Ross v. Hacienda Cooperative, Inc.

686 A.2d 186, 1996 D.C. App. LEXIS 253, 1996 WL 682117

• Court: District of Columbia Court of Appeals
• Decided: November 27, 1996
• Docket: 94-CV-803
• Status: Published

Opinions

REID, Associate Judge:

This case concerns a dispute as to whether the seller or buyer should properly be awarded a refund of tax assessment monies originally paid to the District of Columbia for repair of roofs on a five building apartment complex in Southeast Washington. The District repaired the roofs after the seller failed to do so, and assessed the cost to the purchaser. However, the purchaser had to install new roofs because the District’s repairs were faulty. An addendum to the sales contract specified that the Property was to be sold “as is,” but, pursuant to a supplemental agreement, the seller placed part of the purchase price, $80,000, in escrow to cover the District’s assessment or the cost of roof repair.

The buyer sued the seller on both equitable and legal claims; however the relief sought on both the equitable and legal claims involved a sum of money for the roof repair. At the conclusion of a bench trial, the trial court imposed a constructive trust on the tax assessment refund and ordered it to be paid to the buyer, even though the court ruled against the buyer on its legal claims. The seller contends that the trial court committed error in imposing a constructive trust after dismissing the buyer’s legal claims, and that the tax refund properly belongs to the seller. We remand the case to the trial court for additional factual findings.

I. FACTUAL BACKGROUND

Appellants Cornelia F. Ross, et al. were joint venturers (“the Joint Venturers”) in a real estate undertaking known as the Hacienda Joint Venture (“the Joint Venture”). The Joint Venture owned the Hacienda Apartments, a five building complex in Southeast Washington (“the Property”). On January 31, 1989, the Hacienda Tenant Association, Inc. (“the Tenant Association”) entered into a contract for the purchase of the Property from the Joint Venture for the sum of $795,-000.00. A February 13, 1989, Addendum to the Sales Contract specified that it would be sold in an “as is” condition.

On October 10, 1989, the Hacienda Cooperative, Inc. (“Hacienda”) was incorporated in Delaware for the purpose of acquiring, owning and operating property as a limited equity housing cooperative in the District of Columbia. Hacienda succeeded the Tenant Association as purchaser of the Property under the January 31, 1989, sales contract and the February 13, 1989, addendum.¹ Closing-on the Property took place between November 13 and December 1, 1989.² During the closing period, as indicated below, the parties executed a supplemental agreement under which the Joint Venturers placed $80,000 in escrow to cover the cost of the roof repair.

Prior to the sale of the Property, tenants had complained about leaking roofs and other problems. On February 2,1987, a petition in behalf of seven tenants, George P. Jackson, et al. v. Vijon Realty, TP 20, 810, was filed with the Rental Accommodations and Conversion Division of the Department of Consumer and Regulatory Affairs (“DCRA”). The petition is not part of the record, but there was testimony at trial that the petition concerned complaints about a substantial reduction of sendees to the facilities and a request for a rent rollback.³

DCRA issued a housing deficiency notice in February 1988, which specified that the roofs of the entire apartment complex were in substandard condition and in violation of the District’s housing regulations.⁴ The Joint Venture did not abate the violation. In January 1989, DCRA asked the Department of Public Works (“DPW”) to arrange for the necessary repairs to the roofs. On September 28, 1989, DCRA advised The Tenant Association that DPW had replaced the roofs on the five building complex at a cost of approximately $80,000 and that an assessment for payment would be made in October 1989.

In an undated “Escrow Agreement-Post Settlement,” (“escrow agreement”) the Joint Venturers set aside $82,000 of the Property’s purchase price. One of the participants in the closing on the Property testified at trial that the post settlement escrow agreement was signed on November 13, 1989. Paragraph 1 of the escrow agreement provided in part that “[e]scrow agent shall hold in an interest bearing escrow account the total sum of $82,000 ..., as reflected on Lines 516 and 517 of the Settlement Statement for the sale.... ” Paragraph 516 of the Settlement Statement specified “roof repair escrow— $80,000.” There was no reference to the District’s assessment notice letter. The remaining $2,000, according to Paragraph 517 of the Settlement Statement, covered a “mechanics lien escrow.”

On November 21, 1989, the Joint Venture and about twenty-seven tenants (individually and on behalf of the Tenant Association) executed a settlement and release agreement regarding one of the tenant petitions, TP 20, 810. The agreement provided that if the sale of the Property actually took place, the Joint Venture would pay to Hacienda $35,000 from the sale proceeds in consideration for the dismissal of the tenant petition.⁵ The release covered claims “within the jurisdiction of the Rent Administrator to adjudicate.” There was no specific mention of the roof problem.

Sometime after closing on the Property, Hacienda discovered that the District’s roof repair work was faulty. On June 8, 1990, Hacienda asked the District to stop all work on the roofs. The District issued a special assessment notice on July 9, 1990, demanding $79,167.81 for replacing the roofs on the Property. After receiving a request from Hacienda that the assessment be paid, the escrow agent paid $79,167.81 to the District “under protest” and wrote, “[i]t is the intention of the former owner to challenge this special assessment.”⁶ Hacienda arranged for a replacement of all of the roofs and paid the sum of $125,576.25 between August and November 1990.

After the escrow agent paid the repair assessment to the District, the Joint Ventur-ers filed a petition in the Tax Division of Superior Court in 1990 to recover the money paid. The Tax Division refused to permit Hacienda to intervene for the purpose of lodging a cross-claim against the Joint Ven-turers, but after ruling in favor of the Joint Venturers, the Tax Division ordered the $79,-167.81 refund to be placed in an interest bearing escrow account pending the conclusion of a civil action brought by Hacienda in the Civil Division of the Superior Court.

Hacienda’s Complaint

Hacienda filed a civil action against the Joint Venturers in 1992, seeking both equitable and legal relief. Count one of the complaint prayed for a declaratory judgment regarding entitlement to the tax refund. Count two requested imposition of a constructive trust on the tax refund to avoid unjust enrichment of the Joint Venturers. Counts three and four were claims for breach of contract and negligent waste.

The Bench Trial

During a two day bench trial in April 1994, three witnesses testified for Hacienda: Joseph Lewis, an employee of the Department of Consumer and Regulatory Affairs who described the District’s involvement in the roof issue; Robert Gray, the general manager of the commercial roofing company hired by Hacienda to correct and replace the District’s roof repaii’ work; and Chester Speight, former president of the Tenant Association. One witness testified in behalf of the Joint Venturers, John D. Thompson, former co-manager of the Hacienda apartments and one of the Joint Venturers.

With regard to the contract documents, Mr. Speight testified that the “as is” addendum was executed because the Joint Ven-turers had a competing purchase offer that included an “as is” clause. He stated that the November 13, 1989, escrow agreement was signed because: “[a]t settlement, the settlement agent was made aware there was a pending lien, so we reduced the selling price of the building and put the money in escrow with this agreement ...” He also identified a September 28, 1989, letter in which the Department of Consumer and Regulatory Affairs had advised Hacienda’s counsel that “the Department of Public Works has replaced the roofs on the five buildings at the complex ... at an approximate cost of $80,000.” Mr. Speight also identified the settlement sheet used during closing on the Property, and indicated that Paragraph 516 reflected a “roof repair escrow, eighty thousand dollars.” Mr. John Thompson, who signed the sales contract on behalf of the Joint Venturers, confirmed that the “as is” clause was added because of a competing offer that included the clause. During his testimony, he was not asked about the November 13, 1989, escrow agreement even though he was present during the closing on the Property.

With regard to the actual or proposed cost of the roof repair, the trial testimony reveals that the District assessed Hacienda $79,-167.81 for its roof repair which later proved to be faulty, and that Hacienda paid Function Enterprises, Inc., $125,576.25 to correct and replace the work done by the District. Mr. Thompson testified that the Joint Venturers had accepted a proposal from Rice Commercial Roofing in March 1989, to do the roof repair for $39,750. However, the District informed the Joint Venturers that the District’s preparatory work for the roof repair was already in progress and the Joint Ven-turers were too late in their efforts.⁷

The Trial Court’s Findings and Conclusions

After a two day bench trial in 1994, the tidal court made several factual findings regarding the owners of the property, tenant complaints, the sale transaction, and the roof problem. The trial court also concluded that Hacienda had not proved its legal claims. There was no breach of contract because Hacienda had taken the Property in an “as is” condition, knew of the defective roofs prior to sale and had assumed the risks associated with the defects. Hence, after consummation of the sale, the Joint Ventur-ers had no obligation to abate the substandard conditions. Significantly, the trial court made no finding as to whether the parties, by executing the November 13, 1989, escrow agreement, intended the escrow payment to be applied toward the roof repair in the event that the District was entitled neither to issue a notice of assessment for roof repair, nor to enforce a lien for repair costs. Moreover, the trial court made no factual finding as to the reasonable cost of the roof repair. Hacienda’s negligent waste claim failed, the trial court concluded because, after seeking relief from the District, it asked the District to cease work on the Property.⁸

After ruling against Hacienda on its legal claims, the trial court entered judgment for Hacienda on its equitable claim. According to the trial court,' “[t]he record suggested that both parties expected the defendants would bear the reasonable costs of the necessary repairs. The parties did not expect the costs to increase due to the poor quality of work performed at the plaintiffs request by the District of Columbia. Neither did the parties expect the assessment arising from such work to be abated in its entirety.” Moreover, the trial court found that the Joint Venturers “violated the District of Columbia Housing Code and that the involvement of the District of Columbia was the direct result of the defendants’ abandonment of their duties as landlords toward the plaintiff, as tenants. A refund to the defendants of the funds held in escrow would, in effect reward the defendants for them neglectful actions in their prior role as the owners of the Hacienda Apartments, and [would] result in an unexpected windfall.” Consequently, the trial court imposed a constructive trust to avoid unjust enrichment of the Joint Venturers. It limited Hacienda’s recovery “to the amount both parties reasonably expected to be the cost of the needed repairs,” and ordered the escrow sum of $79,167.81 plus accrued interest and post-judgment interest of five (5) percent to be paid over to Hacienda. The Joint Venturers duly noted an appeal.⁹

II. Analysis

Under D.C.Code § 17-305 (1989 Repl.), we “may review both as to the facts and the law, but the judgment may not be set aside except for errors of law unless it appears that the judgment is plainly wrong or without evidence to support it.” The trial court’s findings of fact “are reviewed deferentially under the ‘clearly erroneous’ standard.” Griffin v. United States, 618 A.2d 114, 117 (1992). However, “[t]he trial court’s legal conclusions ... are reviewed under the non-deferential de novo standard.” Id. In this matter, we must determine whether the trial court’s findings support the grant of judgment to Hacienda.

A.

On appeal, the Joint Venturers insist that the imposition of a constructive trust on the tax refund unjustly enriches Hacienda because Hacienda contracted to take the Property in an “as is” condition, and because the sellers only agreed to pay the District’s assessment for the roof repair. Hacienda argues that the parties contemplated that the Joint Venturers would bear the cost of repairing the roofs as indicated by the escrow agreement, and further, it would be inequitable for Hacienda to bear the full cost of $125,576.25 for the repairs, since the parties anticipated that the escrow fund would be used for the roof repair and did not anticipate the District’s faulty repairs.

Hacienda relies on the November 13, 1989, escrow agreement under which $82,000 of the purchase price was set aside — $80,000 of which was designated for “roof repair.” In agreeing to set aside this sum, Hacienda contends, the Joint Venturers clearly recognized that title to the Property would not pass to Hacienda without the repairs.¹⁰

The Joint Venturers argue that the tax refund properly belongs to them. They assert that the escrow agreement was designed only to cover an “assessment” and that “Defendants never obligated themselves to pay Plaintiff any amount in relation to the repair of the roof of the Hacienda Apartments.” However, Paragraph one (1) of the post settlement escrow agreement provides that: “Escrow Agent shall hold in an interest bearing escrow account the total sum of $82,000 (‘Escrow Amount’), as reflected on Lines 516 and 517 of the Settlement Statement for the sale'of 28 58th Street, S.E. (‘Property’)_” Paragraph 516 of the Settlement Statement specifies: “Roof Repair Escrow [-] $80,-000.00” and Paragraph 517 reads: “Mechanics Lien Escrow [-] $2,000.00.”

B.

Although the trial court attempted to deal comprehensively with the rather complex issues raised by this case, we believe that her findings are insufficient and, in some measure, potentially contradictory. On the one hand, the judge found that the Joint Venturers had failed to prove their claims at law because the Property was sold “as is.” On the other hand, in the trial judge’s opinion, “the record suggests that both parties expected that the defendants would bear the reasonable cost of necessary repairs.” If the quoted language regarding the parties’ expectations was intended to constitute a finding as to the parties’ intent in executing the November 13, 1989, escrow agreement, then there may be some tension between that finding and the trial judge’s holding that there was no breach of contract.

The testimony on the subject is less than enlightening. Mr. Thompson, the witness for the Joint Venturers, did not testify regarding this matter. The testimony of Mr. Speight for Hacienda is ambiguous. Furthermore, although the record contains actual roof repair costs incurred by the District in the amount of $79,167.81 and by Hacienda in the amount of $125,576.25, as well as an estimated cost of $39,750 from a roofing company with which the Joint Venturers were prepared to contract, the trial court made no finding as to the “reasonable costs of necessary repairs.”

The trial judge predicated her judgment in favor of Hacienda on a finding that the Joint Venturers were unjustly enriched. The imposition of a constructive trust is an equitable remedy. Although a trial judge has considerable discretion in applying the remedy, Gray v. Gray, 412 A.2d 1208, 1210 (D.C.1980), the determination whether the Joint Venturers were unjustly enriched requires some meaningful analysis of the reasonable expectations of the parties, as reflected in the agreements signed and the entire course of them dealings.

So far as we can discern from the record, the pertinent agreements in this case were negotiated by counsel for the parties at arm’s length. If the parties did not agree, explicitly or implicitly, that the Joint Venturers were to bear the reasonable cost of repair, then the trial court cannot convert their agreement into something it was not by invoking an equitable remedy. If, on the other hand, the parties shared a reasonable expectation that the Joint Venturers were responsible for the reasonable cost of repair, then it was appropriate for the trial court to enter judgment accordingly, after determining the reasonable cost of repair.

For the foregoing reasons, we remand the case to the trial court for additional findings as to the reasonable expectations of the parties with respect to who should bear the cost of the roof repair. The trial court should also make findings with respect to the amount of such reasonable cost, and any related issues that may arise. The trial judge may, in her discretion, reopen the record for additional evidence.

So ordered.

1 . On October 16, 1989, the Tenant Association authorized the incorporation of Hacienda “for the purpose of acquiring, owning and operating [the Property] ... as a limited equity, low-yield housing cooperative for the benefit of its members.” An October 24, 1989 Resolution of Hacienda recognized that it was the successor of the Tenant Association and had the authority to sign all acquisition documents for the Property.

2 . The deed transferring title to Hacienda is dated November 13, 1989, but the effective date of the transfer is December 1, 1989.

3 . Apparently a second tenant petition was filed in December 1987. That petition is not part of the record. A former president of the Tenant Association testified at trial that the first tenant petition did not concern the condition of the roofs but that the second petition (TP 21, 130) did. The second petition is not mentioned in the trial court's findings of fact.

4 . DCRA inspectors visited the Property on January 20 and 21, 1988 and confirmed the existence of roof leaks.

5 . According to the testimony of Mr. Chester Speight, former president of the Tenant Association, the $35,000 was distributed to the tenants who signed the agreement. There is no indication in the record that any of the $35,000 was applied to the cost of the roof repair.

6 . The additional $1,169.97 probably constituted penalty and interest.

7 . Mr. Thompson stated that the time for the Joint Venturers to do the roof repair had not expired when the District undertook its preparatory steps; under the District's order to the Joint Venturers, three days remained.

8 . Hacienda alleged that the Joint Venturers failed to prevent damage to the Property by the District. The District was alleged to be "an unwanted interloper” whose faulty roof repairs decreased the Property's value. Since Hacienda had complained to the District and "invited” the District to make the repairs, the trial court found that the District was not "an unwanted interloper."

9 . Hacienda did not appeal the trial judge's conclusions as to its legal claims, presumably because it prevailed on count two of its complaint which involved a request for the imposition of a constructive trust to avoid unjust enrichment.

10 . The Joint Venturers also appear to suggest that the November 21, 1989, "Agreement of Settlement and Release" between the Joint Venture and the Tenant Association regarding the resolution of George P. Jackson, et al. v. Vijon Realty, TP 20, 810 settled the roof repair issue. TP 20, 810 was brought on behalf of seven tenants and, as the trial court recognized, could not be regarded as a settlement of the issue between Hacienda and the Joint Venturers. TP 20, 810 resolved an issue between tenants and landlord, not an issue between buyers and sellers. Moreover, the settlement agreement made no mention of the roof conditions. In addition, TP 21,130, which specifically singled out the roof problems, was not obviously part of the settlement agreement. Neither of these tenant petitions was included in the record on appeal.