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03/17/92 CLAY PROPERTIES v. WASHINGTON POST COMPANY

March 17, 1992

CLAY PROPERTIES, INC., ET AL. APPELLANTS
v.
THE WASHINGTON POST COMPANY, APPELLEE



Appeal from the Superior Court of the District of Columbia; (Hon. George Herbert Goodrich, Trial Judge)

Before Rogers, Chief Judge, Ferren, Terry, Steadman, Schwelb, Farrell, And Wagner, Associate Judges, and Mack and Belson,* Senior Judges.

The opinion of the court was delivered by: Steadman

On Rehearing En Banc

STEADMAN, Associate Judge: This appeal before the en banc court involves one episode 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"). CPI appeals from a grant of summary judgment in favor of the Post in the Post's eviction action. CPI contends that the trial Judge erred in concluding as a matter of law that the Post, when it purchased the building at foreclosure, did not have notice of a master lease between Clay and CPI which CPI now wishes to enforce against the Post.

A panel of this court reversed this grant of summary judgment. At the same time, it affirmed, in a consolidated appeal involving the same parties, a grant of voluntary dismissal in different but related litigation. *fn1 Washington Post Co. v. Clay Properties, Inc., 573 A.2d 1227 (D.C. 1990). On the Post's petition for rehearing en banc, *fn2 the two appeals were severed and rehearing en banc granted only with respect to the appeal from the grant of summary judgment. Amended Order of Oct. 10, 1990, 580 A.2d 1042. *fn3 We now reverse, as did the panel, the grant of summary judgment. *fn4

I

For ready reference, we reiterate here the relevant facts as set forth in Part I of the panel opinion. Clay purchased the building in 1979, and title was in his name. *fn5 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 land and 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. *fn6 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. *fn7 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. *fn8 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 Post. The Post closed on its purchase on March 31, 1987. When the Post took over the building, Clay, CPI, and Clay & Company *fn9 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 that 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. *fn10 In June, Judge Richter entered an interim protective order requiring Clay and his companies to make monthly rent payments into the court registry. 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 hearing later became part of the record in the summary judgment motion subsequently filed in the Post's landlord-tenant case, which is the subject of this appeal. *fn11

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. 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. Just prior to that date, the trial court granted CPI's motion for voluntary dismissal of the action without prejudice, over the opposition of the Post. *fn12

Following the voluntary dismissal of CPI's action, the Post, as already mentioned, filed a motion for summary judgment in its own 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 ...


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