Synanon Foundation, Inc. v. Bernstein

517 A.2d 28, 1986 D.C. App. LEXIS 472
District of Columbia Court of Appeals·Decided November 4, 1986·No. 84-1635·Published·Cited by 53 cases

Opinion

MACK, Associate Judge:

This appeal, we hope, marks the end of a carefully orchestrated attempt to subvert *30 the integrity of the judicial process. It comes to us from the award of $585,000 in attorneys’ fees against Synanon Foundation for its bad faith litigation tactics. In an earlier appeal, Synanon Foundation v. Bernstein, 503 A.2d 1254 (D.C.1986) (Synanon I), cert. denied, — U.S. -, 107 S.Ct. 69, 93 L.Ed.2d 26 (1986), we upheld the pretrial dismissal of Synanon’s complaint due to its perpetration of a massive fraud upon the court. There, we described Synanon’s temporarily successful attempt to deceive the trial court and influence its decisions as “conduct which the administration of justice cannot tolerate.” Id. at 1264. In this appeal, upon further review of that intolerable conduct, we conclude that Synanon richly deserved the additional sanction of an attorneys’ fee award. 1

We are concerned, however, about the scale of the award. The trial court allowed the defendants all of their attorneys’ fees for everything that occurred in this case. Although there is abundant proof that Synanon began litigating in bad faith soon after the proceedings were instituted, the record does not contain adequate evidence that the complaint was originally filed in bad faith. Consequently, in awarding attorneys’ fees against Syna-non for the entire litigation, the trial court included amounts which were not shown to be the result of Synanon’s groundless, bad faith procedural moves. To the extent that fees unconnected to Synanon’s bad faith litigation tactics were included, the trial court in effect added punitive damages to an otherwise proper bad faith fee award. Punitive damages may not be awarded under the guise of attorneys’ fees. We reverse and remand for the trial court to reduce its award by any amounts in attorneys’ fees which did not stem from Syna-non’s proven bad faith litigation tactics. 2

I

Before the dismissal of Synanon’s complaint, which we affirmed due to its fraud upon the court, Synanon was the plaintiff in an action arising out of an agreement to purchase an apartment house. The facts of the litigation are more fully set out in Synanon I. We recount them again here insofar as necessary to explain the basis of the attorneys’ fee award against Synanon.

The Boston House Dispute

In 1958, Synanon was registered in California as a tax-exempt, nonprofit organization. Its avowed purposes were to rehabilitate drug and alcohol abusers and to engage in research, public education and charitable distribution. Two decades later, when the events giving rise to this litigation began, Synanon had become a highly controversial organization. National coverage, including a December 1977 story in Time magazine, reported that Synanon had been transformed by its founder and leader, Charles Dederich, into a violent cult.

In April 1978, in search of a national headquarters and a residence for its members, Synanon approached appellee Cold-well Banker and Company, a real estate broker. One of Coldwell Banker’s listings was the Boston House, 1711 Massachusetts *31 Avenue, N.W., an apartment building owned by appellees Stuart Bernstein and Samuel Kushner. Appellee James Kabler, Coldwell Banker’s sales agent, suggested that the Boston House would suit Syna-non’s purposes. An Agreement of Sale was signed on April 28, specifying a purchase price of $5,600,000. Synanon paid a down payment of $250,000, which Bernstein and Kushner were allowed to keep if Synanon defaulted on the purchase agreement, and Synanon was permitted to occupy two floors of the building pending settlement. It was the failure of the Boston House deal that led to the present dispute.

The Boston House Tenants’ Association opposed the sale. Together with an Advisory Neighborhood Council, it lobbied the District of Columbia Zoning Commission to change the zoning laws, so that Synanon would no longer have an automatic right to convert some of the existing apartment units into offices for nonprofit use. Their lobbying succeeded. That same week, an evening TV news show ran a four-part series on the cult aspects of Synanon and its proclivity for violence.

By mid-June, Synanon was facing ever-increasing problems with the purchase. All in the one day, three critical events occurred. First, the Chief of Zoning Inspection informed Synanon that conversion of the building to office use would require a special exception under a recent emergency order. Second, Bernstein notified Syna-non that he was treating allegations of harassment, made by the original Boston House residents against their new Synanon neighbors, as a breach of the Agreement of Sale. And, third, Kabler, Coldwell Banker’s sales agent, revealed to Synanon that the floor load capacity of the Boston House might not be sufficient to meet the minimum requirements for office use under the District’s building code. Kabler had apparently known this when he suggested the Boston House to Synanon, because another potential purchaser had withdrawn his interest about a week previously when Cold-well Banker, at the potential purchaser’s request, obtained an unfavorable floor load capacity report from a building inspector. Armed with this information, Kabler allegedly attended three meetings with Synanon representatives, before the purchase agreement was signed, without disclosing the possible floor load capacity problem. On June 17 or 18, Synanon decided to move out.

At that point, Synanon insisted that the obligation was on Bernstein and Kushner to do whatever was needed to render the building suitable for office use. Bernstein and Kushner put that onus on Synanon. Eventually, a structural engineer reported that the building code would not permit the Boston House to be used for offices. On July 6, Bernstein and Kushner declared Synanon in default under the Agreement of Sale; the next day, Synanon made the same accusation against Bernstein and Kushner.

The Litigation

A week later, on July 14, 1978, Synanon filed its action for fraud, breach of contract, and breach of warranty. The defendants were Bernstein and Kushner, the owners of the Boston House, Coldwell Banker, their real estate broker, and Kabler, Cold-well Banker’s sales agent. Synanon alleged that, when the Agreement of Sale was signed, the sellers and their agents knew that the Boston House was unsuitable for office use, and that Synanon had relied to its detriment upon their representations. The complaint sought rescission of the contract, return of the $250,000 down payment, compensatory damages for money spent converting the Boston House to offices, and punitive damages for fraud.

Bernstein and Kushner jointly denied Synanon’s allegations. They also filed a counterclaim demanding damages for Syna-non’s alleged breach of various provisions of the Agreement of Sale. On December 12, after more publicity concerning Syna-non’s violent nature, Bernstein and Kush-ner amended their counterclaim to add the charge that Synanon had fraudulently pro *32

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Synanon Foundation, Inc. v. Bernstein, 517 A.2d 28, 1986 D.C. App. LEXIS 472 (D.C. 1986).

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