Federal Circuit Doesn’t Let GSA Wriggle Out of Real Estate Taxes Owed to Contractor; NOAA Maryland, LLC v. Administrator of the General Services Administration, Fed. Cir. 2020-1548

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CBCA decision, which had denied a claim against GSA for payment of real estate taxes, is reversed. GSA leased property from the contractor. The contractor claimed that GSA had failed to pay real estate taxes owed under the lease. GSA argued that the claimed taxes were excluded from the lease’s definition of real estate taxes. The CBCA agreed with GSA, finding that some of the claimed taxes were excluded. But the Federal Circuit reversed, holding that the claimed taxes fell squarely within the lease’s definition of real estate taxes. The court reasoned that GSA and the board had misinterpreted a contract clause as an exclusion to the lease’s definition of real estate taxes. But rather than derogating the definition, the clause at issue merely clarified what was not sufficient to meet the definition of real estate taxes.

The General Services Administration leased a building in Maryland from NOAA Maryland, LLC. The lease required GSA to pay real estate taxes as part of the rent. The lease defined real estate taxes as taxes which are assessed (a) against the building of the land on which is located, (2) without regard to benefit of the property, and (3) for the purpose of funding general government services. The lease further stated that real estate taxes did not include: general or special assessments, business improvement assessments, or “any other present or future taxes that are imposed upon the lessor or assessed against the building and/or the land upon which the building is located.”

In 2016, NOAA Maryland submitted a claim to GSA seeking reimbursement for four different local and state taxes: storm water tax, transportation tax, a clean water tax, and an education tax. GSA denied the claim reasoning that the claimed taxes were not reimbursable real estate taxes under the lease.  NOAA Maryland appealed to the CBCA.

The board found that GSA was liable for the storm water and transportation taxes. Those taxes were assessed against the building for the purpose funding government services—namely storm water removal and transportation. But the board determined that GSA was not liable for the education or clean water taxes. As noted, the lease stated that real estate taxes do not include “any other present and future taxes” imposed on the lessor or property. The education and clean water taxes had been enacted after the execution of the lease. Thus, the board reasoned, they were “future” taxes, so GSA was not obligated to pay them. NOAA Maryland appealed to the Federal Circuit.

The Federal Circuit noted that the lease provision governing real estate taxes had two sentences. The first sentence gave an express definition of real estate taxes. The second sentence then listed things that are not real estate taxes. GSA, the court reasoned, read the second sentence as creating an exception to the definition in the first sentence. But the court noted that the second sentence did not contain a term like “notwithstanding” or “provided that,” which would indicate that the second sentence was an exception to or a derogation of the first sentence. In the absence of such language, the principle of construction that disfavors reading contract provisions as inconsistent counseled against adopting GSA’s reading.

Rather than derogating the first sentence, the second sentence of the taxes provision complimented it. The first sentence stated a definition. The second sentence then reinforced that definition by clarifying what is not sufficient to meet that definition. The assessments listed in the second sentence were instances of taxes that failed to satisfy one of the three elements in the first sentence. Thus, for instance, a special assessment would be levied without regard to the benefit of property (element 2), and it would not be for the purposes of funding general government services (element 3).

As to the clause at issue concerning “any other present and future taxes” imposed on the lesser or the building, the court reasoned that this also complimented the definition of real estate taxes. Any tax imposed against the lessor would violate that first element of the definition (imposed against the building or land). Also, the taxes imposed against the building are only real estate taxes if they satisfy the other two elements of the real estate tax definition—i.e., without regard to benefit of the property, and for the general funding of government services.

The court opined that GSA’s interpretation of the last clause of the second sentence broke apart “any other present and future” clause and restructed it so that the “any other” referred only to present taxes, but not to future taxes. In other words, GSA believed that the “any other” did not modify “future taxes.” But the court reasoned that the “any “ and “other” modified all that came after. Once GSA’s argument for breaking up “present” and “future” was rejected, the court held that GSA’s overall construction of the clause had to be rejected. The “present and future” merely confirmed that the distinctions set forth in the second sentence were unaltered by the timing of the tax. It did not mean that the distinctions applied to all future taxes.

The court continued by noting that at best, GSA’s arguments indicated that the provision was ambiguous. But any such ambiguity would have to be construed against the party that drafted the agreement, which in this case, was GSA.

The court noted that ordinarily it would remand this case back to the board to determine whether the education and clean water taxes satisfied the definition the real estate taxes. But the court determined that remand was unnecessary. The board had already concluded that the taxes fell within the definition; the board had just wrongly concluded they were excluded by sentence following the definition. What’s more, GSA had not presented any alternative basis for arguing that the education and clean water taxes were not real estate taxes. There was therefore no other argument in favor of GSA’s interpretation that the board had not already rejected.

NOAA Maryland is represented by Diana Parks Curran of the Curran Legal Services Group and by Hadeel Masseoud. The government is represented by John McAdams, Jeffrey B. Clark, Martin F. Hockey, Jr., and Robert Edward Kirschman, Jr.

CBCA - NOAA Maryland