Better Baked, LLC v. GJG Prop., LLC

• Citation: 465 P.3d 84
• Decision Date: 26 March 2020
• Docket Number: Court of Appeals No. 18CA2084
• Parties: BETTER BAKED, LLC, a Colorado limited liability company, Plaintiff-Appellant, v. GJG PROPERTY, LLC, a Colorado limited liability company; Peak Holdings Group, LLC, a Colorado limited liability company; and Dorenka LLC, a New York limited liability company, Defendants-Appellees.
• Court: Colorado Court of Appeals

465 P.3d 84

BETTER BAKED, LLC, a Colorado limited liability company, Plaintiff-Appellant,

v.GJG PROPERTY, LLC, a Colorado limited liability company; Peak Holdings Group, LLC, a Colorado limited liability company; and Dorenka LLC, a New York limited liability company, Defendants-Appellees.

Court of Appeals No. 18CA2084

Colorado Court of Appeals, Division I.

Announced March 26, 2020

Rehearing Denied April 23, 2020

City Park Law Group, LLC, Wayne E. Vaden, Denver, Colorado; Van Remortel, LLC, Fred Van Remortel, Denver, Colorado, for Plaintiff-Appellant

Brown Dunning Walker, PC, Neal K. Dunning, Drew P. Fein, Denver, Colorado; Shapiro Bieging Barber Otteson, LLP, Julie A. Trent, Duncan E. Barber, Denver, Colorado, for Defendants-Appellees

Opinion by JUDGE DAILEY

¶1 In this dispute over a right of first refusal (ROFR) in a commercial lease, Better Baked, LLC (tenant), appeals the district court's judgment entered in favor of GJG Property, LLC (landlord); Peak Holdings Group, LLC (Peak); and Dorenka LLC (Dorenka) (collectively, petitioners) granting their petition to declare that two lis pendens recorded by tenant against property owned by landlord and partly leased to tenant were spurious documents. The court also awarded petitioners attorney fees. We affirm in part, reverse in part, and remand for further proceedings.

I. Factual Background and Procedural History

¶2 Tenant leased approximately 6800 square feet in a 7800-square-foot warehouse owned by landlord (the property). Article forty-two of the lease gave tenant an ROFR for the five-year term of the lease. Under the ROFR, if landlord offered to sell the property or received and desired to accept a bona fide offer to purchase the property, landlord was required to send tenant a copy of the contract and notice of its intent to make or accept an offer. Then, tenant would have the right to purchase the property on the same terms and conditions set forth in the contract.

¶3 In 2016, after a dispute arose between tenant and landlord concerning some charges under the lease, tenant brought an action against landlord seeking declaratory relief. Tenant and landlord settled their dispute and the case was dismissed without prejudice.

¶4 In August 2017, tenant procured a buyer for the property, Larry and Ramona Reed. The Reeds and landlord signed a purchase agreement. During the executory period of that contract, tenant and landlord entered into a First Amendment to the lease. A recital explained:

Landlord is under contract to sell the Property (the "Transaction"), which sale is contingent on the waiver and termination of the ROFR. Tenant has agreed to waive and terminate the ROFR.

In the First Amendment, the parties agreed that

Tenant acknowledges and agrees that it has received all information regarding the Transaction that it has requested and it hereby waives the ROFR with respect to the Transaction.

As of the Effective Date, the Lease is hereby amended to delete Article 42.

¶5 In February 2018, landlord entered into a different purchase agreement for the property with Peak, another tenant at the property that had asserted an ROFR under its lease. Peak assigned its rights to Dorenka. Landlord asserted that tenant's ROFR waiver in the First Amendment applied to the pending Dorenka purchase, which tenant disputed.

¶6 Tenant's counsel recorded a lis pendens against the property that referenced the dismissed action. A few days later, tenant commenced a new action against landlord and recorded a second lis pendens referencing that action. The complaint in the new action sought damages and declaratory relief that tenant was "entitled to the exercise the first right of refusal." Tenant did not seek specific performance.

¶7 Petitioners brought an action against tenant to remove both lis pendens as spurious documents under sections 38-35-201 to - 204, C.R.S. 2019, which governs "spurious" liens and documents. This action was consolidated with tenant's second action. Following a show-cause hearing, the district court entered a written order that included the following findings:

• tenant "has failed to provide an adequate showing that [its] waiver of their [sic] right of first refusal was condition [sic] on the sale of the property to the Reeds";

• "the only credible evidence presented to the court showed that the waiver was valid and that it contained no conditional language"; and

• tenant's conduct, "by bringing a third party (the Reeds) to purchase the Property, acted as a constructive waiver of their [sic] right of first refusal."

¶8 Based on these findings, the court determined that, even if meritorious, the claims asserted in tenant's second action "would not affect title to, or the right of possession of the Property." It concluded that both lis pendens were "groundless, and as such, are spurious and invalid," released both, and awarded attorney fees against tenant.

¶9 Subsequently, the court, acting pursuant to C.R.C.P. 54(b), certified that there was no just reason for delay in entering final judgment in petitioners’ favor.

II. Issues Presented

¶10 Tenant asserts that the district court made four errors:

1. declaring both lis pendens spurious "despite being lawfully recorded ... in conjunction with the filing of [tenant's] complaints";

2. concluding that the ROFR waiver in the first amendment was not contingent on sale to the Reeds;

3. concluding that even if the waiver could have been applied in a sale to Peak, it could also be applied to the Dorenka sale; and

4. concluding that by procuring the Reeds as buyers, tenant "constructively waived the ROFR."

¶11 We agree with tenant that the district court erred in reaching the waiver issue. Thus, we conclude that it erred in finding the second lis pendens was groundless. Given that conclusion, we do not reach tenant's second, third, or fourth issues.

III. The Trial Court Erred in Concluding that the Second Lis Pendens Was Groundless

¶12 Tenant says, "Even assuming, arguendo , that the First Lis Pendens was invalid because the underlying case had been dismissed, the Second Lis Pendens was not ...." Tenant contends that the district court evaluated its second lis pendens under the wrong standard. Tenant argues that rather than reaching the merits of landlord's waiver defense, the district court should have asked only whether, based on the allegations in the complaint concerning the ROFR, tenant had put forward a "rational argument based on the evidence or the law" that the second action could affect title to real property. We agree with tenant.

A. Law

1. Lis Pendens

¶13 Section 38-35-110(1), C.R.S. 2019, authorizes the recording of a lis pendens "[a]fter filing of any pleading" when the relief sought "affect[s] the title to real property." The recording is proper if the claimant shows that the claim "relates to a right of possession, use, or enjoyment of real property." Hewitt v. Rice , 154 P.3d 408, 412 (Colo. 2007) ; James H. Moore & Assocs. Realty, Inc. v. Arrowhead at Vail , 892 P.2d 367, 373 (Colo. App. 1994).

¶14 Our supreme court broadly interprets the phrase "affecting the title to real property." Kerns v. Kerns , 53 P.3d 1157, 1165 (Colo. 2002) (quoting § 38-35-110(1) ). In Pierce v. Francis , a division of this court explained that construing the lis pendens statute broadly furthers the policy behind the statute. 194 P.3d 505, 509-10 (Colo. App. 2008) ("The policy underlying a notice of lis pendens is to prevent a proceeding involving real property rights from being thwarted by transfers of property interests to persons not bound by the outcome of the proceeding."). It added, "even when a dispute does not seek to change ownership in any way but involves a determination of rights incident to ownership, a lis pendens notice is appropriate." Id. (also noting that, because claims in a will contest could affect title to real property in the estate, those claims were sufficient to justify recording a lis pendens); see Kerns , 53 P.3d at 1164-65 (an equitable action to impose a constructive trust on real property does not operate directly on title but is a type of action that may affect legal title); Hammersley v. Dist. Court , 199 Colo. 442, 446, 610 P.2d 94, 97 (1980) (An action to enforce building restrictions in a restrictive covenant is one "affecting title to real property.").

¶15 An ROFR¹ may affect title to real property within the meaning of section 38-35-110(1). In Cambridge Co. v. East Slope Investment Corp. , a division of this court held that a valid ROFR for condominium units "create[s] an interest in land subject to a condition precedent." 672 P.2d 211, 213 (Colo. App. 1983), rev'd on other grounds , 700 P.2d 537 (Colo. 1985). Likewise, in Houtchens v. United Bank of Colorado Springs, N.A. , another division acknowledged that an ROFR could be subject to the statute of frauds because it involved an interest in land. 797 P.2d 814, 815 (Colo. App. 1990). And in two other cases, the holders of ROFRs recorded notices of lis pendens to protect their interests in real property. Thompson v. Md. Cas. Co. , 84 P.3d 496 (Colo. 2004) ; Hein Enters., Ltd. v. S.F. Real Estate Inv'rs , 720 P.2d 975 (Colo. App. 1985).

¶16 "The vast majority of courts and commentators have held that [ROFRs] ... are interests in property and not merely contract rights," because "if the property owner attempts to sell to someone other than the owner of the right of first refusal ..., the latter may have a court of equity enter a decree of specific performance ordering that the property be conveyed to him." Ferrero Constr. Co. v. Dennis Rourke Corp. , 311 Md. 560, 536 A.2d 1137, 1139 (1988) ; see Stuart Kingston, Inc. v. Robinson , 596 A.2d 1378, 1384 (Del. 1991) ("[A] vast majority of courts and commentators view [ROFRs] as equitable claims sufficient to support an action for specific performance .... Because the holder of the [ROFR] acquires merely an equitable interest, it remains inchoate until the owner decides to sell thus triggering the [ROFR]."); see also In re...