Williams v. 5300 Columbia Pike ( 1996 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
JULIA B. WILLIAMS,
Plaintiff-Appellant,
and
FRED MOUZON; CHERYL MOUZON,
Plaintiffs,
v.
No. 95-2964
5300 COLUMBIA PIKE CORPORATION;
CARLYLE HOUSE UNIT OWNERS'
ASSOCIATION, INCORPORATED; ROBERT
FALK; TRISHA HAND; CLAY BROWN;
JOHN HEMSWORTH; BETTY DEMEUTER,
Defendants-Appellees.
FRED MOUZON; CHERYL MOUZON,
Plaintiffs-Appellants,
and
JULIA B. WILLIAMS,
Plaintiff,
v.
No. 95-3091
5300 COLUMBIA PIKE CORPORATION;
CARLYLE HOUSE UNIT OWNERS'
ASSOCIATION, INCORPORATED; ROBERT
FALK; TRISHA HAND; CLAY BROWN;
JOHN HEMSWORTH; BETTY DEMEUTER,
Defendants-Appellees.
Appeals from the United States District Court
for the Eastern District of Virginia, at Alexandria.
T. S. Ellis, III, District Judge.
(CA-95-225-A)
Argued: September 25, 1996
Decided: December 3, 1996
Before MURNAGHAN and HAMILTON, Circuit Judges, and
MICHAEL, Senior United States District Judge for the Western
District of Virginia, sitting by designation.
_________________________________________________________________
Affirmed by unpublished per curiam opinion.
_________________________________________________________________
COUNSEL
ARGUED: Julian Karpoff, KARPOFF, TITLE & MITNICK, Arling-
ton, Virginia, for Appellants. Thomas Collier Mugavero, MONTE-
DONICO, HAMILTON & ALTMAN, P.C., Washington, D.C., for
Appellees. ON BRIEF: Julia B. Williams, Washington, D.C., for
Appellants. William John Hickey, MONTEDONICO, HAMILTON
& ALTMAN, P.C., Washington, D.C., for Appellees.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
PER CURIAM:
This appeal requires us to decide whether the district court erred in
granting appellees' motion for summary judgment pursuant to Fed. R.
2
Civ. P. 56 on appellants' claims (1) that appellees violated the Fair
Housing Act, 42 U.S.C. § 3601 et seq., and (2) that appellees
breached their contractual and fiduciary duties under Delaware state
law. For the reasons stated below, we affirm the judgment of the dis-
trict court.
BACKGROUND
Appellants Julia Williams and Fred and Cheryl Mouzon--all of
whom are black, and one of whom is disabled1--were residents of the
Carlyle House, a 136-unit residential building owned as a cooperative
by the 5300 Columbia Pike Corporation ("Co-op"), a Delaware corpo-
ration of which appellants were shareholders. Most units of the Car-
lyle House were occupied by shareholders, although some were in the
Co-op's possession as a result of defaults. Because of various finan-
cial difficulties, the Co-op's five-member Board of Directors (Robert
Falk, Trisha Hand, Clay Brown, John Hemsworth, and Betty Dem-
euter), who were also residents of the Carlyle House, decided to
explore the possibility of converting the form of ownership from a
cooperative association into a condominium regime. The Board
believed that conversion would benefit the Co-op's shareholders
because it would increase the market value commanded by the units,
decrease the Co-op's and the shareholder-residents' debt-service pay-
ments, and place final responsibility for tendering timely mortgage
payments on the shareholder-residents. Accordingly, the corporation's
by-laws were amended to authorize the Board to develop a conversion
plan. The amended by-law ("By-law 82") vested the Board with dis-
cretion to adopt such a plan, so long as a majority of the Board and
a majority of the shareholders approved the plan.
Pursuant to the Board's proposed conversion plan the Co-op was
to dissolve and a Virginia corporation, the Carlyle House Unit Own-
ers' Association, Inc. ("Condominium Association"), headed by the
same Board, was to take over the duties previously handled through
the Co-op. The plan required each participating shareholder to pur-
chase his or her unit and to exchange his or her shares in the Co-op
in return for a title in a condominium unit. While it was hoped that
all shareholders would participate in the conversion, the Board
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1 Mr. Mouzon has Hodgkin's disease and receives disability payments.
3
expected that some would be unable to participate because they would
not qualify for a mortgage necessary to finance their purchase. To
minimize the possibility of nonparticipation, the Board made arrange-
ments with Crestar Mortgage Company ("Crestar"), whose criteria for
extending credit were less restrictive than those of other institutions;
shareholders had the option, however, of securing financing from any
other financial institution if they so preferred. By-law 82 provided
that if a shareholder did not participate, the corporation would, "upon
conversion acquire title to that property and then sell the unit . . . in
a commercial [sic] reasonable fashion and then return to the share-
holder the net proceeds of sale after deduction for outstanding indebt-
edness . . . ." Although By-law 82 suggested that nonparticipating
shareholders would be able to capture the predicted increase in value
that would redound to participating shareholders from the conversion
(or the change from cooperative to condominium status), the conver-
sion plan adopted by the Board rejected this generosity as impractica-
ble because of financial constraints faced by the corporation. The
corporation had to purchase any defaulted units as well as all units
that chose not to participate, and the amount it could borrow was lim-
ited to a percentage of the appraised value of the units as condomini-
ums. Moreover, higher compensation for nonparticipating units would
likely encourage nonparticipation, thus aggravating the financial hit
the corporation would take if it treated cooperative units as condomin-
iums for valuation purposes. Finally, and decisively, if the corporation
were forced to purchase too many units, the entire conversion would
fail.2 Thus, it was decided that nonparticipating shareholders would
receive a sum equal to the fair market value of their unit as a coopera-
tive, and not the greater worth their unit would, according to esti-
mates, assume as a condominium.
Subsequent to several informational meetings and following the
distribution of the conversion plan to all shareholders, a vote on the
conversion plan was conducted, with the result that all voting shares
were cast in favor of the plan. Ms. Williams was among those who
voted in favor of the conversion plan; Mr. and Mrs. Mouzon did not
cast their proxies. None of the appellants voiced any concerns regard-
ing the conversion plan, and all three appellants signed an agreement
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2 According to appellees, purchase of one additional unit would have
doomed the conversion plan.
4
indicating their intention to participate in the conversion plan. Ms.
Williams, however, was turned down for a mortgage by Crestar, and
the company to which Crestar referred her, because of a troubled
credit history and current indebtedness. For like reasons, Crestar also
rejected the applications of Mr. and Mrs. Mouzon; although the insti-
tution to which Crestar directed the Mouzons offered them a mort-
gage, they declined the offer because they believed the interest rate
(14.9%) to be excessive. As a result of their inability to obtain the
necessary financing (on satisfactory terms), appellants were unable to
participate in the conversion plan. The units of appellants were
appraised by independent professionals, and appellants were paid the
amount their units were worth under cooperative ownership.3 Resi-
dents of six units, including appellants, did not participate in the con-
version and 114 units participated in the conversion plan. The
remaining sixteen units had earlier defaulted on their obligations.4
Dissatisfied with receiving compensation for a cooperative unit as
opposed to a condominium unit, which would have fetched a higher
price according to appellees' estimates, appellants filed this suit, nam-
ing as defendants the Co-op, the Condominium Association, and the
Board members. Appellants alleged violations of the Sherman Act, 15
U.S.C. § 1 et seq., the Fair Housing Act, and breaches of contract and
fiduciary duties under Delaware state law. The district court dis-
missed appellants' Sherman Act claims pursuant to Fed. R. Civ. P.
12(b)(6), Williams et al. v. The 5300 Columbia Pike Corp. et al., 891
F. Supp. 1169 (E.D. Va. 1995), and subsequently granted summary
judgment on the remainder of the claims. Williams et al. v. The 5300
Columbia Pike Corp. et al., Civil Action No. 95-225-A (Sept. 15,
1995); Williams et al. v. The 5300 Columbia Pike Corp. et al., 901
F. Supp. 208 (E.D. Va. 1995). Appellants appeal only from the grant
of summary judgment.
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3 Although Ms. Williams received cash for her unit (after the amount
she owed the Co-op was deducted), the Mouzons did not receive any
money because their debt to the Co-op offset the amount to which they
were entitled for their unit. Ms. Williams' unit was purchased for
$93,000, and she received $7,121.89. The Mouzons' unit sold for
$110,000.
4 Because a unit may contain a family, and not just an individual, the
number of individuals participating does not correspond numerically to
the number of participating units.
5
SUMMARY JUDGMENT PRINCIPLES
We review a district court's grant of summary judgment de novo.
Becerra v. Dalton, 94 F.3d 145, 148 (4th Cir. 1996). Under Fed. R.
Civ. P. 56(c), summary judgment should issue where"there is no gen-
uine issue as to any material fact and . . . the moving party is entitled
to a judgment as a matter of law." Unless there is sufficient evidence
for a reasonable jury to return a verdict in favor of the nonmovant,
an issue is not genuine. Anderson v. Liberty Lobby Inc., 477 U.S. 242,
248 (1986). In making this assessment, the court must view all facts
and reasonable inferences drawn therefrom in the light most favorable
to the nonmoving party. Smith v. Virginia Commonwealth University,
84 F.3d 672, 675 (4th Cir. 1996) (en banc). Nonetheless, "some meta-
physical doubt as to the material facts" will not defeat a motion for
summary judgment. Matsushita Electric Industrial Co., Ltd. v. Zenith
Radio Corp., 475 U.S. 574, 586 (1986).
CLAIM UNDER THE FAIR HOUSING ACT
The Fair Housing Act prohibits discrimination "against any person
in the terms, conditions, or privileges of sale or rental of a dwelling
or in the provision of services or facilities in connection therewith,
because of race, . . ." 42 U.S.C. § 3604(b), or handicap. Id.§ 3604(f)(2). Unlawful discrimination under the Fair Housing Act
may be cognizable if either a discriminatory purpose or a disparate
impact is demonstrated. Betsey v. Turtle Creek Associates, 736 F.2d
983 (4th Cir. 1984) (citing Smith v. Town of Clarkton, 682 F.2d 1055,
1065 (4th Cir. 1982)). Appellants make no suggestion that appellees'
conversion plan was infected by bias harbored by appellees against
blacks or handicapped persons; instead, they argue that appellees'
conversion plan disproportionately injured groups protected by the
Fair Housing Act because members of protected classes were overre-
presented in the group of nonparticipating shareholders. Otherwise
stated, appellants argue that appellees' facially neutral policy
adversely affected blacks and the handicapped more so than other
groups. See Edwards v. Johnston County Health Dept., 885 F.2d
1215, 1223 (4th Cir. 1989) (defining disparate impact claims under
the Fair Housing Act) (citing Huntington Branch, NAACP v. Town of
Huntington, 844 F.2d 926, 936 (2d Cir.), aff'd, 488 U.S. 15 (1988)).
6
Appellants presented the following statistics in support of their
claim that blacks and disabled persons suffered disproportionately
with the conversion plan. Out of 120 residential units, 114 partici-
pated and six did not. Of the participants, eight were black, four His-
panic, ten Asian, and ninety-two white. Of the nonparticipants, two
were black, one Hispanic, and three white. Two of the six nonpartici-
pants were disabled (one black, one white), and eight of 114 partici-
pants were disabled. The district court agreed that with these statistics
appellants, "if only barely," had established a prima facie case of dis-
parate impact discrimination. However, the court below found that
appellees had shown "a [nonpretextual] business necessity sufficiently
compelling to justify the challenged practice," Betsey, 736 F.2d at
988, for which no less discriminatory alternative was available. See
Town of Huntington, 844 F.2d at 936.
As a threshold matter, appellants counter that the Fair Housing Act
does not apply to this case as a matter of law. We agree. Crudely
stated, the conversion plan placed only one obstacle between a resi-
dent and the purchase of his or her unit(s): money. All residents of
the Carlyle House were invited and encouraged to participate in the
conversion plan; if everyone had been able to secure the requisite
financing (whether through Crestar, another financial institution, or a
windfall inheritance) no one would have been excluded. The only
term, condition, or privilege here at issue entails the requirement that
appellants be able and willing to pay the price asked for by appellees.
Although it is no doubt true that the "neutral criterion" of price may
disparately impact blacks and the handicapped, because they may, on
average, be poorer than whites or nondisabled persons, this type of
injury extends beyond the reach of the Fair Housing Act. This is
because the Fair Housing Act is not so expansive that it would require
sales or rentals of residences to those who concede that they are
unable to pay the price faced by all other buyers or leasers. The Fair
Housing Act does not purport to grapple with the truism that, all
things being equal, those with money are better off than those without
it. To conclude otherwise would be to effect a radical alteration in the
status quo, neither permitted by the plain language of the Fair Hous-
ing Act nor its legislative history. Therefore, we hold that when the
alleged injury to a claimant is solely the product of a facially neutral
price (e.g., a price that does not vary depending on one's race, handi-
cap, or other status protected by the Fair Housing Act), no claim
7
based on disparate impact can be brought under the Fair Housing Act.
Because appellants have no claim under the Fair Housing Act as a
matter of law, the entry of summary judgment on this claim by the
district court was proper.5
CLAIMS FOR BREACH OF CONTRACT AND
BREACH OF FIDUCIARY DUTY
The parties agree that Delaware law governs appellants' claims for
breach of contract and breach of fiduciary duty against appellees.
Here, and not with the Fair Housing Act claim, lies the substance of
appellants' complaint. Appellants attack (1) the adoption of the con-
version plan and (2) the method of compensation chosen by appellees.
They maintain that the conversion plan illegitimately disadvantaged
certain shareholders, including themselves, and that it was tainted by
appellees' self-dealing; by the term self-dealing, appellants refer
solely to the fact that the Board members, as shareholders of the Co-
op and prospective owners of their units, would benefit personally
from the conversion plan. Further, appellants insist that they were
entitled to enjoy the increase in value expected to be brought to their
units by the conversion plan. The district court held that Ms. Williams
was estopped from making such claims because she voted for the
plan. Because the Mouzons submitted no proxies, the district court
felt compelled to rule on the substantive merits of their contentions.
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5 Given our holding that the Fair Housing Act does not apply to this
case, we have no occasion to pass upon the district court's holding that
a prima facie case of disparate impact discrimination can be established
where only two members from each class protected by the Fair Housing
Act were detrimentally affected (two black units and two disabled units).
Nor do we express any opinion on the district court's calculations of the
standard deviation in this case, one of which included in the relevant
"minority" class blacks, disabled persons, and Hispanics, but excluded
the Asian minority. Finally, we have no opportunity to determine
whether, after a prima facie case of disparate impact has been estab-
lished, a party's rebuttal burden includes a showing that there is no less
discriminatory alternative to the challenged practice, as the district court
held. Compare Huntington Branch, NAACP v. Town of Huntington, 844
F.2d 926, 936 (2d Cir.) (articulating this standard), aff'd, 488 U.S. 15(1988), with Mountain Side Mobile Estates v. HUD , 56 F.3d 1243, 1255
(10th Cir. 1995) (rejecting this standard).
8
It determined the following as a matter of law: that nonparticipants
had no right to share the gains from a profitable corporate endeavor,
that there was no legal requirement dictating equal treatment for all
shareholders (as opposed to shares), and that the Board members
engaged in no self-dealing behavior.
First, we address appellees' argument that all of the appellants
before us are barred from making a legal attack on the conversion
plan, because if successful the argument will bring an end to appel-
lants' state law claims and will thus conclude our inquiry. Delaware
courts have recognized that under the twin doctrines of estoppel and
acquiescence wrongful and otherwise actionable conduct by a corpo-
rate board may not be redressed by fully informed shareholders who
agreed to the conduct and were prepared to accept the benefits to be
derived from it. See Kahn v. Household Acquisition Corp., 591 A.2d
166, 176-77 (Del. Super. Ct. 1991). The doctrine of estoppel comes
into play when a shareholder votes for a given transaction, the corpo-
ration relies on the shareholder's expression of approval, and, subse-
quently, the shareholder seeks to challenge the transaction. Id. In such
circumstances, regardless of the propriety of the transaction in ques-
tion, the shareholder may be estopped from launching a legal attack
against it. Similarly, a shareholder who acquiesces in a transaction by
taking actions indicative of an intent to reap its fruits may be pre-
cluded from asserting the invalidity of the transaction in court, even
if no affirmative vote is cast by him or her. Id. The reasoning behind
such a rule is sound. A shareholder should voice his or her concerns
about corporate matters to the governing body and give it (and the
other shareholders) the benefit of his or her views, as well as an
opportunity to reconsider. At the very least, absent some legitimate
justification, a shareholder should not enlist the judiciary's aid after
having facilitated the passage of that which he or she seeks to over-
turn.
In the case at bar, Ms. Williams voted for the conversion plan and
took steps to participate in the plan, signing an agreement to purchase
her unit and applying for financing to achieve this end. Once she was
denied credit, she accepted benefits from the implementation of the
plan: the Co-op canceled the debt she owed it and paid her $7,121.89.
The Mouzons did not vote in favor of the plan (or against it), but nei-
ther did they oppose it at any time prior to its completion. Like Ms.
9
Williams, the Mouzons endorsed the plan in an agreement to partici-
pate, and, when the credit terms they were offered did not satisfy
them, the Mouzons exchanged their shares for relief of a substantial
debt obligation to the Co-op. Hence, they too received benefits from
the conversion plan.
Appellants seem to concede that principles of estoppel and acquies-
cence ordinarily would not permit them to challenge a transaction
they supported fully, only after it was a fait accompli. Nor do they
appear, at least directly, to argue that the mere fact that Mr. and Mrs.
Mouzon failed to cast a vote automatically rescues them from the bar
against suit. Instead, appellants contend that this bar should not apply
here, because they claim the vote (and, by implication, subsequent
decisionmaking) were hampered by incomplete disclosure of material
facts. Appellants urge that shareholders who cast uninformed votes in
support of a transaction or, in ignorance, take affirmative measures to
participate in the transaction should not be precluded from later
attacking the transaction. They identify the following facts as ones of
which they should have been aware, but of which the Board allegedly
failed to inform them. First, appellants state that they were not told
that there was a strong possibility that some shareholders would be
excluded from participation by virtue of their inability to obtain
credit. Second, they express surprise at the fact that the Board mem-
bers would personally benefit from passage of the conversion plan.
Third, appellants contend they did not know that the price they would
receive for their units depended to some extent on the financial
resources of the Condominium Association. Fourth, appellants assert
that no Board member pointed out that the plan varied from By-law
82.
To determine the effect of these alleged omissions, we must look
to Delaware state law. Appellants are correct that under Delaware law
appellees cannot invoke their approval of the conversion plan if the
Board failed properly to inform appellants of all material facts and,
as a consequence, appellants' support for the plan was based on rea-
sonable misunderstanding. Delaware law defines an omitted fact as
material "if there is a substantial likelihood that a reasonable share-
holder would consider it important in deciding how to vote. . . . [or
if] disclosure of the omitted fact would have been viewed by a reason-
able investor as having significantly altered the`total mix' of infor-
10
mation made available." Bershad v. Curtiss-Wright Corp., 535 A.2d
840, 846 (Del. Super. Ct. 1987) (citations omitted).
Appellees contend that three of the four omissions"should have
been eminently clear to any rational adult with a modicum of sense."
Appellees' Br. at p. 21. We agree, but with the qualification that all
four "omissions" are aptly described by this characterization. Each of
the four facts was sufficiently apparent that none of them can provide
a basis for the assertion that informational deficiencies undermined
the vote or the affirmative actions taken by appellants inconsistent
with their present challenge. The "omission" treated separately from
the others by appellees is appellants' complaint that the divergence
between By-law 82 and the conversion plan was not brought to their
attention. This variance relates to compensation methods: By-law 82
anticipated compensation would be based on the value of nonpartici-
pating units after conversion (i.e., the appraised condominium value)
and the conversion plan displaced this measure in favor of one based
on the value of the units before conversion (i.e., the appraised cooper-
ative value). Appellees emphasize that this difference was not con-
cealed from the shareholders. More than that, copies of the conversion
plan, containing only nine paragraphs and spanning just four pages,
warned that "[t]he purchase the [sic] price to be paid by the [Condo-
minium Association] for any [nonparticipating] apartment units (and
appurtenances thereto) will be their appraised fair market value as
cooperative units . . . ." Plan of Complete Liquidation and Dissolution
of the Co-op ¶ 5. This is prosaic language, unencumbered by fancy
twists and turns; it is clear and its meaning easily grasped. The provi-
sion is listed precisely under the paragraph one would expect--that
entitled "Purchase of Units by [the Condominium Association]." Ms.
Williams is an attorney, Mr. Mouzon has a masters degree in business
from the University of Virginia, and Mrs. Mouzon is a school teacher.
With these qualifications, appellants must be assumed to have
reviewed the terms of the plan and to have comprehended the mean-
ing of the quoted passage. Therefore, while the measure of compensa-
tion is surely material information, it was, or should have been,
known by appellants.
Even less plausible still are appellants' assertions of informational
deficiencies based on the other three factors. With unmistakable clar-
ity, the conversion plan required the Condominium Association to
11
purchase defaulting and nonparticipating units; it is no long leap from
this fact to the conclusion that the price the Condominium Associa-
tion would offer had to depend at least to some degree on its wealth.
Similarly, because the ability to obtain financing is a function of the
individual shareholder's wealth (whether in terms of income or credit
history), there could be little doubt that shareholders with low income
or poor credit history might not be able to secure financing. The
Board never represented that appellees would offer credit to share-
holders otherwise denied access to loans, and, in fact, the conversion
plan specifically contemplated the possibility that some shareholders
would be unable to participate for failure "to obtain . . . adequate
financing." Id. ¶ 5. Finally, since the Board members were also share-
holders of the Co-op, and all participating shareholders expected to
benefit from the conversion, appellants could not have reasonably
missed the fact that the Board members hoped to derive personal gain
from purchasing their units. Therefore, all of the information alleg-
edly undisclosed by appellees was, or should have been, fully under-
stood by appellants. Left without any other reason to bypass the
doctrines of estoppel and acquiescence, we hold that Ms. Williams is
estopped from litigating this claim by her vote in favor of the plan,
and that all appellants are barred by their acquiescence in the conver-
sion plan. Accordingly, the district court properly granted summary
judgment in favor of appellees on appellants' state law claims.
AFFIRMED
12