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VEI Catonsville, LLC v. Einbinder Properties, LLC

Court of Special Appeals of Maryland

June 25, 2013

VEI CATONSVILLE, LLC
v.
EINBINDER PROPERTIES, LLC

Meredith, Woodward, Davis, Arrie W. (Retired, Specially Assigned), JJ.

OPINION

Davis, J.

This appeal from a declaratory judgment presents the question of whether a commercial real estate appraisal was rendered in compliance with the dictates of the option agreement to purchase the subject property. VEI Catonsville, LLC (VEI) seeks our review of a declaration rendered by the Circuit Court for Baltimore County that an appraisal of the property at issue complied with the dictates of the "Agreement Regarding Right of First Refusal and Option to Purchase." VEI maintains that the chancellor erred by declaring that an appraisal of the property at issue did not adhere to the requirements of the Option. Appellee, Einbinder Properties, Inc. (Einbinder) disagrees, and moves to dismiss VEI's appeal, urging, in the alternative, that we affirm.

We decline Einbinder's invitation to dismiss VEI's appeal, but shall affirm the chancellor's declaration for the reasons set forth below.

Background[1]

On March 18, 1997, Circuit City Stores, Inc., a "national retailer of consumer electronics, " the predecessor on the lease to VEI, entered into a commercial ground lease (Lease) with Joseph Y. Einbinder, [2] contracting to rent approximately 7.657 acres of land (Property) in Baltimore County for an initial term of twenty years, with six five-year renewable terms. The Property is known as 6026-6030 Baltimore National Pike and, at the time of the lease, had been the site of the Westview Cinema. The theater has since been razed and replaced by retail establishments – "HH Gregg, Vitamin World and Staples." The Lease contained a separate "Agreement Regarding Right of First Refusal and Option to Purchase." The "option to purchase" includes the following:

Option to Purchase. Landholder does hereby grant to CC the exclusive and irrevocable option to purchase the interest of Landholder in the property on and subject to the terms and conditions hereinafter set forth.

The agreement also established the method by which the purchase price would be determined:

The purchase price ("Purchase Price") payable upon the closing shall be the greater of FOUR MILLION FOUR HUNDRED TWENTY-EIGHT THOUSAND AND NO/100 DOLLARS ($4, 428, 000.00) or the appraised value of the Property subject to adjustments at closing as more fully set forth in subparagraph 2(d) below, which appraisal shall take into account (i) CC's right of first refusal, (ii) the extension rights granted to the holder of the leasehold estate in the Property, and (iii) the absence of a brokerage commission to be paid by Landholder, and which appraisal shall not take into account the value of the leasehold improvements then-existing on the Property, and which appraisal shall be conducted by an independent M.A.I. appraiser having at least fifteen (15) years experience in the field of commercial real estate and whose primary area of expertise is Baltimore County, Maryland reasonably satisfactory to Landholder and CC. (Emphasis added).

Circuit City filed for bankruptcy protection and, "on or about" March 17, 2009, "sold and assigned its interest as Lessee under the Lease to Vanguard Commercial Development, Inc." On August 10, 2009, Vanguard in turn assigned its interest in the lease to VEI.

In April, 2010, pursuant to the Option's requirement that they secure the services of an independent appraiser, the parties retained Ronald Lipman, a real estate consultant and appraiser, "to appraise the Property in accordance with the Option." Lipman submitted his appraisal of the Property on May 5, 2010. In the cover letter that accompanied the appraisal, Lipman outlined the "appraisal methodology":

The classic method for valuing vacant land is the sales comparison approach, wherein transactions involving properties considered similar to the subject are obtained, analyzed and adjusted to the subject property, utilizing a common denominator of value. In the appraisal of commercial sites similar to the subject, price per sq. ft. is the typical common denominator with, however, consideration of the amount of frontage the property enjoys on the commercial corridor.
If not for language contained in the Agreement Regarding Right of First Refusal and Option to Purchase, we would utilize the sales comparison approach exclusively. However, in paragraph 2 of that document, the appraiser is instructed to "take into account" Circuit City's right of first refusal, extension rights granted to the holder of the leasehold estate and the absence of a brokerage commission to be paid by the Lessor/Seller.
We interpret consideration of the leasehold estate's extension rights to mean that the existing land lease should be "taken into account". For this reason, we have also considered valuation of the leased fee (reversionary) estate (i.e. the right to the triple net income stream and the property reversion at the end of the lease) because of its influence on the "value" of the land in the context of this assignment. We would normally expect a well written lease to have been more explicit, but we believe that this alternative interpretation of the option language may also be relevant.
Therefore, we will consider both the sales comparison and the income approaches, the latter addressing value of the leased fee estate. In that valuation, we will estimate market value of the lessor's position. This is typically accomplished by use of direct capitalization wherein the ground lease income stream is translated into value by use of a market-abstracted capitalization rate.
Lipman submitted two figures based on separate valuation methods and explained this approach in his cover letter:
As a result of our investigation and by virtue of our experience, it is our opinion that, utilizing the sales comparison approach, market value of the subject property as of April 27, 2010 was $6, 050, 000 based on a sq. ft. rate of $22.50 applied against the subject's usable area (269, 223 sq. ft.).
It is further our opinion that, as of that same date, market value of the leased fee position of the subject property was $7, 450, 000 utilizing the current NNN rent, deducting modest expenses and applying a capitalization rate of 7.0%.
Lipman warned that there could be "no possible correlation" of the two values:
If the lease and the accompanying purchase option clearly stated that the unimproved land value, free and clear of the ground lease, with no references thereto, were the determinate of value in the context of the options then we would estimate value based exclusively on the sales comparison approach, i.e. SIX MILLION FIFTY THOUSAND (6, 050, 000) DOLLARS.
If, on the other hand, the option to purchase would have clearly instructed the appraiser to value the leased fee estate or Lessor's reversionary interest, in consideration of the land lease, our value would be based exclusively on the leased fee, i.e. SEVEN MILLION FOUR HUNDRED FIFTY THOUSAND ($7, 450, 000) DOLLARS.
He explained the discrepancy:
M. Ronald Lipman has read numerous documents relating to real estate transactions over his 50 years of appraisal and consulting activity. Unfortunately, the purchase option in this matter is imprecise, vague and subject to interpretation. It simply states that the appraiser should "take into account". . . the extension rights granted to the holder of the leasehold estate in the Property, " a nuance which is not necessarily a clear reference to leased fee value, but nonetheless, forces one to consider it.
There is a lack of clarity in the purchase option document and the reference to "extension rights" benefitting the leasehold estate. We have struggled in our effort to understand the intent of the instructions and could understand reading it either of the two ways described above. In our position as appraisers, we do not believe that we have the ability to interpret it, nor the legal background to do so. And we understand that the two of you cannot agree on the appropriate (or legal) interpretation.
Accordingly, the two values reported above represent our response to the appraisal function we were engaged to perform. We believe that resolution of the issue is up to the two of you or, if required, the Courts.
Current conditions in the financial markets are in substantial disarray and their impact on real estate values are, at this time, difficult to measure. This valuation is based on the best information available at the time of analysis. As this uncertain environment continues to evolve there may be factors, currently unknown, which will impact property value.

On June 4, 2010, VEI filed an action seeking a declaration that the appraisal did not comply with the terms of the Option. VEI also sought a declaration that the purchase price for the subject Property should be set at $4, 428, 000.00. On September 24, 2010, Einbinder lodged a counterclaim, seeking a declaration that the option is unenforceable or, in the alternative, that the option has expired. Finally, Einbinder sought the alternative declaration that the purchase price for the Property should be $7, 450, 000 minus a 2.5% brokerage commission.

On March 2, 2011, at the end of the second day of testimony, the chancellor ruled in favor of Einbinder. The chancellor, explaining his ruling from the bench, concluded that the appraisal complied with the requirements of the option. It also determined that the correct purchase price was $7, 450, 000, reduced by the aforementioned brokerage commission and denied relief on Einbinder's counterclaim. The chancellor also ordered VEI to settle within 180 days. On March 3, 2011, the chancellor filed a written order that reflected this ruling. VEI moved for a stay and also urged the chancellor to alter or amend the judgment. The chancellor denied both avenues of relief. VEI's subsequent motion for a stay pending appeal was granted and denied in part; VEI was ordered to post a supersedeas bond in the amount of $3, 000, 000.

This appeal followed. We shall set forth additional facts as required to address the issues before us.

Discussion

I

Einbinder avers that we should summarily dismiss VEI's appeal. Einbinder initially maintains that VEI "has waived its right to its appeal by . . . voluntarily closing on the Property at the price set by the Circuit Court, " and contends that there exists "no longer an existing controversy[.]"[3] Einbinder further asserts that "this Court cannot, as a matter of law, provide VEI an effective remedy, " a fact that would militate against appellate review. Einbinder points to the fact that VEI chose not to post a supersedeas bond to stay enforcement of the chancellor's judgment, pursuant to which VEI was directed to close on the Property within 180 days.

We are not persuaded that VEI's actions have ended this litigation.

A

The "right to appeal may be lost by acquiescence in, or recognition of, the validity of the decision below from which the appeal is taken or by otherwise taking a position which is inconsistent with the right to appeal." Rocks v. Brosius, 241 Md. 612, 630 (1966). Accord, Dietz v. Dietz, 351 Md. 683, 689 (1998); Osztreicher v. Juanteguy, 338 Md. 528, 534 (1995); Dziamko v. Chuhaj, 193 Md.App. 98, 107, cert. denied, 416 Md. 273 (2010). The "doctrine of acquiescence – or waiver – is that 'a voluntary act of a party which is inconsistent with the assignment of errors on appeal normally precludes that party from obtaining appellate review.'" Exxon Mobil Corp. v. Ford, __ Md. __, __, No. 16, Sept. Term 2012, slip op. at 32, 2013 WL 673710 *11 (filed Feb. 26, 2013) (quoting Bd. of Physician Quality Assurance v. Levitsky, 353 Md. 188, 200 (1999) (further citation omitted)). This "doctrine of waiver is also known as "estoppel, acceptance of benefits creating mootness, and acquiescence in judgment." Exxon Mobil, __ Md. at __, slip op. at 32, 2013 WL 673710 *11 (quoting Downtown Brewing Co. v. Mayor & City Council of Ocean City, 370 Md. 145, 149 (2002)).

The following factors illustrate actions by a party that have been deemed to preclude that party's right to appeal:

[W]e have heretofore held that the filing of a remittitur by the beneficiary, combined with the acceptance of the tendered payment of the award and causing the court record to be marked as satisfied, brings the litigation to a complete conclusion, thus barring an appeal by the judgment creditor, Kneas v. Hecht Company, 257 Md. 121, 124-26, 262 A.2d 518, 520-21 (1970); that no appeal lies from a consent decree, Mercantile Trust Co. v. Schloss, 165 Md. 18, 24, 166 A. 599, 601-02 (1933); and that after an invocation of the benefits accruing under an order of court, a party will not be heard to assail its validity. Stewart v. McCaddin, 107 Md. 314, 318-19, 68 A. 571, 573 (1908). This general rule of preclusion enunciated in the Brosius case has been variously characterized as an "estoppel, " Dubin v. Mobile Land Corp., 250 Md. 349, 353, 243 A.2d 585, 587 (1968), a "waiver" of the right to appeal, id. at 353, 243 A.2d at 587; Bowers v. Soper, 148 Md. 695, 697, 130 A. 330, 331 (1925), an "acceptance of benefits" of the court determination, Dubin v. Mobile Land Corp., supra, creating "mootness, " Durst v. Durst, 225 Md. 175, 182, 169 A.2d 755, 758 (1961), and an "acquiescence" in the judgment, Rocks v. Brosius, supra; Stewart v. McCaddin, supra at 318, 68 A. at 573. We think the label applied to the rule is less important than its essence – that voluntary act of a party which is inconsistent with the assignment of errors on appeal normally precludes that party from obtaining appellate review.

Franzen v. Dubinok, 290 Md. 65, 68 (1981).

Notwithstanding, it is "too well settled by authority to require further discussion that a party against whom a judgment has been rendered is not prevented from appealing to this court by the fact that he has paid the judgment, unless such payment was by way of compromise, or with an agreement not to take or pursue an appeal." Franzen, 290 Md. at 72 (quoting Hayes v. Nourse, 14 N.E. 508, 508 (N.Y. 1887)).

The Franzen Court pointed out that the "focus of the inquiry must be on whether the compliance with the judgment is the result of legally sufficient compulsion." Franzen, 290 Md. at 69. The Court agreed with the "proposition, entertained by practically all jurisdictions, that payment tendered after the issuance of execution on a judgment is clearly coerced[, ]" and that an appellant's failure to secure a "stay or other supersedeas pending appeal is normally held to have no effect on the voluntariness determination[.]"[4] Id., 290 Md. at 69-70.

We consider the recent opinion by the Alaska Supreme Court in Leisnoi, Inc. v. Merdes & Merdes, P.C., __P.3d __, 2013 WL 386373 (Alaska 2013), to be instructive. This case involved a dispute between Leisnoi, an Alaska Native corporation, and a law firm that had represented it in a matter under the Alaska Native Claims Settlement Act. The law firm successfully represented Leisnoi in litigation that would continue for more than a decade. Leisnoi disputed the fee arrangement, but an arbitrator ruled in the law firm's favor and the latter obtained a judgment for the unpaid legal fees. Leisnoi made payments until 2002, when it went into default. The law firm did not seek a writ of execution on the judgment until 2008. Leisnoi opposed the firm's efforts to collect its legal fees, but suffered a ...


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