In Re: Private Sales of Former: Charles Carroll HS, Robert Fulton ES, Germantown HS, Walter Smith ES and Abigail Vare ES ~ Appeal of: SD of Philadelphia ( 2017 )

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
In Re: Private Sales of Former: :
:
Charles Carroll High School :
Robert Fulton Elementary School :
Germantown High School :
Walter Smith Elementary School :
Abigail Vare Elementary School :
:
Appeal of: The School District of : No. 767 C.D. 2016
Philadelphia : Submitted: November 4, 2016
BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge
HONORABLE ANNE E. COVEY, Judge
HONORABLE DAN PELLEGRINI, Senior Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY
JUDGE COVEY FILED: March 7, 2017
The Philadelphia School District (District) appeals from the Philadelphia
County Common Pleas Court’s (trial court) February 17, 2016 order1 denying its
Petition for Approval of Private Sales of Unused and Unnecessary Land and
Buildings (Petition).2 The issue before this Court is whether the trial court abused its
discretion when it denied the Petition.
1
The trial court’s order was docketed on February 22, 2016.
2
State Senator Anthony H. Williams and State Representative Jordan A. Harris submitted a
joint amicus brief.
On January 18, 2017, Philadelphia City Councilman Kenyatta Johnson filed an untimely
Application for Leave to File an Amicus Curiae Brief (Amicus Application). Pennsylvania Rule of
Appellate Procedure 531(b)(4), requires that:
An amicus curiae brief must be filed on or before the date of the
filing of the party whose position as to affirmance or reversal the
amicus curiae will support. If the amicus curiae will not support the
On October 14, 2015, the District filed the Petition seeking approval for
the private sale of the following District school buildings which had closed at the
conclusion of the June 2013 school year: Charles Carroll High School (Carroll),
located at 2700 East Auburn Street; Robert Fulton Elementary School (Fulton),
located at 60 East Haines Street; Germantown High School (Germantown), located at
5915-41 Germantown Avenue; Walter Smith Elementary School (Smith), located at
1900 Wharton Street; and Abigail Vare Elementary School (Vare), located at 1621
East Moyamensing Avenue (collectively, the Properties). The District averred in the
Petition that the School Reform Commission (SRC) authorized the District to sell the
Properties to The Concordia Group and its affiliates (Concordia) for $6,800,000.00,
subject to the trial court’s approval. The Agreement of Sale with Concordia (Sales
Agreement) provided, in relevant part:
As an accommodation to [Concordia], and for purposes of
consideration recited in each of the deeds (and for transfer
tax purposes), the [District] acknowledges that
[Concordia], for its purposes has allocated the Purchase
Price amongst [the Properties] as follows:
Property Allocated Purchase Price
[Carroll] $700,000.00
[Fulton] $500,000.00
[Germantown] $100,000.00
[Smith] $3,100,000.00
[Vare] $2,400,000.00
position of any party, the amicus curiae brief must be filed on or
before the date of the appellant’s filing.
Pa.R.A.P. 531(b)(4). The District opposed the Amicus Application.
The District’s brief was due on September 21, 2016 and was filed that day. The Amicus
Application was not filed until almost four months later. Accordingly, the Court denies the
Application.
2
[Concordia] has entered into this Agreement based upon the
Purchase Price of $6,800,000[.00], which is the aggregate
Purchase Price for . . . the [P]roperties . . . [.]
Reproduced Record (R.R.) at 202a (emphasis added). The District attached to the
Petition affidavits of appraisers Reaves C. Lukens, Jr. (Lukens), and Richard B.
Owens (Owens) who “determined [inter alia] that . . . the price is fair and reasonable,
[and] that the price is better than could be obtained at public sale[.]” R.R. at 19a; see
also R.R. at 58a-59a.
On December 23, 2015, the trial court held a hearing on the Petition. At
the hearing, the District argued that it complied with the statutory requirements of
Section 707 of the Public School Code of 1949 (Public School Code)3 since the
Petition was filed by the SRC and signed by its chair, and it contained a full and
complete description of the Properties, named the proposed purchaser, listed the
amounts offered, and included appraiser affidavits averring that the price offered was
better than could be obtained at a public sale. The District also presented evidence
that it had given proper public notice of the hearing.
The District’s Director of Real Property Management William D. Fox,
Jr. (Fox), testified that the SRC determined at its September 18, 2014 meeting that the
Properties were unused and unnecessary and, accordingly, should be listed for sale.4
According to Fox, Lukens appraised the Properties as follows: Carroll –
$1,100,000.00; Fulton - $500,000.00; Germantown - $500,000.00; Smith -
$2,350,000.00; and, Vare - $2,250,000.00. Fox further stated that Owens appraised
the Properties as follows: Carroll – $1,025,000.00; Fulton - $625,000.00;
Germantown - $900,000.00; Smith - $2,100,000.00; and, Vare – $1,800,000.00.
3
Act of March 10, 1949, P.L. 30, as amended, 24 P.S. § 7-707.
4
Fox disclosed that the District is responsible for maintaining and securing the Properties
and that, since their closures, some of the Properties had been vandalized and copper piping had
been stolen.
3
Fox explained that the District, working through Philadelphia Industrial
Development Corporation (PIDC), put the Properties and numerous other District
buildings up for sale.5 PIDC advertised the Properties and the other District buildings
on its website, and invited and received offers. PIDC also held open houses at the
Properties. Fox disclosed that fifty potential buyers submitted bids on fifteen of the
twenty listed buildings, and requests for best and final offers were sent to those fifty
potential buyers. Twenty-five potential buyers submitted best and final offers for ten
of the buildings. Concordia submitted a portfolio offer containing the five Properties
(Portfolio Offer). Although other offers were made for some of the Properties, no
offer was received for Carroll and Germantown received only a very low offer. Fox
related:
When we accepted this [P]ortfolio [O]ffer, it was a larger
offer than any of the single offers we had on the building[s],
and one building we didn’t even have an offer on. It was
recommended by PIDC, a neutral party, trying to be as
transparent as possible, that the [District] administration
wanted that and the SRC and quote, [sic] this was a good
deal for the District.
R.R. at 118a. Fox also explained:
The [Sales A]greement, a portfolio sale . . . is for five
properties. It’s either an all or nothing deal. When you sell
five properties like this, is [sic] two of them might be
considered the cream of the crop and two – one, we never
had an offer on[,] and one, a very low offer. I’m talking a
strictly business deal here in my position as director of real
estate. We – when we sell properties – and the
recommendation of PIDC also, we not only look at the
price, we look at the reuse and the capability of the
developer. A number of times, we might have an offer on
the building and we don’t have – in the evaluation, we don’t
5
“PIDC is a private, not-for-profit Pennsylvania corporation formed jointly in 1957 by the
Greater Philadelphia Chamber of Commerce . . . and the City of Philadelphia (City) for the purpose
of promoting economic development throughout the City.” Phila. Indus. Dev. Corp. v. Ali (Pa.
Cmwlth., No. 528 C.D. 2010, filed April 18, 2011), slip op. at 2.
4
have confidence that the developer is going to be able to do
what they say they’re going to do.
R.R. at 120a.
Community members also appeared at the hearing in opposition to the
Petition. Claudia Sherrod (Sherrod) and Philadelphia Councilman Kenyatta Johnson
(Councilman Johnson) spoke on their behalf. Specifically, Sherrod objected to the
Smith sale on the basis that the SRC should not have closed Smith because the
neighborhood needs a school. Sherrod represented that there was a developer who
was willing to purchase Smith and maintain it as a school. Councilman Johnson
similarly testified that Smith’s closure left the neighborhood without a school, and
that Smith should be sold to a developer who would dedicate it to that use.
Councilman Johnson proposed permitting the Properties’ sale, but without Smith.
By order docketed February 22, 2016, the trial court denied the Petition.
The District appealed to this Court.6
The District contends that the trial court erred and abused its discretion
in denying the Petition because the District satisfied the requirements of the School
6
The District’s Notice of Appeal correctly stated that it appealed from the trial court to the
Commonwealth Court. However, the Notice of Appeal was incorrectly filed with the Pennsylvania
Superior Court which, sua sponte, transferred it to this Court.
In an appeal from an order [ruling upon] a school district’s petition
for private sale of real estate, our standard of review is to determine
whether the trial court committed an error of law or abuse of
discretion. ‘An abuse of discretion is not merely an error in
judgment.’ Zauflik v. Pennsbury Sch[.] Dist[.], 72 A.3d 773, 797 (Pa.
Cmwlth. 2013) (quoting Christian v. P[a.] Fin[.] Responsibility
Assigned Claims Plan, . . . 686 A.2d 1, 5 ([Pa. Super.] 1996)). An
abuse of discretion exists if the trial court renders a judgment
that is plainly ‘unreasonable, arbitrary or capricious, fails to
apply the law, or was motivated by partiality, prejudice, bias or ill
will.’ Commonwealth ex rel. Corbett v. Snyder, 977 A.2d 28, 41 (Pa.
Cmwlth. 2009).
In re Millcreek Twp. Sch. Dist., 143 A.3d 1037, 1042 n.8 (Pa. Cmwlth. 2016) (citation omitted;
emphasis added).
5
Code and established that the sale price was fair and reasonable, and better than could
be obtained at a public sale. We agree.
Section 707(3) of the Public School Code permits a school district to sell
unused real property by way of a private sale subject to court approval. Section 707
of the Public School Code states, in relevant part, as follows:
The board of school directors of any district is hereby
vested with the necessary power and authority to sell
unused and unnecessary lands and buildings, by any of the
following methods and subject to the following provisions:
(1) By public auction, either on the premises to be sold or at
places selected by the school board, after due notice . . . .
(2) Upon sealed bids requested by the school board, notice
of the request for sealed bids to be given as provided in
clause (1) of this section. Terms and conditions of sale
shall be fixed by the board in the motion or resolution
authorizing the request for sealed bids.
(3) At private sale, subject to the approval of the court of
common pleas of the county in which the school district is
located. Approval of the court shall be on petition of the
board of school directors, which petition shall be executed
by the proper officers of the board, and shall contain a full
and complete description of the land proposed to be sold, a
brief description and character of the building or buildings
erected thereon, if any, the name of the prospective
purchaser, the amount offered for the property, and shall
have attached thereto an affidavit of at least two persons
who are familiar with the values of real estate in the locality
in which the land and buildings proposed to be sold are
located, to the effect that they have examined the property,
that the price offered therefor is a fair and reasonable one
and in their opinion a better price than could be obtained at
public sale, and that they are not interested, either directly
or indirectly, in the purchase or sale thereof. Before the
court may act upon any such petition it shall fix a time for a
hearing thereon and shall direct that public notice thereof be
given as provided in clause (1) of this section. A return of
sale shall be made to the court after the sale has been
consummated and the deed executed and delivered.
6
24 P.S. § 7-707(1)-(3) (emphasis added).
This Court explained in In re Millcreek Township School District, 143
A.3d 1037 (Pa. Cmwlth. 2016):
In sum, school districts are expected to sell their unused
property to the highest bidder. They are also expected to
sell their unused property at a public auction, after extensive
notice to the public, or by sealed bids. A private sale will
be allowed so long as there is a public hearing before a trial
court, which determines whether the price offered in the
private sale is ‘fair and reasonable’ and a ‘better price
than could be obtained at public sale.’ 24 P.S. § 7-
707(3).
In re Millcreek, 143 A.3d at 1044 (emphasis added).
In the instant matter, the trial court disapproved the Properties’ sale
because it concluded that the District would be undercompensated for some of the
buildings based on the allocated purchase price assigned thereto, notwithstanding that
the $6,800,000.00 purchase price for the Properties exceeded their total appraised
values, one appraisal was $6,450,000.00 and the other appraisal was $6,700,000.00.
Moreover, the $6,800,000.00 purchase price exceeded the sum of the highest
individual offers for the Properties. Specifically, the trial court reasoned:
In the instant case, [the District] complied with the
requirements of the statute in that the SRC declared the
[P]roperties to be unused and unnecessary, accepted the
recommendation of the PIDC to sell the [P]roperties for a
total of $6[,800,000.00], and that two (2) real estate
appraisers opined that the prices were fair and reasonable
and better than could be obtained at a public sale, and that it
provided appropriate notice of the sale, advertised the sale.
However, evidence was also introduced that the
purchase prices for several of the [P]roperties were well
below the appraised value of said properties.
Specifically, [Carroll] valued at, respectively,
$1[,250,000.00] and $1[,100,000.00], with the purchase
price of $700,000.00. This amounted to a sale price of
fifty-six (56) or sixty-three (63) percent of its value.
7
[Germantown], valued at $500,000.00 and $900,000.00
respectively, was to be sold for $100,000.00. This
amounted to a sale at twenty (20) or eleven (11) percent
of its value. Evidence was also introduced to show that
some of the [other District] properties originally put up for
sale had been taken back to be re-used as schools, and that
other [P]roperties in this sale group had had other offers.
Despite the fact that [the District] complied with the
statutory requirements, this court could not in good
conscience allow the sale of such large properties for
such a low value. As the deal was an ‘all or nothing’
deal, this court disapproved the sale. Per statute and case
law this is not, of course, to say that the [P]roperties cannot
be sold again: merely that the court was unconvinced by the
evidence shown that the affidavits and conclusions were
credible, given the appraisers’ own valuations and the
evidence introduced.[7]
Trial Ct. Op. at 7-8 (emphasis added).
The trial court’s analysis ignores the Sales Agreement provision which
states that the purchaser, Concordia, “for its purposes . . . allocated the Purchase
Price amongst [the Properties.]” R.R. at 202a (emphasis added). Accordingly, the
“allocated” purchase prices do not necessarily reflect each individual property’s
actual purchase value. Id. Instead, the aforementioned provision in the Sales
Agreement reveals that the trial court should have viewed the transaction as a whole,
rather than using the artificially allocated valuations to invalidate the transaction.
The trial court also failed to acknowledge that despite the sale of Carroll
and Germantown for a “low [allocated] value[,]” in the very same transaction, the
contracted Smith allocated price exceeded the appraised value by almost
$1,000,000.00, and the Vare allocated price exceeded the property’s appraised
7
The trial court did not find that the Properties’ appraisals were unreliable or otherwise
lacked credibility. To the contrary, the trial court found that the District had fully complied with all
the statutory requirements. Moreover, Fox’s testimony with respect to the facts surrounding the
sale process was substantial evidence which evidenced that the requirements set forth in In re
Millcreek were satisfied.
8
value by several hundred thousand dollars.8 These allocated prices more than
made up for the “low value” received for Carroll and Germantown, as evidenced by
the fact that the Portfolio Offer significantly exceeded the sum of the appraised
values for the individual Properties. Trial Ct. Op. at 8. In addition, the
uncontradicted evidence revealed that no potential buyer made an offer for Carroll
and only one potential buyer made a very low offer for Germantown. Given the
undisputed, substantial record evidence presented at the hearing, it is clear that
Concordia’s offer was “fair and reasonable.” 24 P.S. § 7-707(3). The record
evidence does not support the trial court’s stated reason for denying the sale – “a low
value” for “an ‘all or nothing’ deal.” Trial Ct. Op. at 8. Accordingly, the trial court
abused its discretion.
Further, although the Properties were to be sold by private sale, Fox
testified that the District conducted the sale process similar to a public sale. Through
the PIDC, the District publicly listed the buildings for sale, held open houses and
accepted bids. The total Portfolio Offer exceeded the bids received for the individual
Properties.9 Thus, there was substantial, uncontradicted evidence that the Portfolio
Offer was a “better price than could be obtained at public sale[.]” 24 P.S. § 7-707(3).
Accordingly, we hold that the trial court abused its discretion by denying the
Petition.10
8
The allocated Fulton sale price was roughly equivalent to that property’s appraised value.
9
The trial court rejected the Petition over concerns regarding the “low value” of the sale
prices allocated to the Carroll and Germantown properties. However, although the PIDC advertised
the Carroll and Germantown properties on its website and invited bids, Fox’s testimony revealed no
significant market interest in those properties. See Trial Ct. Op. at 8; R.R. at 121a.
10
The District also argues that public interest favors the Petition’s approval. We agree.
Given that the District, which is in financial distress, will realize $6,800,000.00 (an amount
exceeding the total appraised values of all of the Properties) for unused buildings, it is reasonable to
conclude that the District and those it serves will benefit from the influx of funds as well as not
continuing to be burdened by the expenditure of monies to maintain their upkeep.
9
For all of the above reasons, the trial court’s order is reversed.
___________________________
ANNE E. COVEY, Judge
10
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
In Re: Private Sales of Former: :
:
Charles Carroll High School :
Robert Fulton Elementary School :
Germantown High School :
Walter Smith Elementary School :
Abigail Vare Elementary School :
:
Appeal of: The School District of : No. 767 C.D. 2016
Philadelphia :
ORDER
AND NOW, this 7th day of March, 2017, the Philadelphia County
Common Pleas Court’s February 17, 2016 order is reversed. The matter is remanded
to the trial court with direction to grant the Philadelphia School District’s Petition for
Approval of Private Sales of Unused and Unnecessary Land and Buildings.
Philadelphia City Councilman Kenyatta Johnson’s Application for Leave
to File an Amicus Curiae Brief is denied.
Jurisdiction is relinquished.
___________________________
ANNE E. COVEY, Judge