Hartzheim v. Valley Land & Cattle Co., H030053.

• Decision Date: 17 July 2007
• Docket Number: No. H030053.,H030053.
• Court: California Court of Appeals Court of Appeals
• Parties: Glen HARTZHEIM et al., Plaintiffs and Appellants, v. VALLEY LAND & CATTLE COMPANY et al., Defendants and Respondents.

62 Cal.Rptr.3d 815

153 Cal.App.4th 383

Glen HARTZHEIM et al., Plaintiffs and Appellants, v. VALLEY LAND & CATTLE COMPANY et al., Defendants and Respondents.

No. H030053.

Court of Appeal, Sixth District.

July 17, 2007.

Rossi, Hamerslough, Reischl & Chuck, Ronald R. Rossi, Susan R. Reischl, San Jose, Wendel, Rosen, Black & Dean, Charles A. Hansen, Oakland, Amanda Steiner, for Plaintiffs and Appellants Glen Hartzheim, Glen Hartzheim Capitol Dodge, Hartzheim Enterprises.

Reed Smith, Paul D. Fogel, Dennis Peter Maio, San Francisco, Ruby & Schofield, Allen Ruby, Glen W. Schofield, San Jose, for Defendants and Respondents Valley View Packing Company, LLC, Valley Land & Cattle Company, Salvatore J. Rubino, Kimberly A. Rubino, Patricia G. Rubino-Brunetti, as Trustee of the Tricia Andrea Marie Brunetti Trust No. 3, and Patricia G. Rubino-Brunetti, as Trustee of the Michael Leonard Brunetti Trust No. 3.

PREMO, J.

I. Introduction

Plaintiff Hartzheim Enterprises, LLC,¹ leased a parcel of real property from defendant Valley View Packing, Co. (Valley View) under a lease that gave Hartzheim a "right of first refusal" to purchase the property in the event Valley View decided to sell it. Valley View, which was a partnership owned and controlled by members of the Rubino family, transferred the property to the partners' grandchildren without giving Hartzheim an opportunity to purchase it. Hartzheim sued, claiming that Valley View had failed to honor the right of first refusal contained in the lease. On cross motions for summary adjudication the trial court held that the transfer did not trigger the right of first refusal. Hartzheim appeals from the resulting judgment.

We shall affirm. We conclude that this particular intra-family transfer did not trigger the right of first refusal because it was not made pursuant to a "bona fide offer from any third party for the purchase" of the property, as required by the parties' agreement.

II. Facts

Peter Rubino settled in the Santa Clara Valley in 1892. His sons, Sam, Leonard, and Joseph, formed Valley Land & Cattle Company (Valley Land & Cattle), a partnership in which each brother owned a one-third share. Over the years, Valley Land & Cattle acquired a number of pareels of real property, including a five acre parcel currently identified as 1050 Capitol Expressway in San Jose. In 1978, Valley Land & Cattle leased the Capitol Expressway property to Chrysler Realty Corporation for operation of a car dealership. Chrysler assigned the lease to Hartzheim in 1996. Hartzheim has operated a car and motorcycle dealership at the Capitol Expressway location ever since. There are approximately eight years left on the lease.

The Valley Land & Cattle partners have changed over the years. Leonard Rubino died in 1976, leaving his interest to his wife, Grace, and their daughter, Patricia.² Sam died in 1983 and left his interest to his wife, Rose, and their son, Salvatore. In 1992, Joseph's family relinquished its interest and the partnership changed its name to Valley View. At all pertinent times thereafter Valley View was made up of four partners: Rose, Grace, Salvatore, and Patricia. Salvatore's children, Kimberly and Salvatore J., and Patricia's children, Michael and Tricia (collectively, the grandchildren), held contingent interests in Valley View through trusts established by their parents or grandparents.

In addition to the Capitol Expressway property, the Rubino family owned the real property where the original Rubino family home had been located. That property was known to family members as the home ranch. In 1995, as part of the estate planning process, Rose and Grace transferred fractional interests in the home ranch to the grandchildren. The remaining interest in the home ranch was held by other Rubino family members.

In or about the year 2000, the Rubino family considered selling the home ranch. Since the property had been in the family for so long—parts of the home ranch had been purchased over 100 years ago—the sale was likely to result in substantial capital gains. Among the Rubino family businesses was Valley View Packing, Inc., a corporation wholly owned by the Valley View partnership. The corporation had a large net operating loss that it had been carrying forward on its books. Anthony DeMaria was an accountant employed by Valley View Packing, Inc., from 1994 through April 2001. He was controller of the corporation and was also responsible for advising the individual Rubino family members. He recommended that title to the home ranch be placed in the name of the corporation so that when the property was sold the corporation could offset any gains from the sale with the corporation's net loss, thereby reducing the tax consequences of the transaction. At the same time, Rose and Grace, who were both over 90, desired to reduce the size of their estates to reduce estate taxes that would be due upon their deaths. One way to do that was to reduce the assets they held through Valley View.

As a result of these tax concerns, Salvatore and Patricia, who were actively managing the partnership's affairs at the time, decided to have the grandchildren exchange their fractional interests in the home ranch for Valley View's interest in the Capitol Expressway property. For purposes of the exchange, the Capitol Expressway property was to be valued at its appraised value of $4 million. Valley View would then transfer the home ranch interests to Valley View Packing, Inc.

Salvatore and Patricia made these decisions in consultation with DeMaria and their mothers, Rose and Grace. The grandchildren did not negotiate the exchange or make any offer to Valley View for the purchase of the Capitol Expressway property. Indeed, Tricia and Michael were still minors at the time and their interests in the Capitol Expressway property were to be held by their mother, Patricia, as trustee of their individual trusts.

The transaction was completed as planned and, in the end, Valley View Packing, Inc., sold the home ranch without generating any tax liability and the value of the grandmothers' assets was reduced by the transfer of the Capitol Expressway property out of the Valley View partnership.³ Salvatore stated in his declaration that, "no one in the Rubino family ever considered selling the Capitol Expressway Property to any third party. In fact, the intent was just the opposite—to transfer the property to the grandchildren so that the property would remain within the family."

III. Procedural Background

Paragraph 18 of the Capitol Expressway lease gives the lessee a right of first refusal to purchase the property in the event the landlord obtains a "bona fide offer from any third party" that the landlord is willing to accept. Hartzheim believed that Valley View's transfer of the property to the grandchildren should have triggered that right. Hartzheim filed this lawsuit in 2003, naming the Rubino family partnerships and the four grandchildren as defendants.⁴ The second amended complaint contains seven causes of action: (1) breach of contract, (2) intentional interference with contract, (3) specific performance, (4) conspiracy, (5) aiding and abetting, (6) constructive trust, and (7) declaratory relief. The first six causes of action pertain to Hartzheim's argument that defendants had breached the lease by failing to offer the property to him. Hartzheim seeks cancellation of the deed to the grandchildren and the opportunity to purchase the property upon the same terms and conditions it was acquired by the grandchildren. The seventh cause of action, which is not the subject of this appeal, sought a judicial declaration concerning the manner in which rent was calculated.

Hartzheim filed a motion for summary adjudication of the cause of action for specific performance. Defendants opposed the motion and filed their own motion for summary judgment or, in the alternative, summary adjudication of all seven causes of action. Defendants argued that, as a matter of law, they had not breached the lease because the transaction at issue had not triggered the right of first refusal and that they were entitled to a declaration pertaining to the calculation of rent.

The trial court denied Hartzheim's summary adjudication motion and granted defendants' motion as it pertained to the first six causes of action. The trial court concluded that the undisputed evidence established that plaintiffs' right of first refusal was not triggered by the transfer to the grandchildren because the transfer was part of the grandmothers' estate planning and, therefore, it "was not transferred pursuant to a `bona fide offer' from a `third party' as required by paragraph 18 of the lease." The court further found that, even if the right was triggered by the proposed transaction, there was no transfer for value or sale of the property because the property the grandchildren traded for the Capitol Expressway property had been a gift from their grandmothers. After the parties stipulated to the dismissal of the seventh cause of action, the trial court entered judgment in favor of defendants. Hartzheim appeals from the judgment, challenging only the summary adjudication of the breach of contract, specific performance, and constructive trust causes of action.

IV. Standard of Review

As in any appeal challenging a trial court's summary judgment or summary adjudication ruling, our review is de novo. (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 334, 100 Cal.Rptr.2d 352, 8 P.3d 1089.)

V. Discussion

A right of first refusal, also called a preemptive right (7 Miller & Starr, Cal. Real Estate (3d ed.2004) § 19:136, p. 421), is "the `conditional right to acquire ... property, depending on the [owner's] willingness to sell.' [Citation.] The holder of the right merely has the preference to purchase the property over other purchasers if the owner of the property 'elects to sell the property.' [Citation.] The right does not become an option to...