Jonathan Woodner Co. v. Laufer, 85-1059.

• Decision Date: 18 September 1987
• Docket Number: No. 85-1059.,85-1059.
• Citation: 531 A.2d 280
• Parties: JONATHAN WOODNER COMPANY, Appellant, v. Steven Z. LAUFER, Appellee.
• Court: D.C. Court of Appeals

531 A.2d 280

JONATHAN WOODNER COMPANY, Appellant, v. Steven Z. LAUFER, Appellee.

No. 85-1059.

District of Columbia Court of Appeals.

Argued January 14, 1987.

Decided September 18, 1987.

COPYRIGHT MATERIAL OMITTED

Waldemar J. Pflepsen, Jr., with whom Robert F. Condon, Washington, D.C., was on the brief, for appellant.

Steven Sarfatti, with whom Charles R. Donnenfeld and David N. Yellen, Washington, D.C., were on the brief, for appellee.

Before TERRY and STEADMAN, Associate Judges, and NEBEKER, Associate Judge, Retired.^*

TERRY, Associate Judge:

This litigation resulted from the parties' failed real estate development project, each party claiming breach of contract. The trial court, after a non-jury trial, found that timely completion of the project was rendered impossible by unanticipated changes in the District of Columbia's condominium conversion laws, so that there was no breach of contract, and neither party was entitled to damages. However, appellee Laufer, who had rendered services to convert appellant's apartment building into condominia, was awarded $100,000 under the doctrine of quantum meruit, plus $44,076.45 as reimbursement for his out-of-pocket expenses. Because the trial court failed to make a critical finding of fact, we vacate the judgment and remand the case for further proceedings.

I

The Jonathan Woodner Company (JWC) is a corporation specializing in real estate development and management. Headquartered in New York, JWC owns property in several cities in the eastern United States. One of the many JWC properties in the District of Columbia is the Park Towers, an apartment building on 16th Street, N.W.

During the 1970s the Park Towers fell into a state of disrepair, and in 1978 JWC decided to undertake a major rehabilitation of the building. Ian Woodner, JWC's president, assigned the rehabilitation project to his son Jonathan, a vice president of JWC. Being a newcomer to the real estate business, Jonathan Woodner decided to find a partner to facilitate the Park Towers project. With his father's approval, he sought out appellee Laufer, who holds a doctorate in economics and is an experienced real estate developer.

When Jonathan Woodner told Laufer of JWC's plans to rehabilitate the Park Towers apartments as rental property, Laufer suggested instead that the building be converted into condominia. Laufer, who had successfully handled several condominium conversion projects in the Washington area, believed that a similar conversion of Park Towers would yield higher profits. Jonathan Woodner, impressed by Laufer's credentials, was persuaded to convert Park Towers into condominia, and the two men began to negotiate the terms of a development agreement.

In the meantime, the District of Columbia Council, in an effort to alleviate an acute shortage of rental housing, had imposed a moratorium on condominium conversions throughout the city of Washington.¹ Certain conversion projects, however, were exempted from the moratorium, including some that Laufer had completed. A conversion could take place, despite the moratorium, if either (1) a majority of the tenants consented, or (2) the building was less than fifty percent occupied, and title to the property was transferred to a cooperative association. After obtaining a legal opinion from Mark Griffin, an experienced real estate attorney, Laufer and Jonathan Woodner concluded that the Park Towers conversion project could qualify under either of these exceptions.

As the terms of the development agreement began to crystallize, Jonathan Woodner, Ian Woodner, Laufer, and two other JWC officials met in New York in June 1979 to discuss the details of the project. Finally, on July 26, the parties executed two written contracts. The first provided for the formation of the New Park Towers Associates (NPT), a general partnership between Laufer and Jonathan Woodner. NPT's function was to rehabilitate the Park Towers apartments and convert them into condominia. Under the contract Laufer was appointed managing partner of NPT.

The second contract, from which this litigation arises, set forth the development agreement between NPT and JWC. This contract recited various services to be provided by NPT and also gave NPT the authority to do everything necessary to complete the project. JWC, on the other hand, was to provide the property itself. In addition, the second contract provided that when the project was completed, the building would be sold and the proceeds divided between NPT and JWC. From an assumed gross sales price of $6,750,000, JWC was to receive $1,750,000 off the top; the remaining $5,000,000 was to be used for paying all expenses incurred during the project, with NPT receiving any funds left over. If the sales price exceeded $6,750,000, one-third of the excess would go to JWC and twothirds to NPT. JWC also agreed to the creation of a first mortgage lien on the property as security for a construction loan; furthermore, to secure NPT as the guarantor of the construction loan, JWC agreed to the creation of a second mortgage lien. Conspicuously absent from this contract was any timetable for completion of the project.

NPT then sought and obtained a commitment from Riggs National Bank for a $3,850,000 construction loan.² Laufer, on behalf of NPT, also secured "end-loan financing," ie., a commitment from a mortgage company to provide mortgage loan financing to the purchasers of the new condominium units after completion of the rehabilitation project. In addition, NPT relocated existing tenants, rehabilitated vacant units, and performed basic managerial functions for the property. Since the construction loan was not yet available, both Laufer and Jonathan Woodner advanced some of their own funds for these activities, even though they had not contemplated making any personal loans to the partnership or contributing any capital of their own to finance the project.

During the ensuing weeks, with the aid of NPT, a majority of the Park Towers tenants found other places to live, so that by October 1979 the building was less than fifty percent occupied. On October 4 Mark Griffin, the attorney for the project, filed an application with the District of Columbia Department of Housing and Community Development (DHCD) to convert the Park Towers apartments to cooperative status. On November 30 Griffin filed a second application to convert the apartments into condominia, supported by documents showing that more than seventy percent of the tenants in residence as of November 1 had consented to the conversion.

The parties' quest for fortune began to go awry when DHCD failed to act on either of the applications submitted by Mr. Griffin. He continued to press for approval of the applications, however, and a hearing was finally held in June 1980. In the interim, as more tenants were relocated, the ones who stayed behind worked to derail the project. By the time of the hearing, the remaining tenants had joined together to oppose the conversion and had obtained legal counsel.

Meanwhile, the District of Columbia Council had enacted new legislation governing the conversion of apartments into condominia.³ Because the new law was to take effect on August 1, 1980, DHCD did not render any decision at the June hearing, even though NPT argued that its applications, which were filed before August 1, should be considered under the prior law. In October DHCD ruled not only that the new law applied, but also that it barred further consideration of NPT's applications.⁴

NPT's inability to secure DHCD's approval of the conversion applications proved to be disastrous. Dissatisfied with NPT's performance, Ian Woodner proposed certain modifications in the original agreement between JWC and NPT. The parties also discussed the possibility of JWC's purchase of Laufer's interest in the project.⁵ But these efforts to save the JWC-NPT alliance were fruitless. In March 1981 Ian Woodner, in a letter written as president of JWC, terminated the JWC-NPT development agreement, claiming that NPT had breached its obligations. All rights and liabilities of NPT in the conversion project were thereafter transferred to JWC.

By this time Laufer had used a substantial amount of his own personal funds to help finance some of the project's activities. Riggs Bank had advanced only a small fraction of the construction loan, since the majority of the loan proceeds would not be disbursed until DHCD approved NPT's applications. Jonathan Woodner and Laufer had intended the Riggs loan to cover all expenses. However, since the bulk of the loan was never distributed, Laufer incurred out-of-pocket expenses totaling $44,076.45.

Shortly after the development agreement was rescinded, Laufer filed this action against JWC. In his complaint Laufer sought damages for JWC's allegedly wrongful termination of the contract, quantum meruit damages based on the value of his services on behalf of the partnership in renovating the apartment building, and indemnification of all liabilities which he had incurred on behalf of JWC in connection with the Park Towers project. Along with its answer, JWC filed a counterclaim for breach of the development agreement, based on Laufer's failure to complete the project. A few months later Laufer filed an amended complaint, adding a claim for a constructive trust to be imposed on the proceeds of any sale of the property by JWC.

The trial court, after hearing the evidence and reviewing the JWC-NPT contract, decided to imply a term "requiring performance within a reasonable time." It then ruled that the contract had been "discharged by a supervening impossibility," namely, the refusal of DHCD to act on the applications for conversion of the Park Towers to condominia. It therefore held that neither Laufer nor JWC was entitled to any damages for breach of contract, and dismissed both Laufer's claim for such damages and JWC's counterclaim. However, the court awarded Laufer $100,000 in quantum...