Cathedral Ave. Co-Op., Inc. v. Carter

• Decision Date: 15 May 2008
• Docket Number: No. 07-CV-205.,07-CV-205.
• Citation: 947 A.2d 1143
• Parties: CATHEDRAL AVENUE COOPERATIVE, INC., Appellant, v. Hope H. CARTER, John Hemphill, Jr., and Twenty Fifty-Eight Partnership, L.P., Appellees.
• Court: D.C. Court of Appeals

947 A.2d 1143

CATHEDRAL AVENUE COOPERATIVE, INC., Appellant, v. Hope H. CARTER, John Hemphill, Jr., and Twenty Fifty-Eight Partnership, L.P., Appellees.

No. 07-CV-205.

District of Columbia Court of Appeals.

Argued April 8, 2008.

Decided May 15, 2008.

As Amended June 16, 2008.

James H. Hulme, with whom Donald B. Mitchell, Jr. and Joshua A. Fowkes, were on the brief, Washington, for appellant.

Richard T. Rossier, Washington, with whom Susan M. Gschwendtner was on the brief, for appellees.

Before RUIZ and REID, Associate Judges, and FERREN, Senior Judge.

FERREN, Senior Judge:

This landlord and tenant case brings to this court, for the fourth time, a rent dispute that has continued for a quarter-century between Cathedral Avenue Cooperative, Inc. (the Tenant), a cooperative association that owns the 145-unit residential building at 4101 Cathedral Avenue, N.W., and Hope H. Carter, John Hemphill, Jr., and Twenty Fifty-Eight Partnership, L.P., all members or successors of a group (the Landlord) that in 1959 leased the land to the Tenant for 99 years for construction and operation of the building.

In August 2006, an arbitration panel increased the rent under the ground lease to $163,493.84 for the period 2004-2014. The central question presented on appeal is whether this arbitration award is limited to the dollar amount calculated by the panel, as the Landlord contends, or is broad enough to include the reasons for the decision, as the Tenant maintains. More specifically, the Tenant urges us to rule that a majority of the arbitrators expressly premised the dollar calculation on an interpretation of the lease that limits any rent increase to an adjustment derived solely from an inflation index. The Landlord, to the contrary, argues that no majority rationale is evident from the arbitrators' opinions, and thus that the scope of the award is limited — as the trial court ruled — to the agreed-upon bottom line, $163,493.84.

The significance of this dispute lies not in the rent level payable during 2004-2014 but in the potential impact of the award on future arbitrations. If the arbitrators expressly calculated the increase based on the Tenant's interpretation of the lease, that will strengthen the Tenant's argument that this interpretation binds future arbitrators under the doctrines of res judicata or collateral estoppel. If, however, the rationale for decision is not part of the award, the Landlord will have more room to argue in a future proceeding (as it did unsuccessfully in this one) that the decennial rent adjustment can — and should — be premised on increased land value, not merely on inflation. In that case, the Tenant would be limited to arguing that the inflation index rationale, while not expressly part of the 2006 award, is nonetheless implicit in it (and thus that the Landlord's land value argument is precluded forevermore, even though the 2006 award did not expressly incorporate a preclusion rationale).¹

This is not the first time that the rationale for decision has surfaced as an issue. In two previous arbitration proceedings — the first initiated by the Landlord, the second initiated by both the Landlord and Tenant — the parties sought a ruling that incorporated the rationale for the decision, but for different reasons no definitive answer was forthcoming in either case. In the present proceeding, in contrast with the earlier ones, each arbitrator wrote extensively on the meaning of the rent adjustment clause. In ruling on the Tenant's motion to confirm the award, however, the trial court continued the narrow approach. The judge confirmed the arbitrators' decision that set the annual rent "for the 10-year period commencing November 1, 2004" at $163,493.84. But, without a hearing or an explanation, the judge declined "to specifically adopt or reject any reasoning articulated by the arbitrators."

Although neither party contests the $163,493.84, the Tenant appeals the portion of the trial court order that declined to incorporate the reasons for decision by the two arbitrators in majority. It asks us to find in the majority decision an interpretive ruling that the lease limits a rent adjustment to an increase based on inflation alone. For the reasons that follow, we agree with the Tenant and remand the case with instructions to amend the Confirmation of Arbitration Award, as set forth at the end of this opinion.

I.

The Landlord and Tenant executed the ground lease (Lease) in November 1959. It provided an initial annual rent of $25,320 subject to increase, for the first time, after twenty-five years. The rent adjustment provision appears in Article I, Section 4, which also anticipates arbitration:

[S]aid annual basic rental of Twenty-Five Thousand Three Hundred Twenty Dollars ($25,320.00) shall be adjusted to the Wholesale (Primary Market) Price Index, for all items, as determined by the United States Department of Labor, Bureau of Labor Statistics [the WPI], . . . or its successor or most nearly comparable successor at the time of the adjustment. . . . If such Index shall be discontinued with no successor or comparable successor, or if either party with reasonable grounds therefor shall notify the other that such Index is no longer applicable for the purpose of this lease, the parties shall attempt to agree upon a substitute formula, but in the event the parties are unable to agree upon a substitute formula, then the matter shall be referred to arbitration as herein provided. (Emphasis added.)

The parties refer to the highlighted portion of the rent adjustment provision as the "Opt-Out Clause" — the clause at the heart of this dispute.

The rent adjustment provision also includes strict time periods for seeking a change in the rent level:

At least (90) days prior to the expiration of the first twenty-five (25) years of the term of this lease and at least ninety (90) days prior to the expiration of each succeeding ten (10) year period of the term hereof, the Landlord or the Tenant may, upon written notice to the other, request that the basic annual rental then being payable hereunder be increased or decreased for the succeeding ten (10) year period of the term of this lease in accordance with the foregoing provisions.

Failure to give timely written notice of a request for a rent adjustment will leave the pending rent level intact for the next ten years.

Article XII of the Lease specifies the procedures governing arbitration. The portions relevant here state: "In case there are three (3) arbitrators selected as above mentioned, an award in writing signed by any two of them shall be final. The expense of any such arbitration shall be borne equally by the Landlord and the Tenant. Judgment upon any award here-under may be entered in any court having jurisdiction thereof." (Emphasis added.) Article XII did not provide for application of any particular rules and said nothing about whether the arbitrators should issue a reasoned award.

The 1984 Arbitration

The Landlord sought the first rent adjustment, and initiated the related arbitration, in 1984. It argued that because land values had been accelerating at a rate higher than advances in the Producer Price Index (PPI, successor to the WPI), it had "reasonable grounds" to argue under the Opt-Out Clause that an inflation index was "no longer applicable" and that the rent instead should be premised on land value.

The arbitration proceeding went nowhere. The trial court agreed with the Tenant that the validity of the Landlord's notice seeking a rent increase was not subject to arbitration and ruled on the merits that the notice was untimely. See Carter v. Cathedral Ave. Coop., Inc., 532 A.2d 681, 683 (D.C.1987). Because a motion was pending in the trial court, however, we dismissed the Landlord's appeal as premature. See id. at 683-85. Thereafter, the trial court ruled again that the notice issue was not arbitrable, a ruling we reversed. See Carter v. Cathedral Ave. Coop., Inc., 566 A.2d 716, 719 (D.C.1989). Eventually, another judge ruled that the arbitration should proceed before a three-member panel, not before a single arbitrator as the Landlord had argued. We sustained that ruling. See Carter v. Cathedral Ave. Coop., Inc., 658 A.2d 1047, 1048 (D.C.1995). In the end, the arbitration panel ruled that the Landlord's request to change the nature of the rent adjustment formula was untimely, and the panel determined that the annual rent for the ten-year period 1984-1994 would be $83,343.84, after applying the PPI index formula in Article I, Section 4 of the Lease.²

The 1994 Arbitration

In 1994, the Landlord and tenant jointly initiated arbitration in order to settle the issue that the Landlord had failed, on procedural grounds, to have resolved in 1984, namely, whether appreciating land values were "reasonable grounds" under the Opt-Out Clause for abandoning an inflation index as "no longer applicable for the purpose of this lease." The Landlord presented evidence that "[s]ince the beginning of the lease term, the PPI has increased by a factor of 3.76, whereas the value of the land has increased by a factor of 11.8." A three-member arbitration panel, without expressly addressing the Landlord's contention, retained an inflation index — substituting the Consumer Price Index (CPI) for the PPI — and calculated the ten-year annual rent for 1994-2004 at $128,925.31.

The 2004 Arbitration

In June 2004, the Landlord again announced that there were "reasonable grounds" for concluding that an inflation index was "no longer applicable" and submitted the matter for arbitration. The Tenant moved for a stay, asking the trial court to rule — based on the 1994 arbitration — that res judicata (claim preclusion)³ and/or collateral estoppel (issue preclusion)⁴ barred the Landlord from rearguing its contention under the Opt-Out Clause that the decennial rent level should be premised on land value, not inflation. The court denied the stay, ruling that the...