LEG INVESTMENTS v. BoxlerLEG INVESTMENTS v. Boxler
Opinion
LEG Investments (LEG) owns a 50 percent undivided interest in a vacation home at Lake Tahoe as cotenant with Thomas F. and Donalee Boxler (the Boxlers). After disputes arose between
LEG appeals, contending the trial court erred in granting summary adjudication as to the affirmative defenses of waiver. LEG contends the right of first refusal in the TIC agreement is not an absolute waiver of the right to partition, but requires only that the selling cotenant first comply with the right of first refusal by offering its interest to the other cotenant before seeking partition. LEG asserts it complied with this requirement. LEG further contends the trial court erred in denying summary adjudication on its cause of action for partition. Finally, LEG contends the award of attorney fees must be reversed. We agree and reverse.
FACTUAL AND PROCEDURAL BACKGROUND
Ownership of the Property and the TIC Agreement
In 1976, Carl and Judith Bumpass and the Boxlers purchased the lakefront property at 4960 North Lake Boulevard, Camelian Bay, California (the Property). Each couple owned a 50 percent undivided interest in the Property as cotenants.
In 1993, the Bumpasses transferred their interest in the Property to Raymond and Sharon Schwerdtfeger. The Schwerdtfegers and the Boxlers entered into the TIC agreement “to establish their rights and duties with respect to each other as tenants in common.”
Section 6 of the TIC agreement provided for a right of first refusal if an owner wanted to sell his or her interest. Paragraph 6.1 provided in part: “If and when either Owner decides to sell their Interest in the Property and that Owner receives a bona fide offer for its purchase from any other person or entity, the other Owner shall have the first right of refusal to purchase the selling Owner’s Interest in the Property for the price and on the terms provided for in such bona fide offer.” The remainder of paragraph 6.1 spelled out the procedure for accepting or refusing the right of first refusal. If the right was refused, “the selling Owner may enter into an agreement to sell the
The term of the TIC agreement was for 30 years from execution, with automatic five-year extensions until termination was agreed to by the owners. Paragraph 7.8 of the TIC agreement provided: “This Agreement shall be binding upon and inure to the benefit of the parties hereto, their heirs, devisees, transferees, executors, administrators, successors, assigns, and all other persons hereafter holding an Interest in the Property. The covenants herein shall be deemed to run with the land, both as to benefit and burden.”
The TIC agreement provided the prevailing party in “any action between the parties seeking enforcement or interpretation of any of the terms and conditions of this Agreement” shall be awarded court costs and reasonable attorney fees. The TIC agreement also contained an integration clause, providing “[t]his Agreement and the items incorporated herein contain all of the agreements of the parties hereto with respect to the matters contained herein.”
A memorandum of the TIC agreement was recorded in Placer County.
In 1998, LEG purchased the Schwerdtfegers’ interest in the Property. LEG is a general partnership. Eppie Johnson is a general partner of LEG.
LEG Attempts to Sell Its Interest
Johnson claimed there were disputes and problems with the Boxlers as co-owners almost immediately after LEG’S purchase. The Boxlers or their guests often failed to clean the Property and the Boxlers refused to pay for reasonable and necessary landscaping, maintenance, cleaning and repairs. In 2003, LEG offered to sell its interest in the Property or purchase the Boxlers’ interest for $750,000. The Boxlers declined both offers.
In 2005, C.R. Gibb, a sophisticated real estate investor with many years of experience in the Lake Tahoe real estate market, offered to purchase LEG’S interest in the Property for $1.4 million, subject to his approval of the Boxlers as co-owners. Pursuant to paragraph 6.1 of the TIC agreement, LEG transmitted Gibb’s offer to the Boxlers and offered them a right of first refusal to purchase LEG’S interest on the same terms. The Boxlers declined. “We will not be exercising our right of first refusal for your bona fide offer of $1,400,000.00.” After meeting with the Boxlers, Gibb determined they were unwilling to contribute to renovations and repairs. Gibb would not approve the Boxlers as co-owners and withdrew his offer to purchase.
LEG’s Partition Action
In May 2006, LEG filed a complaint for partition by sale. The first cause of action was for partition by sale of the Property, including both the real property and personal property of household furnishings and furniture. The complaint alleged partition by sale was more equitable than division in kind because it was impracticable to physically divide the Property. It further alleged, “The relationship between the parties has so deteriorated that the absolute right to partition by sale is the only available remedy, [f] . . . [Defendants have refused to pay for and provide reasonable and necessary maintenance, cleaning, and repairs, and otherwise pay for the reasonable expenses incident to ownership of similarly situated properties.”
The first cause of action recited the proposed sale to Gibb, the offer to the Boxlers of the right of first refusal, their failure to exercise that right, Gibb’s disapproval of the Boxlers as co-owners, and the Boxlers’ refusal to sell the Property or purchase LEG’s interest. In paragraph 22 of the first cause of action, LEG alleged it had demanded that the Boxlers “account for and pay reasonable or necessary maintenance, cleaning, repairs, improvements, and expenses relating to the ownership and use of the Property, but Defendants have failed and refused to make such an accounting or pay to Plaintiffs [óic] such reasonable amount.”
The second cause of action sought injunctive relief to prevent waste due to the Boxlers’ refusal to pay for reasonable and necessary maintenance, repairs, expenses, and improvements.
In the prayer, the complaint sought partition by sale of the Property, expenses for litigation guarantee, title reports and partition, an accounting of expenses incurred, appointment of a receiver or broker for sale of the Property, and a preliminary and permanent injunction against waste.
The Boxlers’ Cross-complaint
The Boxlers filed a cross-complaint with two causes of action. The first cause of action sought a judicial determination whether LEG could compel a judicial decree sale of the entire Property or whether the owners of the Property had waived the right to force a sale by judicial decree. The second cause of action sought specific performance of paragraph 6.1 of the TIC agreement, that prior to any sale or transfer of its interest, LEG obtain a valid, good faith offer for acquisition of LEG’S interest and present it to the Boxlers pursuant to their right to acquire LEG’S interest on substantially similar terms. The cross-complaint sought an award of attorney fees.
LEG’s Motion for Summary Judgment or Summary Adjudication
LEG moved for summary judgment or summary adjudication on the first cause of action for partition by sale on the grounds LEG was entitled to an interlocutory judgment ordering sale of the Property and that there was no defense to that cause of action.
LEG argued the Boxlers had previously acknowledged the right to partition. In the prior partition action concerning the Property, the Boxlers had moved for summary adjudication, stating that partition could be compelled only after compliance with the right of first refusal in the TIC agreement.
In support of the motion, LEG provided the Boxlers’ separate statement of undisputed facts in support of their motion for summary adjudication in the prior partition action. In that statement, the Boxlers claimed as an undisputed fact that, “Pursuant to paragraph 6.1 of the TIC Agreement, an owner of an interest in the Property cannot compel a statutory partition of the Property under California Code of Civil Procedure section 872.010, et seq. until such time as the owner who desires a statutory petition [sic] has first complied with the provisions of paragraph 6.1.”
LEG also provided Johnson’s declaration, in which he outlined the problems with the Boxlers, including their failure to clean the Property or to pay
In opposition, the Boxlers disputed LEG’S interpretation of the TIC agreement. They agreed partition by sale was more equitable than partition by division. They also agreed they had declined to exercise their right of first refusal on Gibb’s “bona fide offer.” They disputed that they declined LEG’S offer to sell its interest to the Boxlers in 2006 because LEG failed to set forth a price or terms sufficient to constitute an offer. They further disputed the allegations of paragraph 22 of the complaint. They contended that rather than they owing LEG money, LEG owed them money.
The Boxlers’ Motion for Summary Adjudication
The Boxlers moved for summary adjudication of issues, contending there was no defense to their affirmative defenses of waiver or to the first cause of action of the cross-complaint for declaratory relief. They argued their position in the earlier partition action was not binding because it had not been accepted by a court and now the facts were different. They later argued their interpretation of the TIC agreement was supported by the historic conduct of the owners—always complying with the right of first refusal for every sale and not suing for partition.
In support of the motion, Thomas Boxler declared that “with the exception of the privately arranged purported contract between LEG and Mr. Gibbs [sz'c], no effort has been made by Eppie Johnson or any other partner or representative of LEG to make the public aware of its desire to sell its one-half interest in the Property at the fair market value of that interest.”
In opposition, LEG provided evidence that Thomas Boxler had been abusive to the prior owners, the Schwerdtfegers, when his authority was challenged. After the Boxlers refused to buy the Schwerdtfegers’ interest for what they had paid for it, the Schwerdtfegers listed it for sale. The Boxlers refused to cooperate; Thomas Boxler even threatened to shoot a realtor. A potential sale fell through when the purchaser refused to approve the Boxlers as co-owners. During the sale to LEG, the Boxlers demanded the
LEG also provided evidence that the Schwerdtfegers and their attorney, who drafted the TIC agreement, did not intend the right of first refusal to waive the right to partition.
The Ruling
The trial court denied LEG’s motion for summary adjudication on the first cause of action for a partition sale. The court found the language of the complaint’s prayer ambiguous as to the request for an accounting; it was unclear whether LEG requested a partition accounting or an accounting of all expenditures and receipts. Since the court could not determine if the motion addressed all elements of the first cause of action, the motion was denied.
The court found the right of first refusal waived the statutory right to partition and granted the Boxlers’ motion for summary adjudication of their second and third affirmative defenses of waiver and the first cause of action of the cross-complaint for declaratory relief.
Both parties prepared orders and the court signed them all.
Dismissal of the Complaint and Cross-complaint
LEG filed an ex parte application to dismiss its complaint with prejudice. LEG explained the court’s ruling had effectively disposed of its entire complaint. To expedite an appeal, LEG requested an order dismissing the complaint.
The Boxlers did not oppose the dismissal, but argued it would not result in an appealable order.
The court signed the order for dismissal, adding “This order does not imply a finding that this dismissal is or is not an appealable order.”
Subsequently, the Boxlers dismissed the second cause of action (specific performance of par. 6.1 of the TIC agreement) in their cross-complaint. Judgment was entered and LEG appealed.
Award of Attorney Fees to the Boxlers
The Boxlers moved for attorney fees. The court awarded them $86,955 in fees. LEG appealed from this ruling.
I.
The Appeal is Not Moot *
II.
The Right of First Refusal in the TIC Agreement Modifies the Statutory Right to Partition, but Does Not Permanently Waive It
A co-owner of real or personal property may bring an action for partition. (Code Civ. Proc., § 872.210.) “The primary purpose of a partition suit is, as the terminology implies, to partition the property, that is, to sever the unity of possession. [Citations.]”
(Schwartz v. Shapiro
(1964)
In lieu of dividing the property among the parties, the court shall order the property be sold and the proceeds divided among the parties in accordance with their interests in the property if the parties agree to such relief or the court determines sale and division of the proceeds would be more equitable than a division of the property. (Code Civ. Proc., § 872.820.) Here the parties agreed partition by sale was more equitable than partition in kind.
A co-owner of property has an absolute right to partition unless barred by a valid waiver. (Code Civ. Proc., § 872.710, subd. (b).) “[T]he right of partition may be waived by contract, either express or implied.”
(American Medical International, Inc. v. Feller
(1976)
LEG contends Schwartz is controlling; since the Boxlers refused the offered right of first refusal, LEG may proceed with the partition action. 2 LEG contends the trial court erred in granting summary adjudication on the affirmative defenses of waiver.
“Appellate review of a ruling on a summary judgment or summary adjudication motion is de novo. [Citations.]”
(Brassinga v. City of Mountain View
(1998)
The trial court granted summary adjudication on the second and third affirmative defenses set forth in the Boxlers’ answer to LEG’s complaint. The second affirmative defense was express contractual waiver. There was no express waiver of the right to partition in the TIC agreement as the TIC agreement does not mention either partition or waiver. A right of first refusal has been construed only as an implied waiver or modification of the right to partition.
(Harrison v. Domergue, supra,
The third affirmative defense was implied waiver of the right to partition based on the right of first refusal in the TIC agreement.
3
The trial court
The Boxlers contend the trial court properly limited Schwartz to its facts; in Schwartz the agreement bound only the original owners and the right of first refusal permitted the nonselling owner to purchase the selling owner’s interest at the original purchase price. The Boxlers contend the agreement in Schwartz was not a classic right of first refusal that applied to every sale by successive owners, but a one-time right to purchase at the original purchase price triggered by the co-owner’s desire to sell.
Neither Schwartz nor any of the many cases cited by the parties present the factual situation found here: a cotenant desires to sell his interest and receives an offer from a third party; the selling cotenant complies with the right of first refusal, but the other cotenant declines to exercise the right; after the proposed sale falls through, the selling cotenant seeks partition. Whether paragraph 6.1 of the TIC agreement bars partition in this case requires interpreting paragraph 6.1; specifically, we must determine whether the right of first refusal absolutely waives the right of partition for the term of the TIC agreement or whether the right of first refusal merely modifies the right of partition to require the selling cotenant to first offer to sell to the nonselling cotenant on terms as favorable as those offered by a prospective buyer.
We interpret a contract to give effect to the parties’ intent. (Civ. Code, § 1636.) In determining the scope of the implied waiver or modification, we consider the purpose of the right of first refusal in paragraph 6.1 of the TIC agreement. In
Harrison v. Domergue, supra,
Interpreting the right of first refusal in the TIC agreement to permit partition after the nonselling cotenant has declined to exercise the right of first refusal and the proposed sale to a third party has fallen through would not be contrary to either of these purposes. The nonseller could control ownership of the Property by exercising its right of first refusal. Further, exercising the right of first refusal would give the nonseller the right to purchase the selling cotenant’s interest at the market price for a fractional interest; that price would be set by the third party bona fide purchaser.
The Boxlers insinuate that the offer by Gibb was not bona fide. The trial court expressed concern the selling cotenant could set up a bogus third party sale. This concern can be addressed by the nonseller challenging the bona fide nature of the third party offer. The Boxlers failed to make that challenge. They presented no admissible evidence challenging the bona fide nature of the Gibb offer. 4 Rather, in declining to exercise their right of first .refusal, they stated: “We will not be exercising our right of first refusal for your bona fide offer of $1,400,000.00.” More significantly, given the procedural posture of this case, they failed to dispute LEG’S undisputed fact that the Boxlers declined to exercise their right of first refusal on the bona fide offer. LEG set forth this fact in its separate statement of undisputed facts in support of its motion for summary judgment or summary adjudication. The Boxlers responded this fact was undisputed. Accordingly, we treat as undisputed that Gibb made a bona fide offer to purchase LEG’S interest in the Property.
Construing the right of first refusal as a perpetual—at least for the term of the TIC agreement—implied waiver of the right to partition is a disfavored interpretation.
5
“A restrictive covenant is to be construed strictly; where it is subject to more than one interpretation, that consistent with
Since the Boxlers’ interpretation of the right of first refusal as a perpetual waiver is not necessary to fulfill the purposes of the right of first refusal, and since such interpretation is contrary to the policy of the law favoring partition, we decline to adopt it. Instead, we follow Schwartz and find the right of first refusal modified the statutory right to partition and required the selling cotenant to first comply with the terms of paragraph 6.1 of the TIC agreement before seeking partition. The trial court erred in finding the right of first refusal was a permanent waiver of the statutory right of partition for the term of the TIC agreement. Because LEG complied with the terms of paragraph 6.1 of the TIC agreement before filing this partition action, the trial court erred in granting summary adjudication on the Boxlers’ third affirmative defense of implied waiver of the right to partition.
IIL-IV. *
DISPOSITION
The judgment and the order awarding the Boxlers attorney fees are reversed. The trial court is directed (1) to vacate its orders granting the Boxlers’ motion for summary adjudication and denying LEG’S motion for summary adjudication; (2) to enter a new order granting LEG’S motion for summary adjudication on its first cause of action for partition by sale, and to
Scotland, P. L, and Sims, 1, concurred.
Notes
LEG had previously filed a complaint for partition in 2004, before it had received an offer for its interest in the Property. The Boxlers moved for summary adjudication on the basis paragraph 6.1 of the TIC agreement waived the right to partition. Before that motion was heard, LEG dismissed its action.
See footnote, ante, page 484.
The Boxlers characterize LEG’S position as contending the right of first refusal is a single one-time obligation and it disappears once it is refused. We disagree. We understand LEG’s position to be that the right of first refusal applies whenever a cotenant wishes to sell its interest in the Property; if the other cotenant refuses the right of first refusal, the selling cotenant may then sell to a third party or, if that sale is unsuccessful, seek partition.
The Boxlers’ answer also cites the purpose of the acquisition of the Property as a long-term vacation home to support their affirmative defenses of waiver. The parties’ intended use of the property has been held to show an implied waiver of the right to partition.
(American
In reply to LEG’S opposition to their motion for summary adjudication, the Boxlers provided evidence of the lack of negotiation in reaching the sale price for the Gibb offer. The trial court sustained LEG’S objection to this evidence. The Boxlers contend they provided this evidence late “due to the timing of discovery.” Under Code of Civil Procedure section 437c, subdivision (h), the trial court may order a continuance to permit a party to obtain affidavits or conduct discovery to oppose a motion for summary judgment or summary adjudication. (Here, of course, the Boxlers provided late-discovered evidence to support their motion, suggesting their motion was premature.)
In
Harrison v. Domergue, supra,
See footnote, ante, page 484.