DC Metropolitan Business Law Alert - Updates on Important Legal Developments that Impact the Business Community in DC, Md and Va.

The Virginia Supreme Court recently considered whether a municipal corporation has the authority to impose additional real property taxes against a tax paying entity which owns real property as a tenant in common with a tax exempt entity.  The court held that there is no such authority.

The City of Richmond sought to impose real property taxes (both prospectively and retroactively) on two properties that SunTrust Bank, a tax paying entity, and Richmond Redevelopment and Housing Authority (“RRHA”), a tax exempt entity, owned as tenants-in-common.  As a tax exempt entity, RHHA did not pay real property taxes on its interests in the properties.  Agreements between SunTrust and RHHA allowed SunTrust to use the entirety of the properties without paying rent to RHHA for use of its undivided interests in the properties.  The City contended that it had the authority to tax SunTrust for RHHA’s ownership interest because:

                i.  pursuant to the operating agreements, SunTrust had the exclusive right to use and possess the properties as if it were the fee simple owner;

                ii.  SunTrust did not use the properties for a "public purpose”; and 

                iii.  leasehold interests exempt from taxation of the owner are assessed to the lessee and the practical effect of the agreements between SunTrust and RRHA was to create a leasehold interest in RHHA’s undivided property interest.

The court held, however, that, as a tenant in common, SunTrust has the right to use and possess the properties without any agreement with RRHA; no Virginia law imposes a “public purpose” requirement to maintain RHHA’s exempt status; and the arrangement between SunTrust and RHHA do not constitute a leasehold because the parties are tenants-in-common.  Consequently, the City’s arguments did not prevail.  Throughout its opinion, the court indicated that holding title to the properties as tenants-in-common, rather than as joint venturers, was a significant factor in its decision. 

'That was the clear message from the U.S. Court of Appeals for the District of Columbia Circuit’s in Zuckerman Spaeder, LLP v. James A. Aufenberg, Jr., No. 10-7041, July 29, 2011 (slip op.) when it “alert[ed] the bar in this Circuit that failure to invoke arbitration at the first available opportunity will presumptively extinguish a client’s ability later to opt for arbitration.” Typically the time to seek arbitration after being sued is in an answer to a complaint or in a motion to dismiss. However, if a defendant fails to assert his right to arbitration then but only later seeks a stay of the litigation in favor of arbitration, the D.C. Circuit explained that the presumption of forfeiture can be rebutted only if requester’s delay in seeking the stay has not prejudiced the plaintiff.

In the case at hand, the Court found that by failing to seek an early stay and allowing the case to move forward, the defendant had “imposed substantial costs upon [the plaintiff] and the district court.” Specifically, in the several months before the defendant sought a stay, the defendant had already engaged in discovery, filed several amended counterclaims, and participated in a court-ordered mediation. Accordingly, the Court held that plaintiff had been prejudiced and that the defendant had indeed forfeited any right to arbitration.

The lesson to be learned? If you are sued and your agreement contains an arbitration clause, seek an early stay of the litigation. If you don’t timely use your right to arbitrate, you’ll likely lose it.

On March 2, 2011, Rep. Duncan Hunter (R-CA-52) introduced The ADA Notification Act of 2011 (112 H.R. 881).  The bill would require every plaintiff planning to file a lawsuit under Title III of the Americans with Disabilities Act (covering discrimination in places of public accommodation), 42 U.S.C. § 12188(a), to first notify the potential defendant business owner in writing by registered mail of the alleged violation(s), including the date and location of the violation.

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According to a recent District of Columbia federal district court case, policyholders may sue their insurers for a breach of the implied contractual covenant of good faith and fair dealing, despite the fact that D.C. does not recognize the tort of bad faith refusal to pay insurance benefits.  Depending on the circumstances, they also may be eligible to recover attorneys’ fees.

In Nugent v. Unum Life Insurance Company, 2010 WL 4780847 (D.D.C. Nov. 24, 2010), a physician sued her insurance company when, after extensive delay and mishandling of her claim, it refused to pay benefits under her disability insurance policy.  The insurer moved to dismiss certain claims in the plaintiff’s suit, including her claim for breach of the implied covenant of good faith and fair dealing and her claim for attorneys’ fees.  The insurer argued that because D.C. does not recognize the tort of bad faith refusal to pay insurance benefits, the plaintiff’s claim for breach of the covenant of good faith and fair dealing was an attempt to seek extra-contractual damages in a contract action, which is not permitted under D.C. law.  It also argued that the plaintiff’s claim for attorneys’ fees was contrary to D.C. law, which follows the rule that each litigant must bear his or her own attorney’s fees and litigation costs (i.e., the “American Rule.”)

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