Opinion ID: 1904669
Heading Depth: 1
Heading Rank: 3

Heading: Was the Eldon Sold?

Text: The determinative issue in the first case is whether the transfer of the property from IMC to IMDel was a sale covered by the Sale Act. The Tenants' Association relies on subsections (a) and (c) of that Act to support its argument that it was. [3]
Subsection (a) provides in relevant part that [b]efore an owner of a housing accommodation may sell the accommodation, [he or she] shall give the tenant an opportunity to purchase the accommodation at a price and terms which represent a bona fide offer of sale. D.C.Code § 42-3404.02(a) (2001). This subsection does not explain the meaning of sell or sale, but in West End Tenants v. George Washington University, 640 A.2d 718 (D.C. 1994), we defined a sale as a contract whereby property is transferred from one person to another for a consideration of value, implying the passage of the general and absolute title, as distinguished from a special interest falling short of complete ownership. Id. at 727 (quoting BLACK'S LAW DICTIONARY 1337 (6th ed. 1990)). We applied this definition in Twin Towers Plaza Tenants Ass'n v. Capitol Park Assocs., L.P., 894 A.2d 1113 (D.C.2006), holding that transfer of a 95% interest in a property was not a sale because [s]uch a transaction is, by definition, a transfer of a special interest `falling short of complete ownership,' and therefore not a `sale' within the meaning of the [Sale Act]. Id. at 1119. The two defining characteristics of a sale under subsection (a) are (1) the passing of general and absolute title (2) in exchange for consideration.
While the case law interpreting § 42-3404.02(a) provides a general definition of sale, other subsections of the Sale Act provide specialized definitions ... added to the statute because the transactions they describe would not be captured by subsection (a). Twin Towers, 894 A.2d at 1118-19. At the time of this transaction, subsection (c) stated, in relevant part, that the term `sell' or `sale' includes the transfer... of 100% of all stock of a corporation which owns the accommodation as its sole asset to 1 transferee in 1 or more transactions occurring during a period of 1 year from the date of the first such transfer.... D.C.Code § 42-3404.02(c) (2001). [4] Appellant (the Tenants' Association) argues that, because the statute uses the word includes, it is not limited to transfers of 100% of the stock, and it asserts that the Council intended the test to be whether the transaction involved a transfer of `fundamental control of ownership.' [T]he starting point for interpreting a statute is the language of the statute itself, and [a]bsent a clearly expressed legislative intention to the contrary, that language must ordinarily be regarded as conclusive. West End Tenants, 640 A.2d at 726 (quoting Consumer Product Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S.Ct. 2051, 64 L.Ed.2d 766 (1980)). The language of subsection (c) unambiguously requires a transfer of 100% of a corporation's stock within one year; the use of the word includes does not create ambiguity. Read in context, subsection (c) simply means that the transactions described there shall be included within the definition of a sale even though they do not meet the test established in our case law construing subsection (a). Moreover, we are not persuaded by the tenants' association's references to legislative history. Indeed, we rejected essentially this same argument in Twin Towers. 894 A.2d at 1120. Therefore, the sale of 99% of IMDel's stock does not meet the requirements of subsection (c).
The Tenants' Association argues in the alternative that, when viewed in context, the transfer of the Eldon from IMC to IMDel was a sale under § 42-3404.02(a)  that there was a passing of general and absolute title in exchange for consideration. The Association points out that the Stock Sale Agreement implicitly required IMC to deliver the deed transferring the Grantor's entire interest in the real property to IMDel, and further obligated L Street Building, LLC (controlled by Thai) to pay $3,875,000 to IMC. It emphasizes that Alem and Thai signed the Stock Purchase Agreement before IMC delivered the deed to IMDel, and that IMC's right to receive the $3,875,000 payment from Thai's company [L Street Building, LLC] was contingent upon this transfer of fee simple title.  [5] Appellant also asserts that Alem had appointed Thai the sole officer and sole director of IMDel before title to the Eldon was transferred to IMDel, thereby putting IMDel in Thai's control at the time the deed was received. Appellant argues that these circumstances, taken together with Alem's admission that the reason he structured the deal in this way was to avoid the requirements of the Sale Act, create genuine issues of material fact as to whether the transaction carried out in compliance with the Stock Sale Agreement of June 25, 2003, met the definition of the term sale established in West End Tenants and Twin Towers. The argument of the Tenants' Association will have particular force if, as it claims, the deed transferring the property to IMDel was delivered after the Stock Sale Agreement was signed and after IMDel was already in the exclusive control of Thai (who was the sole officer, sole director, and 99% owner of that company). [6] This sequence of events is contested by IMC, which claims that the property was transferred to IMDel on June 21, before the Stock Sale Agreement was signed. The record contains two versions of the deed, identical except for the date. The date of the authentic deed and the date of its delivery are contested material facts which may prove determinative in deciding whether the transfer of the Eldon to IMDel was a mere reorganization of corporate assets, or a thinly disguised sale to a third party. There is no doubt that general and absolute title was transferred from IMC to IMDel, and there is at least a respectable argument that this occurred in return for consideration of value which flowed from L Street Building to IMC. Therefore, this transaction may well have been a sale under subsection (a).
To forestall this conclusion, appellees rely upon our decision in Wallasey Tenants Ass'n, where we carved out an exception for some transactions which appear to meet the subsection (a) definition of a sale but nevertheless (we held) do not trigger the tenants' opportunity to purchase a building. In that case, Mr. Fairbairn had transferred an apartment building from himself to entities wholly owned by him. Wallasey Tenants Ass'n v. Varner, 892 A.2d 1135 (D.C.2006). Although the conveyance took the appearance of a sale, id. at 1141, we held that it did not trigger a right of the tenants to purchase the property. The conveyance directed by Mr. Fairbairn to a de facto wholly owned corporation was effectuated for no purpose other than to legitimately limit Mr. Fairbairn's liability and to simplify his future estate planning. Id. at 1141 (footnote omitted). There had been no arms' length bargaining between the grantor and the grantee. Id. Finally, and most significantly, Mr. Fairbairn remained in ultimate control of the Wallasey at all times.... [T]his conveyance was a restructuring not a sale. Id. In other words, the right of first refusal under the Sale Act is simply not available when closely related parties who do not engage in arms' length dealings convey property for the purposes of estate planning, tax restructuring, limiting liability, or general property management. Id. at 1141 n. 3. Appellees' arrangement is not comparable to that discussed in Wallasey, and, consequently, they cannot benefit from the exception we created in that case. Unlike Wallasey, the transfer here clearly was not conducted for the purposes of estate planning, tax restructuring, limiting liability, or general property management. Alem admitted that the major reason for structuring the transaction as a stock sale was to avoid having to make an offer of sale to the tenants. Thai also understood the stock purchase to be necessary because the seller did not want to go through [the] tenant[s]. There was arms' length bargaining over the price and the structure of the deal. Moreover, IMC did not retain control of the property. Control was transferred to Thai, and ownership followed shortly thereafter. Finally, the entire transaction was contemplated by, and carried out in accordance with, the Stock Sale Agreement, which spelled out the obligations of the parties. Our holding in Wallasey does not assist appellees. We emphasize that we have viewed the evidence in the light most favorable to the tenants' association. Further inquiry may clarify what happened. At this point, however, the date of the authentic deed and the date of its delivery are material facts in genuine dispute. [7] Furthermore, there is a genuine issue whether the $3,875,000 that Thai's company paid under the Stock Sale Agreement was in fact consideration for the transfer of general and absolute title. We therefore reverse the grant of summary judgment and remand the case to the trial court for further proceedings. In doing so, we do not preclude consideration of other contentions not specifically rejected here.