Vei Catonsville, LLC v. Einbinder Properties, LLC

DAVIS, J. This appeal from a declaratory judgment presents the question of whether a commercial real estate appraisal was rendered in compliance with the dictates of the option agreement to purchase the subject property. VEI Catonsville, LLC (VEI) seeks our review of a declaration rendered by the Circuit Court for Baltimore County that an appraisal of the property at issue complied with the dictates of the “Agreement Regarding Right of First Refusal and Option to Purchase.” VEI maintains that the chancellor erred by declaring that an appraisal of the property at issue did not adhere to the requirements of the Option. Appellee, Einbinder Properties, Inc. (Einbinder) disagrees, and moves to dismiss VEI’s appeal, urging, in the alternative, that we affirm. We decline Einbinder’s invitation to dismiss VEI’s appeal, but shall affirm the chancellor’s declaration for the reasons set forth below.

Background 1 On March 18, 1997, Circuit City Stores, Inc., a “national retailer of consumer electronics,” the predecessor on the lease to VEI, entered into a commercial ground lease (Lease) with Joseph Y. Einbinder, 2 contracting to rent approximately 7.657 acres of land (Property) in Baltimore County for an initial term of twenty years, with six five-year renewable terms. The Property is known as 6026-6030 Baltimore National Pike and, at the time of the lease, had been the site of the Westview Cinema. The theater has since been razed and replaced by retail establishments—“HH Gregg, Vitamin World and Staples.” The Lease contained a separate “Agreement Regard ²⁸⁹ ing Right of First Refusal and Option to Purchase.” The “option to purchase” includes the following: Option to Purchase. Landholder does hereby grant to CC the exclusive and irrevocable option to purchase the interest of Landholder in the property on and subject to the terms and conditions hereinafter set forth.

The agreement also established the method by which the purchase price would be determined: The purchase price (“Purchase Price”) payable upon the closing shall be the greater of FOUR MILLION FOUR HUNDRED TWENTY-EIGHT THOUSAND AND NO/ 100 DOLLARS ($4,428,000.00) or the appraised value of the Property subject to adjustments at closing as more fully set forth in subparagraph 2(d) below, which appraisal shall take into account (i) CC’s right of first refusal, (ii) the extension rights granted to the holder of the leasehold estate in the Property, and (iii) the absence of a brokerage commission to be paid by Landholder, and which appraisal shall not take into account the value of the leasehold improvements then-existing on the Property, and which appraisal shall be conducted by an independent M.A.I. appraiser having at least fifteen (15) years experience in the field of commercial real estate and whose primary area of expertise is Baltimore County, Maryland reasonably satisfactory to Landholder and CC. (Emphasis added). Circuit City filed for bankruptcy protection and, “on or about” March 17, 2009, “sold and assigned its interest as Lessee under the Lease to Vanguard Commercial Development, Inc.” On August 10, 2009, Vanguard in turn assigned its interest in the lease to VEI. In April, 2010, pursuant to the Option’s requirement that they secure the services of an independent appraiser, the parties retained Ronald Lipman, a real estate consultant and appraiser, “to appraise the Property in accordance with the Option.” Lipman submitted his appraisal of the Property on May 5, 2010.

In the cover letter that accompanied the appraisal, Lipman outlined the “appraisal methodology”: ²⁹⁰ The classic method for valuing vacant land is the sales comparison approach, wherein transactions involving properties considered similar to the subject are obtained, analyzed and adjusted to the subject property, utilizing a common denominator of value. In the appraisal of commercial sites similar to the subject, price per sq. ft. is the typical common denominator with, however, consideration of the amount of frontage the property enjoys on the commercial corridor. If not for language contained in the Agreement Regarding Right of First Refusal and Option to Purchase, we would utilize the sales comparison approach exclusively. However, in paragraph 2 of that document, the appraiser is instructed to “take into account” Circuit City’s right of first refusal, extension rights granted to the holder of the leasehold estate and the absence of a brokerage commission to be paid by the Lessor/Seller.

We interpret consideration of the leasehold estate’s extension rights to mean that the existing land lease should be “taken into account”. For this reason, we have also considered valuation of the leased fee (reversionary) estate (i.e. the right to the triple net income stream and the property reversion at the end of the lease) because of its influence on the “value” of the land in the context of this assignment. We would normally expect a well written lease to have been more explicit, but we believe that this alternative interpretation of the option language may also be relevant. Therefore, we will consider both the sales comparison and the income approaches, the latter addressing value of the leased fee estate.

In that valuation, we will estimate market value of the lessor’s position. This is typically accomplished by use of direct capitalization wherein the ground lease income stream is translated into value by use of a market-abstracted capitalization rate. Lipman submitted two figures based on separate valuation methods and explained this approach in his cover letter: ²⁹¹ As a result of our investigation and by virtue of our experience, it is our opinion that, utilizing the sales comparison approach, market value of the subject property as of April 27, 2010 was $6,050,000 based on a sq. ft. rate of $22.50 applied against the subject’s usable area (269,223 sq. ft.). It is further our opinion that, as of that same date, market value of the leased fee position of the subject property was $7,450,000 utilizing the current NNN rent, deducting modest expenses and applying a capitalization rate of 7.0%.

Lipman warned that there could be “no possible correlation” of the two values: If the lease and the accompanying purchase option clearly stated that the unimproved land value, free and clear of the ground lease, with no references thereto, were the determinate of value in the context of the options then we would estimate value based exclusively on the sales comparison approach, ie. SIX MILLION FIFTY THOUSAND (6,050,-000) DOLLARS. If, on the other hand, the option to purchase would have clearly instructed the appraiser to value the leased fee estate or Lessor’s reversionary interest, in consideration of the land lease, our value would be based exclusively on the leased fee, ie. SEVEN MILLION FOUR HUNDRED FIFTY THOUSAND ($7,450,000) DOLLARS.

He explained the discrepancy: M. Ronald Lipman has read numerous documents relating to real estate transactions over his 50 years of appraisal and consulting activity. Unfortunately, the purchase option in this matter is imprecise, vague and subject to interpretation. It simply states that the appraiser should “take into account” ... the extension rights “granted to the holder of the leasehold estate in the Property,” a nuance which is not necessarily a clear reference to leased fee value, but nonetheless, forces one to consider it. There is a lack of clarity in the purchase option document and the reference to “extension rights” benefitting the leasehold estate.

We have struggled in our effort to under ²⁹² stand the intent of the instructions and could understand reading it either of the two ways described above. In our position as appraisers, we do not believe that we have the ability to interpret it, nor the legal background to do so. And we understand that the two of you cannot agree on the appropriate (or legal) interpretation. Accordingly, the two values reported above represent our response to the appraisal function we were engaged to perform.

We believe that resolution of the issue is up to the two of you or, if required, the Courts. Current conditions in the financial markets are in substantial disarray and their impact on real estate values are, at this time, difficult to measure. This valuation is based on the best information available at the time of analysis. As this uncertain environment continues to evolve there may be factors, currently unknown, which will impact property value.

On June 4, 2010, VEI filed an action seeking a declaration that the appraisal did not comply with the terms of the Option. VEI also sought a declaration that the purchase price for the subject Property should be set at $4,428,000.00. On September 24, 2010, Einbinder lodged a counterclaim, seeking a declaration that the option is unenforceable or, in the alternative, that the option has expired. Finally, Einbinder sought the alternative declaration that the purchase price for the Property should be $7,450,000 minus a 2.5% brokerage commission.

On March 2, 2011, at the end of the second day of testimony, the chancellor ruled in favor of Einbinder. The chancellor, explaining his ruling from the bench, concluded that the appraisal complied with the requirements of the option. It also determined that the correct purchase price was $7,450,000, reduced by the aforementioned brokerage commission and denied relief on Einbinder’s counterclaim. The chancellor also ordered VEI to settle within 180 days.

On March 3, 2011, the chancellor filed a written order that reflected this ruling. VEI moved for a stay and also urged the chancellor to alter or amend the judgment. The chancellor denied both ²⁹³ avenues of relief. VEI’s subsequent motion for a stay pending appeal was granted and denied in part; VEI was ordered to post a supersedeas bond in the amount of $8,000,000.

This appeal followed. We shall set forth additional facts as required to address the issues before us. Discussion I Einbinder avers that we should summarily dismiss VEI’s appeal. Einbinder initially maintains that VEI “has waived its right to its appeal by ... voluntarily closing on the Property at the price set by the Circuit Court,” and contends that there exists “no longer an existing controversy!.]” 3 Einbinder further asserts that “this Court cannot, as a matter of law, provide VEI an effective remedy,” a fact that would militate against appellate review.

Einbinder points to the fact that VEI chose not to post a supersedeas bond to stay enforcement of the chancellor’s judgment, pursuant to which VEI was directed to close on the Property within 180 days. We are not persuaded that VEI’s actions have ended this litigation. A The “right to appeal may be lost by acquiescence in, or recognition of, the validity of the decision below from which the appeal is taken or by otherwise taking a position which is inconsistent with the right to appeal.” Rocks v. Brosius, 241 Md. 612, 680 , 217 A.2d 581 (1966). Accord, Dietz v. Dietz, 351 Md. 683, 689 , 720 A.2d 298 (1998); Osztreicher v. Juanteguy, 338 Md. 528, 534 , 659 A.2d 1278 (1995); Dziamko v. Chuhaj, 193 Md.App. 98, 107 , 996 A.2d 893 , cert. denied, 416 Md. 273 , 6 A.3d 905 (2010).

The “doctrine of acquiescence—or waiver— is that ‘a voluntary act of a party which is inconsistent with the assignment of errors on appeal normally precludes that party from obtaining appellate review.’ ” Exxon Mobil Corp. v. Ford, 433 Md. 426, 462 , 71 A.3d 105 (2013) (quoting Bd. of ²⁹⁴ Physician Quality Assurance v. Levitsky, 353 Md. 188, 200 , 725 A.2d 1027 (1999) (further citation omitted)). This “doctrine of waiver is also known as “estoppel,” acceptance of benefits creating mootness, and acquiescence in judgment.” Exxon Mobil, 433 Md. at 462 , 71 A.3d 105 (quoting Downtown Brewing Co. v. Mayor & City Council of Ocean City, 370 Md. 145, 149 , 803 A.2d 545 (2002)). The following factors illustrate actions by a party that have been deemed to preclude that party’s right to appeal: [W]e have heretofore held that the filing of a remittitur by the beneficiary, combined with the acceptance of the tendered payment of the award and causing the court record to be marked as satisfied, brings the litigation to a complete conclusion, thus barring an appeal by the judgment creditor, Kneas v. Hecht Company, 257 Md. 121, 124-26 , 262 A.2d 518, 520-21 (1970); that no appeal lies from a consent decree, Mercantile Trust Co. v. Schloss, 165 Md. 18, 24 , 166 A. 599, 601-02 (1933); and that after an invocation of the benefits accruing under an order of court, a party will not be heard to assail its validity. Stewart v. McCaddin, 107 Md. 314, 318-19 , 68 A. 571, 573 (1908).

This general rule of preclusion enunciated in the Brosius case has been variously characterized as an “estoppel,” Dubin v. Mobile Land Corp., 250 Md. 349, 353 , 243 A.2d 585, 587 (1968), a “waiver” of the right to appeal, id. at 353 , 243 A.2d at 587 ; Bowers v. Soper, 148 Md. 695, 697 , 130 A. 330 , 331 (1925), an “acceptance of benefits” of the court determination, Dubin v. Mobile Land Corp., supra, creating “mootness,” Durst v. Durst, 225 Md. 175, 182 , 169 A.2d 755, 758 (1961), and an “acquiescence” in the judgment, Rocks v. Brosius, supra; Stewart v. McCaddin, supra at 318, 68 A. at 573 . We think the label applied to the rule is less important than its essence—that voluntary act of a party which is inconsistent with the assignment of errors on appeal normally precludes that party from obtaining appellate review. Franzen v. Dubinok, 290 Md. 65, 68 , 427 A.2d 1002 (1981). Notwithstanding, it is “too well settled by authority to require further discussion that a party against whom a judg ²⁹⁵ ment has been rendered is not prevented from appealing to this court by the fact that he has paid the judgment, unless such payment was by way of compromise, or with an agreement not to take or pursue an appeal.” Franzen, 290 Md. at 72 , 427 A.2d 1002 (quoting Hayes v. Nourse, 107 N.Y. 577 , 14 N.E. 508, 508 (1887)).

The Franzen Court pointed out that the “focus of the inquiry must be on whether the compliance with the judgment is the result of legally sufficient compulsion.” Franzen, 290 Md. at 69 , 427 A.2d 1002 . The Court agreed with the “proposition, entertained by practically all jurisdictions, that payment tendered after the issuance of execution on a judgment is clearly coerced[,]” and that an appellant’s failure to secure a “stay or other supersedeas pending appeal is normally held to have no effect on the voluntariness determination[.]” 4 Id., 290 Md. at 69-70 , 427 A.2d 1002 . We consider the recent opinion by the Alaska Supreme Court in Leisnoi, Inc. v. Merdes & Merdes, P.C., 307 P.3d 879 , 2013 WL 386373 (Alaska 2013), to be instructive. This case involved a dispute between Leisnoi, an Alaska Native corporation, and a law firm that had represented it in a matter under the Alaska Native Claims Settlement Act.

The law firm successfully represented Leisnoi in litigation that would continue for more than a decade. Leisnoi disputed the fee arrangement, but an arbitrator ruled in the law firm’s favor and the latter obtained a judgment for the unpaid legal fees. Leisnoi made payments until 2002, when it went into default. The law firm did not seek a writ of execution on the judgment until 2008.

Leisnoi opposed the firm’s efforts to collect its legal fees, but suffered a setback when a trial court in January 2010 ²⁹⁶ granted the firm’s motion to execute. Following the trial court’s order, Leisnoi paid the firm the outstanding balance and also appealed the trial court’s ruling. On appeal to the Alaska Supreme Court, the law firm argued that Leisnoi waived its right to appeal by voluntarily satisfying the judgment against it. The firm cited to decisions from other jurisdictions for the proposition that, “when a judgment debtor voluntarily satisfies the judgment in full, he waives any right to appeal.” Leisnoi explained why it should prosecute its appeal by citing to its “limited options”: Leisnoi replies that it had limited options in response to Merdes’s [the law firm’s] pursuit of execution upon the judgment: It could do nothing and allow Merdes to collect the judgment; it could seek a stay of enforcement of the judgment by posting a supersedeas bond; or it could pay the judgment.

Leisnoi characterizes the first two options as so undesirable—based on both the potential “embarrassment” and disruption of its business associated with involuntary collection procedures and the high cost of posting a supersedeas bond—that it had no choice but to pay the judgment. Leisnoi, 307 P.3d at 885 , 2013 WL 386373, ⁴ . The Alaska court, viewing this issue as a matter of first impression, conducted an extensive survey of applicable decisions from other jurisdictions before concluding that a judgment debtor does not forfeit the right to appeal by paying a judgment and then seeking to overturn the judgment: We agree with the U.S. Supreme Court that “[t]here can be no question that a debtor against whom a judgment for money is recovered may pay that judgment and bring a writ of error to reverse it, and if reversed can recover back his money.” As the Sixth Circuit explained, [A] defeated party’s compliance with a ... [trial] court ruling does not bar him from appealing unless his compliance has made it impossible for the appellate court to grant effective relief. This is true even if the defeated ²⁹⁷ party has failed to avail himself of an opportunity to obtain a stay of the proceedings or a supersedeas.

Leisnoi, Inc., 307 P.3d at 886 , 2013 WL 386373 (quoting Uyeda v. Brooks, 348 F.2d 633, 635 (6th Cir.1965) (footnotes omitted)). See also Hampton Assocs. Ltd. v. Baltimore County, 66 Md.App. 551, 556 , 505 A.2d 537 , cert. denied, 307 Md. 406 , 514 A.2d 24 (1986). Maryland law is well-established that a “party is not precluded from pursuing an appeal when he or she merely complies with a court order, because such action is not voluntary.” Taylor v. Mandel, 402 Md. 109, 126 , 935 A.2d 671 (2007).

We believe that VEI could reasonably conclude that, in view of the chancellor’s order, its options were limited and that, on this record, its decision to go to settlement was not “voluntary” for purposes of the acquiescence rule. On this record, we are unable to conclude that VEI is barred from appealing the chancellor’s order. 5 II VEI does not fare as well on the merits, however. We conclude that the chancellor did not err in holding that Lipman’s appraisal complied with the provisions of the Option. We explain.

Standard of Review The “interpretation of a contract [presents] a question of law.” Questar Builders, Inc. v. CB Flooring, LLC, 410 Md. ²⁹⁸ 241, 262 , 978 A.2d 651 (2009) (quoting Sy-Lene of Wash., Inc. v. Starwood Urban Retail II, L.L.C., 376 Md. 157, 163 , 829 A.2d 540 (2003)); Spengler v. Sears, Roebuck & Co., 163 Md.App. 220, 239 , 878 A.2d 628 (2005). Our review of the chancellor’s construction of the Option contract in this case is therefore de novo. See Questar, 410 Md. at 261 , 978 A.2d 651 . Cf.

Pacificorp, Inc. v. Dep’t of Revenue, 31 P.3d 64, 65 (Wyo.2001) (“proper application of appraisal methods to the facts is an issue of ultimate fact requiring de novo review”); Dominguez Energy v. County of Los Angeles, 56 Cal.App.4th 839 , 65 Cal.Rptr.2d 766, 773 (1997) (de novo review of challenge to validity of valuation method). “In contrast, we set aside a trial court’s factual determinations only when they are clearly erroneous and, in making that evaluation, we must ‘give due regard to the opportunity of the trial court to judge the credibility of the witnesses.’ ” Krause Marine Towing Corp. v. Ass’n of Maryland Pilots, 205 Md.App. 194, 206 (2012) (quoting Md. Rule 8-131(c)). Argument VEI insists that Lipman’s appraisal necessarily accounted for the value of the improvements, in contravention of the Option. VEI cites to the appraiser’s acknowledgment that there was “a reasonable point at which the value of those improvements contribute ... sufficiently to make one select a capitalization rate ... that reflects the security of the income stream.” VEI also points out that Lipman’s appraisal chose a “very low capitalization rate solely because the lease is ‘guaranteed’ by the value of the improvements.” (internal quotations omitted). It follows, VEI insists, that the “value of the improvements ... played a central role in determining the appraised value of the Propertyf.]” VEI emphasizes that the “Option prohibited Mr. Lipman from considering in any manner, specifically or otherwise, the value of the leasehold improvements in determining the appraised value of the property.” VEI challenges Lipman’s application of the income approach and calculation of a capitalization rate, or “cap rate,” as an approach explicitly prohibited by the Option.

Because ²⁹⁹ the appraisal thus ran afoul of the Option’s prohibition of any consideration of the value of the then existing improvements, YEI urges that we reverse the chancellor’s decision and remand with directions that a new appraisal be made. Einbinder disagrees with the premise of VEl’s argument, viz. that the appraiser’s use of the “income approach” violated the terms of the Option. Instead, Einbinder urges that VEI ignores the basic distinction in the appraiser’s analysis—that the existence of the improvements and, not their specific value, was considered in the appraisal. We believe that Einbinder’s argument is more tenable and explain.

Chancellor’s Ruling The chancellor ruled in favor of Einbinder, explaining his decision in detail: JUDGE STRINGER: Now, in this declaratory judgment action, the Court is being asked to declare the rights of the parties under the terms of an option to purchase, which has been incorporated into the ground lease, I believe? JUDGE STRINGER: ... Now, with respect to this option to purchase which is the subject of this case, I do not find the contract to be ambiguous____The dispute arose over the application of the provisions of the option in the valuation of the property. I also find that the contract is sufficiently definite [and] I find that in this case, the option which provides a method to determine the purchase price, is sufficiently definite and, therefore, I believe that the option to purchase is enforceable.

As a preface to his discussion, the chancellor first outlined the Option’s relevant terms: Now, the option provides that the purchase price shall be the greater of $4,428,000.00 or the appraised value of the property subject to adjustments at closing which are set forth in subparagraph 2(d) and the appraisal shall take into account (i) Circuit City’s right of first refusal, (ii) the extension rights granted to the holder of the leasehold ³⁰⁰ estate in the property and (iii) the absence of a brokerage commission to be paid by the landlord and it provides further that the appraisal shall not take into account the value of the leasehold improvements then existing on the property. The chancellor then set forth the pertinent issue: The issue has become whether Mr. Lipman’s report valued the property as provided in the option and took into account, in particular, (ii) the extension rights granted to the holder of the leasehold estate in the property but not take into account the value of the leasehold improvements then existing on the property as required by the terms of the option. He concluded that the appraisal complied with the terms of the Option and explained why alternative appraisal methods were less appropriate: Mr. Lipman gave, submitted a report with two different values, done by two different methods.... Mr. Lipman testified that to do the appraisal by the sales approach would ignore the extension rights granted under the provisions of the option[.] ...

Mr. Lipman couldn’t ... do an appraisal by the sales method and consider the extension rights granted under the ground lease and which was required by the option and since the option requires consideration of those extension rights, the sales valuation by Mr. Lipman has not complied with the conditions provided in the option. The chancellor specifically approved of the employment of the income valuation approach: Now, Mr. Lipman also provided a value using an income approach to appraise the property. There seems to be an issue that arose regarding the valuation of the property versus the interest of the landholder and YEI was zeroing in on the language in the option with respect to the provision providing for the purchase price which required the “appraisal value of the property” and I believe that VEI was raising the question about whether Mr. Lipman’s appraisal ³⁰¹ valued the property versus merely valuing the landholder’s interest in the property. The testimony from Mr. Lipman and Mr. Duncan was that the income approach is a recognized method of appraising property and Mr. Lipman provided a value of the property taking into account the extension rights granted to the holder of the leasehold and these-were questions I specifically asked because I wanted answers to, both Mr. Lipman and Mr. Duncan testified that the income method provided a standard recognized method of valuation of the property and did so taking into account the extension rights to the holder of the leasehold as provided or required in the option.

In other words, Mr. Lipman’s income appraisal or his appraisal by the income approach, did exactly what the option required him to do. He