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As the recent Philadelphia Court of Common Pleas decision in Philadelphia Waterfront demonstrates, a lis pendens can prove to be challenging in its application. This is in spite of the fact that at bottom, the concept is fairly elementary. Simply put, a lis pendens provides notice of litigation impacting specific real property. The archetypal example entails that of the real estate transaction gone awry. Negotiation is had and to the prospective purchaser’s delight, the tendered offer is accepted. The written agreement is finalized and executed, with things progressing seamlessly. And then, lo and behold! For one reason or another (a higher offer perhaps), the hypothetically unsavory seller attempts to unilaterally terminate the deal, simply walk away. Of course the intended purchaser does not take too kindly to the suggestion and therefore decides to file a lis pendens. Why not hold the seller’s feet to the fire, literally make that seller perform consistent with the terms of the contract? Philadelphia Waterfront revolved around two highly lucrative options to purchase the property known as 7777 State Road. The plaintiffs in that case owned the options vis-�-vis their collective interests in an LLC and LP (the LLC as the managing partner); the options were the primary assets. The LP intended to purchase and develop the subject property for commercial and residential use. Last summer, the defendants, another LLC going by the name of Churchill Development Group purchased 100 percent of the membership interests in the LLC and 75 percent of the Class C interests in the LP. Promissory notes were given to the plaintiffs in the approximate amount of $10 million. Additionally, security in the form of a mortgage on the residential portion of the subject property, as well as an option to convert the debt into 25 percent of the profits from its development, was provided. The agreement further enumerated several cut-off dates. Upon receipt of the LP’s 2005 tax returns from the plaintiffs, the Churchill faction was required to obtain a loan commitment and close on the State Road property. Churchill only had two months to accomplish these tasks from the date of the receipt of the tax materials. In the case that the returns were not timely produced, Churchill would be granted a 30-day extension. Should Churchill fail to accomplish its tasks, a reversion of interests would occur. Those interests of course could be re-purchased, for the less-than-meager sum of $12 million. Both parties’ strict adherence to the deadlines, or actually lack thereof, became fodder for litigation. On the one hand, plaintiffs contended that they timely provided the tax materials but that the Churchill group failed to secure a loan commitment pursuant to the contract. Hence an automatic reversion occurred, communicated to defendants but never acknowledged by them. And on the other hand, defendants maintained that the documentation they did receive was in utter disarray, thereby preventing them from obtaining the commitment. According to them, the 30-day extension had therefore kicked in. Additionally, defendants did in fact obtain a commitment; they transferred the right to purchase to Churchill in order to do so. Plaintiffs were fully apprized of the financing as well as the assignment made. At no point did plaintiffs object to the closing, defendants’ intention to proceed or the change in ownership. In fact, plaintiffs assisted with drafting replacement notes to memorialize the change in terms. Subsequent to the closing, plaintiffs commenced an action by way of writ of summons, filing a lis pendens against the subject property. Eventually, several months later, an amended complaint was filed which sought to rescind and nullify the transfer of the property rights from the LP to Churchill, impose a constructive trust over the State Road property, and enjoin defendants’ use of the loan proceeds. In response, defendants moved to strike the lis pendens, maintaining that use of the loan proceeds was vital to the development of the subject property. Defendants’ motion called into question the validity of the lis pendens, specifically whether it was properly filed on the particulars of the situation. And based upon the contours of the doctrine itself, the real question is whether or not title to real property is even at issue in Philadelphia Waterfront. The law in our commonwealth regarding lis pendens is well settled. A lis pendens is subject entirely to equitable principles and does not establish an actual lien upon the property affected. Instead its actual purpose is give notice to third persons that real estate is subject to litigation, effectively creating a cloud on title. Title to real estate must be involved in the litigation. In balancing the equities, the Philadelphia Waterfront court enumerated the Warehime standard, also applicable to preliminary injunctive relief. The relevant test is as follows: The lis pendens must be necessary to prevent immediate and irreparable harm which cannot be adequately compensated by damages; greater injury would result from lifting a lis pendens than letting it remain; that it will properly restore the parties to the status quo ante; they are likely to prevail on the merits of their claims; that it is reasonably suited to abate the offending activity; and that a lis pendens will not adversely affect the public interest. And as with injunctive relief, the filing party bears the burden of proof. The gravamen of the plaintiffs’ complaint in Philadelphia Waterfront was that a reversion had occurred, one that defendants elected to ignore altogether. Yet the delay the plaintiffs exhibited in pursuing this alleged gripe necessarily tainted the court’s perception of the motivation underlying the eventual lis pendens filing. In the court’s estimation, the plaintiffs chose to “sit on their rights,” permitting the deal to close with a modification to the financing provision in the contract. With the options on the verge of expiring and the obvious issues with the LP attaining financing, the plaintiffs were compelled to let the deal consummate. Had a reversion truly occurred, the responsibility for achieving financing would have been incumbent upon the plaintiffs. And the plaintiffs had already observed the negative ramifications of the LP serving as the intended mortgagor. So by reasserting the claim of reversion post-settlement, they attempted to have the best of both worlds, if you will. And the Philadelphia Waterfront court had little trouble deciphering that strategy. The subsequently filed lis pendens neither returned control of the LP to plaintiffs nor effectuated the reversion. As for adequate compensation, the contract expressly provided for the repurchase of the reverted interests. Plaintiffs’ participation in drafting the replacement notes was tantamount to an admission that the plaintiffs were complicit in a modification of the terms of the deal – it was the proverbial nail in the coffin. The only real impact of the lis pendens was to stunt the progress of a project that stood to benefit both parties. Title to real property was never truly at issue and hence striking off the lis pendens made perfect sense. So although the Philadelphia Waterfront decision might seem unremarkable at first blush, a litigant should be attentive to the degree of scrutiny exacted when the validity of a lis pendens in inevitably thrown into controversy. This holds especially true where specific performance is not being sought as a remedy. HARPER J. DIMMERMAN represents clients in real estate matters and is the principal of his firm and president of DST Land Transfer Inc., a title insurance company licensed in Pennsylvania and New Jersey. He may be reached via e-mail:[email protected] or telephone a 215-545-0600. He is co-chairman of the Philadelphia Bar Association’s solo and small firm committee and an executive committee member of the law practice management committee and YLD.

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