R. E. C. Management Corp. v. Bakst Service, Inc.

Smith, J., delivered the opinion of the Court. Here “one washing machine operator has a dispute with another washing machine operator.” At least that was the comment of Morris Karp (Karp), president of appellant Realty Equities Corporation of New York (Realty Equities), when he was asked if he were familiar with the litigation. He apparently had drawn the inference that the prime dispute here was not between appellee, Bakst Service, Inc. (Bakst), and the various par ²⁴⁰ ties appellant, but between Bakst and another corporation which saw a chance to make a profit if it could obtain the concession for its machines in a Prince George’s County apartment house where Bakst has had its equipment for a number of years. Bakst and Jerry Wolman on July 29, 1964, entered into a contract under which Bakst was granted “the exclusive right and privilege to install, maintain and operate any and all commercially operated washing machines and dryers” at “Dodge Park View” apartments at Lanham.

(Apparently, the development is generally known as “Dodge View.”) The contract was for a period of five years from the time when the apartment groups reached 90% occupancy. The parties have stipulated that the first section reached such occupancy on October 15, 1965; the second, July 10, 1967; and the third, April 10, 1968. The agreement as written applied only to the first section, but it provided that it should “apply to all other sections to be built at Dodge Park View.” It was to “automatically renew itself at its expiration for successive 5 year periods, unless [Bakst gave] written notice of cancellation to [Wolman] at least thirty days prior to the expiration of the original term [t] hereof.” One thing upon which the parties can agree is that under that contract Bakst was to pay Wolman $2.00 per month for each occupied unit. In November, 1966, Wolman sold Dodge View to a corporation known as CH No. 13, Inc. (CH 13), a subsidiary of Investors Funding, Inc. The following month the stock in CH 13 was sold to Countrywide Realty, Inc. (Countrywide).

CH 13 and Countrywide are among the appellants here. Elmer Litwin (Litwin) was a vice-president of Countrywide concerned with the management of CH 13. In October, 1967, Realty Equities acquired the assets of Countrywide including the stock of CH 13. Litwin then became an officer of Realty Equities and certain of its subsidiaries.

In June of 1968 Realty Equities worked out a plan ²⁴¹ under which CH 13 sold the real estate to appellant Dodge View Associates, an Illinois limited partnership, but a leasehold interest remained in a subsidiary of Realty Equities Corporation, Appellant Dodge View Realty Corporation. R.E.C. Management Corporation, another appellant and a subsidiary of Realty Equities, came onto the scene as manager of the property in September of 1968. Litwin was an officer of that corporation also. Just when the R.E.C. group became cognizant of the Bakst-Wolman contract does not clearly appear, but pursuant to a demand under Maryland Rule 421 it is admitted that R.E.C. Management Corporation knew of the agreement from the time it assumed its duties, and that Countrywide and CH 13 had knowledge of the agreement “prior to the time [Bakst] began paying $3.00 per unit.” This means the latter two had knowledge of the Wolman agreement sometime prior to April 15, 1967.

We shall later discuss the increase from $2.00 to $3.00 per unit. On March 9, 1967, Bakst was notified by letter from Countrywide that effective April 15, 1967, it would have another laundry machine operator at Dodge View and Hillbrook Towers, another apartment house owned by Countrywide. 1 Bakst was “requested and directed to remove [its] equipment by that date.” It was suggested it “coordinate [its] move with Mr. Raport of Solon Industries.” Solon Automated Services, Inc. (Solon), is the other “washing machine operator” to whom Mr. Karp alluded. This letter brought a prompt reply from counsel ²⁴² for Bakst stating that contracts for the properties had not expired, that he had instructed his client not to remove its equipment, and that appropriate legal action would be taken to protect his client’s interest if Countrywide or its agents breached “either or both of these contracts.” Hillbrook Towers is not involved in this dispute. Around April 15, 1967, Bakst began paying $3.00 per unit.

The explanation of Milton Baxt (Baxt), vice-president of Bakst, for this increase was: “It has to do with public relations. It has to do with good business too. You are making money. We gamble on these'things and what we do is set up a price on a gamble.

This is prior history on this and $2.00 we thought would be a fair price. When you make money on a project, and we have made a lot of money on this project, and if a man comes up and says to you, ‘$3.00,’ and it is a fair deal, you want to live with your contract so you pay him $3.00. I have this every day in the week.” A number of proposed contracts were submitted to Countrywide by Bakst. Then on June 15, 1967, Litwin, as executive vice-president of Countrywide, wrote Baxt enclosing a comprehensive memorandum from Countrywide’s attorney setting forth the changes desired by Countrywide in the proposed contract submitted by Bakst.

This was followed by a letter from Baxt to Lit-win on July 6 “enclosing the new contracts which were drawn up after [Bakst’s] attorney spoke with Mr. Roll [attorney for Countrywide].” On July 19 Roll wrote to Milton Raport of Solon: “This is in reference to your letter to Mr. Elmer L. Litwin dated July 10, 1967 concerning laundry equipment service for various apartment projects in Maryland. “We are glad to note that Solon Automated Services, Inc. would be willing to stand the cost ²⁴³ of any legal problem we might encounter relative to previous laundry equipment agreements. However, we feel that a more specific agreement covering this problem would be necessary and that it should be included as a clause in your laundry equipment agreement. A draft of such clause is enclosed. “The various apartment projects in Maryland are each owned by a separate corporation which is a subsidiary of Countrywide Realty, Inc. Accordingly, instead of a contract with Countrywide it would be necessary for you to have a separate laundry equipment agreement covering each location with the corporation which is the owner of such location. The enclosed clause would, therefore, be added in the laundry agreement covering each location. “Your letter does not indicate which apartment locations are involved.

We suggest that the name of the owner be left blank in each agreement and the name of the owner can be inserted when the agreements are submitted to us for approval.” On August 1, 1967, an agreement relative to Dodge View was entered into between Solon and CH 13, executed by Litwin as vice-president, the 15th paragraph of which contained the language forwarded by Roll in the July 19 letter, namely: “In the event that there is any previous laundry equipment agreement relative to the premises between a previous owner and another laundry equipment operator, Solon Automated Service, Inc., agrees, at its own cost and expense, to assume sole responsibility for removal of any and all equipment now on the premises covered by such agreement and to defend, indemnify and hold the owner herein harmless against any and all claims, actions, proceedings, judgments, ²⁴⁴ and liability for damages, costs and expenses arising from or relating to any removal of such equipment, and/or any alleged breach of such agreement on the part of the owner herein, and/or any attempt to enforce such agreement against the owner herein.” The agreement was “for a period of ten years, commencing on the date of the completed installation [t] hereunder.” It provided that during the term of the agreement CH 13 would “not install, nor permit the installation or use of like or similar equipment, description or design in the apartment premises.” 2 Thus arises the conflict to which Mr. Karp made reference. From the depositions the inference can be drawn that Solon was financing the litigation in this case in the circuit court and, therefore, presumably, here. Notwithstanding that agreement, the Bakst machines remained on the premises. There was no apparent effort to bring about removal of the Bakst machines until the spring of 1969.

On March 6 of that year Litwin sent a memorandum to Chelee, one of his subordinates, as follows: “With reference to your Feb. 27 letter from Donnenfeld, it is important that you check the expiration dates of the Bakst contracts. “In addition I want to know the exact dollars we are receiving from him at both locations. 3 ²⁴⁵ “Do not send out any cancellation letters until you discuss this matter with me, in person, when I am down there on 3/11” On March 10 Baxt sent Chelee yet another proposed contract. On March 18 Chelee as “property manager” of R.E.C. Management Corporation wrote to Bakst: “This has reference to your Company’s laundry machine installations at the Dodge View apartment property which is managed by this office. As you know, you have been servicing this property under contract with the former owners thereof. “Without conceding the validity of this prior contract insofar as the present owners are concerned, the contract has now expired, and the present owners wish to utilize the services of a different laundry machine operator. Accordingly, you are hereby directed to remove your equipment from the Dodge View apartment project as soon as possible and, in any event, no later than July 28, 1969.

Royalty payments due for periods prior to the removal of your machines should be made to this office. “In order to reduce the inconvenience caused by this change-over, you may care to coordinate your move with the undersigned of this office. We would also appreciate some advance indication as to when the removal of your equipment will take place.” On April 30 Litwin wrote to one of his superiors advising that he had “met with Raport and resolved the final washing machine contract problems.” He then went on to say: “The remaining two Bakst contracts, Dodge View and Hillbrook Towers, which expire within the next few months, will be renewed by Solon.” ²⁴⁶ On June 3 counsel for Bakst wrote Chelee that he had been handed the March 18 letter for reply, that he had "examined the contract and [was] of the opinion that the contract ha[d] not expired and [was] still in force.” On June 4 Chelee forwarded a copy of that letter to Lit-win, sending Raport a copy of the memorandum “along with copies of the original contracts.” On June 6 Litwin wrote Raport: “I know that Ziggy [Chelee] sent you certain correspondence pertaining to the Bakst laundry contracts at Dodge View and Hillbrook Towers. “I want to make certain that we understand that the same arrangements exist in this matter as existed in the Hoff Laundry matter in that any legal expense involved, as per the June 3 letter from Bakst’s attorneys, are entirely the responsibility of Solon Industries. Please confirm this in writing to me by return mail. I assume that you will have your attorneys reply to the June 3 letter immediately.” There were statements in some of the depositions to the effect that Bakst’s services were unsatisfactory.

The complaints were not spelled out with precision. It is noted that at one point in the Litwin deposition the record was: “Q. Did you have any personal knowledge of Bakst’s operation over at Dodge View; that is, whether they were doing a good job or a lousy job, or whatever? A. No. I would have to assume that he was doing a fair job, and I would also have to assume that there were the usual complaints. “Q. But nothing extraordinary that is not incidental to that type of operation? A. I would have to admit that I knew of nothing that was completely bad, shall we say, or that I was put on notice that his operation was unlivable, for use of a better term. ²⁴⁷ “Q. And would it be a fair characterization that the only motivation in dealing with Solon was a question of economics?

A. I would have to assume that that would be a fair statement; a question of dollars and cents.” Accordingly, the inference is drawn that Bakst’s performance was not the reason for the attempted termination. It is a little difficult on occasion to follow the relationship between the various corporations here. Karp, the president of Realty Equities, was chairman of the executive committee and chief executive officer of Countrywide prior to the time that Realty Equities acquired Countrywide. As of the time that the stockholders of Countrywide were requested to vote upon that transfer, Realty Equities owned 5.75% of the common stock of Countrywide. 4 On July 24, 1967, Karp directed Litwin, “[w]ith reference to all Wolman properties, send detailed information concerning washing machine contracts to Mr. Benjamin Duhl, as soon as possible.” 5 At the bottom of that memorandum, in longhand, appears a listing of various apartments.

Opposite Dodge View and Hillbrook with a bracket appears “Bakst Service.” An expiration date is listed for each of the projects and opposite Dodge View appears “7/29/69.” Litwin admitted that the longhand is his. It is to be noted that ²⁴⁸ July 29, 1964, is the date of the Bakst contract. It was for five years, although five years from the time that the apartments were 90% occupied. This apparently was the raw material from which Litwin wrote Duhl under date of August 2.

He there listed the expiration date for Dodge View as “8/1/70.” Litwin in his deposition said that in his letter to Duhl he must have been referring to the Solon contract. That does not work out mathematically since it was dated August 1, 1967, and was for ten years. In the transfer that took place in 1968 there was an agreement entered into under date of May 23 between CH 13, as seller, and certain individuals on behalf of the limited partnership which acquired the premises, as buyer. This agreement provided that the premises were sold and were to be conveyed subject to: “The contracts and agreements, if any, referred to on Schedule I annexed hereto, and renewals of same, all of which Purchaser agrees to assume by instrument in writing delivered to Seller at the closing.” A lease was entered into at that time between CH 13 and Dodge View Realty Corp. by which Dodge View acquired the leasehold interest.

The lease was made subject to a number of items including: “Dedications, covenants, consents, easements and agreements, if any, made or given by any prior owner of the Demised Premises, whether or not recorded.” Also filed in evidence was an exhibit entitled “Statement of Closing of Sale of Premises known as Dodge