Founding Members v. Nbcc

• Decision Date: 12 June 2003
• Docket Number: No. G030382.,G030382.
• Court: California Court of Appeals Court of Appeals
• Parties: FOUNDING MEMBERS OF THE NEWPORT BEACH COUNTRY CLUB, Plaintiff and Appellant, v. NEWPORT BEACH COUNTRY CLUB, INCORPORATED, Defendant and Respondent.

135 Cal.Rptr.2d 505

109 Cal.App.4th 944

FOUNDING MEMBERS OF THE NEWPORT BEACH COUNTRY CLUB, Plaintiff and Appellant, v. NEWPORT BEACH COUNTRY CLUB, INCORPORATED, Defendant and Respondent.

No. G030382.

Court of Appeal, Fourth District, Division 3.

June 12, 2003.

Grant, Genovese & Baratta, David C. Grant and Gordon G. May, Irvine, for Plaintiff and Appellant.

Pinto & Dubia, Laura P. Couch, Irvine; Dubia, Erickson, Tenerelli & Russo, Christian F. Dubia, Jr., and Mark D. Erickson, Irvine, for Defendant and Respondent.

OPINION

FYBEL, J.

INTRODUCTION

In this case, we examine and apply principles of contract interpretation to construe a "Right of First Offer" contained in the governing regulations of a country club. Our interpretation leads us to affirm summary judgment in favor of defendant The Newport Beach Country Club, Incorporated (NBCC).

Plaintiff Founding Members of The Newport Beach Country Club (Founding Members) is an unincorporated association. Its membership consists entirely of Class A Founding Members of The Newport Beach Country Club (the Club), which is owned by NBCC. Founding Members sued NBCC for breach of contract, specific performance, declaratory relief, and mandatory injunction for claims arising out of a Right of First Offer contained in the Club's governing regulations. The Right of First Offer provides, in relevant part: "In the event the Owner shall, at any time, desire to offer part or all of its legal interest in the Club for sale ..., Owner shall first extend the opportunity to purchase such interest in the Club to any organization then in existence composed solely of members or an organization of which at least fifty-one percent (51%) of the members or shareholders are then members of the Club, each of whom shall have advised Owner in writing of his election to become a shareholder or member of such `Member Organization.'"

In October 1999, IBC, Inc. (IBC), which owns all of the stock of NBCC, entered into an agreement to sell its stock to a third party. Founding Members contends this agreement triggered NBCC's obligations under the Right of First Offer. Founding Members did not, however, exist as of October 1999.

The trial court, in granting NBCC's motion for summary judgment, concluded the Right of First Offer extended only to an "organization" and neither Founding Members nor any member organization, as contemplated by the governing regulations, existed as of October 1999. The trial court also concluded the agreement to sell IBC's stock did not trigger NBCC's obligations under the Right of First Offer.

We conclude the trial court correctly construed the contract as extending the Right of First Offer only to a "Member Organization ... in existence." Because the undisputed facts revealed that neither Founding Members nor any member organization, as referred to in the governing regulations, existed as of the date of the agreement to sell IBC's stock, NBCC had no obligations under the Right of First Offer. In light of this conclusion, we do not address whether the agreement to sell IBC's stock constituted an agreement to sell "part or all" of NBCC's "legal interest in the Club." Founding Members does not challenge summary adjudication on its claim for injunctive relief.

Facts

On September 25, 1985, IBC Investment Co, Inc., acquired the assets of Irvine Coast Country Club, Inc. The assets included a private golf course and clubhouse on leased land in Newport Beach, known as the Irvine Coast Country Club (ICCC). Some ICCC members also had expressed interest in purchasing the club, but they were unsuccessful.

IBC Investment Co, Inc., changed ICCC's name to The Newport Beach Country Club and changed its own name to The Newport Beach Country Club, Incorporated. NBCC became the tenant of the ground lease on the land on which the Club is located.

IBC owns all of the stock of NBCC. Beverly Ray, as trustee of The Beverly K. Ray Trust, owns all of the stock of IBC.

Many club members were unhappy about the Club's sale to NBCC. Rumors were afloat that NBCC bought the Club for investment purposes and intended eventually to sell it to a foreign investor. In response to those concerns, NBCC extended an offer to become a Class A Founding Member of the Club. To become a Class A Founding Member, a member was required to make a deposit of $3,500 (later increased to $4,500), which NBCC would hold interest-free for 15 years.

The original NBCC governing regulations, dated September 1, 1985 and effective September 25, 1985 (the 1985 Governing Regulations), contained a Right of First Offer in the event any legal interest in the Club was offered for sale. Article V, section 2 of the 1985 Governing Regulations provided, in relevant part:

"SECTION 2. Right of First Offer.

"(a) In the event the Owner shall, at any time, decide to offer the legal interest in the Club for sale ..., it shall first extend the opportunity to purchase the Club to any organization then in existence, composed solely of Members, the members or shareholders of which organization include at least 51% of the Members, each of whom shall have advised Owner in writing of his election to become a shareholder or member of such organization....

"(b) In the event that such an organization does not exist, or if, in existence, such organization did not agree to purchase the Club on the proposed terms, then the Owner would be free to offer the Club for sale to any other party at an equivalent price and terms or at a greater price than offered to the Members' organization....

"The term `Members' as used in Article V refers to Class A Founding members."

Prospective club members were required to complete an application for membership in which the prospective member agreed that he or she will be "bound by and will comply with the Governing Regulations of the Club ... as ... may now exist or may from time to time be amended." The application stated that membership "does not confer ... any ownership interest in, or liability for, property and assets owned by [NBCC]."

In a letter dated October 22, 1985, William Ray and Thomas Deemer (then, respectively, chairman of the board and president of NBCC) "apologize[d]" to the Club members that "in our rush to get the new Governing Regulations published, the resulting small print makes reading tedious." The letter continued, "[w]e have been frequently asked the question, `Why should I become a Class A Founding member?' Our answer is that it is entirely your choice, but we feel that it is a good offer." In explaining the benefits of a Class A Founding Membership, the letter stated, "A Right of First Refusal. In the event a decision is ever made to sell the Club to an unrelated third party, it must be first offered to the Founding Members as a group. This precludes any future surprise changes in ownership."

The 1985 Governing Regulations was amended on September 1, 1987 (the 1987 Governing Regulations). The Right of First Offer was amended to read (in relevant part) as follows:

"SECTION 2. Right of First Offer.

"A. In the event the Owner shall, at any time, desire to offer part or all of its legal interest in the Club for sale Owner shall first extend the opportunity to purchase such interest in the Club to any organization then in existence composed solely of members or an organization of which at least fifty-one percent (51%) of the members or shareholders are then members of the Club, each of whom shall have advised Owner in writing of his election to become a shareholder or member of such `Member Organization.' In that event, the proposal will be submitted to such Member Organization in writing, setting forth the terms and conditions on which the Owner would be prepared to sell such interest in the Club. The Member Organization will be given sixty (60) days after receipt of the written offer to enter into an unconditional, binding contract with the Owner to purchase such interest in the Club on the terms and conditions proposed, with the sale to close not later than ninety (90) days thereafter....

"B. In the event that the Member Organization does not exist or, if in existence, such Organization did not agree to purchase the subject interest in the Club on the proposed terms, then the Owner will be free to offer such interest for sale to any other party at an equivalent price and terms or at a greater price and terms as Owner may determine in its sole discretion than offered to the Members Organization ....

"The term `members' as used in Article V refers only to Class A Founding members."

The 1987 Governing Regulations was subsequently amended on May 1, 1990, May 15, 1994, November 1, 1997, and September 15, 1999. None of these amendments altered the Right of First Offer.

On October 26, 1999, Beverly Ray entered into an agreement with PacPro, LLC (PacPro), to sell at least 81 percent of IBC's stock to PacPro for $73.5 million. In addition to the stock of NBCC, IBC owned the Balboa Bay Club, the Balboa Bay Racket Club, the Terrace Apartments, and other real property on Pacific Coast Highway. The agreement between Ray and PacPro did not allocate any portion of the purchase price to NBCC. Nonetheless, IBC's chief financial officer informally allocated $27.56 million to $30 million of the sale price to NBCC. Escrow on the PacPro sale was scheduled to close on March 31, 2000.

As of October 26, 1999, no member organization existed that was composed of Class A Founding Members. As of that date, NBCC had not received notice from any Class A Founding Member of his or her election to become a member or shareholder of a member organization.

In late January 2000, NBCC received a letter dated January 21, 2000 from an attorney representing "the NBCC Golf Club Equity Committee." The letter stated: "The Committee is currently in existence and at least fifty-one percent of its members are Class A Founding Members of the Newport Beach Country Club. This letter is being provided to you as notice...