Quality Properties Asset Management Company v. Trump Virginia Acquisitions, LLC et al
Filing
20
MEMORANDUM OPINION. Signed by Judge Norman K. Moon on 11/10/11. (jcj)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
CHARLOTTESVILLE DIVISION
QUALITY PROPERTIES ASSET
MANAGEMENT COMPANY ,
CIVIL ACTION NO . 3:11-CV -00053
Plaintiff,
v.
MEMORANDUM OPINION
TRUMP VIRGINIA
ACQUISITIONS, LLC, ET AL.,
NORMAN K. MOON
UNITED STATES DISTRICT JUDGE
Defendants.
Plaintiff, Quality Properties Asset Management Company (“Quality Properties,” or “QP”),
filed this action seeking “a declaratory judgment that the defendants do not have a right of first
refusal to purchase certain property” because “the right of first refusal no longer exists.”1 “[I]f
the right [of first refusal] continues to exist,” Plaintiff requests an alternative “declaratory
judgment identifying the person or persons entitled to exercise the right and the terms upon
1
Although it is not explicitly pleaded as an action to “quiet title,” it is clear that the complaint seeks
to quiet title to the property by removing a cloud on it, namely a claimed right of first refusal. A quiet title
action is no more than an equitable proceeding to remove a cloud from a title where the instrument or other
proceeding constituting the cloud may be used injuriously to affect the plaintiff’s title. 15 Michie’s
Jurisprudence, “Quieting Title,” §§ 1 and 2, p. 322. A cloud on title is an outstanding claim or encumbrance
which, if valid, would affect or impair the title of the owner of a particular estate, and which apparently on
its face, has that effect, but which can be shown by extrinsic proof to be invalid or inapplicable to the estate
in question. Day v. Vaughn & Ustilton, 193 Va. 168, 172 (1951).
This court’s authority to quiet title is independent of statute and comes from general equitable
principles and practice. 15 Michie’s Jurisprudence, “Quieting Title,” §§ 1 and 2, p. 322. The only modern
elements to the claim are that 1) the plaintiff has valid legal and equitable title, and 2) the defendant asserts
some claim that constitutes a cloud on the plaintiff’s title. Id., § 11. Here, the Complaint alleges that Plaintiff
has legal and equitable title to the Property and that Defendants assert a claim that clouds Plaintiff’s title.
Plaintiff’s main request for relief is that the Court remove the cloud on its title by declaring that the right of
first refusal has terminated.
which the right may be exercised.2
Defendants have moved to dismiss, asserting that the court lacks subject matter
jurisdiction – specifically, that the Plaintiff cannot meet its burden to show that the value of the
right of first refusal (“ROFR,” or “the right”) exceeds $75,000 because the value of the right is
speculative. However, Plaintiff alleges that the property is worth $15.26 million, and adds that
the claimed ROFR clouds the entirety of the property, rendering the entire property
unmarketable. Under the facts alleged in this case, the amount in controversy is the value of the
whole of the real estate to which the claim extends, and I will deny the motion to dismiss.
I.
The following summary represents the facts as alleged by Plaintiff.
Quality Properties owns real property known as Tax Map 102, Parcel 35 in Albemarle
County, Virginia. The property (hereinafter “the Property”) consists of 97.98 acres with a large
mansion home located on it. Quality Properties acquired the Property for the price of $15.26
million through a foreclosure sale on February 16, 2011. At the sale, Donald J. Trump, or an
entity acting on his behalf, was the second highest bidder for the Property, with a bid of $3.6
million.
Defendants, Trump Virginia Acquisitions, LLC (“Trump Acquisitions”) and Trump
Vineyard Estates, LLC (“Trump Vineyard”), are entities owned by Mr. Trump that, either
separately or collectively, claim ownership of a ROFR regarding the Property. While the right
2
In other words, Plaintiff seeks, in the alternative, a declaration as to Defendants’ rights to eject it
from the property. An action for ejectment is a common law remedy, but it is now controlled by statute. Va.
Code §§ 8.01-131 through 165; Sheffield v. Dep’t of Highways, 240 Va. 332, 335 (1990). An action for
ejectment determines the title and right of possession for real property. Id. The judgment entered for a
successful plaintiff is that he recovers possession of the property, according to the terms set by the court. Id.
-2-
arguably extends only to the Property’s original 9 acres, Trump claims the right to purchase the
entire Property.
The alleged right of first refusal stems from a June 1990 Quitclaim Deed from JWK, Inc.
to Patricia Kluge. By that deed, JWK, Inc. conveyed to Ms. Kluge a 9.9 acre parcel, then known
as Tax Map 102, Parcel 35. The Quitclaim Deed retained a right of first refusal in the 9.9 acre
parcel, vested in the owner of the “Burdened Land” as defined by the Quitclaim Deed.
Over time, the Burdened Land was subdivided, and different persons or entities came to
own different portions of the Burdened Land. Eventually, Ms. Kluge came to own or control all
of the Burdened Land, and she then subdivided it again, increasing the acreage of the former Tax
Map 102, Parcel 35 from 9.9 acres to its present size of 97.98 acres. Thereafter, Ms. Kluge
borrowed money from Bank of America, securing the loan with a lien on the Property. When
she defaulted on the loan, Bank of America foreclosed.
At the foreclosure sale, Mr. Trump, or entities associated with him, asserted that they
owned the right of first refusal, and bid $3.6 million for the Property. Bank of America was the
highest bidder for the Property, with a bid of $15.26 million, and it assigned its right to purchase
the Property to its affiliate, Quality Properties.
Plaintiff contends that, at present, Trump Acquisitions, Trump Vineyard, and Quality
Properties collectively own the land that was formerly the “Burdened Land.”
Mr. Trump has asserted publicly that, due to the right of first refusal, Quality Properties
cannot sell the mansion to anyone but him, stating “maybe someone is stupid enough to buy the
house.” To resolve the dispute, Quality Properties demanded that Mr. Trump either sign a
certificate of release of the ROFR or purchase the Property for the foreclosure sale price of
$15.26 million, but Trump refused to sign the release or purchase the Property for the
-3-
foreclosure sale price.
QP now seeks a declaration that the right of first refusal has terminated or, in the
alternative, for the Court to declare the persons who own the right of first refusal and the terms
on which that person or persons may exercise the right of first refusal.
II.
Defendants have moved for dismissal for lack of subject matter jurisdiction pursuant to
Rule 12(b0(1) of the Federal Rules of Civil Procedure. There are two different ways by which
one may present a motion to dismiss for lack of subject matter jurisdiction: 1) by contending that
a complaint fails to allege facts upon which the court may base jurisdiction, or 2) by contending
“that the jurisdictional allegations of the complaint were not true,” thus launching an evidentiary
challenge. Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982). The difference is critical
because a challenge for the former reason affords the plaintiff with “the same procedural
protection as he would receive under a Rule 12(b)(6) consideration.” Id. A challenge for the
latter reason may require the plaintiff to produce evidence by affidavit or testimony, whether by
deposition or live. Id. Here, Defendants argue that the amount in controversy is determined by
the value of the alleged right of first refusal, which they contend is too speculative; in other
words, they contend that the “complaint simply fails to allege facts upon which subject matter
can be based.” Id. Therefore, under Adams, the standard for deciding Rule 12(b)(6) motions
applies, and the court must “take the facts in the light most favorable to the plaintiff.”
Giarrantano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008) (citation omitted).
According to the complaint, Ms. Kluge placed a $13.8 million deed of trust on the
Property on November 6, 2007. On February 16, 2011, Mr. Trump (or an entity acting on his
-4-
behalf) bid the sum of $3.6 million for the Property. Bank of America was the high bidder, for
the sum of $15.26 million, which it assigned to its affiliate, Quality Properties. The Trump
entities have asserted that the ROFR applies to the entire Property. Taking these facts in the
light most favorable to Quality Properties, the Property’s value, for the purpose of determining
the amount in controversy, is $15.26 million, which exceeds the federal courts’ jurisdictional
requirement of an amount in controversy of at least $75,000.3
It is probably inconsequential that Trump’s claimed right of first refusal, if it is still in
existence, might extend only to the original 9.9 acres of the 97.98 acre property. The original
parcel was made a part of the Property by Patricia Kluge, when she owned or controlled all of
the Burdened Land. Any ruling regarding the original parcel will necessarily affect the entire
Property because there is now only one estate, the entire Property. Second, the mansion house
itself sits on the original parcel, and Quality Properties is entitled, at this point, to an inference
that the bulk of the Property’s value derives from the mansion home, as they allege. If one were
to attempt to value the original parcel as if it were a separate parcel of land, the original parcel
constitutes about 10% of the Property. If one were to ignore the existence of the mansion house
on the former 9.9 acre parcel and calculate values based on acreage, 10% of the $15.26 million
foreclosure sale price is $1.526 million, and 10% of Trump’s $3.6 million bid constitutes
$360,000. Either calculation exceeds $75,000. No matter how one decides to measure the
Property’s value, when the court gives Quality Properties the benefit of all reasonable inferences,
the Property is worth at least $75,000.
In support of its response to Defendants’ motion to dismiss, QP has attached the affidavit
3
Indeed, Mr. Trump bid $3.6 million for the Property, and there is no dispute that the Property is
worth at least $75,000.
-5-
of Michael Kramer as Exhibit 1 thereto. Mr. Kramer is the Quality Properties officer responsible
for the Property. According to his testimony, Albemarle County has currently assessed the
Property for taxation purposes, as of February 11, 2011, as having a land value of $1.776 million
and an improvements value of $15.34 million, with a total value of $17.116 million.
III.
When considering a challenge to the factual basis for subject matter jurisdiction, “the
burden of proving subject matter jurisdiction is on the plaintiff.” Richmond, Fredericksburg &
Potomac R.R. v. United States, 945 F.2d 765, 768 (4th Cir. 1991) (citing Adams, 697 F.2d at
1219). In deciding whether jurisdiction exists, a court “may consider evidence outside the
pleadings without converting the proceeding into one for summary judgment.”
Id. (citing
Trentacosta v. Frontier Pac. Aircraft Indus., 813 F.2d 1553, 1558 (9th Cir. 1987)). Upon
consideration of a Rule 12(b)(1) motion, “[t]he moving party should prevail only if the material
jurisdictional facts are not in dispute and the moving party is entitled to prevail as a matter of
law.” Id. (citing Trentacosta, 813 F.2d at 1558).
While federal courts are courts of limited jurisdiction, Owen Equip. & Erection Co. v.
Kroger, 437 U.S. 365, 374 (1978), Congress has statutorily provided them with the power to
hear cases between diverse parties as long as two requirements are met: first, the opposing
parties must be diverse, meaning that they must be citizens of different states, and second, the
amount-in-controversy must exceed $75,000.
See 28 U.S.C. § 1332(a).
If these two
requirements are met, a district court has the power to hear the case.
In interpreting the amount-in-controversy requirement, the Supreme Court of the United
States has pronounced that, “[i]n actions seeking declaratory or injunctive relief, it is well
-6-
established that the amount in controversy is measured by the value of the object of the
litigation.” Hunt v. Wash. State Apple Adver. Comm’n, 432 U.S. 333, 347 (1977). In 1938, the
United States Court of Appeals for the Fourth Circuit ruled that, “in suits to quiet title or in
actions for ejectment, ‘the amount in controversy is the value of the whole of the real estate to
which the claim extends and not the value of the defendant’s claim.’” Peterson v. Sucro, 93 F.2d
878, 882 (4th Cir. 1938) (citations omitted)4; see also Ruthfield v. PNC Bank National
Association, Civil Action No. 5:11-cv-45, 2011 WL 3298420 at *3 (W.D.N.C. Aug. 1, 2011)
4
Other courts have cited and adopted the Peterson rule. See Occidental Chem. Corp. v. Bullard, 995
F.2d 1046, 1048 (11th Cir. 1993); Groves v. Rogers, 547 F.2d 898, 900 (5th Cir. 1977); Nikora v. Mayer, 122
F. Supp. 587, 588 (D.Ct. 1954).
Defendants cite an opinion of mine that is not applicable to a quiet title action or an action for
ejectment, and which does not purport to overrule or in any way circumscribe Peterson. See Mathews v. PHH
Corp, Civil Action No. 3:09-cv-83, 2010 W L 3766538 at *4, *6 (W.D. Va. Sept. 24, 2010) (dismissing for
lack of subject matter jurisdiction because “plaintiffs’ claim that defendant violated a federal regulation that
was incorporated as a condition of the parties’ state law-governed contract is insufficient to confer federal
question jurisdiction over this matter,” and “[a]s the object of the litigation is simply the right to have a faceto-face meeting prior to foreclosure proceedings, such a right is not readily measurable in monetary terms”
to meet the jurisdictional test of amount in controversy). Indeed, Matthews took specific exception that the
case before it was “not a suit to quiet title.” Id. at *6. Defendants cite other cases that are also inapposite
here. See Vargo v. Del. Title Loans, Inc., Civ. Action No. 1:10-cv-1251, 2010 WL 2998788, at *2 (D.Md.
July 27, 2010) (value of eliminating waiver provision in contract is too speculative); and Gonzalez v. Fairgate
Props. Co. N.C., 241 F. Supp. 2d 512, 517 (D. Md. 2002) (object of suit was shareholder’s right to vote).
In Peterson, the defendants asserted that they had an ownership interest in certain real property by
virtue of certain deeds signed by third parties. The plaintiff believed this assertion was a cloud on his title
and he filed suit to remove the cloud on his title. The defendants asserted that, when the value of the
outstanding mortgage was taken into account, the plaintiff’s interest in the property did not exceed the court’s
jurisdictional limit. The district court denied the motion and the defendants answered by responding that they
owned the land in question. The case proceeded as an action for ejectment, under North Carolina law. On
appeal, the Fourth Circuit held that, in cases to quiet title or actions for ejectment, the proper value for the
amount of controversy is the value of the real estate, as a whole.
Here, the Peterson ruling applies equally to both Quality Properties’ main request for relief, which
is to quiet its title, and to its alternative request for relief, regarding the Trump entities’ rights to eject Quality
Properties from the Property in exchange for the foreclosure sale price. The Supreme Court of Virginia has
held that a right of first refusal will apply to a foreclosure sale transaction. See Fairfax County
Redevelopment & Hous. Auth. v. Riekse, 281 Va. 441 (2011) (Fairfax County’s remedy to enforce its right
of first refusal was to bring an action for ejectment against the foreclosure sale purchaser, but because Fairfax
County had not sued the purchaser at all, the case was dismissed); Cities Service Oil Company v. Estes, 208
Va. 44 (1967) (the holder of the right of first refusal was entitled to first refusal over the objection of the
highest and last bidder at the foreclosure sale).
-7-
(“[i]n an action seeking to quiet title, ‘the amount in controversy is the value of the whole of the
real estate to which the claim extends’”) (quoting Peterson).
Even disregarding Peterson, the object of this action seeking declaratory relief is to clear
Quality Properties’ right to market the Property for sale, with marketable title, to a third party.
Under Virginia law, a “marketable title” is, inter alia, “one which is free from liens or
encumbrances,” “is dependent for its validity upon no doubtful questions,” and “will not expose
the purchaser to the hazard of litigation.” Madbeth, Inc. v. Weade, 204 Va. 199, 202 (1963).
The present controversy over the ROFR subjects any potential purchaser to the hazard of
litigation with Defendants (or, as Plaintiff contends, with Mr. Trump).
Quality Properties contends that it cannot presently convey marketable title to a third
party, and the economic worth of the object in controversy is the value of the entire Property,
which unsettled claims regarding the ROFR render unmarketable. Thus, for the amount in
controversy purposes, the value of the entire Property is the proper measurement, even if one
were inclined to disregard Peterson.
IV.
For the stated reasons, Defendants’ motion to dismiss for lack of subject matter
jurisdiction will be denied.
An appropriate order accompanies this memorandum opinion.
10th
Entered this __________ day of November, 2011.
-8-
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?