Zephyr Cove Lodge, Inc. v. First National Bank of Nevada

• Citation: 478 F.2d 1121
• Decision Date: 05 July 1973
• Docket Number: No. 71-1059.,71-1059.
• Parties: ZEPHYR COVE LODGE, INC., a corporation, Plaintiff-Appellant, v. The FIRST NATIONAL BANK OF NEVADA, as Administrator with Will Annexed of the Estate of George Whittell, Jr., Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

478 F.2d 1121 (1973)

ZEPHYR COVE LODGE, INC., a corporation, Plaintiff-Appellant, v. The FIRST NATIONAL BANK OF NEVADA, as Administrator with Will Annexed of the Estate of George Whittell, Jr., Defendant-Appellee.

No. 71-1059.

United States Court of Appeals, Ninth Circuit.

April 27, 1973.

Rehearing Denied July 5, 1973.

Morton Galane (argued), Las Vegas, Nev., Robert F. List, Carson City, Nev., for plaintiff-appellant.

Casey W. Vlautin (argued), Virgil Wedge, Woodburn, Forman, Wedge, Blakey, Folsom & Hug, Reno, Nev., for defendant-appellee.

Before ELY and HUFSTEDLER, Circuit Judges, and CRARY,^* District Judge.

CRARY, District Judge:

The within appeal is from a summary judgment entered in favor of Appellee Bank as Administrator with Will Annexed of the Estate of George Whittell, Jr.

The case involves a suit by Zephyr Cove Lodge, Inc., a corporation, the assignee of the lessee Gene F. Empey, who is the sole stockholder and president of Zephyr Cove Lodge, Inc., against George Whittell, Jr., lessor, on the jurisdictional basis as provided in Title 28, United States Code § 1332. The issues presented center on the provisions of paragraph 4 of the lease, namely:

"4. The Lessees agree that in the event the Lessor makes a bona fide sale of Zephyr Cove Beach at any time during the term of this lease, the Lessor shall then have the right to cancel this lease without penalty on six (6) months\' notice in writing to the Lessees, but in such case the Lessor shall remunerate the Lessees for the unamortized cost of improvements which the Lessees have made on the premises, evidenced by receipted bills. In the event the Lessor does have a bona fide offer of sale, the Lessees will be given the first opportunity to purchase at the same terms and conditions of said offer."

Leases on the Zephyr Cove property in which Empey, with others, had been lessees, contained the same provisions.

The property leased was known as the Zephyr Cove Beach, a resort consisting of 196.4 acres in Nevada with approximately 1400 feet of shoreline on Lake Tahoe. The lease was not recorded. This tract was a part of some 24,000 acres of Nevada land owned by Whittell which was the subject of the sale negotiations involved herein. The Zephyr Cove lease, executed on October 16, 1958, was between Whittell, as lessor, and Robert L. McDonald and Empey, as lessees. It was for the term January 1, 1959, to December 31, 1964. McDonald assigned his interest in the lease to Empey on June 2, 1959.

It is the position of the appellant, as stated by Empey, that it was the obligation of the lessor, under the provisions of paragraph 4 of the lease, to notify the lessee of any offer, if the lessor felt the price was satisfactory although the lessor also felt that a particular term or condition should be changed, and to give a right of first refusal at that price, or any adjusted price that the lessor considered satisfactory. The appellee contends that the lessor must propose to sell the property and terminate the lease to actuate the right of first refusal.

The crux of the case is whether the sentence calling for the right of first refusal is to be interpreted as an independent, free-floating provision unaffected by the first sentence of paragraph 4 of the lease, which concerned cancellation thereof on six months notice in case of a bona fide sale of Zephyr Cove Beach.

Mr. John S. Lewis, Jr., a real estate operator representing Whittell, opened negotiations in late October, 1962, with Joseph I. O'Neill, Jr., through a real estate broker, Charles G. Johnston, for the sale of the 24,000 acres of Whittell's Nevada property.

There was some misunderstanding on the part of Johnston as to when the Zephyr Cove lease terminated under the provisions thereof. He first advised O'Neill that it expired in 1962 and, as late as May 28, 1963, he stated that Whittell had guaranteed there was no lease on any of the properties that extended beyond 1963.

On June 3, 1963, Whittell and O'Neill signed an option agreement which gave O'Neill the option of purchasing the property in some fifteen parcels as detailed in the agreement. The option provided, among other things, that there was no lease on any of the properties "* * * covered by this option and agreement to purchase * * *" beyond December, 1963, "* * * excluding Zephyr Cove lease which runs to December 31, 1964." This option authorized the purchase of the property in fifteen parcels within one year from notice of exercise of the option, or over a period of four years following notice by O'Neill to the bank of exercise of the option, which he was required to do within 180 days from June 3rd, the date thereof, all as detailed in paragraphs B1 and 2 of the agreement. The Zephyr Cove property was parcel No. 14 as listed in the option.

On June 6, 1963, newspapers in Nevada and California carried announcements of O'Neill having contracted to buy Whittell's Tahoe land. Lewis, Sr., Whittell's lawyer, in his deposition taken July 1-2, 1969, said that he learned on or about June 6, 1963, of the first refusal clause in the Zephyr Cove lease and a letter dated June 17, 1963, from Johnston to O'Neill, received by O'Neill on June 18th, clearly indicated that they knew of the lease option at that time.

On June 20, 1963, Lewis, Sr., wrote to Johnston that he, Lewis, Sr., had interpreted the lease clause "* * * to mean that if the lease terminated on six months notice, Empey would have the right to buy at the same price it was offered to the other party. However, the lease will not be terminated and the construction of the provision would be in some doubt."

O'Neill's lawyer advised him that the lease gave Empey a right of first refusal in event of a bona fide sale and that as long as the lease was in force O'Neill should take only an option on the property. On August 13, 1963, Whittell and O'Neill executed a modification of the option and agreement to purchase to provide that upon receipt by the bank "* * * of the sum of $2,800,000 on January 15, 1965, the bank shall release the deed covering parcel 14."

On November 13, 1963, Lewis, Sr., advised Empey's attorney, who had made inquiry as to any sale of the property, that no sale of the Zephyr Cove property, which was in Douglas County, would take place until after the Washoe County and Ormsby County parcels were sold and that Empey's lease was in no danger as the group agreed to purchase the property in Washoe and Ormsby Counties over a period of approximately five years.

On November 11, 1963, Whittell extended the June 3rd option to March 3, 1964.

The State of Nevada had indicated a desire to purchase a portion of Whittell's land here involved, and in December, 1963, the appraisals by the State of Nevada were completed and the appraised value was $5,000,000 rather than the $18,000,000 expected. This resulted in renewed negotiations and a tentative sale price, submitted by Whittell on or about March 24, 1964, of $11,000,000 with a lease of the Zephyr Cove property for $100,000 per year from January 1, 1965, to December 31, 1969, with the option to purchase the Cove property for $2,500,000. O'Neill, through Johnston, indicated to Whittell by telegram on March 30, 1964, that Whittell's offer of March 24th was acceptable "in principal." Whittell, however, refused to sign the sale documents and on April 27, 1964, told O'Neill that the sale was off.

O'Neill thereafter sued Whittell for the property and after trial in the United States District Court it was adjudged that there was no binding contract since there was an abandonment or mutual recision of the option.

Exhaustive discovery was had before the appellees' motion for summary judgment was heard. All negotiations concerning possible sale of the Nevada property as a whole and the Zephyr Cove property separately were covered in detail, as disclosed in the hundreds of pages of depositions and documents set forth in the record on appeal and as disclosed in the briefs of the parties. The appellant does not contend that there is additional evidence to be produced at trial but that he should be allowed to argue certain portions, disclosed in the record, to the jury.

The history of paragraph 4 of the lease, supra, and its appearance in prior leases of the property is covered in the discovery but there is no evidence of negotiations between the lessor and lessees as to the interpretations of the parties of the right to first refusal provision at the time paragraph 4 was first included in a lease on the Zephyr Cove property nor at the time of the execution of the lease here involved on October 16, 1958, for the period from January 1, 1959, to December 31, 1964.

The District Court, in a twenty-two page Order granting the appellee's motion for summary judgment, details the facts and law to be applied as to both the case at bench and the companion consolidated case, Zephyr Cove Lodge, Inc., a corporation, v. RKO General, Inc., a corporation, and Joseph I. O'Neill, Jr., No. 71-1006. A separate per curiam opinion has been filed in that case.

In considering the propriety of the summary judgment herein, we of course, must view the evidence most favorable to the appellant. Having in mind that the issue is the interpretation of the provisions of paragraph 4 of the lease, any evidence of intent expressed orally between the lessor and the lessee or lessees should be considered, particularly for the purpose of ascertaining whether there be a material issue of fact to be determined.

The record does not disclose nor do the parties in their briefs point to any negotiations or communications between the parties to the lease involved, or as to a prior lease, which would indicate, or from which a trier of the facts might determine, what the parties intended by the provisions of paragraph 4 of the lease at the time it was entered into or to support appellant's theory that the first refusal clause was to be deemed a provision to be exercised independent of...