Dodek v. Cf 16 Corp.

• Decision Date: 11 February 1988
• Docket Number: No. 86-1060.,86-1060.
• Parties: Oscar I. DODEK, Mildred S. Dodek and Samuel M. Dodek II, Appellants, v. CF 16 CORPORATION, John J. Mason, Stuart A. Bernstein, Richard S. Cohen, MBC Associates and 1001 Pennsylvania Avenue Associates, Appellees.
• Court: D.C. Court of Appeals

Page 1086

537 A.2d 1086

Oscar I. DODEK, Mildred S. Dodek and Samuel M. Dodek II, Appellants, v. CF 16 CORPORATION, John J. Mason, Stuart A. Bernstein, Richard S. Cohen, MBC Associates and 1001 Pennsylvania Avenue Associates, Appellees.

No. 86-1060.

District of Columbia Court of Appeals.

Argued Sept. 17, 1987.

Decided February 11, 1988.

COPYRIGHT MATERIAL OMITTED

Glenn M. Cooper, with whom Ronald A. Dweck and Keith A. Minoff, Bethesda, Md., were on the brief, for appellants.

Rodney F. Page, with whom James W. Gladstone, Washington, D.C., was on the brief, for appellees CF 16 Corp., MBC Associates, and 1001 Pennsylvania Avenue Associates.

Burton A. Schwalb, with whom Amy G. Rudnick, Washington, D.C., was on the brief, for appellees Mason, Bernstein, and Cohen.

Before FERREN, BELSON, and TERRY, Associate Judges.

FERREN, Associate Judge:

In October 1983, appellants Oscar I. Dodek, Mildred S. Dodek, and Samuel M. Dodek II (the "Dodeks") sued appellees John J. Mason, Stuart A. Bernstein, Richard S. Cohen, MBC Associates, 1001 Pennsylvania Associates, and CF 16 Corporation claiming damages based upon alleged breach of contract, fraud, and breach of fiduciary duty. These claims related to three contracts pursuant to which the Dodeks sold commercial real estate in the District of Columbia. After some discovery, the Dodeks moved for partial summary judgment on the issue of liability. All the defendant-appellees filed cross-motions for summary judgment. The Dodeks then moved to amend their complaint. On June 10, 1986, after oral argument on the summary judgment motions, the trial court denied the Dodeks' motions and granted defendant-appellees' cross-motions. The Dodeks have appealed. Because we agree with the trial court's rulings with one exception, we affirm the judgments as to appellees MBC Associates, 1001 Pennsylvania Avenue Associates, and CF 16 Corporation. As to appellees Mason, Bernstein, and Cohen, we affirm in part and reverse in part.

I

On October 25, 1979, Oscar Dodek executed two contracts, and Oscar, Mildred, and Samuel Dodek executed another contract, for the sale of three commercial lots to appellees Mason, Bernstein, and Cohen (the "Dodek contracts"). These lots, then numbered 2, 819 and 20, respectively, were in Square 348, the city block bounded by 10th, 11th, D, and E Streets, Northwest.¹ Lots 819 and 20 fronted on 10th Street and sold for $155 per square foot; Lot 2 fronted on D Street and sold for $200 per square foot. Lots in Square 348 were at that time being assembled for redevelopment under the supervision of the Pennsylvania Avenue Development Corporation (PADC) as part of a comprehensive redevelopment of the Pennsylvania Avenue corridor.

Mason, Bernstein, and Cohen purchased the Dodek lots on behalf of their limited partnership, MBC Associates, which had been formed for the purpose of purchasing and developing real estate in the District of Columbia.² Specifically, MBC was engaged in assembling lots in the eastern, 10th Street half of Square 348 for the eventual development of an office complex, contingent on PADC approval.³ In October 1980, Mason, Bernstein, and Cohen formally assigned the Dodek contracts to MBC. On October 15, 1980, the Dodeks and Mason, Bernstein, and Cohen went to settlement on the Dodek lots. The deeds executed at settlement conveyed fee simple ownership of the Dodek lots to MBC.

In addition to MBC's purchase of the Dodek lots, certain of MBC's other land acquisitions in Square 348 are of particular importance to this case. Lot 820 and Lot 16 (the "Morrissette lot"), both fronting on 10th Street, are significant because MBC's acquisition of those lots allegedly triggered the price escalation clause in the Dodek contracts under which the Dodeks now seek to recover. MBC went to settlement on Lot 820 on June 23, 1980, pursuant to a contract dated and executed on May 10, 1979. The partnership gained control of the Morrissette lot by virtue of a 99-year ground lease executed in 1982, after MBC had been purchased by the CF 16 Corporation. Also of significance to this case is Lot 800, which MBC acquired in July 1980, when the owners of the lot sold it to MBC in exchange for an interest in the partnership. The Lot 800 transaction is important not for the lot itself, but because the transaction is indicative of one of the various ways in which individual lot owners, like the Dodeks, participated in the development of Square 348.

The sale of MBC to CF 16 figures prominently in this case. Mason, Bernstein, and Cohen had contracted to sell their partnership interests in MBC to CF 16, a subsidiary of the Canadian conglomerate Cadillac-Fairview, on October 16, 1980, one day after settlement on the Dodek contracts. Settlement on the contract with CF 16 took place on April 9, 1981. The transfer of MBC's partnership assets to CF 16 was effectuated by having CF 16 join MBC as a partner and, then, by having the other MBC partners withdraw. MBC fulfilled its original mission when, under the ownership of CF 16, MBC executed the lease on the Morrissette lot, finally completing the assembly of the eastern half of Square 348. Thereafter, MBC continued to hold title to certain properties in Square 348 as a Cadillac-Fairview subsidiary.

CF 16 subsequently acquired the assets of 425 11th Street Associates (the "Clark" partnership) and 1055 Pennsylvania Avenue Associates (the "Evans" partnership), the two partnerships that were assembling lots in the western, 11th Street half of Square 348. The acquisition of these additional partnerships gave CF 16 control of all of Square 348, permitting CF 16 to develop the entire block as a single property, as PADC required. See supra note 3. CF 16 carried out its successful development of Square 348 through a limited partnership it formed for that purpose called 1001 Pennsylvania Avenue Associates.

II.

Each of the Dodek contracts contains what the Dodeks have characterized as a "most favored nation" clause. This clause entitles the Dodeks to an increased purchase price equal to the highest per-squarefoot price subsequently paid by the purchasers of the Dodek lots—Mason, Bernstein, and Cohen—for any other lot in Square 348 that has the same frontage as one of the Dodek lots. This clause as it appears in the Lot 2 contract provides:

3. Purchase Price. . . . The Purchasers agree that in the event the cost to them of acquiring ownership, either by purchase or through condemnation by Pennsylvania Avenue Development Authority for them, of any other property in Square 348 fronting on D Street, N.W., [is] for a price in excess of $200 per square foot, the purchase price hereunder shall be increased to equal the highest cost to them per square foot for any other property in Square 348 fronting on D Street. This provision shall survive the settlement of this contract of sale.

This clause is identical to the one in the other two contracts, except that 10th Street appears in place of D Street, and the triggering price is $155 per square foot instead of $200, reflecting the different frontage and lower selling price of Lots 819 and 20.

The Dodeks have never received an amount above the original purchase price of each of their lots. On appeal, they describe three separate "triggering events" which, they contend, should have caused an increase in the purchase prices pursuant to the "most favored nation" clauses and which, therefore, entitle them to recover various sums from appellees.⁴

A.

The first alleged triggering event was MBC's settlement of a previously executed contract for the purchase of Lot 820 fronting on 10th Street.⁵ The contract for Lot 820 had been executed in May 1979, five months before the Dodek contracts, but the settlement on Lot 820 took place in June 1980, eight months after the Dodek contracts. The Dodeks contend that the Lot 820 contract was merely an "option" contract entitling appellees to purchase the land at a specified price should they choose to go to settlement at a later date, and thus that the "purchase" of Lot 820 did not occur until well after the Dodeks'"most favored nation" clause had become effective.

More specifically, the Dodeks direct our attention to clause 11 of the Lot 820 contract, which provides in relevant part:

11. Sellers' Remedy on Default. In the event of the failure by Purchasers to perform [their] obligations hereunder, even though all conditions precedent as herein specified are satisfied, then the Sellers' sole remedy shall be to forfeit the Purchasers' deposit made hereunder, and this Agreement will be deemed null and void and the Purchasers and Sellers shall have no further liabilities to each other.

The purchasers' deposit, set forth in clause 2 of the contract, was $50,000. The Dodeks argue that because the purchasers' sole liability, before settlement, was forfeiture of their deposit, a "purchase" did not occur until the settlement date, when, for the first time, the purchasers actually incurred an obligation to pay the full $548,000 purchase price. Settlement on Lot 820, at a purchase price of $45 per-square-foot higher than that paid for the Dodek lots 819 and 20 fronting on 10th Street, did not take place until after execution of the Dodek contracts. Therefore, the Dodeks argue, the "most favored nation" clause entitled them to a $45 per-square-foot price increase for both lots.

B.

The second event allegedly triggering a price escalation under the "most favored nation" clause was MBC's acquisition, in 1982, of a 99-year ground lease on Lot 16, the Morrissette lot. The Dodeks do not allege that MBC's lease with the Morrissettes was a sham, or that it was in fact a purchase contract disguised as a lease. Rather, they suggest that the "most favored nation" clause should be interpreted to cover a lease of this kind. The Dodeks argue that the parties to the Dodek contracts meant by the critical language—"acquiring ownership, either by purchase or through condemnation"—any transaction that...