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Real Property – Unmet Deadlines Doomed Trust Tenant

By: Deborah Elkins//May 10, 2016

Real Property – Unmet Deadlines Doomed Trust Tenant

By: Deborah Elkins//May 10, 2016

Zoroastrian Center & Darb-E-Mehr of Metropolitan Washington D.C. v. Rustam Guiv Foundation of New York (Lawyers Weekly No. 001-088-16, 33 pp.) (Agee, J.) No. 14-1841, May 4, 2016; USDC at Alexandria, Va. (O’Grady, J.) 4th Cir.

Holding: In a charitable trust’s suit against its tenant under a 1991 lease that required the tenant, the Zoroastrian Center, to build a worship center in Vienna, Virginia, in accordance with a series of deadlines, the 4th Circuit affirms a decision that the Center breached the lease by failing to meet the extended deadlines for temple construction; the district court correctly ruled it had subject matter jurisdiction as to whether the trustees, the trust beneficiaries or both are subject to the diversity-of-citizenship requirement.

Citizenship Query

The district court noted that neither the Supreme Court nor the 4th Circuit had addressed the precise issue of how to determine the citizenship of a defendant-trust for purposes of diversity jurisdiction. The court adopted a 3rd Circuit test providing that the citizenship of a trust is determined by looking at the citizenship of both the trustees and the beneficiaries; the court deferred judgment pending presentation of evidence of the citizenship of the Rustam Guiv Foundation, a charitable trust, and its trustees.

Rustam Guiv then submitted an affidavit from Dr. Jahanian, RGF’s lead trustee, and residence information for the current trustees. These documents affirmed that none of its current trustees or beneficiaries were Virginia residents. The district court denied the Center’s motion to remand. The district court then granted summary judgment to Rustam Guiv. The court found the Center had breached the lease by failing to construct a temple before the final deadline and, as a result, Rustam Guiv validly exercised its right to end the lease. The district court also awarded attorney’s fees to Rustam Guiv.

After oral argument in this case, the Supreme Court decided Americold Realty Trust v. ConAgra Foods Inc., 136 S. Ct. 1012 (2016), which involved a real estate investment trust that was deemed owned and controlled by its “members.” For such unincorporated entities, the Supreme Court adhered to the rule that diversity jurisdiction in a suit by or against the entity depends on the citizenship of all its members. Having settled the diversity of citizenship question for REITs, perhaps the Supreme Court in Americold intended this statement to globally resolve the issue for other trusts. However, the statement may generate as many questions as it answers.

We need not resolve those questions now, however, as the record here indicates that diversity exists whether the trustees, the trust beneficiaries or both are the subject of the citizenship requirement. The Center contends there are two trust beneficiaries resident in Virginia: itself and Fairfax County. The Center, however, is not a trust beneficiary; it is simply a tenant in a landlord/tenant business relationship with Rustam Guiv. And compliance with the county’s required subdivision ordinance or building codes by a trust owning real property confers no beneficiary status on the government entity any more so than would payment of real estate taxes. We find no error in the district court determination that Rustam Guiv had no trust beneficiaries in Virginia, or in its conclusion that it had subject matter jurisdiction.

Breach of Lease

The district court also did not err in concluding that the lease amendment was binding and that the Center breached the lease by failing to construct a temple on the Vienna property before the final deadline.

The 2013 Memorandum of Understanding at issue is not sufficiently definite to be enforceable. It does not refer either explicitly or implicitly to the lease, the Vienna property or the nature of the parties’ relationship. As the district court found, were it not for the extensive history between the parties, this document would be unenforceable on its face. Even considering how the document arose, it is not possible to decipher what mutual obligations exist. The most definite clauses outline broad tasks for the Center to complete by deadlines to be mutually agreed upon in the future. Such “agreements to agree” are uniformly unenforceable in Virginia. The MOU had no effect on the lease and lease amendment or the Center’s breach of those obligations.

We agree with the court that the defendants were entitled to summary judgment. We vacate the award of attorney’s fees and remand for the district court to narrow the award to work performed on defendant’s successful claims.

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