Wallasey Tenants Ass'n, Inc. v. Varner, No. 03-CV-763.

• Decision Date: 16 February 2006
• Docket Number: No. 03-CV-1037.,No. 03-CV-763.
• Citation: 892 A.2d 1135
• Parties: WALLASEY TENANTS ASSOCIATION, INC., et al., Appellants/Cross-Appellees, v. Carol Sue VARNER,<SMALL><SUP>*</SUP></SMALL> et al., Appellees/Cross-Appellants.
• Court: D.C. Court of Appeals

892 A.2d 1135

WALLASEY TENANTS ASSOCIATION, INC., et al., Appellants/Cross-Appellees, v. Carol Sue VARNER,^* et al., Appellees/Cross-Appellants.

No. 03-CV-763.

No. 03-CV-1037.

District of Columbia Court of Appeals.

Argued October 26, 2004.

Decided February 16, 2006.

Jerome A. Murphy and George D. Ruttinger, with whom John L. Murino, Washington, DC, was on the brief, for appellants/cross-appellees.

Vincent Mark J. Policy, Jr., Washington, DC, with whom M. Ryan Jenness was on the brief, for appellees/cross-appellants.

Douglas G. Green and John D. Clopper, Washington, DC, filed an amicus curiae brief for the Coalition for Nonprofit Housing and Economic Development in support of appellants.

Before WASHINGTON, Chief Judge,^** and SCHWELB and FARRELL, Associate Judges.

WASHINGTON, Chief Judge.

Appellant Wallasey Tenants Association ("the Tenants") appeals from the trial court's order granting summary judgment to appellees Kenneth Fairbairn and Fairbairn Properties — 2426 19th Street N.W., L.L.C. (referred to jointly as the "Fairbairn Parties") and denying Tenants' motion for summary judgment in a suit arising from Mr. Fairbairn's alleged violation of the Rental Housing Conversion and Sale Act, D.C.Code § 42-3401.01 et seq. (2001) ("the Act"). The Tenants contend that the trial court erroneously concluded that Mr Fairbairn's transfer of property to a limited-liability company controlled by Mr. Fairbairn himself was not a sale that triggered the Tenants' statutory right of first refusal under § 42-3404.02(a) (2001). In a separate action, the Fairbairn Parties appeal from the trial court's order denying their request for attorneys' fees, pursuant to D.C.Code § 42-3405.03 (2001). We disagree, and affirm both decisions of the trial court.

I.

From April 2, 1962, until December 17, 1999, Kenneth Fairbairn was the sole owner of a seventeen-unit apartment building, the Wallasey, located at 2426 19th Street, N.W., in the District of Columbia. Fairbairn Properties — 2426 19th St., N.W., L.L.C. ("19th St. LLC") is a District of Columbia corporation that is 99% owned by Mr. Fairbairn. Fairbairn Properties, L.L.C., a Virginia corporation, owns the remaining 1% of the 19th St. LLC. Mr. Fairbairn is the sole member and owner of Fairbairn Properties, L.L.C.

On December 17, 1999, Mr. Fairbairn transferred ownership of the Wallasey to the 19th St. LLC. Specifically, Mr. Fairbairn transferred a 100% fee simple interest in the Wallasey to the 19th St. LLC for "good and valuable consideration" by special warranty deed executed December 17, 1999. The transaction between Mr. Fairbairn and the 19th St. LLC was made without notice to the Tenants and without giving them a right of first refusal. The transfer of title was recorded in the D.C. Recorder of Deeds office on December 20, 1999. Since 1999, the 19th St. LLC has been the sole owner and title holder of the Wallasey.

In autumn 2002, while searching District of Columbia land records on the internet, the Tenants discovered that the Wallasey had been transferred to the 19th St. LLC. Tenants sent notice to Mr. Fairbairn requesting exercise of the right of first refusal pursuant to D.C.Code § 42-3404.02(a). Mr. Fairbairn, through counsel, informed the Tenants that the right of first refusal was not available because the transfer of the Wallasey was not a sale. Tenants thereafter brought suit.

Tenants allege that Mr. Fairbairn received consideration of value in exchange for the Wallasey, and thus this transfer to a distinct legal entity is appropriately characterized as a sale triggering Tenants' opportunity of first refusal. The Fairbairn Parties admit that transfer of the Wallasey to the 19th St. LLC resulted in benefits to Mr. Fairbairn in the form of limited personal liability and ease in estate planning. The Fairbairn Parties maintain, however, that regardless of benefits received, the transfer of the Wallasey was not a sale and that Tenants' statutory rights of first refusal were not activated.

Both the Fairbairn Parties and the Tenants filed motions for summary judgment and requested that the trial court decide the issue as a matter of law, without further discovery or trial. After extensive briefing, the trial court granted summary judgment in favor of the Fairbairn Parties and held the transfer was not a "sale" under the Act. In light of their victory, the Fairbairn Parties moved for attorneys' fees pursuant to D.C.Code § 42-3405.03. The trial court denied that request. Both parties filed timely appeals.

II.

Summary judgment is appropriate if, when viewing the record in the light most favorable to the non-moving party, there are no genuine issues of material facts in dispute, and the moving party is entitled to judgment as a matter of law. Super. Ct. Civ. R. 56(c); see also Abdullah v. Roach, 668 A.2d 801, 804 (D.C. 1995). In reviewing summary judgment decisions, we conduct an independent review of the record and apply the same standard as the trial court in considering whether the motion was properly granted. See Burt v. First Am. Bank, 490 A.2d 182, 184-85 (D.C. 1985). This court will affirm the trial court's grant of summary judgment if the "`pleadings, depositions, answers to interrogatories, and admissions on file together with the affidavits,'" support the conclusion that there was no genuine issue of material fact. Urban Masonry Corp. v. N & N Contractors, Inc., 676 A.2d 26, 30 (D.C. 1996) (quoting Byrd v. Allstate Ins. Co., 622 A.2d 691, 693 (D.C. 1993)).

The Tenant Opportunity to Purchase Act, D.C.Code § 42-3404.02 et seq., provides that:

Before an owner of a housing accommodation may sell the accommodation, or issue a notice of intent to recover possession, or notice to vacate, for purposes of demolition or discontinuance for housing use, the owner shall give the tenant an opportunity to purchase the accommodation at a price and terms which represent a bona fide offer of sale.

D.C.Code § 42-3404.02(a) (2001). This provision of the D.C.Code creates a statutory right of first refusal similar to that which exists in contract law. Cf. 17 C.J.S. Contracts § 56 (2004) ("A right of first refusal is a conditional option empowering its holder with a preferential right to purchase a property on the same terms offered by or to a bona fide purchaser."). It is undisputed that the Wallasey is a rental accommodation generally subject to the Tenant Opportunity to Purchase Act. It is also undisputed that the Wallasey was transferred by Mr. Fairbairn to a separate legal entity — Fairbairn Properties — 2426 19th St. N.W., L.L.C. The issue in contention, however, is whether the transfer of the Wallasey by Mr. Fairbairn to a corporation wholly-controlled, and effectively wholly-owned, by Mr. Fairbairn himself, is a sale that triggers Tenants' right of first refusal under D.C.Code § 42-3404.02 et seq.

Both parties cite to the definition of "sale" stated in West End Tenants Ass'n v. George Washington Univ., 640 A.2d 718 (D.C. 1994), to support their respective positions. The parties' respective reliance on West End is misplaced because the facts of that case are readily distinguishable from the case sub judice. In that case, George Washington University entered into a lease agreement (known as the "Master Lease") with the owners of the West End Apartments for a period of ten years at a rate of $25,000 a month. Id. at 723. The university was granted a right to purchase the apartment building at the conclusion of the lease period, subject and subordinate to the tenants' rights pursuant to D.C.Code. Id.

The Master Lease in addition to giving GWU control over all equipment on the premises, supplies, and transferable permits, as well as the right to challenge any real estate assessments, obligated the university to pay all real property taxes and utilities, to perform all maintenance and repairs, and to obtain all non-transferable permits and purchase liability insurance. The owners, besides holding record title, reserved the right to prevent the university from making any alterations, improvements, or additions to the apartment, to reenter the premises in the event of noncompliance with the lease provisions, and to veto any assignment of rights by the university under the lease.

Id. at 724. At issue in West End was whether the Master Lease qualified as a sale under the Act. We held that the Master Lease entered into did not constitute a "sale" within the meaning of § 42-3404.02(b) of the Tenant Opportunity to Purchase Act because the owners neither conveyed their entire interest nor relinquished their complete control of the apartment to the university. Id. at 728. The current case involves a conveyance of property to a closely related party, not the entering into of a lease between an owner and a third party. The two situations are clearly distinguishable.

The unique factual circumstances of the case sub judice present us with the question of whether the right of first refusal is triggered by the conveyance of property between two closely related parties such as the Fairbairn Parties. This is a question of first impression in the District of Columbia. Other jurisdictions, however, have faced this very issue, and the rationale employed by those courts to determine whether a sale that triggers a right of first refusal has occurred is very persuasive.

The two most analogous cases are Kroehnke v. Zimmerman, 171 Colo. 365, 467 P.2d 265 (1970), and McGuire v. Lowery, 2 P.3d 527 (Wyo. 2000). In Kroehnke, the Supreme Court of Colorado held that a conveyance of real property by its individual owners to a corporation in which the same individuals owned all the stock did not constitute a sale triggering the right of first refusal attached to that property. 467 A.2d at 267. The Kroehnke court held that "[a]lthough the corporation issued its stock and a note as consideration for the transfer of title, there is nothing in the record to suggest arms' length dealing between an owner...