Advanced Recycling Sys. LLC v. Southeast Properties Ltd. P'ship

• Decision Date: 18 August 2010
• Docket Number: No. 25304.,25304.
• Citation: 787 N.W.2d 778,2010 S.D. 70
• Parties: ADVANCED RECYCLING SYSTEMS, LLC, Plaintiff and Appellee,v.SOUTHEAST PROPERTIES LIMITED PARTNERSHIP, Defendant and Appellant.
• Court: South Dakota Supreme Court

787 N.W.2d 778

2010 S.D. 70

ADVANCED RECYCLING SYSTEMS, LLC, Plaintiff and Appellee,v.SOUTHEAST PROPERTIES LIMITED PARTNERSHIP, Defendant and Appellant.

No. 25304.

Supreme Court of South Dakota.

Argued April 27, 2010.

Decided Aug. 18, 2010.

COPYRIGHT MATERIAL OMITTED

Ronald A. Parsons, Jr., Johnson, Heidepriem & Abdallah, LLP, Mark D. O'Leary, Sioux Falls, South Dakota, Attorneys for plaintiff and appellee.

Michael J. Schaffer, Paul H. Linde, of Schaffer Law Office, Prof., LLC, Sioux Falls, South Dakota, Attorneys for defendant and appellant.

SEVERSON, Justice.

[¶ 1.] Advanced Recycling Systems, LLC initiated this breach of contract action against Southeast Properties, LP, alleging that Southeast Properties violated Advanced Recycling's right of first refusal when it sold the 8th & Railroad Center development without first offering 110 South Reid Street, a portion of the development subject to a right of first refusal, to Advanced Recycling. The trial court granted summary judgment in favor of Advanced Recycling. Southeast Properties appeals. We reverse and remand with instruction to enter a judgment consistent with this opinion.

BACKGROUND

[¶ 2.] Until 2004, Southeast Properties owned the 8th & Railroad Center development (“the development”) located in downtown Sioux Falls, South Dakota. The development consists of three properties: 110 South Reid Street; 106 North Reid Street; and, 110 North Reid Street. Although each of the properties has its own address, legal description, and real estate tax statement, Southeast Properties considered the three properties one development.

[¶ 3.] Advanced Recycling is a drop-off and processing station for waste management companies and other haulers to deposit recyclable materials such as paper products, plastics, and aluminum. Advanced Recycling sorts, bales, and ships these materials to mills or other manufacturing facilities for processing and reuse. Beginning in 1995, Advanced Recycling leased an aging, unheated building in the development known as 110 South Reid Street, as well as a small parcel of adjacent land, (“the leased premises”) from Southeast Properties. ¹ The parties' mutually executed lease was for a term of three years, commencing October 1, 1995, and ending September 30, 1998.

[¶ 4.] The lease gave Advanced Recycling a right of first refusal on the leased premises:

The Tenant shall have first right of refusal to purchase the premises in the event the Landlord chooses to sell and produces a written bonafide offer to purchase.... Tenant shall have thirty (30) days to match the bonafide offer and, should Tenant elect to match said offer, shall close on the purchase of the premises within an additional thirty (30) days from matching said offer or the date of closing as stated in the offer, whichever is later.

The parties agree that the right of first refusal provision was limited to the leased premises and did not apply to the development as a whole.

[¶ 5.] An addendum to the lease also gave Advanced Recycling an option to renew the lease:

The Tenant shall have one two (2) year option to renew this lease at the expiration of the initial term, subject to the terms and conditions of the agreement, except that the base rent will be increased by three percent (3%) each year over the previous year. Notice of the Tenant's intention to exercise the option must be given to the Landlord in writing at least 90 days prior to the expiration of the term of this lease. If the notice is not given by the Tenant, the lease shall terminate at the end of the original term without further notice.

Advanced Recycling exercised its option to renew the lease for an additional two years from October 1, 1998, through September 30, 2000. In September 1999, Advanced Recycling and Southeast Properties agreed to extend the lease for an additional three years, and Advanced Recycling was given the option to renew the lease for an additional three-year term at the expiration of the lease on September 30, 2003. Advanced Recycling exercised this option to renew the lease for an additional three- year term ending September 30, 2006. Each lease renewal made clear that “all of the terms, covenants, provisions, and additions of the original lease [would] be binding and remain in full force.”

[¶ 6.] In 2004, Southeast Properties contracted to sell the development, including the leased premises, to 8th & Railroad Center, LLC. Southeast Properties entered into a commercial purchase agreement to sell the development in March 2004 and conveyed the development by warranty deed on July 15, 2004. The leased premises were not sold separately, but were sold as part of the development. Southeast Properties did not receive a separate bona fide offer for the purchase of the leased premises, and no specific value was allocated to the leased premises.

[¶ 7.] On July 23, 2004, Advanced Recycling received notice that the development had been sold.² Advanced Recycling did not assert its right of first refusal at that time, but remained in possession of the premises under the terms of the lease. When Advanced Recycling began negotiating a new lease with 8th & Railroad Center in the summer of 2006, it discovered the right of first refusal provision in the existing lease and contacted an attorney. ³ Advanced Recycling entered into a new lease with 8th & Railroad Center on September 29, 2006. This lease contained a release of Advanced Recycling's claims against 8th & Railroad Center for the alleged violation of the right of first refusal. The prior lease, including the right of first refusal provision, expired on September 30, 2006.

[¶ 8.] In January 2007, Advanced Recycling initiated this breach of contract action against Southeast Properties and 8th & Railroad Center, alleging that Southeast Properties violated the right of first refusal when it sold the development to 8th & Railroad Center without first offering the leased premises to Advanced Recycling. Advanced Recycling requested specific performance or monetary damages. In June 2007, the parties stipulated to the dismissal of Advanced Recycling's claims against 8th & Railroad Center and for specific performance. The trial court entered an order to that effect in July 2007.

[¶ 9.] In November 2007, Advanced Recycling filed a motion for partial summary judgment on its breach of contract claim against Southeast Properties. Southeast Properties filed a cross-motion for summary judgment. A hearing on the motions was held in December 2007. The trial court subsequently issued a memorandum decision, granting summary judgment in favor of Advanced Recycling. The trial court rejected Southeast Properties' argument that Advanced Recycling's right of first refusal was not “triggered” because the leased premises were sold as part of a larger development. The trial court concluded that Advanced Recycling was entitled to monetary damages for the violation of the right of first refusal. After a bench trial on damages, the trial court awarded Advanced Recycling $484,542.36. Southeast Properties appeals.

STANDARD OF REVIEW

[¶ 10.] This Court's standard of review of a grant or denial of a motion for summary judgment is well settled. “In reviewing a grant or a denial of summary judgment under SDCL 15-6-56(c), we determine whether the moving party has demonstrated the absence of any genuine issue of material fact and showed entitlement to judgment on the merits as a matter of law.” Janis v. Nash Finch Co., 2010 SD 27, ¶ 6, 780 N.W.2d 497, 500 (quoting Dykstra v. Page Holding Co., 2009 SD 38, ¶ 23, 766 N.W.2d 491, 496). “The evidence must be viewed most favorably to the nonmoving party, and reasonable doubts should be resolved against the moving party.” Id. (citation omitted). “The nonmoving party, however, must present specific facts showing that a genuine, material issue for trial exists.” Id. (citation omitted). But in considering a trial court's grant of a motion for summary judgment, this Court “will affirm only if all legal questions have been decided correctly [.]” Gehrts v. Batteen, 2001 SD 10, ¶ 4, 620 N.W.2d 775, 777 (citing Holzer v. Dakota Speedway, Inc., 2000 SD 65, ¶ 8, 610 N.W.2d 787, 791).

ANALYSIS AND DECISION

[¶ 11.] 1. Whether Southeast Properties violated the right of first refusal when it sold the development without first offering the leased premises to Advanced Recycling.

[¶ 12.] It is essential to the resolution of this case to appreciate the difference between options and rights of first refusal. An option “gives the optionee the right to purchase the property at his election within an agreed period at a named price.” Crowley v. Texaco, Inc., 306 N.W.2d 871, 873 (S.D.1981) (citing Sinclair Ref. Co. v. Allbritton, 147 Tex. 468, 218 S.W.2d 185 (1949)). See Ziegler Furniture and Funeral Home, Inc. v. Cicmanec, 2006 SD 6, ¶ 17, 709 N.W.2d 350, 355 (“An option to purchase real property may be defined as a contract by which an owner of real property agrees with another person that the latter shall have the privilege of buying the property at a specified price within a specified time, or within a reasonable time[.]”) (quoting Kuhfeld v. Kuhfeld, 292 N.W.2d 312, 314 (S.D.1980)). An option contract is an irrevocable offer by the owner to sell on specified terms and creates a power of acceptance in the optionee. Straley v. Osborne, 262 Md. 514, 521, 278 A.2d 64, 68 (1971) (citing 1A Corbin Corbin on Contracts §§ 259, 260 (1963 ed.)) (additional citations omitted). The option is exercised when the optionee accepts the irrevocable offer, and an enforceable contract of sale is created. Id.

[¶ 13.] Unlike an option, a right of first refusal “does not entitle the [holder] to compel an unwilling owner to sell.” Landa v. Century 21 Simmons & Co., Inc., 237 Va. 374, 380, 377 S.E.2d 416, 419 (1989) (quoting Cities Serv. v. Estes, 208 Va. 44, 47, 155 S.E.2d 59, 62 (1967)). A right of first refusal is a conditional and presumptive right. Chapman v. Mut. Life Ins. Co. of N.Y., 800...