Richman Towers Tenants' Ass'n Inc. v. Richman Towers Llc

Decision Date14 April 2011
Docket Number08–CV–1438 & 09–CV–106.,08–CV–1114,08–CV–1340,08–CV–1354,Nos. 08–CV–1027,s. 08–CV–1027
PartiesRICHMAN TOWERS TENANTS' ASSOCIATION, INC., et al., Appellants,v.RICHMAN TOWERS LLC, et al., Appellees.
CourtD.C. Court of Appeals

17 A.3d 590

RICHMAN TOWERS TENANTS' ASSOCIATION, INC., et al., Appellants,
v.
RICHMAN TOWERS LLC, et al., Appellees.

Nos. 08–CV–1027

08–CV–1114

08–CV–1340

08–CV–1354

08–CV–1438 & 09–CV–106.

District of Columbia Court of Appeals.

Argued Jan. 14, 2010.Decided April 14, 2011.


[17 A.3d 592]

David E. Kouba, with whom Robert D. Brown, Washington, DC, was on the original briefs, for appellants.Steven K. Davidson, with whom Michael J. Baratz, Washington, DC, and Gary D. Wright, Bethesda, MD, were on the brief, for appellees.Bonnie I. Robin–Vergeer filed briefs for the Legal Aid Society of the District of Columbia, amicus curiae, in support of appellants.*Before REID and KRAMER, Associate Judges, and SCHWELB, Senior Judge.Schwelb, Senior Judge:

The tenant associations of each of six apartment complexes to which these consolidated appeals relate 1 brought civil actions challenging the legality of the alleged sale of each building by Howard and Maxine Bernstein and their family (the Bernsteins) to limited liability companies (LLCs) controlled by Carmel Partners (Carmel or the owners). Each association claimed that the transfer of ownership of the building in which it represented the tenants constituted a sale within the meaning of the Tenants' Opportunity to Purchase Act (TOPA),

[17 A.3d 593]

D.C.Code §§ 42–3404.02(a) et seq. (2001), and that the tenants had been denied “the right to purchase the accommodation at a price and on terms which represent a bona fide offer of sale.” Id. The six cases came before five different judges, and in each of them the trial court granted the owners' motion for summary judgment, on the ground that the transfer of ownership did not constitute a sale within the meaning of TOPA, 2 or because, in the court's view, the tenant association bringing the suit lacked standing,3 or in four of the cases, on both grounds. 4

On appeal, the associations claim that all six of them have “associational standing” to bring the actions; that even if they do not have “associational standing,” there are genuine issues of material fact which should have precluded the entry of summary judgment denying them statutory standing pursuant to D.C.Code § 42–3401.03(18) (2001); and, that in any event, two of the associations, Barclay Tenants' Association (BTA) and Lanier Apartments Tenants' Association (LATA) have statutory standing. The associations also contend, on a variety of grounds, that the transfers constituted a sale within the meaning of TOPA. The owners 5 challenge the standing of each of the associations and contend that the transactions at issue did not constitute a sale.

We hold that summary judgment was appropriately granted, for lack of standing, against all of the associations except the BTA and the LATA. We conclude, however, that the BTA and the LATA have statutory standing to bring their respective actions. We conclude that, under precedent binding on the division, none of the associations has “associational standing.”

Turning to the substantive issues, we hold, in conformity with this court's recent decision in Waterside Towers Resident Ass'n v. Trilon Plaza Co., 2 A.3d 1084 (D.C.2010), that the transfers in this case constituted a sale subject to TOPA. In response to a question of first impression raised by the owners for the first time on appeal, we conclude that D.C.Code § 42–3404.02(a) applies to all sales and does not restrict the requirement of notice to tenants to situations where the sale is only for the purpose of demolition or discontinuance of housing use.6

In light of the foregoing holdings, we affirm the judgments in Nos. 08–CV–1027, 08–CV–1114, 08–CV–1354, and 09–CV–106. We reverse the judgments in Nos. 08–CV–1438 and 08–CV–1340, and we remand Nos. 08–CV–1438 and 08–CV–1340 to the trial court for further proceedings consistent with this opinion.

[17 A.3d 594]

I.

FACTUAL BACKGROUND

These cases have their inception in a multi-million dollar real estate deal involving several rental properties. In early 2004, the Bernsteins decided to sell eleven of their apartment buildings in Washington, D.C., and to relocate their business operations to Florida. The properties were listed with the brokerage firm of Marcus & Millichap. One of the brokers at that firm contacted Ron Zeff, a member of Carmel, to inquire if Carmel was interested in acquiring the properties. Soon thereafter, Carmel sent the Bernsteins a non-binding letter of intent to purchase the buildings. Carmel offered to purchase all eleven properties for $88,000,000, treating the deal as a single transaction even though the sale was to be structured to maintain the status of each building as a single-purpose entity. After an inspection period, the parties entered into a final purchase and sale agreement providing for the transfer of the eleven buildings for $83,000.000.

The agreement called for two nominally separate transactions, both to be implemented on the same day. In the first transaction, the Bernsteins were to transfer the deed for each property, without negotiation or consideration, to a newly formed LLC (LLC II) controlled solely by them. In the second transaction, membership interests in these LLC II entities would be transferred to Carmel, which would purchase 99.99% of these interests, and to Quarry Enterprises, which was to acquire the remaining 0.01% interest.

The minority transferee, Quarry, was formed on April 19, 2004 under the laws of the District of Columbia. At the time of its formation, Quarry had a single member, Jim Ferris, the broker who had brought the properties to the attention of Carmel Partners. Ferris testified on deposition that he formed Quarry after receiving a telephone call from the president of Carmel. He stated that he did not know why Quarry was formed.7

The agreement between the Bernsteins, Carmel and (ostensibly) Quarry was contingent on the approval of the transaction by the District of Columbia Department of Consumer and Regulatory Affairs (DCRA). On April 26, 2004, Richard Luchs, Esquire, counsel for the transferors and transferees, sent a letter to the DCRA requesting confirmation that the proposed transfer, which did not provide for notice to the tenants or an opportunity to purchase

[17 A.3d 595]

the accommodations at a price and terms which represent a bona fide offer of sale, would not violate the Rental Housing Conversion and Sale Act of 1980 (RHCSA). At the time, the relevant provision of the Act stated that a “sale” that would trigger TOPA rights included

the transfer of 100% of all partnership interests in a partnership which owns the accommodation as its sole asset to 1 transferee or of 100% of all stock of a corporation which owns the accommodation as its sole asset to 1 transferee in 1 or more transactions occurring during a period of 1 year from the date of the first such transfer....

D.C.Code § 42–3404.02(c) (2001).

On April 29, 2004, only three days after the date of Mr. Luchs' communication, Linda Harried, the DCRA's Housing Regulation Officer, responded with a letter to Mr. Luchs in which she described the transactions as follows:

The Properties consist of residential rental units located at 1616 16th Street, N.W., 1754 Lanier Place, N.W., 1845 Summit Place, N.W., 3150 16th Street, N.W., 2637 16th Street, N.W., 1629 Columbia Road, N.W., 2714 Quarry Road, N.W., 1604–1610 16th Street, N.W., 105 6th Street, S.E., 3055 16th Street, N.W., and 3132 16th Street, N.W.

Sellers will form eleven (11) limited liability companies (“LLCs”) that will be wholly owned by Sellers, and Sellers will transfer the title of the Properties to the new LLCs.

One Hundred (100%) of the membership interests in each new LLC will be owned by the respective Seller/Transferor, which will simply be changing the form of ownership, not the ultimate ownership of the Properties.

You have advised me that each Seller will sell and assign a maximum 99.99% of the membership interest in the new LLC's to Carmel Partners, LLC, or assigns (“Carmel”) and a minimum .01 8 to an unrelated entity, Quarry Enterprises, or assigns (“Quarry Enterprises”). There is no common ownership between Carmel and Quarry Enterprises.9

Ms. Harried concluded that “the transfer of 100% of the membership interests in the limited liability companies to two (2) separate and unrelated entities, whether directly or indirectly, as described above, does not constitute a ‘sale’ or ‘sell’ as those terms are defined by the Act. Therefore this transaction is exempt from the statutory requirements of Title IV of the Act” (emphasis in original).10 The deal closed

[17 A.3d 596]

on June 30, 2004, and each of the eleven buildings was transferred in conformity with the agreement.

More than a year later, in August of 2005, the DCRA notified counsel for the owners of the buildings that it was opening an investigation “into the facts and circumstances” of the issuance of the opinion letter in which the agency had concluded that the transaction did not meet the definition of a sale within the meaning of TOPA. On December 16, 2005, Leila Franklin, the DCRA's Deputy Director for Compliance Inspections, issued a report on behalf of the agency in which she reaffirmed the DCRA's position that the transaction was not a sale. Ms. Franklin, wrote, however, that “the Exemption Letter was consistent with a longstanding practice that the current DCRA Administration has ceased, notwithstanding that the practice was legally sustainable.” She noted that the tenants of some of the buildings proposed to challenge the transaction as contrary to TOPA, and she stated that the agency's findings were not intended to preclude the tenants' ability to do so.

At five of the eleven buildings which had been transferred in conformity with the agreement, a number of the tenants had begun to discuss among themselves, and with a member of the Council of the District of Columbia, the possibility that they had been unlawfully denied the opportunity, under the provisions of TOPA, to purchase...

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