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04/25/90 WASHINGTON POST COMPANY v. CLAY PROPERTIES

April 25, 1990

THE WASHINGTON POST COMPANY, APPELLANT/CROSS APPELLEE
v.
CLAY PROPERTIES, INC., ET AL., APPELLEES/CROSS APPELLANTS



Appeals from the Superior Court of the District of Columbia; Hon. Herbert B. Dixon, Jr., Trial Judge; Hon. George Herbert Goodrich, Trial Judge

Vacated in part by Order of the Court October 10, 1990. Rehearing En Banc Granted in part,

Before Ferren and Steadman, Associates Judges, and Mack, Senior Judge.

The opinion of the court was delivered by: Steadman

STEADMAN, Associate Judge: These consolidated appeals involve two episodes in a protracted legal battle between the Washington Post Company ("the Post") on the one hand, and Ozzie Clay ("Clay") and Clay Properties Incorporated ("CPI") on the other, over ownership and control of a commercial building at 1523 L Street, N.W. ("the building"). In No. 88-963, CPI appeals from a grant of summary judgment in favor of the Post; CPI contends that the trial Judge applied an erroneous standard of law in concluding that the Post, when it purchased the building at foreclosure, did not have notice of a lease between CPI and Clay which CPI now wishes to enforce against the Post. The Post is appellant in No. 88-258; it contends that the trial court improperly granted CPI's motion to voluntarily dismiss another lawsuit against the Post involving many of the issues presented in the case in which summary judgment was entered. We reverse the grant of summary judgment in No. 88-963 and affirm the grant of voluntary dismissal in No. 88-258.

I

Clay purchased the building in 1979, and title was in his name. *fn1 In 1981, Clay and members of his family formed CPI to develop and operate commercial properties. On January 12, 1982, Clay, as owner of the building, and CPI, as lessee, executed a lease agreement ("Master Lease" or "Lease") which now lies at the center of this dispute. The Lease, which covered the entire building, contained a number of unusual provisions. Although the Lease was for a term of a year, it included 98 one-year options to renew which would take effect automatically unless CPI notified the landlord. For the period from 1982-1986, the Lease required CPI to pay rent of $500 per month for a building with rental market value of as much as $50,000 per month. *fn2 The Lease effectively gave CPI complete control of the building; CPI had full power to make alterations to the building or even to demolish and rebuild it. More importantly, the Lease entitled CPI to sublet any part of the building, designating itself as landlord, and to collect all rents. *fn3 Finally, the Lease provided that it would not be subordinate to any mortgage or lien placed on the property after execution of the Lease.

In November of 1984, to partially secure a commercial loan to finance business ventures unrelated to the building Clay granted a second deed of trust on the building to First American Bank. *fn4 In the event of default, the Master Lease was assigned to First American, but it was not subordinated to this deed of trust. In early 1987, First American foreclosed on the building and sold its interest to the Washington Post. The Post closed on its purchase on March 31, 1987. When the Post took over the building, Clay, CPI, and Clay & Company *fn5 occupied two suites on the first floor of the building. On April 9, 1987, the Post gave Clay and his companies notice to vacate the space occupied by them within thirty days.

Since that time, the Post on one side and Clay and CPI on the other have been embroiled in litigation. On April 13, 1987, Clay, who was the defendant in a case filed by First American Bank in federal court in Virginia on the note for which Clay had given a second deed of trust on the building, filed a third-party complaint against the Post. The complaint, which named the Post as purchaser of the building, alleged wrongful foreclosure. The trial Judge in the federal litigation dismissed the complaint against the Post; the net result of this litigation was to settle in the Post's favor the question of who had the underlying fee title to the building.

On May 20, 1987, the Post filed a landlord-tenant action against Clay, seeking to evict Clay and his companies from the office space they occupied in the building. *fn6 In June, Judge Richter entered an interim protective order requiring Clay and his companies to make monthly rent payments to the Post. In his answer to the Post's Landlord-Tenant complaint, Clay asserted CPI's rights to the building under the Master Lease.

On October 30, 1987, after tensions over control of the building escalated, and CPI began demanding that the building's tenants pay rent to CPI, the Post filed a civil action seeking to enjoin CPI from exercising any purported landlord rights in the building. A lengthy preliminary injunction hearing, at which one of the issues was the validity of the Master Lease, was held before Judge Tignor. Much of the evidence and testimony adduced at that trial became part of the record in the summary judgment motion in the Post's landlord-tenant case. At the time the Post's motion for summary judgment was entered, Judge Tignor had not yet ruled in the Post's civil case, and the case has been stayed pending this appeal.

On December 17, 1987, before the outset of the preliminary injunction hearing in the Post's civil case, CPI filed a landlord-tenant action seeking to evict the Post from the building. *fn7 CPI also filed suits for possession against other tenants in the building. In all these cases, CPI asserted the authority to evict under the terms of the Master Lease. CPI's eviction suit against the Post was scheduled for trial beginning March 10, 1988. On February 26, 1988, CPI filed a motion to stay its eviction case pending resolution of the lawsuits initially filed by the Post. CPI also requested a jury trial in its action. Judge Dixon denied CPI's motion on March 4, 1988. Additionally, he denied CPI's request for a jury trial on the grounds that CPI had not made a jury trial demand within the time period prescribed in the Superior Court Landlord-Tenant rules. On March 7, CPI filed a motion for reconsideration or in the alternative a voluntary dismissal of its suit without prejudice. Judge Dixon refused to vacate any part of his March 4 order, but, over the Post's opposition, granted CPI's motion for voluntary dismissal without prejudice. The Washington Post appealed from Judge Dixon's order granting the voluntary dismissal.

Following the voluntary dismissal of CPI's action, the Post filed a motion for summary judgment in its landlord-tenant suit against CPI. On June 30, 1988, Judge Goodrich entered an opinion and order granting summary judgment on the ground that the Master Lease, which was unrecorded, was unenforceable against the Post. Judge Goodrich's ruling rested on the determination that the Post was a bona fide purchaser without notice. CPI appealed from the grant of summary judgment in favor of the Post.

II

Under D.C. Code § 45-801 (1986), a deed conveying an interest in real property is not effective against "subsequent bona fide purchasers" of the deed unless it is recorded. *fn8 A bona fide purchaser is one "who acquires an interest in property for a valuable consideration and without notice of any outstanding claims which are held against the property by third parties." 6A R. POWELL & P. ROHAN, THE LAW OF REAL PROPERTY para. 904[2], at 82-10 (rev. ed. 1989) [hereinafter R. POWELL, REAL PROPERTY]. Because the Master Lease at issue in this case was not recorded, it is not effective against the Post if the Post was a bona fide purchaser. To determine whether the Post was a bona fide ...


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