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Washington Automotive Co. v. 1828 L Street Associates

September 14, 2006

WASHINGTON AUTOMOTIVE COMPANY, APPELLANT,
v.
1828 L STREET ASSOCIATES, APPELLEE.



Appeal from the Superior Court of the District of Columbia (CAB-6328-04) (Hon. Geoffrey M. Alprin, Trial Judge).

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

Argued March 8, 2006

Before RUIZ, GLICKMAN, and FISHER, Associate Judges.

Washington Automotive Company, a commercial landlord, appeals the decision of the trial court granting a motion to confirm an appraisal brought by 1828 L Street Associates, its commercial tenant. We hold that the appraisal is an arbitration award enforceable under the District of Columbia Arbitration Act, and because the landlord has not met the high burden to set it aside, affirm the trial court's judgment confirming the appraisal.

I.

The parties entered into a ninety-nine year commercial lease on April 9, 1962, which has been modified by a series of amendments occurring in 1962, 1964, 1967, and 1968. At the heart of the parties' current dispute is the methodology detailed in the lease for determining the rental amount owed by the tenant. The relevant portions of the lease include Paragraph 3, entitled "Rental," which provides for a rental adjustment twenty years from the beginning of the lease term, and every ten years thereafter. The adjusted rent is 6% of the "fair market value of the land (unimproved) developed at that time to its highest and best use treating all of the demised land as an economic whole and determining such value in the manner hereinafter set forth .

. . ." As to the manner in which the fair market value is to be determined, the lease provides for an appraisal if the parties disagree on the valuation:

On or before ninety (90) days prior to the completion of the first twenty (20) years of the term of this Lease and each ten (10) years thereafter, the parties shall agree in writing as to the fair market value of the land as if developed at that time to its highest and best use, which for the purposes of this Lease shall be hereinafter referred to as "fair market value." In the event of their failure to so agree, such fair market value shall be promptly established by appraisal. The LANDLORD and the TENANTS shall each appoint a disinterested real estate appraiser not related to any of them by consanguinity or affinity and who shall have knowledge and experience relative to the value of commercial real estate in the City of Washington, District of Columbia, and who shall be a Member of American Institute of Real Estate Appraisers or who shall have similar qualifications. Written notice of such appointment by each party shall be given to the other on or before the twentieth day following the above adjustment dates of the particular year, and the two (2) so appointed shall on or before the tenth day there-after appoint a third appraiser of like qualifications and non-interest who shall act as their Chairman. The appraisers shall immediately appraise the fair market value and report in writing to the parties hereto within thirty (30) days after the appointment of the Chairman. The determination of fair market value as to which at least two shall agree shall be final and binding upon the parties hereto as to the fair market value of the said land as aforesaid and shall be the basis of rents to be paid for the period following the adjustment date until the next adjustment date. Each party hereto shall pay one-half (1/2 ) of the cost of such appraisal. (Emphasis added.)

The lease also contains a general arbitration provision, in Paragraph 21, which provides that "Any controversy or claim arising out of, or relating to this agreement or any breach thereof, shall be settled and adjusted by arbitration in accordance with the rules of the American Arbitration Association, or its successor existing at the time, and judgment upon the award rendered may be entered in any court having jurisdiction thereof."

Since the lease has been in effect, fair market value appraisals were conducted in 1983, 1993, and 2003, and the rent was adjusted accordingly. The 2003 appraisal was conducted pursuant to instructions in a joint letter, dated February 6, 2003, from the landlord and tenant to the two appraisers they had selected, following the procedure set out in Paragraph 3. The letter was signed by both parties' attorneys. The letter set forth the parties' agreed-upon process for the rent adjustment calculation, as well as the process for the two appraisers' selection of a third appraiser, as described in the lease. Of particular importance to this appeal, the letter refers to a section of the lease describing which parcels of the demised land are to be included in the fair market value calculation, and states that the "Landlord and Tenant have mutually agreed that the quoted language means that [certain] lots, added to the demised premises by the 1967 Amendment, are not to be included in the rental adjustment calculations for any purpose . . . ." Attached to the letter were copies of the 1967 amendment to the lease which described the land to be appraised, the "valuation standard and the relevant procedures which are required pursuant to paragraph 3 of the Lease," and copies of plats showing the location of the property.

On April 2, 2003, the panel of three appraisers unanimously determined that the fair market value of the land was $15,600,000, and sent this appraisal to the landlord and tenant. Four months later, on August 4, 2003, the landlord's president wrote to the chairman of the panel of appraisers expressing his displeasure with the appraisers' determination of the fair market value of the land, arguing that the appraisal was "unbelievably low based on market conditions." On November 20, counsel for the landlord -- not the landlord's lawyer who had signed the joint February 6, 2003 letter to the appraisers -- wrote to counsel for the tenant stating that the landlord "rejects the 2003 appraisal and rent calculations, and have [sic] hired an independent appraiser to determine the fair market value of the land. We are convinced that the instructions provided to the appraisers in your letter of February 6, 2003, are inconsistent with the terms of the Deed of Lease . . . ."

On June 28, 2004, the landlord filed a Demand for Arbitration, invoking Paragraph 21 (Arbitration) of the lease, seeking a "declaration of the proper method to be used to calculate rent under the Deed of Lease, and a recalculation of rent," and seeking arbitration of the matter in West Palm Beach, Florida. On August 18, 2004, the tenant filed a complaint in Superior Court to enforce the 2003 appraisal and to stay the arbitration in Florida. On November 5, 2004, after the landlord had filed its answer and affirmative defenses, the tenant filed a motion to confirm the 2003 appraisal, pursuant to Superior Court Civil Rule 70-I governing the confirmation of arbitration awards under the D.C. Uniform Arbitration Act.*fn1

On November 23, 2004, the landlord filed a "Motion to Strike Motion to Confirm Appraisal and Stay Arbitration, to Order that Plaintiff Submit to Arbitration, and to Dismiss this Case."

The trial court confirmed the appraisal and stayed the arbitration that the landlord had commenced in Florida. In its order, the trial court identified the key legal issue as being the applicability of the D.C. Arbitration Act to the appraisal. That depended, in turn, on whether the February 6, 2003 joint letter from the parties to the appraisers was an agreement made subsequent to enactment of the Act in 1977, and therefore subject to its provisions, "or whether it is in reality the latest periodic reiteration of an agreement first made in 1962." The court found that the 2003 letter was a "fully independent agreement between the parties, signed by their lawyers, requiring the performance of certain actions not only by the parties themselves, but also by independent individuals." The court determined that the letter was a "free-standing agreement secured by adequate consideration consisting of mutual promises and requiring mutual performances by each party." Relying on the Missouri case of Hefele v. Catanzaro, 727 S.W. 2d 475 (Mo. Ct. App. 1987), the court treated the 2003 letter to the appraisers as a "ratification of the reappraisal provisions of the lease after the effective date of the D.C. [Arbitration] Act," which made it subject to the Act. Accordingly, "the only grounds available to contest the reappraisal are those contained in the Arbitration Act, D.C. Code § 16-4311 (a) (2001)."*fn2 Because the landlord had raised none of these statutory grounds, the trial court concluded, "[t]he reappraisal must, therefore, be confirmed." The court also found "without merit" the remainder of the landlord's contentions, "that the court cannot ...


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