Court Opinion

ID: 999392
Source: CourtListenerOpinion
Date Created: 2013-07-04 17:25:13.997065+00
Date Added: 2024-06-11T09:14:12.222313
License: Public Domain

UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

STRATTON OAKMONT, INCORPORATED,
Plaintiff-Appellee,

v.                                                             No. 98-2265

THE VASWANI PLACE CORPORATION,
Defendant-Appellant.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Catherine C. Blake, District Judge.
(CA-95-1225-CCB)

Argued: June 7, 1999

Decided: August 12, 1999

Before WILKINSON, Chief Judge, and
HAMILTON and WILLIAMS, Circuit Judges.

_________________________________________________________________

Affirmed by unpublished per curiam opinion.

_________________________________________________________________

COUNSEL

ARGUED: John Michael Craig, INFORMATION SYSTEMS &
NETWORK CORPORATION, Bethesda, Maryland, for Appellant.
Steven Jay Kramer, LAW OFFICES OF STEVEN J. KRAMER,
Washington, D.C., for Appellee. ON BRIEF: Norman H. Singer,
JACKSON & CAMPBELL, Washington, D.C., for Appellant. Adam
C. Rogoff, Jonathan S. Henes, WEIL, GOTSHAL & MANGES,
L.L.P., New York, New York, for Appellee.

_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

Stratton Oakmont, Inc. (Stratton) filed a complaint against The
Vaswani Place Corp. (Vaswani) on April 26, 1995, seeking payment
for a rental credit that it alleged Vaswani owed under the terms of a
commercial real estate lease (the Lease). On June 9, 1995, Vaswani
filed a counterclaim seeking payment for construction costs that it
alleged Stratton owed under the Lease. After the district court denied
the parties' cross motions for summary judgment, a one-day bench
trial was scheduled. Before trial, however, Vaswani filed a second
motion for summary judgment, arguing that the case was moot due
to the intervening assignment of the Lease to a third party, Biltmore
Securities, Inc. (Biltmore). The district court denied Vaswani's sec-
ond motion for summary judgment and a bench trial was held on Feb-
ruary 13, 1998. Following the trial, the district court entered judgment
in favor of Stratton. Vaswani then filed a timely appeal to this Court.

I.

On January 5, 1994, Vaswani leased 18,634 square feet of com-
mercial office space to Stratton for ten years at an annual rate of
$330,753.50. Under the Lease terms, Vaswani was obligated to spend
up to $387,500 to prepare the premises for Stratton's use. If Vaswani
spent less, then Stratton was entitled to a rental credit in the amount
of the savings. If preparation costs exceeded that amount, then Strat-
ton was to pay the excess.

After completing the premises, Vaswani remitted a cost accumula-
tion to Stratton, showing that Vaswani had expended $2,187 more
than the allowed amount, but did not request reimbursement. Stratton
believed, however, that Vaswani's costs were excessive and filed suit
to recover the alleged improper costs. Vaswani then counterclaimed
to recover the alleged $2,187 overage.

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On June 26, 1995, after the Stratton v. Vaswani suits had been
filed, Stratton entered into a Lease Assignment and a separate Asset
Purchase Agreement (Purchase Agreement) with a third party, Bilt-
more. The Lease Assignment covered the remainder of Stratton's
lease term, with Stratton holding no reversionary interest. The Pur-
chase Agreement, inter alia, purported to allow Stratton to retain
whatever interest it held in the litigation with Vaswani. On August 3,
1995, Vaswani gave its consent to the Lease Assignment as required
under the original Lease. A short time later, Biltmore defaulted on the
Lease Assignment. The dispute over the default resulted in a Consent
Order between Vaswani and Biltmore that released both parties from
"all claims, demands, liabilities or causes of action" between the par-
ties. (J.A. at 35.) In defense against the suit filed by Stratton, Vaswani
claimed that through the Lease Assignment Biltmore effectively
stepped into the shoes of Stratton, and thus Stratton's claim for the
rent credit was transferred to Biltmore. Under this scenario, Vaswani
contended that the rent credit claim was in turn released by Biltmore
through the Consent Order.

After a day-long bench trial, the district court determined that Vas-
wani had overcharged Stratton in the amount of $34,438. The district
court also held that the action to recover the rental credit was never
assigned to Biltmore, and Stratton thus retained its right to the rental
credit. Accordingly, the district court entered judgment in favor of
Stratton. Finding no error, we affirm.

II.

On appeal, the parties dispute only whether the right to receive the
$34,438 rental credit was transferred via the Lease Assignment
between Biltmore and Stratton. Vaswani argues that under Maryland
law a rent credit is a covenant running with the land, which would
transfer to an assignee. Under that theory, Biltmore would be substi-
tuted as the interested party, and the Consent Order between Vaswani
and Biltmore would then operate to extinguish the claim. Stratton
counters that the rent credit was a previously accrued action, which
is personal property, and thus the credit was not transferred under the
Lease Assignment. Because the issue on appeal turns on a purely
legal issue, we review the district court's decision de novo. See

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Richman v. First Woman's Bank (Matter of Richman) , 104 F.3d 654,
656 (4th Cir. 1997).

Stratton states, and Vaswani agrees, that there is no dispositive
Maryland law on this point. Accordingly, "we must rule as it appears
the state court would rule." Talkington v. Atria Reclamelucifers
Fabrieken BV, 152 F.3d 254, 260 (4th Cir. 1998), overruled in part
on other grounds, Kumho Tire Co. v. Carmichael, 119 S. Ct. 1167
(1999). We, therefore, turn to Maryland property law for guidance.

The Maryland courts have stated that

          [w]hen a lease is transferred by assignment, the assignee
          steps into the lessee's shoes and acquires all the lessee's
          rights in the lease. Privity of estate ends between the lessor
          and lessee and is created between the lessor and the
          assignee. The assignee therefore becomes bound by the cov-
          enants running with the land.

Italian Fisherman, Inc. v. Middlemas, 545 A.2d 1, 4 (Md. 1988). A
covenant runs with the land if (1) the covenant touches and concerns
the land, (2) the parties intended for the covenant to run with the land,
(3) there is some privity of estate, and (4) the covenant is written. See
Mercantile-Safe Deposit & Trust Co. v. Mayor & City Council of
Baltimore, 521 A.2d 734, 736 (Md. 1987). Stratton does not maintain
that an existing rent credit could not pass to an assignee; rather, it
focuses on the fact that this case presents a previously accrued action.

Stratton's lone, but persuasive argument, is that a previously
breached covenant accruing to the benefit of an assignor does not run
with the land, but instead becomes personal property, or a "chose in
action." This argument is supported by the property law of several
states, and Maryland has signaled its support under circumstances
quite similar to, but not identical with, those before this Court. In
Antietam-Sharpsburg Museum, Inc. v. William H. Marsh, Inc., 249
A.2d 721 (Md. 1969), a lessee discontinued paying rent approxi-
mately eight months before the lessor sold the property. Following the
sale, the original lessor sued for the accrued rent. The Maryland Court
of Appeals stated:

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          When there is a transfer of title[,] unpaid accrued rent,
          unless otherwise provided for, belongs to the person who
          was the landlord at the time of accrual. Likewise current
          rent is not apportionable, unless by agreement, when the
          transfer occurs during the rent period.

Id. at 723. This logic is consistent with that expressed by several other
jurisdictions. See, e.g., Ginsberg v. Austin, 968 F.2d 1198, 1201 (Fed.
Cir. 1992) (citing uniform state law for the proposition that "rents due
and owing become personal property, constituting mere choses in
action which are not part of the land and do not pass as incident to
a transfer of the reversion" (internal quotation marks omitted));
Federal Savs. & Loan Ins. Corp. v. C&J Oil Co., Inc. , 632 F. Supp.
1296, 1300 (W.D. Va. 1986) ("It is well established in leases involv-
ing real property that absent a clearly expressed intention to the con-
trary, the assignment of such a lease does not transfer the right to
rental payments already accrued but unpaid at the time of assign-
ment."). Based upon the logic employed by Maryland's highest court
in Antietam-Sharpsburg Museum, and the obvious correlation with
the circumstances before us, we believe that the Maryland courts
would construe this action for the accrued rental credit as personal
property, which would not transfer upon assignment.

Vaswani argues that the cases cited above are irrelevant because
they involved rent arrearages or a payment of money, while this
action involves a rent credit and not money damages. The district
court rightly rejected this argument. Vaswani failed to provide a
rental credit to Stratton -- a credit that was clearly due to Stratton
prior to the Lease Assignment. The resulting damage became a chose
in action that remained Stratton's property. Vaswani simply fails to
make any principled distinction between the present case and the
widely accepted principle that a chose in action, remediable through
the award of damages, is personal property and does not transfer with
the assignment of a lease.

III.

Finding no error in the judgment of the district court, we affirm.

AFFIRMED

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