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Parcel One Phase One Associates, LLP v. Museum Square Tenants Association, Inc.

Court of Appeals of Columbia District

September 22, 2016

PARCEL ONE PHASE ONE ASSOCIATES, LLP, Appellant,
v.
MUSEUM SQUARE TENANTS ASSOCIATION, INC., Appellee.

          Argued February 18, 2016

         Appeal from the Superior Court of the District of Columbia Civil Division (CAR-6869-14) (Hon. Stuart G. Nash, Trial Judge)

          Richard W. Luchs, with whom William C. Casano was on the brief, for appellant.

          Matthew A. Eisenstein, with whom Blake A. Biles and Paige Sharpe, Arnold & Porter LLP; Julie H. Becker, Legal Aid Society of the District of Columbia; and Grishma Pradhan and Zenobia Lai, Asian Pacific American Legal Resource Center, were on the brief, for appellee.

          Karl A. Racine, Attorney General for the District of Columbia, Todd S. Kim, Solicitor General, Loren L. AliKhan, Deputy Solicitor General, and Richard S. Love, Senior Assistant Attorney General, were on the brief for the District of Columbia as amicus curiae in support of appellee.

          Before Washington, Chief Judge, and Blackburne-Rigsby, Associate Judge, and Belson, Senior Judge.

         JUDGMENT

         This case came to be heard on the transcript of record and the briefs filed, and was argued by counsel. On consideration whereof, and as set forth in the opinion filed this date, it is now hereby

         ORDERED and ADJUDGED that the trial court's grant of summary judgment is affirmed.

          OPINION

          James A. Belson Senior Judge

         Parcel One Phase One Associates, L.L.P. ("Parcel One") appeals the trial court's grant of summary judgment in favor of the plaintiff/ appellee Museum Square Tenants Association, Inc. ("the Association"). Parcel One argues the trial court erred in its determination that (1) the Association had standing under the Tenant Opportunity to Purchase Act ("TOPA") to bring suit challenging Parcel One's offer of sale, see D.C. Code §§ 42-3404.01, -3404.11 (1) (2012 Repl), and (2) its offer of sale to the Association was not bona fide under TOPA, see D.C. Code § 42-3404.02 (2012 Repl). We affirm the trial court's grant of summary judgment as we conclude that the Association had standing to sue under TOPA and that Parcel One's offer of sale to the Association was not "bona fide" as required under TOPA.

         I.

         Museum Square is an apartment building located at 401 K Street, N.W., in Washington, D.C. (the "401 K Street Property"). It contains over 300 residential rental units.[1] The owner of the building, Parcel One, seeks to demolish the building and build a mix of apartments, condominiums, and commercial space. Parcel One offered to sell the complex to the tenants for $250 million, "as is, " cash payment, with a five percent down payment, and balance due at closing. Parcel One arrived at that offer price after an in-house development team analyzed its construction plans and determined that it would yield 450 apartments and 350 condominiums with a net future value of $250 million after subtracting construction and development costs. After the offer was made, an independent appraisal company, CBRE, commissioned by Parcel One, appraised the plan and placed the future value of the property at $3 million higher than the offer; this was the only appraisal commissioned by either party.

         After receiving Parcel One's offer, the tenants formed Museum Square Tenants Association, Inc., under D.C. Code § 42-3404.11, to deal with the offer. The Association brought an action in Superior Court asserting that the offer extended by Parcel One was not a bona fide offer as it did not "reflect a rational, fair, and objective value of the [p]roperty." The Association sought a declaratory judgment that the offer was not bona fide and an injunction to prevent Parcel One from requiring residents to vacate involuntarily. In its answer, Parcel One countered that the Association did not adhere to the formation requirements of D.C. Code § 42-3404.11, and consequently lacked standing to bring a suit, and that the $250 million offer of sale was a bona fide offer which met the requirements of TOPA.

         The Association subsequently filed a motion for summary judgment. As to standing, the trial judge ruled that the Association had standing and that any error in draftsmanship or formation of the Association did not affect its standing. As to whether Parcel One provided a bona fide offer of sale, there was considerable discussion by the parties and the trial judge at oral argument and in the motions regarding the proper interpretation of 1618 Twenty-First St. Tenants' Ass'n v. Phillips Collection, 829 A.2d 201 (D.C. 2003) [hereinafter Phillips].

         Parcel One argued that Phillips held that market value or appraised value were not dispositive as to whether an offer was bona fide, but that TOPA required only a good faith, honest offer. In the alternative, Parcel One argued that whether the offer was bona fide was a material issue of fact which "defeat[]s [the Association's] motion for summary judgment." The Association argued that as a matter of law Parcel One's offer of sale was not a bona fide offer, and that Phillips was a case in which the property had a unique value to the owner that justified a deviation from the market value, and consequently Phillips - as the trial judge later put it - "carve[d] out an exception to the general rule."

         In his written order granting summary judgment, the trial judge agreed with the Association, stating it would be "impossible for this [c]ourt to imagine any criteria for ascertaining whether an offer has 'some reasonable basis, ' other than by comparing the offer to the market value of the property." According to the trial judge, unless the property has "special circumstances, " the "default position" for determining a bona fide offer is based on current market value. Because Parcel One's offer was based on the future value of the property after construction[2] and because the property did not have a unique value to the owner, the trial judge determined that Parcel One was unable to seek refuge in the "exception" in Phillips. Moreover, the trial judge observed that "even if all the assumptions included in that [future] valuation are deemed accurate and reasonable, the valuation fails to discount the resulting figure to a present market value." The ...


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