Relating to Real Estate

In an opinion that was widely publicized in the local press, State Center v. Lexington Charles Limited Partnership, No. 12 Sept. Term 2013 (Md. Mar. 27, 2014), the Court of Appeals reversed a ruling of the Circuit Court for Baltimore City and held that the challengers to the redevelopment of the State Center project, located just north of downtown Baltimore, had waited too long to file their lawsuit. As a result, the Court dismissed their complaint, and the project may proceed.

Judge Glenn T. Harrell, Jr., writing for the Court of Appeals, never reached the question as to whether state procurement laws and regulations were followed, which was the basis of the challengers’ objection. Instead, the Court explored the applicability of a number of legal doctrines in its self-styled novella-length opinion (157 pages in length) before deciding that the doctrine of laches prohibited the challengers from asserting their claims.

The project is the proposed redevelopment of approximately 25 acres of land owned by the State of Maryland, which is expected to cost $1.5 billion. The land is now improved by five buildings. The Court of Appeals’ opined that the improvements “currently blight[] the skyline of midtown Baltimore,” that the “buildings are long past their useful lives,” and that “the State Center may be deemed fairly a ‘concrete wasteland’” (quoting Governor O’Malley for the last characterization).

In 2005, the State of Maryland issued a Request for Qualifications (RFQ) for a Master Developer to develop the entire project, and then chose State Center, LLC to serve that role. Originally State Center, LLC was controlled by Struever Bros. Eccles & Rouse, Inc., but the Court of Appeals noted that on March 22, 2009 the membership interests were transferred to PS Partners, LLC. According to press reports, Caroline G. Moore is the CEO of Ekistics, LLC, which is the current managing member of State Center, LLC. Between 2007 and 2010 State Center, LLC and agencies of the State entered into a series of agreements including a Master Development Agreement (MDA) and a First Amendment to it.

On December 17, 2010, 15 plaintiffs (who were later joined by seven other plaintiffs and who, according to press reports, were led by Peter G. Angelos, owner of the Orioles and of property in downtown Baltimore) filed suit in the Circuit Court for Baltimore City to enjoin the development of the project. The plaintiffs (appellees in the Court of Appeals) were all property owners in Baltimore City, and Maryland taxpayers. The gravamen of the complaint was that the huge State Center project would significantly weaken Baltimore’s central business district by attracting to mid-town businesses that are now located downtown.

Both parties filed motions to dismiss, but on July 19, 2011 the Circuit Court denied those motions. The Circuit Court held that the defendants had “taxpayer standing” to bring the challenge, and the court rejected the defense relating to exhaustion of administrative remedies. The Circuit Court also rejected the defendants’ claim of laches, finding that the first binding agreement was not executed until June 2009. The court further held that the matter was within the province of judicial review.

On September 2, 2011, the defendants filed a counterclaim for $100 million for tortious interference with economic relationships. However, pursuant to the Noerr-Pennington doctrine which confers immunity to those who use the courts to advocate their causes regarding their business and economic interests vis-à-vis their competitors, the Circuit Court dismissed the counterclaim on December 22, 2011.

On January 17, 2013, the Circuit Court issued an order holding that the procedures undertaken to obtain the MDA, the First Amendment, and two ground leases covering parts of the project did not comply with the provisions of the State Procurement Law, and that those documents were, therefore, void.

The Court of Appeals issued a writ of certiorari before the Court of Special Appeals considered this case. The appellees filed a Motion to Dismiss the petition for the writ of certiorari on the basis that three points (including the defense of laches) were in the appellants’ brief but not in the petition for cert. The Court of Appeals denied the motion because it held that the Maryland Rules give the Court the right to consider those matters.

The Court examined whether the matter was justiciable, for which it considered whether the plaintiffs had standing. Citing the federal rule, the Court of Appeals noted that courts determine if a party has standing by asking “whether the plaintiff has suffered an injury in fact that is fairly traceable to the defendant’s conduct and that is likely to be redressed by a decision in the plaintiff’s favor.” There are different ways in which a party may establish its standing.

The Court of Appeals found that the appellees did not have “property owner standing” because the properties they owned were all located from 0.57 to 0.84 miles from State Center, which was too far for them to be considered prima facie aggrieved. On the other hand, the Court did find that appellees had “taxpayer standing.” The Court stated that “under the taxpayer standing doctrine, a complainant’s standing rests upon the theoretical concept that the action is brought not as an individual action, but rather as a class action by a taxpayer on behalf of other similarly situated taxpayers.” Although appellees did not plead in the Circuit Court that they brought their action on behalf of other taxpayers who are similarly situated, they did claim that they were harmed as Maryland taxpayers. The Court of Appeals considered this to be sufficient. Also, the Court determined that appellees had alleged a special interest that was distinct from the claims of the general public, and that was the increased burden of taxation should the project move forward. The Court found that the appellees had alleged a sufficient nexus of harm to them and to similar taxpayers. Therefore, the Court of Appeals concluded that appellees had sufficiently pleaded applicability of the taxpayer standing doctrine.

(Rejecting a claim of an alternative basis for standing, the Court held that damage caused by the presumed competition of the project to appellees was an individual, private harm that does not affect the relevant class of taxpayers and does not provide for standing.)

At that point appellees had cleared their initial hurdles after the first 125 pages of the Court of Appeals’ opinion, but then they ran into what the Court called “the fatal flaw.” It is difficult to surpass the imagery of the metaphor that Judge Harrell used to introduce the last portion of the Court of Appeals’ decision, so we repeat it: “After climbing the foothills to this point and with the mountain almost in sight, Appellees’ surviving claims on the merit shall stumble and fall to a figurative death in the crevasse that is the equitable doctrine of laches.”

Laches “applies when there is an unreasonable delay in the assertion of one’s rights and that delay results in prejudice to the opposing party.” The Court decided that it would not adopt a rule that laches could not be raised in a taxpayer suit. Instead, it held that the application of the doctrine should be based on equitable principles. The Court noted that it could address on its own whether the doctrine of laches is applicable as appellants did not raise it in their petition for writ of certiorari.

Appellees argued that the case first became ripe in June 2009 when the MDA was signed because that was the first deal document that was executed. However, the Court considered that the relevant time period started to run when the State chose State Center, LLC as the Master Developer, and that was more than five years before appellees suit was filed.

In order to determine whether appellees’ delay in filing suit was unreasonable, the Court of Appeals looked to the applicable statute of limitations, which is three years. Using this as a guideline, the Court of Appeals held that appellees waited too long to file its complaint. The Court also found that the State agencies were prejudiced by the “unreasonable delay” of appellees in bringing suit.

Therefore, the Court of Appeals vacated the judgment of the Circuit Court for Baltimore City – without addressing the merits of the procurement issue that was raised by appellees and was the focal point of the Circuit Court’s opinion.

The opinion of the Court of Appeals was unanimous, but Associate Judge Lynn Battaglia joined in the judgment only.

For questions about this, please contact Ed Levin at (410) 576-1900.