Laz-Karp Realty, Inc. v. Gilbert

• Citation: 777 F. Supp. 1085
• Decision Date: 19 November 1990
• Docket Number: Civ. A. No. 90-0162-B.
• Parties: LAZ-KARP REALTY, INC. v. James F. GILBERT.
• Court: U.S. District Court — District of Rhode Island

777 F. Supp. 1085

LAZ-KARP REALTY, INC. v. James F. GILBERT.

Civ. A. No. 90-0162-B.

United States District Court, D. Rhode Island.

November 19, 1990.

Jeffrey C. Schreck, Flanders & Medeiros, Providence, R.I., for plaintiff.

Joseph V. Cavanagh, Karen A. Pelczarski, Blish & Cavanagh, Providence, R.I., for defendant.

OPINION

FRANCIS J. BOYLE, Chief Judge.

Plaintiff, Laz-Karp Realty, Inc., entered into a purchase and sale agreement with defendant, James F. Gilbert, on February 8, 1989. The agreement provided for the sale of land and buildings located in the central business district of the City of Providence. Laz-Karp was in the business of operating parking garages and planned to construct and operate a parking garage on the site.

Laz-Karp and Gilbert negotiated the purchase price of $4,500,000 in January of 1989. After the purchase price had been negotiated and agreed upon, Gilbert informed Laz-Karp that there were problems with the title to the property. Three persons (the "holdouts") who held fractional interests in a small part of the property had refused to sell their interests to Gilbert. Gilbert proposed to Laz-Karp that Gilbert clear title by having the City of Providence condemn the property.

Accordingly, the purchase and sale agreement, drafted by Gilbert's counsel, recited that:

Buyer understands that Seller does not presently hold title to the entire Premises, that title to certain portions of the Premises is not marketable and that certain mortgages have been recorded against the Premises which can not (sic) be discharged by the payment of money. Buyer has been advised that the City of Providence through its Redevelopment Agency will condemn the Premises and convey marketable title to the Premises to Seller. If such condemnation has not been completed by March 1, 1990, Seller or Buyer may elect to terminate this Agreement by written notice to the other provided in accordance with the provisions thereof.

The agreement further provided that if either party terminated the agreement, Gilbert must pay to Laz-Karp the deposit and all earned interest and an amount equal to Laz-Karp's costs for tests and engineering work to determine if the property was suitable for construction of a parking garage, but not in excess of $100,000, provided Laz-Karp delivered to Gilbert proof of such expenses.

The agreement significantly provided that the closing would take place 60 days "... after the condemnation proceeding had been completed and all appeal periods had expired.... provided if the condemnation proceedings referred to above have not been completed and all appeal periods shall not have expired on or before Sept. 1, 1989 the Closing shall take place ninety (90) days after the condemnation proceeding referred to above has been completed and all appeal periods have expired."

Finally, the agreement also provided that both Gilbert and Laz-Karp would "use due diligence to complete their obligations ... on a timely basis."

Under the terms of the agreement, Laz-Karp had a 30-day free "window" to decide whether it wanted to go forward with the transaction. During this period, among other things, Laz-Karp considered the condemnation aspect of the transaction. Laz-Karp's principals and counsel each testified at trial that Laz-Karp decided during this time that proceeding through condemnation had certain benefits. These included the possibility of acquiring an adjacent parcel of property in which Gilbert had no interest as well entering into a close working relationship with the City of Providence. Laz-Karp perceived that the City's participation in the purchase of the property would make it easier for Laz-Karp to get any needed zoning variances, permit approvals, and desired traffic changes, and might better enable Laz-Karp to arrange to connect its parking garage with a planned Convention Center. Gilbert vigorously disputes the existence of any benefits of condemnation and instead insists that condemnation was merely contemplated by the parties as the quickest way to clear title.

At meetings on the date of the closing in February, both the Director of Planning and Redevelopment for the City of Providence and the Mayor of the City of Providence expressed an interest in condemning the property for a parking garage. There was no discussion of restrictions on the property or reverter rights of the City at that time. Counsel for Laz-Karp, however, admitted at trial that it is common practice for there to be restrictions on land obtained through condemnation proceedings.

In late September of 1989, for the first time the City identified a series of conditions and deed restrictions necessary for condemnation. These conditions and deed restrictions included: 1. Laz-Karp must submit a detailed construction plan for the property; 2. If a garage was not built, the City had a right of reversion; 3. The property would be subject to restrictions on transfer by Laz-Karp to any other party; 4. The property would be restricted to use as a parking garage for 40 years; and 5. Any plans to construct a hotel in addition to a parking garage required approval by the Historic Review Commission.

By this time Laz-Karp had already paid a $100,000 deposit as required by a March 7, 1989 supplement to the agreement. Furthermore, Gilbert had evicted all tenants on the land in order to avoid paying tenant relocation charges.

Laz-Karp, however, thereafter concluded that because of the City's restrictions, condemnation was not economically advantageous to it. Laz-Karp, therefore, declined to submit the appropriate plans and specifications for the condemnation proceeding and the City declined to go forward with condemnation. Laz-Karp informed Gilbert of its decision on December 20, 1989.

Gilbert then suggested to Laz-Karp that he could obtain clear title by purchasing the minority interests in the land as an alternative to condemnation. On January 3, 1990 the parties discussed clearing title otherwise than by condemnation and lowering the purchase price to $3,750,000. Although the terms of this discussion were to supersede the original agreement if put into effect, the parties did not enter into a signed or written agreement.

In February of 1990, Gilbert obtained all minority interests in the land and demanded performance of the purchase and sale agreement. Laz-Karp contended that the original agreement was terminated due to Gilbert's failure to condemn the property and demanded return of the original $100,000 deposit...