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Bergano v. City of Virginia Beach

United States District Court, E.D. Virginia, Norfolk Division

March 14, 2017

DR. ALLAN L. BERGANO, D.D.S., P.C. and DR. ALLAN L. BERGANO, D.D.S., Plaintiffs,
v.
CITY of VIRGINIA BEACH, GAIL E. SALMONS, and PHILIP A. DAVENPORT, Defendants.

          ORDER

          Henry Coke Morgan, Jr. Senior United States District Judge

         This matter is before the Court following a bench trial held February 7, 2017 through February 9, 2017 at which Plaintiffs Dr. Allan L. Bergano, D.D.S. ("Dr. Bergano") and Dr. Allan L. Bergano, D.D.S., P.C. ("Plaintiffs") and Defendants City of Virginia Beach ("City"), Gail E. Salmons, and Phillip A. Davenport ("Defendants") presented evidence and argument. After the trial, the Court FOUND the City liable to Plaintiffs. The Court instructed the Parties to submit briefs for the Court to consider in ruling on damages, including whether Plaintiffs are entitled to attorneys' fees. These findings of fact and conclusions of law explain the Court's reasoning as to liability.

         I.FINDINGS OF FACT

         A. The City's Acquisition of the Witchduck building

         Plaintiffs are a dental practice and a dentist. Defendant Salmons is a Right of Way Agent for the City, and Defendant Davenport is the Director of Public Works for the City. Dr. Bergano operated a dental practice at 256 North Witchduck Road, Virginia Beach, Virginia for over thirty (30) years and served approximately 2, 000 patients. For that entire period, Dr. Bergano leased office space in the Witchduck Office Court building owned by Jerry Collier ("the Witchduck building"). The Parties agreed that Mr. Collier and Dr. Bergano maintained an excellent landlord-tenant relationship. By 2014, Dr. Bergano leased approximately 1, 350 square feet of space in the Witchduck building.

         The Witchduck building is bounded by North Witchduck Road, a heavily trafficked thoroughfare; Admiral Wright Road; and Jersey Avenue. Curb cuts into the parking lot provide visitors with access points from each road. In early 2014, Dr. Bergano's wife, an employee at the dental practice, attended a public meeting on the City's proposed project ("the Project") to widen Witchduck Road, the heavily trafficked thoroughfare. At the meeting, Mrs. Bergano learned that the City's construction plans would eliminate parking spaces around the Witchduck building, limit direct access from the property to North Witchduck Road, and convert the adjoining Admiral Wright Road into a cul-de-sac. The Project received federal and state funding. See Def. Ex. 3.

         In the spring of 2014, James Lawson, a City real estate agent, learned that the City planned to purchase a portion of the Witchduck building property to facilitate its widening project. Mr. Lawson approached City Council with the City's plan to purchase the property. David Hansen, then a deputy City Manager, discussed the property purchase with Mr. Lawson, and they concluded that the City would use the Witchduck building to house other City offices and personnel. Pl. Ex. 20. In fact, evidence at trial established that by July 17, 2014, Mr. Hansen and the City had purposed to let Plaintiffs continue leasing space in the building for the foreseeable future. Mr. Hansen testified, "[I]t was clear to me that we did not need that space." Mr. Lawson arranged for two (2) appraisals of the portion of the property the City planned to purchase. The first appraisal was approximately $78, 000. However, Mr. Lawson recognized that the City's Project would eliminate up to eighteen (18) parking spaces around the Witchduck building and potentially incentivize drivers to cut through the property as a shortcut to North Witchduck Road. He raised these concerns with the appraiser, and the appraiser reevaluated the damage to the residue of property at over $601, 000. Pl. Ex. 20. Mr. Lawson then met with Defendant Davenport, and the City decided to acquire the entire Collier property rather than a portion because the damage to the residue would equal a large percentage of its entire value. The City offered to purchase the entire Witchduck building property in the spring of 2014. At trial, the Court additionally FOUND that while the City was negotiating the purchase of the Witchduck building, the City instructed Mr. Collier not to extend existing leases or negotiate new leases with tenants. In exchange, the City paid him additional monies corresponding to the rent payments he would have received had he retained two other tenants and acquired an additional tenant. See Pl. Ex. 11. Mr. Collier closed on the purchase of the entire Collier property by the City on September 9, 2014.

         At trial, Mr. Lawson testified that the City policy was to inform tenants that the City had purchased their landlords' property only after the sales were completed because this practice prevented tenants from prematurely ending their leases. However, in July 2014, before the City purchased the Collier property, Mr. Lawson informed its only tenant, Dr. Bergano, that the City would purchase the Witchduck building. At Deputy City Manager Hansen's direction, Mr. Lawson told Dr. Bergano that he would need to relocate his dental practice because the City would be using the entire property. Mr. Lawson communicated the implication of the Project to Dr. Bergano and informed him that the City could execute a new month to month lease with him before he would have to relocate. Mr. Lawson retired at the end of 2014, and Defendant Salmons replaced him as the City's relocation liaison officer to Plaintiffs.

         Dr. Bergano testified that the City informed him of its acquisition of the Witchduck building and required him to sign a new month to month "Possession Agreement"[1] with the City within ten (10) days or forfeit his relocation benefits. On September 9, 2014, though it restricted his rights compared to his previous lease, Dr. Bergano entered into a Possession Agreement ("PA") with the City. PL Ex. 5. The PA allowed Plaintiffs to "stay in the Premises pending relocation... for a period of twelve months, beginning on September 9, 2014, and ending no later than September 15, 2015." Id., ¶ C. Dr. Bergano understood that he needed to relocate his practice by September 15, 2015 and accordingly began searching for a new practice location. On September 15, 2014, Defendant Salmons delivered a letter and attachments to Dr. Bergano at his practice. Def. Ex. 48. The letter indicated that Plaintiffs were eligible for relocation benefits, and the attachments included the City's Business Relocation Assistance brochure, which contained information about benefit options as well as information concerning appeal rights from an adverse decision by a city official. Id; see PL Ex. 6.

         B. The Change of the Witchduck Building

         In August 2015, the City relocated five (5) divisions of its Human Services Department ("HSD") to the Witchduck building. Dr. Bergano testified that the presence of his new cotenants "created a very toxic environment:" all HSD office doors were locked; a security guard monitored the building twenty-four (24) hours a day; inmates in orange jumpsuits assisted in moving the HSD offices into the building, Def. Exs. 102, 112, 114, 119, 126, 127, 138;[2] inmates in orange jumpsuits escorted by guards visited the building for periodic evaluations; and the City posted a "Police Parking Only" sign reserving a parking space for City police cars. PL Exs. 16, 17. The security guard once harassed a young African American male dental patient and even once questioned Dr. Bergano why he was present at the building. Dr. Bergano indicated that HSD clients often entered his offices to ask for directions to the HSD offices because Dr. Bergano's door was the only unlocked door, and if the practice provided unsatisfactory answers, some clients became angry. Dr. Bergano testified that he "felt like a hostage, " and his staff and patients felt threatened. HSD clients also slept overnight in the Witchduck building parking lot, and the increased activity at the building made parking difficult for his patients and staff. Dr. Bergano testified that his lease with Mr. Collier had reserved eight (8) parking spaces for the dental practice, and when he complained to the City about the parking difficulties after HSD's move, the City reserved only four (4) spaces for the dental practice although he and his staff alone needed five spaces.

         C. Plaintiffs' Search for a New Location and the City's Denial of Relocation Benefits

         Dr. Bergano testified that Defendant Salmons instructed him that he would receive relocation benefits only if he submitted to the City a signed lease for a new property, bids for the necessary modifications or "build-out" of the property, and bids for any new required dental equipment. Evidence at trial indicated that Defendant Salmons repeatedly encouraged Plaintiffs to keep the City informed about their progress and expenses during their relocation search process. Def. Ex. 81.

         Therefore, Plaintiffs hired commercial real estate broker John Wessling to search for a new dental practice location. After a few months of unsuccessful searching, during which Plaintiffs suffered fire damage to their home, Plaintiffs hired another broker, Robert Carter, who was recommended by a physician friend. Mr. Carter and Plaintiffs examined various properties, visited approximately seven (7), and eventually chose 4460 Corporation Lane, Virginia Beach, Virginia. Mr. Carter testified that access was an important concern in locating a suitable property, as was parking. The Corporation Lane suite was previously used as a general medical practitioner's office and needed substantial renovations to make it suitable for a dental office. Dr. Bergano and Mr. Carter testified to the precise arrangement of dental operatories required to ensure a dentist's mobility while preventing physical strain on the dentist and patient and staff comfort. The Corporation Lane office space had been partitioned for a group of different offices and had unsuitable flooring, electrical work, plumbing, and HVAC facilities. At the trial, the Court FOUND that the space had to be reduced to "shell" condition because it was necessary to virtually gut the space in order to properly rebuild it for a dental practice. On July 27, 2015, after months of searching, Plaintiffs signed a ten-year lease for approximately 2, 511 square feet of space in the Corporation Lane property, Pl. Ex. 8, with approximately 2, 200 square feet of usable space. The lease parties agreed that Plaintiffs would have until August 31, 2015 to secure funding from the City or other sources to modify the space for the dental practice. Id. For eight (8) months, Plaintiffs paid rent for both the Witchduck building and the Corporation Lane property. At the trial, the Court FOUND that Plaintiffs did not breach the Corporation Lane property lease. The City made the curious argument that the Plaintiffs had breached the contract by failing to provide written evidence of their financial ability to perform the lease and therefore the Plaintiffs had not secured the binding lease necessary to become eligible for relocation benefits. In other words, the City argued the Plaintiffs breached the lease as an excuse for the City to deny them relocation benefits, although the City was not a party to the lease. The City, having subpoenaed but not called the landlord at Corporation Lane to testify, presented no evidence that the landlord found the lease breached although the written evidence of financial ability from Plaintiffs was never forthcoming. In fact all of the evidence in the case established that the Plaintiffs performed the lease by completing the build out, occupying the new office suite, and paying the rent beginning in June 2016 until the trial. The Court rejected this argument by the City.

         On July 27, 2015, Plaintiffs' counsel wrote a letter to Defendant Salmons notifying the City that Plaintiffs had signed a lease for the Corporation Lane property, which was in "shell" condition. Def. Ex. 89. In early August 2015, Plaintiffs submitted bids for modifications to Defendant Salmons for her approval and selection. Defendant Salmons subsequently visited the Corporation Lane space and considered the proposed renovations. Def. Ex. 90. Defendant Salmons testified that the City awards displaced businesses up to $25, 000 for reestablishment expenses such as advertising, painting and carpeting, an amount in addition to any building and moving expenses due. On August 5, 2017, Defendant Salmons emailed Plaintiffs' counsel and Plaintiffs to inform them that "the City of Virginia Beach will not approve the expense to build out the location at 4460 Corporation Lane, Suite 190 as proposed." Id. She stated that "it was apparent that the location would accommodate the dental practice with minor modifications and exceeds what the dental [practice] currently occupies." Id. At trial, the Court FOUND that the existing suite required major modifications and that the costs of the modification and the addition work necessary to bring it up to code were reasonable and in line with the two estimates that were previously supplied to the City, as long as it was adjusted to reflect the expansion of the number of operatories.

         On August 12, 2015, Plaintiffs' counsel wrote to Defendant Salmons memorializing an in-person meeting about Plaintiffs' relocation assistance requests and informing her that "the firm will be appealing the City's decision regarding the build out costs of the Berganos' new office and relocation costs." Def. Ex. 100. On August 19, 2015, Plaintiffs' counsel wrote to a City real estate agent and Defendant Salmons to "request a date for the Bergano's [sic] appeal" and urged a speedy response as "time [was] of the essence." Pl. Ex. 10.

         D. The City's Relocation Reversal

         On August 20, 2015, the day after Plaintiffs filed their formal request for appeal, Defendant Davenport sent Plaintiffs a letter reversing the City's decision that the dental practice needed to relocate. The letter made no mention of the City's decision contesting the amount of relocation expenses or Plaintiffs' right to appeal either of the two conflicting decisions. Def. Ex. 111. It stated, "[t]he City has now determined that the subject property will no longer be needed exclusively for City offices; consequently your client will not be required to relocate." Id. (emphasis added). The letter offered to reimburse Plaintiffs for "any expenses incurred to satisfy any contractual relocation obligations entered into after the effective date of the notice of relocation eligibility." Id. However, the City now argues that the Plaintiffs could have avoided their lease obligation by breaching their lease.

         In fact, the decisions that Dr. Bergano's suite was not needed by the City had been made more than thirteen (13) months earlier when the City, through Deputy City Manager Hansen, reached the decision to buy the Witchduck Building, the closing on which did not occur until September 2014. Pl. Ex. 17. However, Deputy City Manager Hansen's decision was never conveyed to Dr. Bergano until the arrival of the August 20, 2015 letter signed by Defendant Davenport. Based upon the testimony in the trial, the exhibits and the Court's inference that Davenport's testimony would have been unfavorable, see infra Part I.F, the Court infers that Davenport would have disclosed that the August 20, 2015 letter was not a recent decision but rather a restatement of Hansen's July 17, 2014 email which other involved city officials either ignored or overlooked. Clearly the City acted arbitrarily and capriciously. On September 9, 2014, Deputy City Manager Hansen signed the Possession Agreement ("PA") on behalf of the City, which PA said that Dr. Bergano "has been permitted to stay in the Premises pending relocation." Pl. Ex. 5, ¶ B (emphasis added).

         Defendant Salmons testified at trial that Plaintiffs never received a hearing after they requested an appeal. Defendants attempted to lay the groundwork to suggest that they considered the settlement conference between Plaintiffs' counsel and City officials to be hearings. However, Mr. Hansen also testified that Plaintiffs never received notice of a date or time or place to appeal the City's denial of relocation benefits. The evidence establishes that the Plaintiffs never received notice of an appeal of the City's determination that they no longer qualified as "displaced persons" eligible for relocations benefits. The Court FOUND that the City failed to provide notice to Plaintiffs and failed to provide initial hearings or an appeal of such hearings, which conduct is part of the Court's finding that the City acted arbitrarily and capriciously.

         Defendants argued at trial that Plaintiffs had not moved to the Corporation Lane property by the time the City reversed its relocation determination, and Plaintiffs were therefore not "displaced persons." See Va. Code § 25.1-400. The Court did not accept this argument and FOUND that Dr. Bergano and his corporate practice entity were displaced persons. In June 2016, Dr. Bergano completed the removal of his dental practice to 4460 Corporation Lane. Evidence at trial established that the City paid Dr. Bergano $2, 500 to cover Mr. Carter's relocation expert fees and $2, 500 for one (1) month's rent at the Corporation Lane property while Plaintiffs and the City continued negotiations for the monthly period.

         E. Comparison of Witchduck Building to Other Locations

         Defendants introduced expert testimony concerning the suitability of and access to the Witchduck building after the City's acquisition and upon completion of the project. Defendants' experts, real estate appraiser Thomas Tye and commercial real estate broker Peter Abraham, testified that the Witchduck building was appropriate for Plaintiffs' dental practice and comparable to the Corporation Lane property into which it relocated. For example, they testified that Virginia Beach dentists-including Plaintiffs-can comfortably share their tenant space with counseling and mental health providers. Plaintiffs previously shared the Witchduck building with Tidewater Psychotherapy, which provided mental health evaluations and services, including for prison inmates. In addition, Plaintiffs shared the Witchduck building with the City's HSD, which they opine provided similar services. The experts equated these mental health providers to Plaintiffs' current Corporation Lane cotenant, Christian Psychotherapy, a counseling and mental health center which treats inmates who enter through a back entrance and are discreetly led to its offices.[3] Finally, the experts drew a comparison between a dental office which shared space in another Virginia Beach office space in the Pembroke area with HSD offices before some of those HSD personnel were relocated to the Witchduck building. Mr. Abraham interviewed a security guard who advised him that he had observed no incidents at Witchduck, however, there were multiple security issues including apparently another security guard harassing a black patient of Dr. Bergano's as well as accosting Dr. Bergano himself. Also, he did not mention the "police only" parking sign and the multiple instances of HSD patients entering Dr. Bergan's office, sometimes with very unpleasant consequences for Dr. Bergano's staff.[4] Defendants indicated that Plaintiffs' tenant mix in its old and new locations is similar and the HSD presence at the Witchduck building could not have made the location unsuitable for a dental practice. Mr. Abraham relied upon the fact that HSD shared a building in the Pembroke area with a dentist. However, the HSD presence at Witchduck combined HSD offices from five (5) different locations throughout the City, each of which performed a different function involving different patient interaction and is therefore not a valid comparison.

         Mr. Abraham also examined the surrounding neighborhoods, demographics, and access points of Plaintiffs' former and current office locations. Def. Exs. 197, 198, 200, 201, 202A-C. He stated that the locations are similar, and are both "very good" for a dental practice, though the Corporation Lane property is of a slightly better quality and has better amenities in the immediate area. As for access, Mr. Abraham opined on direct examination that the completed Project will make access to the Witchduck building not "ideal" because the closing of the North Witchduck Road curb cut and the cul-de-sac at Admiral Wright Road ...


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