Chastleton Coop. Ass'n, Inc. v. Kawamoto Notes, LLC ( 2024 )


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    DISTRICT OF COLUMBIA COURT OF APPEALS
    Nos. 23-CV-0150 & 23-CV-0151
    CHASTLETON COOPERATIVE ASSOCIATION, INC., APPELLANT,
    V.
    KAWAMOTO NOTES, LLC, et al., APPELLEES.
    Appeals from the Superior Court
    of the District of Columbia
    (2019-CA-008500-B & 2017-CA-008364-B)
    (Hon. William M. Jackson, Motions Judge)
    (Hon. Ebony Scott, Motions Judge)
    (Argued June 6, 2024                                     Decided August 22, 2024)
    Michael J. Goecke for appellant.
    Ian G. Thomas, with whom Tracy L. Buck, and Lauren Mullin were on the
    brief, for appellee Kawamoto Notes, LLC.
    Ian G. Thomas, with whom Tracy L. Buck, Lauren Mullin, and Bryan Wallace
    were on the brief for appellee RFB Properties II, LLC.
    Before EASTERLY, MCLEESE, and DEAHL, Associate Judges.
    DEAHL, Associate Judge: Chastleton Cooperative Association appeals a grant
    of partial summary judgment in favor of appellees RFB Properties II, LLC, and
    Kawamoto Notes, LLC. This litigation revolves around a foreclosure sale affecting
    2
    ownership interests in one of the Chastleton’s units. The central issues in the trial
    court were (1) whether that foreclosure sale was invalid because the Chastleton did
    not receive the required pre-sale notice of it, and (2) if the sale was valid, the extent
    to which the Chastleton could recoup (from the sale proceeds) unpaid rent associated
    with that unit prior to the foreclosure sale. The trial court skipped over the first
    question and, regarding the second question, granted summary judgment in favor of
    RFB and Kawamoto, agreeing with their position that the Chastleton was limited to
    recovering just three months of unpaid rent from the sale proceeds.
    The Chastleton now appeals and argues that the trial court reversibly erred
    when it failed to address the validity of the foreclosure sale in the first instance. We
    agree and reverse.
    I. Factual and Procedural Background
    The facts, except where otherwise noted, are undisputed. The Chastleton is a
    housing cooperative. It owns all of the units in its building, and its members buy
    shares in the cooperative that entitle them to enter into what is basically an indefinite
    lease for as long as they remain in good standing (by paying their rent, real estate
    taxes, assessments, etc.). So while a member of the Chastleton might colloquially
    say that they own their unit, they would be more precise to say that they own shares
    of the Chastleton and have an exclusive right to occupy their unit. Stephanie Sipek
    3
    became of a member of the Chastleton in 2007, at which point she was issued (1) a
    stock certificate reflecting her shares in the co-op and (2) an occupancy agreement
    memorializing her indefinite lease with the Chastleton.          We call these two
    documents, central to this appeal, the “proprietary documents.”
    To finance the purchase of her membership shares, Sipek took out a loan from
    Bank of America (“BofA”), which in turn acquired a mortgage-like security interest
    in Sipek’s proprietary rights in the Chastleton. Because there was no real property
    to serve as collateral for BofA’s loan—remember, the Chastleton owns the unit
    itself—Sipek’s proprietary documents served as the collateral for the loan. To
    facilitate that, the Chastleton itself was a party to the lending agreement, because in
    the event that Sipek defaulted on her loan and BofA foreclosed on it, the Chastleton
    would have to issue new proprietary documents in the name of any purchaser at a
    foreclosure sale. To that end, Sipek, BofA, and the Chastleton entered into a three-
    way agreement—called the Recognition Agreement (“the RA”)—that more or less
    obligated the Chastleton to issue new proprietary documents to any purchaser at a
    valid foreclosure sale, subject to a few requirements that protected the Chastleton’s
    rights (which we will get to in a moment). Sipek would eventually fall behind on
    her co-op dues and default on her BofA loan. As a result, the Chastleton took
    4
    physical possession of her unit in 2013 and BofA scheduled a foreclosure sale for
    June 2015. 1
    Sipek’s default on her loan implicated several important provisions of the RA.
    First, the RA provided that in the event of a default, the lender became the owner of
    Sipek’s proprietary documents. Second, and most importantly for our purposes, the
    Chastleton had an option to purchase those proprietary documents from the lender
    by paying off the balance of Sipek’s loan, which it had to exercise within “sixty (60)
    days after notice to [the Chastleton] of the availability of the” proprietary documents,
    otherwise the option expired. Third, the lender had “no power or right to transfer,
    sell, assign, or otherwise dispose of the” proprietary documents unless the
    Chastleton approved, though the Chastleton could withhold its approval “only on the
    basis of” the transferee’s “failure in meeting reasonable standards of
    creditworthiness or written cooperative occupancy standards.”           Fourth, if the
    proprietary documents were sold at foreclosure, the Chastleton had first priority to
    1
    Bayview Loan Servicing initiated the foreclosure sale, either on behalf of
    BofA or on behalf of the Federal Home Loan Mortgage Loan Corporation, which
    apparently acquired BofA’s interest in the unit before the foreclosure sale. Sorting
    through these various banking entities, and who was acting when, is not particularly
    important to this appeal, so we sometimes refer to them collectively as the “lender.”
    5
    recover various dues from the sale proceeds, but only “up to three month’s unpaid
    rent.”
    Now comes a critical disputed fact: the Chastleton claims, and there is
    evidence that strongly suggests, that the lender never notified the Chastleton about
    the anticipated foreclosure sale. We take that as true at this stage of the proceedings.
    See Allen v. District of Columbia, 
    312 A.3d 207
    , 212 (D.C. 2024) (We review
    summary judgments while “viewing the facts in the light most favorable to the non-
    moving party.”) (citing Aziken v. District of Columbia, 
    70 A.3d 213
    , 218 (D.C.
    2013)). The foreclosure sale nonetheless went forward in June 2015, and RFB was
    the winning bidder, ostensibly purchasing the proprietary documents. Things then
    hit a snag when RFB attempted to close on the sale and the Chastleton refused to
    facilitate it, i.e., it would not reissue the proprietary documents in RFB’s name unless
    RFB agreed to pay all of Sipek’s outstanding dues, including far more than the three
    months of back rent contemplated in the RA. That led to this litigation.
    The Chastleton sued RFB and the lender seeking to nullify the foreclosure
    sale. It argued that the sale was invalid because the lender “failed to give requisite
    and prior notice of the sale to the [Chastleton]” and otherwise “failed to comply with
    the [RA].” RFB countersued and asked the court to direct the Chastleton to reissue
    the proprietary documents in its name in order to facilitate the sale, and to levy
    6
    damages against the Chastleton for obstructing the sale to that point.              That
    counterclaim, which RFB filed as part of a consolidated pleading that included its
    answer to the Chastleton’s complaint, included an allegation that the Chastleton was
    “[s]ent proper notice of the sale,” though it did not describe how or when such notice
    was sent. Chastleton did not file an answer to RFB’s counterclaim. In 2019, the
    lender assigned any remaining interest it had in the unit to Kawamoto Notes, and
    Kawamoto moved to intervene in the case.             When that motion was denied,
    Kawamoto sued Chastleton directly, bringing similar claims as those RFB asserted
    in its counterclaim, along with a claim for breach of fiduciary duty predicated on
    Chastleton’s failure to rent out the unit during the years after it took possession of it
    from Sipek in 2013.
    RFB filed two motions for summary judgment, both of which were denied at
    first by Judge William M. Jackson. RFB filed a motion to reconsider the second
    denial, and on reconsideration, Judge Ebony Scott partially granted that second
    motion for summary judgment and similarly partially granted Kawamoto’s motion
    for summary judgment on the same grounds. The court ruled that the RA governed
    the foreclosure sale and that under its terms, the Chastleton was obliged to reissue
    the proprietary documents to facilitate the foreclosure sale. It further ruled that the
    Chastleton could recover only three months of back rent (plus some real estate taxes
    and special assessments) from the proceeds of the sale. The court also granted
    7
    summary judgment to Kawamoto on its breach of fiduciary duty claim, concluding
    that the Chastleton was obligated to attempt to make the unit profitable on behalf of
    Kawamoto after the Chastleton took possession of the unit in 2013, but that it failed
    to do so. The court reserved judgment on the tortious interference of contract claims
    raised by RFB and Kawamoto, however, reasoning that “[t]here are genuine issues
    of material facts concerning whether [Chastleton] was aware [of] RFB’s purchase of
    the shares and [its] assertions surrounding the closing of the sale.” In other words,
    because the Chastleton had raised a genuine issue of material fact regarding whether
    it had been notified of the sale, that precluded summary judgment as to the tortious
    interference claims.
    Chastleton now appeals the summary judgment orders, 2 and those appeals
    have been consolidated in this case.
    II. Analysis
    We review grants of summary judgment de novo, viewing the evidence in the
    light most favorable to the non-moving party and drawing all inferences in that
    2
    This court generally does not have jurisdiction to hear grants of only partial
    summary judgment because they are non-final orders that do not dispose of the
    entirety of the case. But this case fits within an exception to that rule because the
    orders on appeal “affect[] the possession of property.” 
    D.C. Code § 11-721
    (a)(2).
    8
    party’s favor. Katz v. District of Columbia, 
    285 A.3d 1289
    , 1301 (D.C. 2022).
    While the Chastleton raises a number of issues in this appeal, only two of them
    require some discussion here.
    First, the Chastleton argues that the trial court erred in granting summary
    judgment for RFB and Kawamoto because there was a genuine issue of material fact
    regarding whether the Chastleton received the requisite notice of the foreclosure
    sale, which in turn casts doubt on the validity of that sale. We agree. The trial court
    simply bypassed the Chastleton’s central claim in this litigation, which is that the
    foreclosure sale was invalid because the Chastleton had not received prior notice of
    that sale. That claim, if true, meant that the Chastleton had not been afforded its
    contractual option to purchase the propriety documents, nor had it ever granted its
    contractually required approval for a transfer of Sipek’s proprietary rights. Because
    this issue raises a threshold matter that affects virtually every other question raised
    in this appeal, it renders most of the parties’ other arguments immaterial, save for
    one that we preview now.
    Second, the Chastleton argues that RFB lacks standing in this case because it
    assigned all of its rights to the unit to Russell F. Brown, RFB’s namesake and sole
    member, thereby leaving RFB with no stake in the litigation. At the very least, RFB
    has standing to defend against the Chastleton’s suit seeking monetary relief from it.
    9
    Any standing question is thus no impediment to our considering the notice issue
    underpinning the Chastleton’s own claims. The only question is whether RFB has
    standing to maintain its counterclaims. That is unclear from the record before us, so
    we direct the trial court to address it in the first instance on remand.
    A. There is a genuine question of material fact regarding whether the
    Chastleton received the requisite notice of the foreclosure sale.
    The Chastleton’s central claim in this case is about notice. Namely, it claims
    it never received notice of the foreclosure sale. It argues that the trial court erred
    when it failed to so much as address this aspect of its claim, which raises a threshold
    matter that affects the validity of the foreclosure sale under the RA.
    The Chastleton offers several compelling points in support of that position.
    First, the Chastleton’s complaint clearly alleged that it did not receive “prior notice
    of the sale” so that BofA and its agents “failed to comply with the” RA’s notice
    requirement. In response to that allegation, neither RFB nor Kawamoto has ever so
    much as alleged, much less produced any evidence about, the manner or timing of
    any notice of sale that was provided to the Chastleton. 3 Second, the Chastleton
    3
    RFB produced a newspaper advertisement of the sale which it appears ran
    in the Washington Post on several occasions between May 26 and June 4, 2016.
    RFB does not seem to suggest that advertisement—run for the first time just fourteen
    10
    points to an “acknowledgment”—signed by RFB (seemingly at the lender’s
    behest)—which states that RFB acknowledges (1) that the Chastleton had to “be
    provided with notice of any sale or transfer of the property,” (2) that the Chastleton
    had to “approve any transfer or sale of the” proprietary documents issued in
    connection with Sipek’s unit, and (3) that the lender “did not obtain this approval
    from the [Chastleton] before conveying its interest in the [unit] to RFB” via the
    foreclosure sale. Third, the trial court itself seemed to acknowledge that there were
    genuine issues of material fact regarding whether the Chastleton received the
    requisite notice of the sale: it denied summary judgment on RFB’s and Kawamoto’s
    tortious interference claims because there were “genuine issues of material fact . . .
    surrounding the closing of the sale because [the Chastleton] was not notified” of it.
    The trial court simply failed to consider how that dispute about notice affects roughly
    every other aspect of this case: if the sale was invalid because it was in violation of
    the Chastleton’s rights under the RA, it stands to reason that the Chastleton cannot
    days prior to the foreclosure sale—was itself the requisite notice of sale to the
    Chastleton. If that is indeed RFB’s argument, it raises a host of questions about
    whether that advertisement satisfies the notice required by the plain terms of the RA,
    under which Chastleton’s option to purchase endured for sixty days after it received
    notice of any anticipated sale. Plus, it is difficult to see how that advertisement alone
    could be seen as satisfying the Chastleton’s rights to approve, or withhold its
    approval, of any transferee.
    11
    be required to uphold its own obligations under the RA in the face of such an invalid
    sale.
    RFB offers three responses, but none is persuasive.
    First, RFB argues that the Chastleton has not adequately preserved its notice
    argument because, in its oppositions to summary judgment, it made only fleeting
    reference to its lack of notice and appended “no record evidence” substantiating its
    claim. We disagree. The Chastleton’s oppositions to summary judgment were quite
    clear on the point, to the point of being repetitive. In response to RFB’s claim that
    the lender “properly instituted foreclosure proceedings,” the Chastleton’s first
    opposition responded, with emphasis, that the lender “failed to give requisite and
    prior notice of the sale to the [Chastleton].” The Chastleton repeated the point, again
    with emphasis, stating that one of the two core reasons “for bringing this lawsuit was
    to establish, judicially, that [the lender] failed to properly institute foreclosure
    proceedings.” In its opposition to RFB’s second motion for summary judgment, the
    Chastleton repeated the same point again and again, and said little else in that two-
    page pleading: (1) the sale was “without [the Chastleton’s] knowledge”; (2) “a
    public auction was held, without [the Chastleton’s] knowledge”; (3) “RFB bought
    the Note directly from the [lender], and [the Chastleton] was not notified”; and
    12
    (4) “the sale was not valid given the fact that [the Chastleton] was never notified of”
    it. That is as clear as can be.
    While it is true that the Chastleton did not append any particular evidence in
    support of that claim to its oppositions to summary judgment—it is tough to prove a
    negative with documentary evidence—RFB has similarly never provided any
    evidence of its own about how or when the Chastleton was purportedly notified of
    the sale. But see supra n.3 (discussing advertisement of the sale). In any event,
    “summary judgment ha[s] to be based on a review of the ‘entire record,’” not simply
    on what is appended to the pleadings. Pope v. Romac Int’l, 
    829 A.2d 945
    , 947 (D.C.
    2003) (citing Reynolds v. Gateway Georgetown Condo. Ass’n, 
    482 A.2d 1248
    ,
    1251-52 (D.C. 1984)). And there is clear evidence in support of the Chastleton’s
    claimed lack of notice by way of RFB’s seeming acknowledgement that the
    Chastleton had not received the required notice of the foreclosure sale. On the other
    side of the scale, we see nothing supporting RFB’s conclusory claim that the lender
    provided the Chastleton with the requisite notice of the sale, a claim which (if true)
    would be comparatively easy to establish through documentary or testamentary
    evidence.
    Second, RFB argues that the Chastleton effectively admitted that it received
    proper notice of the sale because it failed to respond to RFB’s counterclaim, in which
    13
    it had alleged that the Chastleton was “[s]ent proper notice of the sale.” Again, we
    disagree. While it is true that a party might be deemed to have admitted a fact alleged
    in a complaint or counterclaim if it fails to respond to it, see D.C. Super. Ct. Civ. R.
    8(b)(6), we doubt that rule has any application here. The Chastleton had already
    alleged in its own complaint—initiating these proceedings and before RFB filed its
    countersuit—that it did not receive prior notice of the sale. So it would be a harsh
    and strange application of Rule 8 to conclude that the Chastleton admitted a fact by
    failing to file a responsive pleading to a counterclaim, when it had previously made
    clear (prior to the counterclaim) its position that it was denying that very fact. RFB
    cites to no support for applying Rule 8(b)(6) in that scenario.
    In any event, RFB’s claim that the Chastleton was “[s]ent proper notice of the
    sale” is not truly a factual claim capable of being admitted—it is a legal claim. It
    does not allege any manner or timing of notice, but instead offers only the conclusory
    legal assertion that some “proper notice” was sent. The “failure to deny conclusions
    of law does not constitute an admission of those conclusions” under Rule 8.
    Thompson v. DeWine, 
    976 F.3d 610
    , 616 n.5 (6th Cir. 2020) (interpreting Fed. R.
    Civ. P. 8) (quoting 5 Wright & Miller, Fed. Prac. & Pro. § 1279 (3d ed.)); see also
    Elmore v. Stevens, 
    824 A.2d 44
    , 46 (D.C. 2003) (“The defendant is not held . . . to
    admit conclusions of law.”). So even if we thought Rule 8 applied in this posture,
    this is not a point that could be deemed admitted by a failure to respond.
    14
    Third, RFB argues that any failure of notice was the fault of the lender who
    initiated the foreclosure sale, so that the Chastleton should effectively take it up with
    them. The Chastleton had in fact done that very thing before it voluntarily dismissed
    the lender from this litigation, and in RFB’s view, that “dismissal operates to bar
    Chastleton’s position” now.      We disagree yet again.         RFB’s own claims are
    predicated on its position that it was a valid purchaser of the lender’s rights under
    the RA, and whether or not that is true turns on whether the Chastleton received the
    required notice of the sale. What’s more, there is evidence in the record that RFB
    was aware of and acknowledged the fact that the Chastleton had not received prior
    notice of the sale, and that RFB assumed the risk that the sale was invalid on that
    very basis. It cannot seek to avail itself of its rights under the RA to compel the
    Chastleton to reissue the proprietary documents in its name and at the same time
    disavow the lender’s obligations under the RA.          It is thus RFB, and not the
    Chastleton, who must take its complaints up with the lender if in fact it purported to
    convey the proprietary documents without the legal authority to do so. It will likely
    have a hard time doing that given RFB’s seeming acknowledgment that it was aware
    that the lender did not provide the required pre-sale notice.
    15
    B. It is unclear if RFB is the proper party to pursue its counterclaims.
    We briefly address the Chastleton’s additional argument that RFB does not
    have standing to maintain its countersuit because it assigned its interest in the unit
    to its sole member, Russell F. Brown. At the outset, we note that it is the Chastleton
    who initially sued RFB seeking both declaratory and monetary relief on account of
    the foreclosure sale being invalid. So there is no question that RFB has standing to
    defend against those claims—defendants virtually always have the requisite interest
    in defending against a suit, it is only plaintiffs who have to establish standing by
    showing the familiar “injury,” “cause,” and “redressability.” See Yellow Pages
    Photos, Inc. v. Ziplocal, LP, 
    795 F.3d 1255
    , 1265 (11th Cir. 2015) (“[A]ny defendant
    against whom relief is sought will generally have standing to defend due to its
    exposure to an adverse judgment, the threat of which is imminent.”); Grayson v.
    AT&T Corp., 
    15 A.3d 219
    , 229 (D.C. 2011) (en banc) (explaining that “the basic
    function of the standing inquiry is to serve as a threshold a plaintiff must surmount
    before a court will decide the merits”) (emphasis added); California v. Texas, 
    593 U.S. 659
    , 668-69 (2021) (“A plaintiff has standing only if he can” satisfy the three
    core requirements.) (emphasis added). That means that any standing deficiency is
    no impediment to our consideration of the notice issue just discussed: that was
    central to the Chastleton’s claims as plaintiffs, and RFB plainly had sufficient
    interest to defend against the Chastleton’s claims for monetary relief.
    16
    The only standing question is thus whether RFB had standing to bring its own
    claims via countersuit. The Chastleton says it does not. It points to a statement in
    RFB’s counterclaim where RFB asserted that its “interest in the property and
    proceedings subject to this action have been assigned to Russell F. Brown,
    individually.” RFB counters that this is no basis to disturb the trial court’s ruling
    because “there is no other information about the putative assignment, including
    when it occurred, what precise rights were assigned, whether it was qualified or
    conditional, and when the assignment would take effect.” We agree with RFB that
    the factual record regarding its standing to pursue its counterclaims is
    underdeveloped. And “[b]ecause the Superior Court did not resolve factual issues
    germane to standing, we conclude that a remand is necessary for that court, after
    conducting any further proceedings it deems necessary, to resolve the factual
    question on which jurisdiction depends.” Moeller v. District of Columbia, 
    253 A.3d 165
    , 172 (D.C. 2021).
    This issue is likely a tempest in a teapot, however, because if RFB is not the
    proper party to maintain the counterclaims—an argument that the Chastleton raises
    for the first time on appeal—then RFB must be afforded an opportunity to substitute
    Brown as the real party in interest. See D.C. Super. Ct. Civ. R. 17(a)(3) (“The court
    may not dismiss an action for failure to prosecute in the name of the real party in
    17
    interest until, after an objection, a reasonable time has been allowed for the real party
    in interest to ratify, join, or be substituted into the action.”).
    III. Conclusion
    For the foregoing reasons, we reverse the trial court’s grants of summary
    judgment and remand for further proceedings.
    So ordered.
    

Document Info

Docket Number: 23-CV-0150 & 23-CV-0151

Filed Date: 8/22/2024

Precedential Status: Precedential

Modified Date: 8/22/2024