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Gomez v. Independence Management of Delaware

March 26, 2009

MARIA GOMEZ, ET AL., APPELLANTS,
v.
INDEPENDENCE MANAGEMENT OF DELAWARE, INC., APPELLEE, AND THE 933 L STREET TENANTS' ASSOCIATION, APPELLANT,
v.
INDEPENDENCE MANAGEMENT COMPANY, INC., ET AL., APPELLEES.



Appeals from the Superior Court of the District of Columbia. (LT43584-04 through LT43598-04 LT43596-04 through LT43600-04 and CA1341-04). (Hon. Natalia M. Combs Greene, Trial Judge).

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

Argued May 7, 2007

Before KRAMER and FISHER, Associate Judges, and BELSON, Senior Judge.

These consolidated appeals relate to the Eldon, a 57-unit apartment building located at 933 L Street, N.W., in the District of Columbia. Residents of this building formed a tenants' association which sued Independent Management Company ("IMC") for selling the Eldon without first offering the property to them as allegedly required by the Rental Housing Conversion and Sale Act, D.C. Code §§ 42-3404.02 through 42-3404.13 (2001) ("Sale Act"). The Association also alleged a violation of the District of Columbia Consumer Protection Procedures Act ("CPPA"), D.C. Code §§ 28-3901 through 28-3911 (2001). The Superior Court entered summary judgment in favor of IMC, holding that the transfer of the Eldon was not a "sale" within the meaning of the statute, and that there had been no violation of the CPPA. The Tenants' Association appealed (Nos. 06-CV-1150 and 06-CV-1387). We reverse the grant of summary judgment in part and remand for further proceedings.

While the Sale Act lawsuit was pending, many of the tenants left the building. In separate litigation, the new owner of the Eldon, Independent Management of Delaware ("IMDel"), sued the remaining tenants for possession, claiming that it could not safely renovate the building while they lived there. These tenants defended on the grounds that IMDel's actions were retaliatory and that IMDel had not followed proper procedures in issuing notices to vacate. The Superior Court granted summary judgment to plaintiff IMDel, concluding that the tenants had not identified a genuine issue of material fact, and the individual tenants appealed (Nos. 05-CV-1487 through 05-CV-1499 and 05-CV-1536 through 05-CV-1539). We vacate the judgments granting possession to IMDel and remand for further proceedings.

I. The Factual Background

A. The Transaction(s) at Issue

The essential facts, viewed in the light most favorable to the tenants, are as follows: In March of 1999 George Hesse sold the Eldon to Independent Management Company, Inc. ("IMC"), which was owned entirely by Yafet Alem.*fn1 Because the Eldon was "big time losing money," Alem soon decided to sell the property, and he listed it with a real estate broker in 2002. Alem eventually decided to sell the property to HL Investments, a company owned and controlled by Hong Ly Thai.

Alem and Thai initially structured their agreement so that IMC would transfer a "95% interest as Tenants in Common" at closing; then, 366 days later, IMC was to transfer "its remaining Five (5%) interest to [HL Investments] for consideration of [one dollar]." In return, Thai was to pay the "total purchase price," $3,875,000, at closing. Alem testified that the purpose behind this structure was to avoid the requirements of the Sale Act. Thisdeal never went to closing, however, because Thai had difficulty obtaining title insurance as a result of various liens on the property.

In June of 2003, Alem again attempted to sell the Eldon to Thai in a manner that would avoid the requirements of the Sale Act. This time Alem and Thai decided to structure the transaction as a "stock purchase." Because IMC owned other properties, Alem decided to create a wholly owned subsidiary, to which IMC would transfer ownership of the Eldon. The stock of that subsidiary would then be sold to Thai.

On June 24, 2003, Alem created Independence Management of Delaware, Inc. ("IMDel"), a wholly-owned subsidiary of IMC. The next day, on June 25, Alem appointed himself president of IMDel; he then resigned and appointed Thai as sole director and sole officer. That same day, IMC, acting through Alem, its president, entered into an Agreement of Sale of Shares of Stock of Independence Management of Delaware, Inc. ("Stock Sale Agreement"), with L Street Building, LLC, a company owned by Thai. In the contract, IMC agreed to sell 99% of IMDel's stock to L Street Building for $3,875,000 -- the price originally negotiated for the sale of the Eldon. Alem testified that he contracted to sell 99% of IMDel, rather than 100%, because he believed it would allow him to avoid the requirements of the Sale Act.

The Stock Sale Agreement specified that "on the Closing Date, record title to the [Eldon] will be in IMD[el] . . . ." At the time the agreement was signed, on June 25, title to the Eldon was still in IMC. However, on June 26, Alem, acting as president of IMC, signed a deed transferring title to IMDel, as contemplated by the Stock Sale Agreement.*fn2 Six days later, on July 2, Thai and Alem closed on the Stock Sale Agreement. On July 3, a copy of the deed (the version dated June 21, 2003 (see footnote 2)) was recorded. As a result of the stock sale, Thai (through L Street Building, LLC) owned 99% of the stock in IMDel, which in turn owned the Eldon in fee simple. After the tenants learned about the transfer of the property to IMDel and Thai, the Tenants' Association filed the Sale Act case in February 2004 to assert the rights of its members to notice and an opportunity to purchase.

B. The Tenants Are Told to Vacate the Building

While the transfer of the Eldon was being arranged, the tenants were attempting to improve the deteriorating conditions in the building. They formed, and became active members of, the Tenants' Association in 2001. They contacted inspectors regarding the condition of the building, and withheld rent, which they paid into the court's registry. IMC, which still owned the building at that time, sued for possession in landlord-tenant court, and the tenants counterclaimed, seeking to compel IMC to make improvements. A settlement agreement reached on April 24, 2003, obligated IMC to make repairs. IMC never made these repairs.

On August 11, 2003, after it acquired the building, IMDel asked the Rent Administrator for authority to issue 120-day notices to vacate to the remaining tenants, pursuant to Section 501 (f) of the Rental Housing Act. D.C. Code § 42-3505.01 (f) (2001). In its letter to the Rent Administrator, IMDel stated that it "plans to undertake extensive improvements with respect to the Property which cannot be safely performed with tenants in occupancy." A housing provider seeking to recover possession under section 501 (f) must submit to the Rent Administrator "plans for the alterations or renovations . . . [that] demonstrate that the proposed alterations or renovations cannot safely or reasonably be accomplished while the unit is occupied." D.C. Code § 42-3505.01 (f)(1) (2001). IMDel submitted a one-page document from an architect listing the work to be undertaken, and two drawings of floor plans for the building. On September 4, 2003, the Rent Administrator approved the issuance of 120-day notices. The tenants did not know about IMDel's request, and therefore did not oppose it.

In September 2003, IMDel attempted to serve the notices to vacate on the tenants. When they refused to vacate, IMDel brought suits for possession in January 2004. The first of these cases was dismissed due to defects in service and in the notices themselves, and IMDel then voluntarily dismissed the remaining cases.In July 2004, IMDel issued a new round of 120-day notices. The tenants again refused to vacate, and IMDel brought individual suits for possession in November 2004. The court granted summary judgment to IMDel, authorizing eviction of the tenants, who have appealed.

II. Standard of Review

"This court reviews a summary judgment decision de novo, construing the facts independently in the light most favorable to the nonmoving party." Ivey v. District of Columbia,949 A.2d 607, 611 (D.C. 2008). Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.Super. Ct. Civ. R. 56.; Colbert v. Georgetown University, 641 A.2d 469, 472 (D.C. 1994) (en banc). "[T]he judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there ...


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