A complex, six-month-long trial centering on charges by unit owners in an Alexandria condominium project that the developer and several of his associates were guilty of fraud and violations of the Virginia Condominium Act wound down this week, with lawyers calling it a landmark case in condo litigation.
Circuit Court Judge Donald H. Kent is expected to issue a ruling soon, but would not indicate when it might come.
Just days before the attorneys' final arguments, the defendants -- the condominium developer, his attorney, and real estate agents -- won a significant round in the case when Kent decided they could not be compelled to pay punitive damages, basing his ruling on a Virginia Supreme Court decision earlier this year. As part of their suits, the 27 unit owners asked for nearly $7 million in damages. They also are asking for the recision of their contracts and return of all money they have put into the property, including moving expenses and the costs of improvements they made to the units.
Although the suits were tried together, the 27 homeowners filed separate actions against developer John F. DeLuca; attorneys Russell S. Rosenberger Jr. and Ronald Proffitt; Rosenberger's law firm, Bettius, Rosenberger & Carter; real estate agents Peter Burr, Jeannie B. Honeycutt, Kevin Cameron Wade and David Carroll, and two companies headed by Burr. Judge Kent dismissed charges of actual fraud against the real estate agents last month, but let stand the allegations that they were guilty of "constructive fraud," which the condo owners' lawyer defines as fraud committed innocently or through negligence.
The unit owners allege they were not told about "material changes" made in condominium documents after they bought their apartments. A major complaint is that they were not informed that DeLuca planned to sell more than 200 of the building's 272 units to a Boston investor, who operates them as rental units, despite assurances that the building would be predominantly owner-occupied. Condominium owners frequently object to tenants in other units because they believe renters do not pull their weight in management and upkeep of the buildings.
The residents also said they did not receive current public offering statements as required by Virginia law. The POS, designed to be the major protection for condominium purchasers, is supposed to contain complete information on the facilities, maintenance and management of a condo project.
In their closing arguments, attorneys for DeLuca and the real estate agents frequently defended their clients by casting responsibility for improper acts on other defendants, most often on Rosenberger. The attorney acknowledged in testimony and in pretrial depositions that he failed to comply with Virginia law in preparing and recording condominium documents, and that he knew DeLuca was giving prospective purchasers an unregistered public offering statement.
But Rosenberger, "having done things wrong in July 1981, thought he had rallied" and better performed his job, said his attorney, Paul F. Sheridan, in his closing argument of the trial this week. The "maximum level" of the case against Rosenberger is that the unit owners "thought their condominium purchases complied with Virginia law," he said.
Sheridan argued that the Virginia condominium act provides only for return of a purchaser's deposit in the case, although he said Judge Kent "could feel that is unfair." He also argued that the unit owners "had a remedy available 2 1/2 years ago" before they filed the lawsuits. They could have asked for recision of their contracts at that time, Sheridan said.
The unit owners are asking that their mortgages, held by Riggs National Bank, be canceled, but Sheridan said "there's no evidence that John DeLuca can pay, no evidence that Russell Rosenberger can pay" to buy the loans from the bank. Defense Attorney James C. Brincefield Jr. said the total amount of the original mortgages was more than $1.5 million.
Joseph F. Cunningham, the attorney for the real estate agents, said that "they relied on what they were told by the developer and by the developer's lawyer" for information they relayed to prospective purchasers, and did not know about defective documents, DeLuca's plans to sell the majority of the condos to investors, and other actions by the developer the owners say were illegal. He said there was not a "scintilla" of evidence to show the sales agents misrepresented any facts about the Sentinel or acted improperly.
The developer's attorney, Griffin T. Garnett III, argued, however, that "it was clearly the responsibility of the Realtors to hand out documents. John DeLuca didn't deal with the purchasers, and Russell Rosenberger didn't deal with them." Garnett said he was referring to documents sent to the sales agents by DeLuca.
DeLuca said any improper handling of documents, failure to record them with the state condominium commission and to disclose them to purchasers was done on the advice of Rosenberger, according to Garnett. The charge that DeLuca commingled condo association funds with his own money "is a case for another day," the lawyer added.
Brincefield, the plaintiffs' lawyer, said the "psychological and emotional" cost to the unit owners, in addition to their financial costs, entitled them to the reimbursement of money they sought and cancellation of their contracts.