In May 2009, 27-35 Jackson Ave. LLC entered into a 15-year lease agreement with the federal government to provide office space in Queens, New York, for the United States Citizenship and Immigration Services (USCIS). The lease included a clause allowing early termination in the event of fire or other casualty damage, granting the government discretion to determine whether the premises had become untenantable.
On January 8, 2015, a sprinkler head burst and flooded the premises. Water covered much of the first and second floors, damaging property and requiring evacuation. A contracting officer from the General Services Administration (GSA) made a preliminary finding that the premises were untenantable and notified Jackson Ave. LLC. The government requested a remediation plan by January 12, 2015.
Jackson responded with a plan stating that remediation of the first floor would be completed by January 21, 2015, and the second floor by January 30, 2015. Restoration would include temporary measures, such as replacement tiles, while awaiting government approval for permanent materials. The GSA rejected this plan as insufficient because it did not address restoration to the "as-built" condition required under the lease. A revised plan was submitted, but it still did not provide a full restoration schedule.
On January 20, 2015, twelve days after the flood and within the 15-day decision window provided by the lease, the government terminated the lease, determining that the premises remained untenantable.
Jackson filed suit in the United States Court of Federal Claims, alleging breach of contract and violation of the implied covenant of good faith and fair dealing. The Claims Court granted summary judgment for the government. It held that the lease explicitly gave the government discretion to determine untenantability, provided the decision was made in good faith. The court found no evidence of bad faith and concluded that the dispute amounted to a difference in judgment about the condition of the property.
The Claims Court also considered whether the government violated its duty of good faith and fair dealing. Applying the clear and convincing evidence standard, the court found Jackson’s evidence insufficient to establish that the government acted with animus or pretext.
On appeal, Jackson argued that the government should have applied the common law definition of “untenantable,” which considers whether premises can be restored with ordinary repairs in a reasonable time. The Federal Circuit rejected this interpretation, holding that the lease’s language clearly vested the determination in the government. The court noted that judicial review was limited to whether the government’s decision was arbitrary, capricious, or unreasonable.
The Federal Circuit found that the government acted reasonably. Evidence showed extensive water damage, including ceiling-to-floor drywall replacement needs and months of unusability. Jackson’s remediation plan did not specify a timeline for full restoration, leaving uncertainty about when the premises could again be used by USCIS, which served up to 750 visitors daily. The court also noted the government was required to make its decision within 15 days, leaving no option to wait for full repairs.
The court further affirmed the Claims Court’s use of the clear and convincing standard for the good faith and fair dealing claim. Jackson’s allegations of conspiracy and animus constituted a bad faith claim, which requires this higher burden of proof. The court concluded that Jackson had not provided evidence sufficient to overcome the presumption that government officials act in good faith.
The Federal Circuit affirmed the Claims Court’s summary judgment ruling in favor of the United States. The government’s termination of the lease was upheld as a reasonable exercise of its contractual discretion.
If you are involved in disputes, compliance issues, or negotiations tied to government contracts, Whitcomb, Selinsky PC assists with matters concerning government contracting. Reach out to contact us to learn how our team can help with your contracting needs.