Terrace Manor
Terrace Manor Credit: Darrow Montgomery

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The District has prevailed in a key piece of its litigation against Bethesda-based Sanford Capital, establishing the possibility that tenants who have lived in slum conditions may recover back rents via D.C.’s consumer-protection laws.

On Monday, D.C. Superior Court Judge John M. Mott denied the company’s November motion to dismiss Attorney General Karl Racine‘s claims that Sanford violated local consumer-protection laws while neglecting its 61-unit Terrace Manor property in Ward 8. Those claims represent novel ground in the District’s judicial system because the city has never successfully applied consumer protection to landlord-tenant cases. But Mott’s order suggests that the Superior Court is willing to entertain such arguments, and follows an emergency law the D.C. Council passed in December authorizing the attorney general to sue landlords under the District’s Consumer Protection Procedures Act.

In his order, Mott writes that Terrace Manor’s 11 buildings are “in deplorable condition,” finding that Sanford Capital and its corporate affiliates “did not maintain the Terrace Manor Apartments in a manner consistent with the District of Columbia housing code,” another aspect of the lawsuit.

Thirteen of Terrace Manor’s units remain occupied by rent-paying tenants. When Sanford acquired the property in late 2012, the company promised to make specific repairs in a memorandum of understanding signed by Sanford Capital principal Aubrey Carter Nowell and the Terrace Manor tenants. Racine is suing partly to get back the rent those tenants paid while Sanford allegedly let their buildings fall into disrepair.

“Given that a rental housing locator (or any person, for that matter) can only contract to provide services in the future, this provision shows that the CPPA contemplates that a broken promise to engage in an act in the future can constitute an unlawful trade practice,” Mott writes. “Accordingly, in keeping with the court’s obligation to interpret the CPPA broadly and liberally, the court determines that the Act applies to misrepresentations regarding a person’s intent to perform a service in the future.” 

Mott has also granted Racine’s request to hold an emergency hearing before April 14 on motions his office filed at the end of March to hold Sanford and its affiliates in civil contempt, and to appoint a third-party to manage Terrace Manor’s rehabilitation. The hearing has been set for Tuesday afternoon. Racine filed those motions just after the LLC that officially owns Terrace Manor filed for bankruptcy in federal court, a move that could void the tenants’ right to purchase the property under D.C. law. (The attorney general moved to dismiss Terrace Manor LLC’s bankruptcy motion last Thursday.)

Stephen Hessler, the lawyer representing Sanford Capital and its affiliates in D.C. Superior Court, declined to comment on Mott’s order as well as Tuesday’s emergency hearing, citing “the press of the litigation and our responsibilities to the Court and our client.” During a hearing in January held before Mott, Hessler said he would fight the District’s consumer-protection claims “tooth and nail.”

In court filings, Hessler argued that Racine’s office had “failed to state a claim” in line with a statute designating District housing-code violations as an “unlawful trade practice.” But Mott disagreed with this rebuttal in his order today. “Without question, the [attorney general’s] Petition adequately alleges that defendants violated the housing code, as the Petition incorporates notices from [Department of Consumer and Regulatory Affairs] inspectors setting forth in detail the myriad housing code violations observed at the Terrace Manor Apartments,” the judge writes.

Beyond the Terrace Manor lawsuit—which alleges almost 130 housing-code violations by Sanford and its affiliates, many of which remain unresolved—DCRA has charged the company with more than 1,000 such violations throughout its roughly 20 properties in D.C. Mayor Muriel Bowser‘s administration says these citations total approximately $540,000 in potential civil fines. Sanford Capital has appealed them all in the Office of Administrative Hearings.

If granted, Racine’s motion for contempt could add to these penalties: $2,000 a day for every day the alleged housing-code violations at Terrace Manor continue. Still, the attorney general’s office says placing the property into receivership would more effectively resolve the outstanding issues.

In Terrace Manor LLC’s bankruptcy case, the next federal court hearing is scheduled for April 17.