MS Real Estate Holdings, LLC v. Donald P. Fox Family Trust

• Decision Date: 15 May 2015
• Docket Number: No. 2013AP679.,2013AP679.
• Citation: 362 Wis.2d 258,864 N.W.2d 83
• Parties: MS REAL ESTATE HOLDINGS, LLC, Plaintiff–Appellant, v. DONALD P. FOX FAMILY TRUST, Jean A. Fox Revocable Living Trust, Jean A. Fox, Michael J. Fox, Thomas P. Fox, Karen L. Brazee, Carol L. Brewer, Ellen J. Fox and Amy J. Alaniz, Defendants–Respondents–Petitioners.
• Court: Wisconsin Supreme Court

362 Wis.2d 258

864 N.W.2d 83

MS REAL ESTATE HOLDINGS, LLC, Plaintiff–Appellant

v.DONALD P. FOX FAMILY TRUST, Jean A. Fox Revocable Living Trust, Jean A. Fox, Michael J. Fox, Thomas P. Fox, Karen L. Brazee, Carol L. Brewer, Ellen J. Fox and Amy J. Alaniz, Defendants–Respondents–Petitioners.

No. 2013AP679.

Supreme Court of Wisconsin.

Decided May 15, 2015.

For the defendants-respondents-petitioners, there were briefs by Charles D. Koehler, Michael C. Menghini, and Herrling Clark Law Firm, Ltd., Appleton. Oral argument by Charles D. Koehler.

For the plaintiff-appellant, there was a brief by Jordan J. Hemaidan, Michael P. Screnock, and Michael Best & Friedrich LLP, Madison. Oral argument by Jordan Hemaidan.

There was an amicus curiae brief by Cori Moore Lamont and Wisconsin Realtors Association, Madison, on behalf of the Wisconsin Realtors Association.

Opinion

MICHAEL J. GABLEMAN, J.

¶ 1 We review a published decision of the court of appeals¹ reversing the Outagamie County circuit court's order² granting summary judgment in favor of Donald P. Fox Family Trust, Jean A. Fox Revocable Living Trust, Jean A. Fox, Michael J. Fox, Thomas P. Fox, Karen L. Brazee, Carol L. Brewer, Ellen J. Fox, and Amy J. Alniz (“the Foxes”). The Foxes moved for summary judgment, arguing that the right of first refusal contract between the Foxes and MS Real Estate Holdings, LLC (“MS Real Estate”)³ was (1) indefinite and (2) terminable at will. The circuit court concluded that the right of first refusal contract was indefinite and subject to termination at will, by either party, after a reasonable period of time. This was so, the circuit court reasoned, because the right of first refusal contract identified neither a specific duration for the contract, nor an event terminating the contract that was certain to occur.

¶ 2 The court of appeals reversed, concluding that the right of first refusal contract is not indefinite. MS Real Estate Holdings, LLC v. Donald P. Fox Family Trust, 2014 WI App 84, ¶ 23, 356 Wis.2d 307, 853 N.W.2d 627. The court of appeals concluded that the right of first refusal contract is not indefinite because in the event MS Real Estate fails to exercise the right of first refusal to purchase, such failure would necessarily constitute a waiver of the right to lease.Id. Therefore, the court of appeals concluded the entire right of first refusal contract (that is, both the purchase and lease provisions) expires only when MS Real Estate either exercises, or declines to exercise, its right to purchase. Id., ¶¶ 29–31.

¶ 3 The sole issue presented for our consideration is whether a triggering event uncertain to occur renders a right of first refusal contract indefinite, thereby allowing a party to terminate the contract at will after a reasonable period of time.

¶ 4 We hold that a right of first refusal contract is definite as to duration when it specifies an event that triggers the right and requires the right holder to either exercise or waive the right within a specified period of time thereafter, even if the triggering event is not certain to occur. Therefore, the right of first refusal contract at issue here is not terminable at will after a reasonable period of time. Rather, by the terms of the contract, the right of first refusal continues until there is a sale of the property, either to MS Real Estate or to a third party in the event that MS Real Estate declines to exercise its right of first refusal to purchase, thereby waiving its right. Accordingly, the decision of the court of appeals is affirmed.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

¶ 5 MS Real Estate operates a dairy farm that adjoins approximately 450 acres of farmland in the Town of Freedom in Outagamie County, Wisconsin, owned by the Foxes (“the Fox Land”). On January 16, 1998, MS Real Estate, as Tidy View Dairy, Inc., contracted with Donald P. Fox and Jean A. Fox for a right of first refusal to purchase or lease the Fox Land. MS Real Estate paid Donald and Jean Fox $4,000⁴ for the right of first refusal to purchase the Fox Land and the right of first refusal to lease the Fox Land.

¶ 6 The purchase provision of the right of first refusal contract states:

Section 1: Right of First Refusal to Purchase

Fox grants and conveys to Tidy–View a first right to purchase the Property, or any part thereof, for the same price and on the same terms which Fox is willing to transfer such Property to another party. Prior to such transfer, Fox shall deliver to Tidy–View a written copy of the Offer, which Fox is willing to accept. Tidy–View shall then have 15 (fifteen) days in which to accept or reject the Offer according to its price, terms and conditions. If the Offer is accepted, the transfer shall be closed in accordance with the Offer with Tidy–View as purchaser. If the Offer is rejected, Fox may complete the sale in strict compliance with the Offer. If the sale is not closed, this first right of refusal shall again take effect.

¶ 7 Under the Right of First Refusal to Purchase provision, should the Foxes receive an acceptable offer to purchase, they must submit the offer to MS Real Estate—the successor to Tidy–View, see supra n. 3. MS Real Estate would then have 15 days to accept or reject the offer. If MS Real Estate rejects the offer, the Foxes may complete the sale with the third-party that made the initial offer, but only on the terms of the initial offer accepted by the Foxes. The contract also provides that the right of first refusal to purchase reattaches if the third-party sale does not close.

¶ 8 The Right to Lease provision states:

Section 2: Right to Lease

2.1 Leasing Rights. Fox grants and conveys to Tidy–View a first right to lease the Property, or any part thereof, for the same price and on the same terms which Fox is willing to Lease such Property to another party. Prior to execution of any Lease, Fox shall deliver to Tidy–View a written copy of the Lease, which Fox is willing to accept. Tidy–View shall then have 15 (fifteen) days in which to accept or reject the Lease according to its price, terms and conditions. If the Lease is accepted, Tidy–View shall be obligated to make all payments in accordance with the Lease with Tidy–View as Lessee. If the Lease is rejected, Fox may execute the Lease as Lessor with the other party as Lessee. If the Lease is not executed, the first right to lease shall again take effect.

¶ 9 The Right to Lease provision provides that MS Real Estate has a first right to lease the Fox Land which operates in a manner similar to the Right of First Refusal to Purchase provision. If the Foxes receive a lease offer they would accept, they must forward the offer to MS Real Estate. MS Real Estate must either accept or reject the lease offer within 15 days. If MS Real Estate rejects the lease, the Foxes may execute the lease with the third-party. If the Foxes do not execute the lease, then MS Real Estate's first right to lease reattaches.

¶ 10 The lease provision also includes a Continuing Rights provision under Section 2.2, which states that the right to lease “shall continue for any subsequent renewal of a Lease with another party or upon entering into a new Lease with any other party. It is specifically intended that this leasing right shall not extinguish unless waived by [MS Real Estate].”

¶ 11 The right of first refusal contract also contains a Binding Effect provision under Section 4, which states that “[t]his Agreement shall be binding upon the respective parties, their heirs, personal representatives, successors in interest and assigns.”

¶ 12 The Foxes leased the Fox Land to MS Real Estate in 2001. On October 4, 2006, Donald Fox sent MS Real Estate a commercial offer to purchase 37.4 acres of the Fox Land, putting MS Real Estate on notice that it had 15 days to accept or reject the offer. MS Real Estate declined to exercise its right to purchase the 37.4 acres. MS Real Estate notified the Foxes by letter and attached an agreement entitled “Release of Parcel From Right of First Refusal.” The letter stated that the attached agreement constituted waiver of the right of first refusal as to the 37.4 acres in question and reasserted MS Real Estate's right to the remainder of the Fox Land. However, the sale did not close, and, under the terms of the right of first refusal contract, the right of first refusal to purchase reattached.

¶ 13 On January 11, 2007, the parties executed a five-year land use agreement, which expired on January 11, 2012. The agreement contained a handwritten provision that stated MS Real Estate had the right of first refusal to purchase the land and that if the Foxes sold any portion of the Fox Land, the rent would be adjusted accordingly.

¶ 14 On July 29, 2011, the Foxes sent a notice to MS Real Estate which noted that their lease agreement would expire in January. In that notice, the Foxes invited MS Real Estate to submit a bid to lease the property beginning in 2012. The Foxes sent a second notice on October 26, 2011, which again requested that MS Real Estate present a bid on a 2012 lease of the Fox land. The notice also acknowledged MS Real Estate's right to first lease and that the Foxes would follow the procedure for allowing MS Real Estate to exercise its right should they receive other bids to lease the property.

¶ 15 MS Real Estate responded on November 8, 2011, by proposing two leases for the Foxes to choose between: a one-year lease and a three-year lease. The lease proposals also referenced MS Real Estate's right of first refusal and its intent to abide by the contract's provisions.

¶ 16 On December 1, 2011, the Foxes notified MS Real Estate that it was soliciting alternate lease proposals. On December 5, 2011, the Foxes sent MS Real Estate a proposal from Tinedale Cropping to lease the property from January 1, 2012, to December 31, 2016, at an initial price of $200 per acre (“the Tinedale Proposal”). MS Real Estate, believing that the Tinedale Proposal was acceptable to the Foxes, attempted to exercise its right of first...