Charlottesville Circuit Court Judge Richard E. Moore has denied a request from the private company that currently operates the Water Street Parking Garage to appoint a receiver to manage the facility on an emergency basis.
“It’s an emergency of their own making,” Moore said at the conclusion of a three-hour hearing Monday.
The Charlottesville Parking Center and the City of Charlottesville both filed suits against each other this spring over the future of the garage, which is managed by an eight-member board of directors on which each side has four seats.
Since 1994, the Water Street Parking Garage Condominium Association’s by-laws have defined a voting majority as two-thirds of the board. That means six votes are necessary to set parking rates and adopt a budget.
“What we have here is a deadlocked board and I don’t think it’s the court’s role to break it up,” Moore said.
In March, the CPC filed suit against Charlottesville alleging that the city had caused harm by not allowing rates at Water Street to be raised to $145 a month, a figure closer to what CPC argues is the fair market rate. The city had proposed keeping them at $125 month.
In April, the city countersued, alleging that CPC violated the terms of the condominium agreement by not offering the city the right of first refusal to 106 spaces CPC purchased from Wells Fargo last October.
The sale gave the CPC a third seat on the board, making a majority almost impossible unless both sides agreed.
Earlier this month, CPC filed a petition with the court asking for an emergency receiver to be appointed to run the garage after the company’s management agreement with the city expires on June 30.
“Their petition is deficient in many ways,” said Thomas Wolf, an attorney with LeClair Ryan hired by the city. He added the city has committed no wrong-doing, has conducted its affairs properly and that the garage was financially solvent.
However, CPC’s attorney argued an emergency is imminent.
“We face the very real prospect that when morning dawns on July 1 we will not have someone to operate the garage.”
Christopher M. MaloneChristopher M. Malone
“We face the very real prospect that when morning dawns on July 1, we will not have someone to operate the garage,” said Christopher M. Malone of the firm McMullan Thompson. He argued the receiver was needed to establish new rates and to find a new management company to operate the garage.
Malone said the CPC owns the land, owns retail units in the structure and also owns parking spaces within the garage.
“CPC has a lot of hats to wear,” Malone said.
However, Wolf argued that all eight directors have a “fiduciary duty” to keep the garage operating. He pointed out that Mark Brown, who purchased the CPC in August 2014, is a member of the board.
“Mark Brown has a fiduciary duty to see there is a manager,” Wolf said. “Denying a new manager would be a violation.”
Wolf pointed out several times during the hearing that the garage has been operating without a budget in place since January 1.
“They have known about this since December,” Wolf said. “It is an insurmountable contradiction to say it cannot operate. They are just not getting the higher rate that they want.
Moore gave each side an hour to present evidence and make their arguments.
Brown called as first witness
Malone asked Brown a series of questions to establish facts relevant to the case, such as the CPC owning the land as well as 390 parking spaces in the facility. Charlottesville owns the other 629.
Because the garage has been operating without a budget, Brown as president of CPC sent a letter of default in April to E. Marshall Pryor, the president of the Water Street Parking Garage Association Board of Directors.
Malone asked him if there had been any attempt to “cure” the default and Brown responded no, but did say that the city seemed willing to solve the issue by selling their spaces or purchasing his.
Brown said the parking garage went on a wait list for new monthly renters in 2015, necessitating the need to set higher rates in order to meet demand.
Brown said the CPC prepared two budgets for 2016 for consideration by the association’s board of directors at their December 2015 meeting.
Malone asked if there had been any action taken at that meeting, and Brown responded that none had. He added the three directors aligned with CPC at the time had introduced a resolution for their budget with higher rates, but the city refused to bring it up for a vote.
Wolf’s first question under cross-examination was whether Brown himself instructed individual CPC directors on how to vote.
“I don’t ever recall giving instructions,” Brown said.
In a long discussion on the meaning of “fiduciary duty”, Brown said he believed the city violated its duty by not maximizing the value returned to the joint venture of the Water Street Parking Garage condo association by setting the higher rates.
Wolf pointed out that the relationship between the city and CPC at Water Street lasted for 20 years before Brown purchased the facility.
At one point Judge Moore intervened and asked Brown directly why the CPC did not agree to set the lower rates.
“It’s a waste of our property,” he responded, adding that it would take years to what he believes to be the market value if his higher rates were phased in gradually.
Wolf then pointed out the city had agreed to slightly higher rates and were willing to explore phasing the eventual higher rates desired by Brown. Brown responded that they had not.
Wolf then read from the minutes of the December 2015 meeting, which includes a note that City Manager Maurice Jones indicated the city would be willing to accept gradual raising of rates. Brown disputed this interpretation.
Wolf asked Brown directly if he had purchased the garage to maximize his financial gain and Brown replied yes. Wolf then asked Brown to read the following passage from the association’s by-laws.
“The unit owners association does not contemplate pecuniary gain or profit to the members thereof, and the specific purposes for which it is formed are to provide for the management, maintenance and real estate known as the ‘Water Street Parking Garage Condominium’”, reads Article II of the association’s bylaws.
Brown tried to dismiss that language as “boilerplate” and argued Wolf was trying to misconstrue the statement’s meaning. Wolf asked Brown if he could point to any other language that contradicted the meaning and Brown responded no.
After cross-examination, Malone asked Brown to read the statement again to clarify what he meant.
Brown said he felt the association had a duty to preserve the value of the garage’s real estate, which he took to mean maintenance of common areas.
“What is the irreparable harm?” Wolf asked. “They have been operating for six months. The revenues are there. Expenses are being paid. Nobody has shown they will violate the fiduciary duty.”
“The worst thing that can happen is that they will lose money,” Wolf said.
“It is unassailably true that there is no budget,” Malone said. “We are standing at the precipice of July 1.”
Malone said he did not think any other company could be hired to run the garage in the meantime.
“No management company in their right mind is going to manage the garage without a budget,” Malone said.
After recessing for about 15 minutes, Moore returned with his decision.
“The [Virginia] statute does not define emergency,” Moore said. “[But] this is not it.”
“What is the irreparable harm? They have been operating for six months. The revenues are there. Expenses are being paid. Nobody has shown they will violate the fiduciary duty.”
Tom WolfTom Wolf
Moore said the two sides have each made business decisions that have led to disagreement, but that does not constitute an emergency.
At one point early in the hearing, Moore likened the hearing to a chess game.
“There are a lot of moving parts here,” Moore said. “What’s the next move?”
After the decision, the current chief executive officer of the Charlottesville Parking Center called Moore’s decision reasonable.
“We knew going into it that an emergency receivership would have been an extraordinary remedy, but it was driven by our desire to keep the garage open while the parties remain at an impasse,” said Dave Norris, who served two terms on Charlottesville City Council.
Norris said he hopes the city will agree to resolve the issue, hopefully by accepting a settlement offered by CPC last week.
“What happens as of July 1 depends on what kind of response we get from the City,” Norris said. “The ball is in their court now.”