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Waterside Towers Resident Association Inc. v. Trilon Plaza Co.

August 26, 2010

WATERSIDE TOWERS RESIDENT ASSOCIATION INC., ET AL., APPELLANTS,
v.
TRILON PLAZA COMPANY, ET AL., APPELLEES.



Appeals from the Superior Court of the District of Columbia (04-CA-9149, 06-CAR-8620) (Hon. Robert E. Morin, Motions Judge) (Hon. Patricia A. Broderick, Motions Judge).

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

Argued February 25, 2009

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

This case requires us to revisit the definition of a "sale" under the D.C. Rental Housing Conversion and Sale Act, D.C. Code §§ 42-3404.02 et seq.*fn1 The Sale Act gives "a residential tenant whose landlord proposes to sell the property or discontinue its use as rental housing" two rights that are relevant here: (1) the right to receive a bona fide offer of sale from the owner when the owner decides to put the property up for sale, and (2) a right of first refusal when the owner has received an acceptable purchase offer from a third party.*fn2 At the time these suits were brought, the Sale Act did not explicitly define "sale." Rather, it left the meaning of the term to the courts to determine, except that it specifically "included" some transactions within the scope of the term.*fn3 As a result, the topic has been the subject of extensive litigation, and the Council of the District of Columbia has enacted several amendments aimed at addressing the problem. Notably, the Council amended the Act in 2005 to clarify that transactions of the sort at issue here do constitute a sale.*fn4

The issue, then, is whether the trial court erred when it held, as a matter of law, that a series of transactions between TPC and UDRT did not constitute a "sale" under the applicable version of the Sale Act even though the transactions ultimately resulted in a complete transfer of ownership of the Waterside Complex from TPC to UDRT.

I. Factual Background

Because the case is before us after the trial court granted summary judgment, we must summarize the relevant facts in the light most favorable to appellants,*fn5 after drawing all justifiable inferences in their favor.*fn6

A. Initial restructuring of TPC's ownership of the Waterside Complex

The Waterside Complex is a collection of apartment buildings located at 901-947 6th Street, Southwest. It consists of the Townhouses and the Towers, which sit on separately-deeded parcels of real estate. TPC owned both properties in fee simple from 1992 until 1998. On March 11, 1998, TPC restructured its ownership of the Towers. It created the Towers Trust and deeded the Towers to it. TPC then created the Towers Holding Company, wholly owned by TPC, and assigned all of its beneficial interest in the Towers Trust to that company to hold the Towers in trust for its benefit. In the end, the Towers Trust held absolute title to the Towers; the Towers Holding Company held the sole beneficial interest of the Towers Trust and therefore of the Towers themselves, and TPC wholly owned the Towers Holding Company. Thus, though it was "restructured," the Towers' ownership changed in form but not in substance since TPC ultimately retained ownership and control of the property. At the same time, TPC retained title to the Townhouses in fee simple.

B. The transaction between TPC and UDRT

Approximately four-and- a- half years later, on October 24, 2003, TPC entered into a contract with UDRT designed to transfer ownership of the Waterside Complex to UDRT while avoiding the Sale Act's requirement to offer a right of first refusal to its tenants.*fn7 To that end, the parties' "Contribution Agreement" provided that TPC would create the Townhouses Trust, modeled on the Towers Trust, and convey the title to the Townhouses to the Townhouses Trust. The sole beneficiary of the Townhouses Trust would be the Townhouses Holding Company, which would be modeled on the Towers Holding Company and be wholly owned by TPC. To finalize the transfer, the "Contribution Agreement" provided that TPC would sell 95% of its interest in both the Townhouses and Towers Holding Companies to UDRT in return for approximately $50 million at closing.

At the same time, TPC and UDRT executed an "Amended and Restated Limited Liability Company Agreement" that included "put and call" provisions allowing either party to force the sale of the remaining 5% ownership interest in the holding companies to UDRT 366 days after closing. All of these transaction documents were executed contemporaneously in December 2003. The final settlement between TPC and UDRT computed a brokerage commission based on 100% of the purchase price, even though TPC ostensibly sold only 95% of its interest in the Towers and Townhouses Holding Companies to UDRT.

On December 3, 2004, exactly 366 days after signing, TPC sent notice that it would exercise the "put" for the remaining TPC interest in the holding companies. The transfer did not take place, however, ...


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