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Sarete, Inc. v. 1344 U Street Limited Partnership

April 7, 2005

SARETE, INC., ET AL., APPELLANTS,
v.
1344 U STREET LIMITED PARTNERSHIP, APPELLEE.



Appeal from the Superior Court of the District of Columbia (CA6345-00). (Hon. Joan Zeldon, Motions Judge). (Hon. Anna Blackburne-Rigsby, Trial Judge).

Before Schwelb and Reid, Associate Judges, and Ferren, Senior Judge.

The opinion of the court was delivered by: Reid, Associate Judge

Argued February 17, 2005

In this commercial landlord-tenant matter, the trial court dismissed, under Super. Ct. Civ. R. 12 (b)(6), the claims of appellants Nebeyu Samuel and Abeba Touelde for breach of contract, wrongful eviction, illegal seizure of business property and inventory, as well as their demands for damages. The case proceeded to a bench trial on appellant Sarete, Inc.'s claims. The trial court granted judgment against appellant Sarete, Inc. on all of its claims, as well as its demand for damages. Appellants filed a timely appeal contending that the trial court improperly dismissed the individual plaintiffs' claims, and erred in granting judgment in favor of appellee 1344 U Street Limited Partnership. We dispose of the parties' arguments on appeal as follows:

(1) In this notice pleading jurisdiction, we hold that the claims of the individual plaintiffs should not have been dismissed under Super. Ct. Civ. R. 12 (b)(6) because their complaint fairly put the appellee on notice of the claims against it, and the individual appellants alleged facts which, if construed in the light most favorable to them and if taken as true, demonstrate that they had at least something analogous to a landlord-tenant relationship with the appellee and that they had assumed the obligations of the original tenant under the Lease Agreement. And, since the record on appeal and our resolution of the legal issues in this case reveal that all of the appellants are entitled to judgment as a matter of law as to their claims for wrongful eviction and breach of contract, we reverse the judgment of the trial court with respect to the claims of the corporate appellant for wrongful eviction and breach of contract, as well as its order dismissing the claims of Mr. Samuel and Ms. Touelde, and remand those matters to the trial court with instructions to enter judgment in favor of all the appellants on Count I (breach of contract) and Count II (wrongful eviction).

(2) We hold that the appellee waived its lease contract prohibition on the tenant's assignment of the lease to a third party, the corporate appellant, when it continued to accept rent payments from Mr. Samuel despite its knowledge of and signature on the Assignment of Lease agreement between its original tenant and the corporate appellant.

(3) We hold that, on the record before us, the evidence would not sustain a finding that the appellants made a fraudulent or material misrepresentation in the Assignment of Lease agreement, because fraud must be alleged with particularity and proved by clear and convincing evidence. Appellee failed to allege fraud with particularity and presented no proof, let alone clear and convincing proof, of a fraudulent or material misrepresentation by appellants.

(4) We conclude that appellants were not trespassers as a matter of law, and that the corporate appellant acquired privity of estate with the landlord when (a) the appellee waived the contractual prohibition against assignment by the tenant and (b) the appellants assumed the original tenant's obligations under the lease. Furthermore, because the appellants assumed the original tenant's obligations under the lease, and the original tenant relinquished or waived any right to the leasehold and returned his keys to the landlord, the corporate appellant also was in privity of contract with the appellee. Consequently, there was at least "some sort of tenancy" or landlord-tenant relationship between the corporate appellant and the appellee landlord. Under these circumstances, we hold as a matter of law that the appellee landlord could not lawfully resort to self-help to evict the appellants, and since the landlord failed to use legal process in its efforts to evict the appellants, they were entitled to judgment on their wrongful eviction claim.

(5) We agree with the trial court that the appellants waived their constitutional Seventh Amendment right to trial by jury in light of a comprehensive, unambiguous waiver of that right which is set forth in the Contract of Lease agreement.

(6) Finally, because the individual appellants should have been permitted to present evidence as to Counts III (illegal seizure of business property and inventory)*fn1 and Count IV (damages) of their complaint, we remand these matters to the trial court for a new trial.*fn2

FACTUAL SUMMARY

This is not a straightforward case. The record reflects confusing and somewhat unorthodox commercial dealings between the parties and others regarding the ownership, occupancy, and operation of a restaurant on the second floor of property located at 1344 U Street, in the Northwest quadrant of the District of Columbia. The record also shows that the trial judge carefully tried to unravel a confusing scenario of transactions, marked by the absence of receipts and other documentation. We begin by summarizing the factual context of the case, including the factual findings of the trial court and its conclusions.

On August 29, 2000, Nebeyu Samuel, Abeba Touelde, and Sarete, Inc. ("Sarete") filed a complaint against 1344 U Street Limited Partnership ("U Street") pertaining to a dispute about their operation of a club, Café Tango, on the second floor of the U Street property.

They alleged that Mr. Samuel and Ms. Touelde*fn3 were the sole stockholders of Sarete, and that the owner and landlord of the U Street property had unlawfully "locked [them] out of the premises." In Count I of the complaint, the appellants asserted breach of contract and based their claim to occupancy of the premises on "the assignment of a lease agreement signed by another party"; and "the written approval of the landlord, through the agent of the landlord, Alyson Myers," with respect to their application for an occupancy permit, a license to serve alcoholic beverages, and other necessary licenses. They further alleged that U Street "breached the contract by changing the locks to the premises without filing civil suit in the Landlord and Tenant Branch of the Superior Court of the District of Columbia or any other branch of the Court."

Count II of the complaint claimed wrongful eviction of Sarete and the individual plaintiffs despite payment of rent and the proper licenses to run the club, which had been granted to them by the District government. They stated that they had closed the café for a period of time to make $25,000 worth of repairs, and acknowledged that they had been late in tendering rent payments. Nevertheless, they made payments of $2,100, $4,200, and $10,500 in back rent in June and July, but could not "reach" Ms. Myers to give her the remaining balance of $2,100 on July 10, 2000, because "she was out of town." Despite the back payments and the keys Ms. Myers gave them to enter the café, "they no longer had access to the premises because the locks had . . . been changed. . . ." They maintained that U Street "illegally utilized self-help means to evict [them] from the premises without due process of law," and in doing so, "breached [their] rights as a tenant in the premises."

In Count III of the complaint, appellants alleged "illegal seizure of business property and inventory." This business property and inventory were located inside the café and had a value of $20,000. Finally, in Count IV of the complaint, appellants sought $500,000 in damages "for actual losses in income and personal property, restaurant furnishing, furniture, equipment and other goods resulting from the wrongful eviction." They also demanded punitive damages in the amount of $500,000 on account of U Street's "egregious behavior in locking [them] out [and] evicting [them] from the premises on two occasions after accepting rental payments from [them] and giving them promises that their right to use the property as a place of business would be protected." Furthermore, they requested a jury trial and asked for injunctive relief. After a hearing on plaintiffs' request for a temporary restraining order, the Honorable Ronald Wertheim denied the request, essentially on the ground that because of a lack of receipts or documentation, the court could not determine "in what capacity" Mr. Samuel made rent payments to Ms. Myers.

U Street moved to dismiss the claims of Mr. Samuel and Ms. Touelde on September 25, 2000 (motion was refiled on October 13, 2000), on the ground that they "lack[ed] standing to assert the claims of [Sarete]" and "failed to set forth cognizable claims." Specifically, they stated that "[o]nly Sarete [] claims to have rights under a lease agreement with [U Street]" and neither Mr. Samuel nor Ms. Touelde "is in privity of contract or privity of estate with [U Street]." On September 26, 2000, U Street filed an answer, and a counterclaim against plaintiffs alleging destruction of property, closure of business, breach of contract -- failure to pay rent, and trespass. And, on September 29, 2000, U Street filed a motion to dismiss Sarete's demand for a jury trial, essentially because in the underlying lease, the right to a jury trial was waived expressly.

Although appellants opposed U Street's motions to dismiss their claims and to strike their demands for a jury trial, the Honorable Joan Zeldon docketed an order on February 22, 2001, dismissing the claims of Mr. Samuel and Ms. Touelde, under Super. Ct. Civ. R. 12 (b)(6), on the ground that:

Based upon the information that Plaintiffs have plead in the Complaint, only the corporate Plaintiff, Sarete, Inc., maintains a leasehold interest in the property. See Complaint at 3, ¶ 1. There is no assertion in the Complaint that Plaintiff Samuel or Plaintiff Touelde have privity of contract and privity of estate with Defendant, nor has any evidence been offered by Plaintiffs on these issues. See Young v. District of Columbia, 752 A.2d 138, 143 (D.C. 2000). Since Plaintiffs Samuel and Touelde can prove no set of facts in support of their individual claims which would entitle them to relief, all of their individual claims must be dismissed with prejudice.

Judge Zeldon also granted U Street's motion to strike the jury trial demand based on the lease, because of "Plaintiffs' failure to proffer any evidence suggesting that they are not bound by such a waiver provision." Ultimately, after an appeal had been lodged in this court concerning the dismissal of the individual plaintiffs, Judge Zeldon denied appellants' motion to alter, amend or modify judgment in an order docketed on September 24, 2001,"because of the pending appeal of [her February 2001] order, [but] note[d] [the Court's] willingness to change its dismissal with prejudice to a dismissal without prejudice if the Plaintiff[s] file a Motion to Remand the case from the Court of Appeals."

Eventually, the case was transferred to the Honorable Anna Blackburne-Rigsby. Thereafter, the parties engaged in discovery and motions practice. On June 26, 2003, Judge Blackburne-Rigsby denied U Street's motion for summary judgment, because of material facts in question. As the court declared:

The central issue in this case is whether there was a valid assignment of the lease between Bahare [Gebremedhin] and [U Street] to the plaintiff, Sarete. As a precondition to the assignment of the lease, Sarete needed to purchase the assets of the premises to secure a lien. Plaintiff asserts that it entered into a sales agreement with Bahare to purchase the assets of the premises. Defendant contends that Sarete as a corporation did not purchase the assets, but instead [Ms. Touelde] purchased the assets as an individual thereby not satisfying the condition precedent. Defendant asserts that since no assignment ever took place, Bahare was the valid leaseholder of the premises. Thus, defendant contends, when Bahare wrote to defendant in March 2000, he voluntarily surrendered the premises and terminated the lease. Plaintiffs (sic) assert that Bahare was not ...


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