environ tested only “sludged” areas,
it could not establish that sewage sludge released “Hazardous
Materials”

without

conducting

a

background soils on the Property.

statistical

comparison

with

Purchaser suggested that the

ATCs served as a valid comparator, but the ATCs, if credited as
a substitute for background, could only show that there were
excessive levels of heavy metals - not what put them there.
Accordingly, Purchaser has not met its burden of demonstrating
that the source of “Hazardous Materials” on the Property was
something other than what was disclosed in the environmental
reports provided by Seller.
In light of that conclusion, the court need not reach the
question

of

whether

there

were

“Hazardous

Materials”

on

the

Property in material amounts, but Purchaser fell short in this
regard as well.

Under § 12.2(d) of the Purchase Agreement, the

term

Materials”

“Hazardous

is

defined

61

as

“hazardous

wastes,

hazardous

substances,

and

toxic

materials

prohibited

or

regulated by federal, state or local law, regulation, or order,
.

.

.

[and]

polychlorinated

[biphenyls]

(“PCBs”).”

It

is

undisputed that PCBS were not found on the Property in amounts
sufficient

to

constitute

a

material

breach

environmental representations and warranties.
the

arsenic,

vanadium,

iron,

and

aluminum

of

Seller’s

To establish that
levels

constituted

“Hazardous Materials,” Purchaser seemingly relies on the ATCs,
but

it

has

constitutes
order.”

not

a
In

shown

“federal,
its

that
state

closing

the
or

non-compulsory

local

argument,

law,

guidance

regulation,

Purchaser

asserted

or

that

“[e]ach [element] is a hazardous material under Article [7]201(l) . . . [of] the environmental article” of the Maryland
Code.

(T. 4/15/14, at 29).

That section defines a “hazardous

substance” as “any substance . . . [d]efined as a hazardous
substance

under

[i]dentified

§

as

a

101(14)

of

controlled

the

federal

hazardous

act;

substance

Department in the Code of Maryland Regulations.”
section
means

.

101(14)
.

.

of

any

CERCLA,

“[t]he

hazardous

waste

term

‘hazardous

having

or

the

.
by

.

.
the

Pursuant to
substance’

characteristics

identified under or listed pursuant to section 3001 of the Solid
Waste Disposal Act [43 U.S.C. § 6921] (but not including any
waste the regulation of which under the Solid Waste Disposal Act
. . . has been suspended by Act of Congress)[.]”
62

42 U.S.C. §

9601(14).

Under 40 C.F.R. § 261.4(a)(1), however, “[d]omestic

sewage” and “[a]ny mixture of domestic sewage and other wastes
that passes through a sewer system to a publicly-owned treatment
works”

is

expressly

excluded

wastes” under CERCLA.
excludes

from

from

the

definition

of

“solid

Similarly, in Maryland, COMAR 26.13.02.04

the

State’s

definition

of

“solid

wastes”

“[d]omestic sewage . . . that passes through a sewer system to a
publicly owned treatment work for treatment,” as well as certain
industrial

wastewater,

and

defines

“[d]omestic

sewage”

as

“untreated sanitary wastes that pass through a sewer system.”
Thus, sewage sludge, consisting essentially of wastes that pass
through a sewer system that are then treated by publicly owned
treatment works and approved for land application by regulatory
authorities,

appear

to

be

excluded

from

the

definition

hazardous substances under state and federal law.

of

Counsel for

iStar argued as much in closing (T. 4/15/14, at 95-96), and
Purchaser did not challenge this argument in its rebuttal.
B.

Refusal of Access

Resolution of Counts I – III and, to a limited extent,
Count VII of U.S. Home’s amended complaint turn on the question
of whether Seller’s refusal of U.S. Home’s request for access to
the Property constituted a breach of § 13(a) of the Purchase
Agreement
breach

vis-à-vis

against

§

15(b).

Settlers

Specifically,

Crossing
63

and

WPE

Count
related

I

alleges

to

their

“refusal to allow U.S. Home to inspect the Property” (ECF No. 52
¶ 99); Count II alleges breach against BDC for failing to return
U.S. Home’s deposit on the Contract for Services following the
alleged

breach

(id.

at

¶

114);

Count

III

alleges

breach

of

guaranty against Mr. Sandler for his failure to return deposits
under the parties’ agreements upon demand (id. at ¶ 122); and
Count VII seeks, in relevant part, a declaration that “U.S. Home
properly terminated the Agreement on July 3, 2008, based on []
Seller’s

material

breach

of

Section

13(a)

of

the

Purchase

Agreement” (id. at 38).
At

trial,

the

parties

presented

extensive

evidence,

and

argued at length, regarding whether Seller’s refusal to permit
Purchaser

access

to

the

Property

to

constituted a breach of § 13(a).

conduct

investigations

That section provided, in

relevant portion, that “Purchaser shall have the right . . . ,
with

the

prior

approval

of

WPE,

in

each

instance,

until

Settlement, to make such investigations, studies and tests with
respect

to

the

appropriate.”

Property

as

Purchaser

(JTX 41 ¶ 13(a)).

deems

necessary

or

Pursuant to § 15(b), “[i]f

Settlers Crossing shall . . . breach any of its representations,
warranties or covenants . . . in any material respect . . . then
Purchaser

shall

have

the

right,

as

its

sole

and

exclusive

remedy, . . . [to] terminate this Agreement and receive a return
of its Deposit[.]”

(Id. at ¶ 15(b)).
64

In Purchaser’s view, U.S.

Home’s request for access to the Property in early 2008 was
entirely

reasonable

and

thus,

Seller
it

is

denied
entitled

permission
to

a

for

no

of

its

legitimate

reason;

refund

deposits.

According to Seller, Purchaser’s request for access

was an unreasonable “sham request” and it was within its rights
to refuse permission.
Purchaser
contract

cannot

related

reasons.

prevail

to

on

Seller’s

its

refusal

claim
of

for

access

breach
for

of

three

The first relates to the fact that the access issue

was resolved prior to expiration of iStar’s cure period under
the Consent and Estoppel Agreement.

Pursuant to § 10 of that

contract, Purchaser agreed that “if Settlers Crossing or WPE
defaults under the terms of the Purchase [Agreement], [it would]
promptly notify [iStar] . . . and, before taking any action
against Settlers Crossing or WPE, or terminating the Purchase
[Agreement], provide [iStar] with a reasonable period of time to
cure such default[.]”

(DTX 259 § 10).

While the agreement

contemplated cure periods of varying duration depending on the
circumstances, and it is unclear which applied, there appears to
be no dispute that iStar’s cure period expired on July 2, 2008.
(JTX 73, at 2).
2008

–

motion
action.

Judge
to

Prior to that date – specifically, on June 27,

Connelly

compel

issued

inspection

(DTX 460).

an
of

order
the

granting

Property

in

U.S.
the

Home’s
initial

Thus, Purchaser was granted the right to
65

inspect the Property prior to expiration of iStar’s right to
cure and, as iStar communicated by letter dated June 30, there
was “nothing for [it] to cure.”

(DTX 461, at USH-00004666).

During closing arguments, counsel for Purchaser asserted
that “Maryland law is clear” that “a breach cannot be cured by a
court order” (T. 4/15/14, at 119), but he cited no case law in
support of that proposition, nor is the court aware of any.22
Notably, at the time Purchaser provided notice of default to
Seller and iStar, a fully-briefed motion to compel access in the
initial action had been pending for more than two weeks.

Thus,

Purchaser was aware that the access issue might be resolved by
court order prior to expiration of the applicable cure periods.
In

fact,

it

actively

sought

to

avoid

that

possibility

by

directing counsel “to file a [post-hearing] supplemental brief .

22

In its opposition papers on summary judgment, Purchaser
cited two cases – Government Guarantee Fund of Republic of
Finland v. Hyatt Corp., 960 F.Supp. 931, 945 (D.V.I. 1997)
(“payment under judicial compulsion can hardly constitute good
faith performance and payment under a contract, nor can it
excuse or cure . . . payment defaults”), and VanHaaren v. State
Farm Mut. Auto Ins. Co., 989 F.2d 1, 7 (1st Cir. 1993) (“Nor is
[Appellant] saved by his eventual submission to the court order
compelling his attendance at the January 14 IME” because,
“[w]ere it otherwise, IME clauses would be reduced to little
more than invitations to litigate IME requests” (emphasis in
original)) – in support of this general proposition.
(ECF No.
593, at 43-44). Neither of those cases involved the application
of Maryland law, remotely similar facts, or circumstances in
which a breach was declared while a motion was pending that
would effectively resolve the issue. Moreover, in neither case
was a contractual cure period still in effect at the time the
issue was resolved by the court.
66

. . in the hope that filing will raise additional questions and
push an order out past July 3[,] . . . the date that Sandler and
[iStar’s] right to cure expires[.]”

(DTX 566).

As it happened,

Judge Connelly resolved the issue before that date and iStar
promptly

gave

notice

court’s order.

advising

that

Seller

(DTX 361, at USH-00004666).

would

comply

the

At best, Purchaser

has shown that its request for access was delayed from January 3
to

June

27,

2008,

a

time

period

when,

the

evidence

overwhelmingly supports, it had not yet resolved why access was
necessary or what it would look for if it gained access to the
Property.

Section 15(b) of the Purchase Agreement authorized

Purchaser to terminate the agreement for a breach of Seller’s
representations,
respect[.]”

warranties,

or

(JTX 41 § 15(b)).

covenants

“in

any

material

To the extent Seller’s refusal

of access was a breach, Judge Connelly’s order, issued prior to
expiration
immaterial.

of

iStar’s

right

to

cure,

rendered

that

breach

See Gresham v. Lumbermen’s Mut. Cas. Co., 404 F.3d

253, 260 (4th Cir. 2005) (“A breach is material ‘if it affects
the purpose of the contract in an important or vital way.’”
(quoting Sachs v. Regal Sav. Bank, FSB, 119 Md.App. 276, 283
(1998)).
U.S. Home’s breach of contract claim also fails because it
did not satisfy a precondition to its right of access under §

67

13(c) of the Purchase Agreement.

That section provided, in

relevant part:
Purchaser shall [] maintain, in full force
and
effect,
a
policy
or
policies
of
comprehensive general liability insurance,
with limits of not less than $1,000,000 per
occurrence and $2,000,000 in the aggregate,
issued by one or more carriers admitted and
licensed to do business in Maryland, and
naming WPE and Settlers Crossing as an
additional insured against liability for
injury to or death of persons and loss of or
damage to property occurring in, on or about
the
Property
caused
by
Purchaser
or
Purchaser’s agents, consultants, contractor,
employees or representative. . . . Prior to
any entry on the Property, Purchaser shall
provide WPE and Settlers Crossing with
original certificates (or a fax of same),
evidencing all such insurance coverage as
required under this paragraph.
(Id. at § 13(c)).
In

response

to

U.S.

Home’s

notice

of

default,

Seller

asserted that Purchaser was not entitled to enter the Property
without providing the required certificate of insurance.
656,

at

2).

confirmed

to

In

an

email

several

dated

colleagues

June

at

4,

Lennar

2008,
that

(DTX

Mr.

Jacoby

“[w]e

never

provided [Seller] with any Certificate of Insurance because we
were never asked to.”

(DTX. 644).

Jacoby

that

further

unsupervised

noted,

access

to

the

Seller

While it is true, as Mr.
gave

property

Purchaser

throughout

“free

the

and

contract

period until [Purchaser’s] formal request” (id.), the § 13(a)
request

for

access

in

early

2008
68

was

of

a

fundamentally

different

character

than

the

parties’

prior

dealings.

This

request was made at a time when the parties had essentially
ceased all communications, other than through attorneys.

Unlike

prior occasions in which Purchaser accessed the Property, this
request was formal, in writing, and specifically pointed to a
contractual right that required Seller’s approval.

Moreover,

this request was made in the context of litigation; in fact, it
was couched in terms of both a contractual right and a discovery
right to inspect the Property.

(JTX 66, at iStar00019491).

To

the extent Purchaser suggests that Seller waived a right to
require a Certificate of Insurance, § 18(G) of the parties’
agreement provides that “[n]o waiver of any of the provisions of
this Agreement shall be valid unless the same is in writing and
is signed by the party against [] which it is [s]ought to be
enforced.”

(JTX 41 ¶ 18(G)).

The evidence does not reflect

that any such waiver was ever signed by Seller.
According

to

the

Restatement

(Second)

of

Contracts,

“[p]erformance of a duty subject to a condition cannot become
due

unless

excused.”

the

condition

occurs

or

its

non-occurrence

is

See generally Sherwood Brands, Inc. v. Great American

Ins. Co., 418 Md. 300, (2011) (applying Restatement (Second) of
Contracts § 225).

Much like U.S. Home was not obligated to

close until Seller had satisfied certain conditions precedent to
settlement, Seller was under no obligation to permit U.S. Home
69

to enter the Property until Purchaser produced a Certificate of
Insurance.

Because Purchaser never satisfied that condition,

there could be no breach.
Finally,
permission.

Seller

acted

within

its

rights

in

withholding

While the conduct of both parties related to the

request for access is reminiscent of children throwing sand at
each other in a sandbox, the touchstone for the court’s analysis
is reasonableness.

As explained in the opinion deciding pre-

discovery summary judgment motions:
[I]n 7-Eleven, Inc. v. McEvoy, 300 F.Supp.2d
352, 361 (D.Md. 2004) (citing Julian v.
Christopher, 320 Md. 1, 9 (1990)), [the
court recognized] that “[w]hen a party to a
contract is granted discretion to make
decisions without an express standard to
guide its use, [c]ourts will infer that the
parties intended the discretion to be used
reasonably as opposed to arbitrarily or
capriciously.”
This principle is derived
from the general implied covenant of good
faith that inheres in every contract[.]
(ECF No. 41, at 27).
the

access

issue

reasonable.

is

Thus, the critical question with regard to
whether

Seller’s

refusal

of

access

was

In deciding the initial summary judgment motion,

the court found there were “genuine issues of material fact
regarding

the

underlying

reason

for

U.S.

Home’s

request

whether Seller’s rejection of the request was reasonable.”
at 29).

and
(Id.

Upon consideration of the evidence at trial, the court

concludes that U.S. Home’s request for access was not made in

70

good faith and, under the particular circumstances of this case,
that Seller’s refusal of access was reasonable.
The

evidence

demonstrated

that,

by

at

least

October

1,

2007, Purchaser viewed the Bevard transaction as a financial
albatross and actively sought to relieve itself of this burden.
In the Second Amendment, executed less than five months earlier,
Purchaser

had

already

extracted

significant

concessions

from

Seller in light of the contracting housing market, resulting in
a

substantially

reduced

purchase

corporate guaranty by Lennar.
Lennar

guaranteed

settlement,

it

was

to

Seller

actively

price

in

(JTX 56).
that

U.S.

searching

exchange

for

a

At the same time
Home

for

would

a

joint

go

to

venture

partner to purchase the Property – a result that would have been
prohibited,
Purchase

absent

Agreement.

Seller’s
(JTX

41

consent,
¶

under

18(F)).

§

18(F)

When

of

the

Purchaser

was

unable to find a joint venture partner or land bank to assume
its contractual obligations, it retained “a team of high priced
lawyers and consultants” (DTX 380) to search for an “escape
clause” in the Purchase Agreement (T. 3/31/14, at 184).
Seller

began

forwarding

closing

documents

in

advance

When
of

the

December 5, 2007, settlement date, it received no response from
Purchaser (T. 4/3/14, at 60); in fact, as the settlement date
approached, project-level managers at U.S. Home were directed to
have no contact with Seller’s principals (DTX 401).
71

Having

learned that Purchaser was seeking to avoid the contract (T.
4/10/14,

at

55-57),

Seller

was

understandably

concerned

and

commenced the initial action in response.
Thus, by January 3, 2008, when U.S. Home transmitted its
request

for

access,

there

skeptical

of

Purchaser’s

amplified

by

the

various

issues

was

motives.

content

that

had

good

of

This

the

been

reason

letter

for

Seller

skepticism
itself,

specifically

to

was

which

addressed

be

only
cited

by

the

parties over the prior two-plus years since the inception of the
project.

(T. 4/3/14, at 55).

Mr. Beckwitt’s testimony that the

filing of the initial action was the impetus for requesting
access to inspect the Property (T. 3/31/14, at 132), is belied
by

the

fact

circulated

that

among

a

draft

Lennar

commenced (DTX 399).

letter

requesting

executives

before

access

the

law

had

been

suit

was

Mr. Beckwitt acknowledged that Purchaser

had “no reason to believe that there was anything wrong with the
property” at the time of the request and that it “didn’t know
what [it would] find” if it gained access.
132).

The

evidence

shows

that

the

purpose

(T. 3/31/14, at
of

Purchaser’s

request for access was to delay closing while it settled on a
strategy to avoid its obligations under the Bevard contracts.
This conclusion is supported by the fact that Purchaser later
rejected Seller’s offer of compromise as to the access issue
(DTX 565, at 2) and that, after gaining a right of access to the
72

Property
right.
list

through

the

court,

Purchaser

never

exercised

that

Rather, as reflected in a March 31, 2008, “core and hit

report,”

Purchaser

was

determined

to

“[t]erminate

[the]

contract and get [its] deposit back via legal action.”

(DTX

443; T. 3/31/14, at 213).
Based on these facts, the court concludes that U.S. Home’s
request for access was not made in good faith and, consequently,
that

Seller’s

denial

of

that

request

was

reasonable.

Accordingly, Seller did not breach its obligations under § 13(a)
of the Purchase Agreement.
III. Conclusion
For

the

foregoing

reasons,

the

court

concludes

that

Purchaser has not met its burden at trial as to any of the
remaining claims in its amended complaint.
amended

counterclaim

seeks

a

declaration

Insofar as iStar’s
that

Purchaser

was

“obligat[ed] to settle . . . and pay the considerations due
under the [Purchase Agreement] and the Contract for Services on
May 27, 2008” (ECF No. 447 ¶ 82.a(2)), which is essentially the
converse of the declaratory relief sought by U.S. Home, iStar
appears to be entitled to relief under the Purchase Agreement
upon Purchaser’s default.
the

Second

Amendment,

Pursuant to § 15(a), as modified by

upon

default

by

U.S.

Home,

“Settlers

Crossing shall be entitled to specific performance . . . to
complete the Settlement in accordance with the Agreement and pay
73

the

Purchase

Price

(modifying § 15(a)).
by

the

Second

to

Settlers

(JTX

56

¶

27

Moreover, under § 15(d), also as modified

Amendment,

corporate guarantor.

Crossing.”

Lennar

is

liable

as

U.S.

(Id. at ¶ 28 (adding § 15(d)).

Home’s

As iStar

now stands in the shoes of Settler’s Crossing, it is entitled to
specific performance under the Purchase Agreement.23
Before judgment may be entered, however, a question remains
as to whether iStar can deliver the Property that was promised
in the Purchase Agreement.

Prior to the court’s decision on the

parties’ cross-motions for summary judgment, Purchaser moved for
leave to file a supplemental memorandum related to the alleged
fact that zoning for a portion of the Property has lapsed.
No. 611).

(ECF

The court denied that motion, without prejudice to

renewal, finding that “[t]he rezoning is only relevant insofar
as it might affect an award of damages if iStar were ultimately

23

Several motions in limine are still pending and may be
dispensed with summarily. Seller’s motion to preclude evidence
of development costs (ECF No. 637); Purchaser’s motions to
preclude expert testimony of James Brennan and Daniel Colton
(ECF No. 639), to preclude iStar’s experts from testifying
regarding the application of the EPA Part 503 rule (ECF No.
640), and to preclude evidence of bad faith (ECF No. 641); and
iStar’s motions to bar testimony and evidence related to Mr.
Jacoby (ECF No. 642) and to preclude expert testimony of B. Tod
Delaney (ECF No. 644) will be denied as moot. iStar’s motion to
preclude the expert testimony of Robin Richards (ECF No. 645)
and iStar’s motion for judgment on partial findings (ECF No.
678) will be denied. Additionally, Purchaser’s objection to the
court’s consideration of certain documents produced just before
trial related to Steven Engle will be sustained. The court has
not relied on any such document in rendering this opinion.
74

prevail.”

(ECF No. 624, at 2 n. 1).

Further proceedings will

be necessary to determine whether, or to what extent, the lapsed
zoning affects iStar’s remedy and the measure of damages in this
case.
A separate order will follow.

________/s/_________________
DEBORAH K. CHASANOW
United States District Judge

75