Reference no: EM131406086

Washington Regional Medical Center signed an "Authorization to Proceed" with Citadel Group Limited whereby Citadel would develop and construct a medical building that it would ultimately lease back to Washington Regional. A "Preliminary Leasing Terms Sheet" showed the lease term and square footage, as well as the variable and fixed lease rates for the entities that would be situated in the building. It also indicated that it was subject to credit review, changing market conditions, and approval, "among other considerations." Washington Regional asked Citadel to compute lease amounts using various assumptions, which resulted in lease rates that were more than twice what had originally been anticipated. By this point, Citadel had engaged attorneys, architects, and engineers and had started to investigate financing. More discussions followed, and "[a]ll the while, the parties continued to negotiate lease terms."

After reviewing cost projections, Washington Regional decided to develop the building on its own. Washington Regional acknowledged that it would have to "negotiate separation costs" with Citadel and told Citadel that it had decided to terminate the relationship. The parties could not agree on the separation costs, and Citadel sued to recover these costs, as well as for breach of contract for lost profits and breach of the duty to negotiate in good faith.

Was there an enforceable contract? If so, what is its scope, and why? Was Washington Regional bound to negotiate in good faith? When can a party act with self-interest and walk away from a deal that becomes economically unfavorable? What type of language should be used to indicate that the parties are free to terminate their preliminary agreement? How does this case compare with the fact pattern and outcome of SIGA Technologies v. PharmAthene, 67 A.3d 330 (Del. 2013) (Case 7.1)? [Citadel Group Limited v. Washington Regional Medical Center, 692 F.3d 580 (7th Cir. 2012).]