CLAY PROPERTIES v. WASHINGTON POST, 88-963

• Decision Date: 17 March 1992
• Docket Number: No. 88-963,88-963
• Citation: 604 A.2d 890
• Parties: CLAY PROPERTIES, INC., et al., Appellants, v. The WASHINGTON POST COMPANY, Appellee.
• Court: D.C. Court of Appeals

604 A.2d 890

CLAY PROPERTIES, INC., et al., Appellants, v. The WASHINGTON POST COMPANY,Appellee.

No. 88-963.

District of Columbia Court of Appeals.

Argued November 27, 1990.

Decided March 17, 1992.

Appeal from the Superior Court, George Herbert Goodrich, J.

Louis Rabil, with whom William H. Jeffress, Jr. and Joe R. Caldwell, Jr., Washington, D.C., were on the brief, for Clay Properties, Inc., et al.

Jack McKay, with whom Christine M. Nicolaides, Washington, D.C., was on the brief, for The Washington Post Co.

Before ROGERS, Chief Judge, FERREN, TERRY, STEADMAN, SCHWELB, FARRELL, and WAGNER, Associate Judges, and MACK and BELSON, Senior Judges. ^*.

Judge Belson was an Associate Judge of the court at the time of argument. His status changed to Senior Judge on July 24, 1991.

STEADMAN, Associate Judge:

ON REHEARING EN BANC

This appeal before the en banc court involves one episode in a protracted legal battle between the Washington Post Company ("the Post") on the one hand, and Ozzie Clay ("Clay") and Clay Properties Incorporated ("CPI") on the other, over ownership and control of a commercial building at 1523 L Street, N.W. ("the building"). CPI appeals from a grant of summary judgment in favor of the Post in the Post's eviction action. CPI contends that the trial judge erred in concluding as a matter of law that the Post, when it purchased the building at foreclosure, did not have notice of a master lease between Clay and CPI which CPI now wishes to enforce against the Post.

A panel of this court reversed this grant of summary judgment. At the same time, it affirmed, in a consolidated appeal involving the same parties, a grant of voluntary dismissal in different but related litigation.¹ Washington Post Co. v. Clay Properties, Inc., 573 A.2d 1227 (D.C. 1990). On the Post's petition for rehearing en banc,² the two appeals were severed and rehearing en banc granted only with respect to the appeal from the grant of summary judgment. Amended Order of Oct. 10, 1990, 580 A.2d 1042.³ We now reverse, as did the panel,the grant of summary judgment.⁴

I

For ready reference, we reiterate here the relevant facts as set forth in Part I of the panel opinion. Clay purchased the building in 1979, and title was in his name.⁵ In 1981, Clay and members of his family formed CPI to develop and operate commercial properties. On January 12, 1982, Clay, as owner of the building, and CPI, as lessee, executed a lease agreement ("Master Lease" or "Lease") which now lies at the center of this dispute. The Lease, which covered the land and entire building, contained a number of unusual provisions. Although the Lease was for a term of a year, it included 98 one-year options to renew which would take effect automatically unless CPI notified the landlord. For the period from 1982-1986, the Lease required CPI to pay rent of $500 per month for a building with rental market value of as much as $50,000 per month.⁶ The Lease effectively gave CPI complete control of the building; CPI had full power to make alterations to the building or even to demolish and rebuild it. More importantly, the Lease entitled CPI to sublet any part of the building, designating itself as landlord, and to collect all rents.⁷ Finally, the Lease provided that it would not be subordinate to any mortgage or lien placed on the property after execution of the Lease.

In November of 1984, to partially secure a commercial loan to finance business ventures unrelated to the building, Clay granted a second deed of trust on the building to First American Bank.⁸ In the event of default, the Master Lease was assigned to First American, but it was not subordinated to this deed of trust In early 1987, First American foreclosed on the building and sold its interest to the Post. The Post closed on its purchase on March 31, 1987. When the Post took over the building, Clay, CPI, and Clay & Company⁹ occupied two suites on the first floor of the building. On April 9, 1987, the Post gave Clay and his companies notice to vacate the space occupied by them within thirty days.

Since that time, the Post on one side and Clay and CPI on the other have been embroiled in litigation. On April 13, 1987, Clay, who was the defendant in a case filed by First American Bank in federal court in Virginia on the note for which Clay had given a second deed of trust on the building, filed a third-party complaint against the Post. The complaint, which named the Post as purchaser of the building, alleged wrongful foreclosure. The trial judge in the federal litigation dismissed the complaintagainst the Post; the net result of that litigation was to settle in the Post's favor the question of who had the underlying fee title to the building.

On May 20, 1987, the Post filed a landlord-tenant action against Clay, seeking to evict Clay and his companies from the office space they occupied in the building.¹⁰ In June, Judge Richter entered an interim protective order requiring Clay and his companies to make monthly rent payments into the court registry. In his answer to the Post's landlord-tenant complaint, Clay asserted CPI's rights to the building under the Master Lease.

On October 30, 1987, after tensions over control of the building escalated, and CPI began demanding that the building's tenants pay rent to CPI, the Post filed a civil action seeking to enjoin CPI from exercising any purported landlord rights in the building. A lengthy preliminary injunction hearing, at which one of the issues was the validity of the Master Lease, was held before Judge Tignor. Much of the evidence and testimony adduced at that hearing later became part of the record in the summary judgment motion subsequently filed in the Post's landlord-tenant case, which is the subject of this appeal.¹¹

On December 17, 1987, before the outset of the preliminary injunction hearing in the Post's civil case, CPI filed a landlord-tenant action seeking to evict the Post from the building. CPI also filed suits for possession against other tenants in the building. In all these cases, CPI asserted the authority to evict under the terms of the Master Lease. CPI's eviction suit against the Post was scheduled for trial beginning March 10, 1988. Just prior to that date, the trial court granted CPI's motion for voluntary dismissal of the action without prejudice, over the opposition of the Post.¹²

Following the voluntary dismissal of CPI's action, the Post, as already mentioned, filed a motion for summary judgment in its own landlord-tenant suit against CPI. On June 30, 1988, Judge Goodrich entered an opinion and order granting summary judgment on the ground that the Master Lease, which was unrecorded, was unenforceable against the Post. Judge Goodrich's ruling rested on the determination that the Post was a bona fide purchaser without notice. CPI appealed from the grant of summary judgment in favor of the Post. It is this appeal that is before us now for en banc resolution.

II

We review here the grant by a trial court of a plaintiff's motion for summary judgment. Therefore, we begin with a brief reiteration of the basic operative legal principles relating to a review of such trial court action, as recently set forth in Hill v. White, 589 A.2d 918 (D.C. 1991). See also Beckman v. Farmer, 579 A.2d 618, 626-27 (D.C. 1990).

Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Super.Ct.Civ.R. 56(c). This court will uphold a summary judgment order "if (1) taking all reasonable inferences in the light most favorable to the nonmoving party, (2) a reasonable juror, acting reasonably, could not find for the non-moving party, (3) under the appropriate burden of proof." Nader v. de Toledano, 408 A.2d 31, 42 (D.C. 1979) (emphasis in original; footnote omitted), cert. denied, 444 U.S. 1078, 100 S.Ct. 1028, 62 L.Ed.2d 761 (1980). The focus of our inquiry is twofold: first, we look to see if the moving party has met its burden of proving that no material fact remains in dispute, and then we also mustdetermine whether the party opposing the motion has offered "competent evidence admissible at trial showing that there is a genuine issue as to a material fact." Nader, 408 A.2d at 48. The burden on the nonmoving party is "that sufficient evidence supporting the claimed factual dispute be shown to require a jury or judge to resolve the parties' differing versions of the truth at trial." Id. (quoting First National Bank of Arizona v. Cities Services Co., 391 U.S. 253, 288-89, 88 S.Ct. 1575, 1592, 20 L.Ed.2d 569, reh'g denied, 393 U.S. 901, 89 S.Ct. 63, 21 L.Ed.2d 188 (1968)).

We turn to the question whether the Post met its burden here to show that, as a matter of law, it must be deemed a bona fide purchaser of the building and thus holds it free of CPI's unrecorded leasehold interest.

A

Under D.C.Code § 45-801 (1990), a deed conveying an interest in real property is not effective against "subsequent bona fide purchasers" unless it is recorded.¹³ A bona fide purchaser is one "who acquires an interest in property for a valuable consideration and without notice of any outstanding claims which are held against the property by third parties." 6A R. POWELL & P. ROHAN, THE LAW OF REAL PROPERTY ¶ 904[2][b], at 82-10 (1989) [hereinafter R. POWELL, REAL PROPERTY]. Because the Master Lease at issue in this case was not recorded, it was not effective against the Post if the Post was a bona fide purchaser. D.C.Code § 45-801 (1990). To prevail in its motion, the Post had to establish that, on the then existing record, it must be deemed as a matter of law to have acquired the building without notice of the Master Lease.¹⁴ In holding that it had done so, Judge Goodrich reasoned in critical part as follows:

The Court agrees with defendants [Clay...