Ih Riverdale v. Mcchesney Capital Partners

• Decision Date: 20 June 2006
• Docket Number: No. A06A0611.,A06A0611.
• Citation: 633 S.E.2d 382,280 Ga. App. 9
• Parties: IH RIVERDALE, LLC et al. v. McCHESNEY CAPITAL PARTNERS, LLC et al.
• Court: Georgia Court of Appeals

280 Ga. App. 9

633 S.E.2d 382

IH RIVERDALE, LLC et al. v. McCHESNEY CAPITAL PARTNERS, LLC et al.

No. A06A0611.

Court of Appeals of Georgia.

June 20, 2006.

David L. Pardue, Hartman, Simons, Speilman & Wood, Atlanta, for appellants.

George N. Sparrow, Jr., Fayetteville, Jill Pryor, Atlanta, Bondurant, Mixson & Elmore, for appellees.

ADAMS, Judge.

Through their respective limited liability companies, George McChesney and Geoff Nolan agreed to develop an apartment complex in Clayton County to be known as the Meadow View Apartments ("Phase I"). One provision of the parties' agreement gave Nolan a right of first refusal to participate in the development of an additional apartment complex to be known as Meadow Springs Apartments ("Phase II"). The primary question in this case is whether that right was properly offered and accepted.

A third party, Schejola Partners, LP, ultimately invested in Phase II instead of Nolan's company IH Riverdale, LLC ("IH"). Nolan and IH brought suit against McChesney and others for breach of the right of first refusal and, among other things, for breach of contract for failure to pay a 5 percent "guaranty profits distribution" provided in the parties' Phase I agreement. The defendants counterclaimed. The parties filed cross motions for summary judgment on numerous issues, which the court granted in part and denied in part. Only Nolan and IH have appealed, and essentially, they raise only two issues: that the trial court erred by granting summary judgment to the defendants rather than to Nolan and IH on the right of first refusal; and that the trial court erred by denying summary judgment to IH on the issue of the 5 percent profits distribution.

Summary judgment is proper when there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. OCGA § 9-11-56(c). We review a grant or denial of summary judgment de novo and construe the evidence in the light most favorable to the nonmovant. Home Builders Assn. of Savannah v. Chatham County, 276 Ga. 243, 245(1), 577 S.E.2d 564 (2003).

1. On the trial court's decision to grant MCP's motion for summary judgment and to deny IH's on the right of first refusal, with only a few exceptions, the relevant facts are undisputed. The evidence shows that in early 2002, IH and McChesney Capital Partners, LLC ("MCP") entered into an agreement to develop Phase I. One provision of the agreement gave IH the right of first refusal to participate as an investor in the development Phase II. Specifically, the agreement provides as follows:

. . . [MCP] and IH agree that [MCP], or its affiliates, shall give IH the first right of refusal to invest in the Second Phase. If IH elects to invest, IH shall have the right to invest from twenty-five percent up to fifty percent of the capital and receive its proportionate share of profits and losses and [ MCP] shall invest the balance, from fifty to seventy-five percent of the capital and receive its proportionate share of profits and losses, provided both Nolan and [MCP], or related affiliates, are guarantors on the Second Phase. . . .

The agreement does not provide a time limitation in which IH must respond to an offer of the right of first refusal. But the agreement does provide that "Time is of the essence of this agreement."

On Wednesday March 12, 2003, by overnight delivery, Nicholas Walldorff of MCP sent Nolan a letter offering IH its right of first refusal to invest in Phase II; MCP gave IH seven days to respond. The letter stated that MCP was proceeding with Phase II and that another investor had agreed to the terms shown on the attached "preliminary term sheet." It then presented the offer and specified that IH respond by March 19 on a return copy of the letter "[g]iven the tight closing schedule":

I have attached for your information the preliminary term sheet for investment in the Second Phase of the project, and we have another investor who has agreed to these terms, subject to your right of first refusal under Section 5.11(e) of the Riverdale Operating Agreement. As we anticipate closing this investment on or about April 1, 2003, please indicate on the attached page whether IH Riverdale intends to exercise its right of first refusal and invest in the project on the terms set forth in the attached term sheet. Given the tight closing schedule, we would request that you notify us of your intentions by returning a copy of this letter (with the attached page completed and signed) no later than March 19, 2003.

The second page of the letter stated that Nolan should check one of two sentences in order to indicate whether he intended to "exercise [IH's] right of first refusal. . . and agree[] to the investment terms set forth on the attached term sheet"; and it had a place for Nolan's signature.

The attached "preliminary term sheet" was dated March 11, 2003, and among other things it indicated a "Proposed Investment Amount" of $1,150,000, a "development fee" of $300,000 for an MCP affiliate, and payment of a "cumulative non-compounding rate of return equal to 6.5% per annum" to the investors, namely IH and MCP. As quoted above, the letter indicated that another investor had agreed to these same terms.

But MCP had delivered a not quite identical term sheet to Schejola Partners, LP, also dated March 11, 2003. In McChesney's deposition he twice stated that the same terms were offered to Schejola and IH, but Schejola's term sheet indicated a "Proposed Investment Amount" of $1,000,000 and no development fee for an MCP affiliate. It did, however, provide the same 6.5 percent return for the investors.

On March 20, 2003, one day after the requested response time, Nolan faxed a letter to MCP. In the letter, Nolan stated that IH was "interested" in pursing the investment:

We have received the summary letter of the investment proposal for Phase II. In essence, IH Riverdale is interested in pursuing an equity investment of between 25% and 50% of the $2,300,000 total equity requirement, along the general terms as outlined in your letter of March 12, 2003.

Nolan then continued, "However, many questions and issues remain to be clarified before investment documents could be signed; most of these should be answerable in the previously requested meetings." And he closed with, among other things, "I look forward to hearing from you soon and a continuation of our relationship." But Nolan did not return page 2 of the letter signed and marked as requested.

On March 21, the next day, McChesney sent an email to Nolan and stated that Nolan had failed to respond in the time allotted, although McChesney mistakenly referred to the allotted time as ten days. On the following day, Nolan replied by email in an attempt to clarify that he was accepting the offer:

In all candor, I responded within 8 days of the date of the "offer" of first refusal, and within 7 days of receipt of the offer (received on the 13th). I responded before expiration of a "10" day period. I also said that I would accept the offer as presented in your correspondence. . . . [We] are still planning to invest along the terms of the offer sheet, as we have responded.

On April 3, 2003, MCP closed the investment with Schejola. The final agreement with Schejola provided a 7.5 percent annual rate of return to Schejola, as opposed to the 6.5 percent rate provided in the March 11, 2003 term sheets. And, MCP asserts, under the final agreement, Schejola agreed to pay the $300,000 development fee.

In the order on the motions for summary judgment, the trial court held that IH failed to respond in time to the offer under the right of first refusal, and that when it did, it did not accept unequivocally, therefore it failed to exercise the right. IH contends the trial court erred for three reasons: (1) IH was never obligated to respond because MCP never offered IH the same terms accepted by Schejola; (2) IH was not obligated to respond within the unilateral, unreasonable deadline requested by MCP; and (3) IH accepted the purported offer within a reasonable time. MCP, on the other hand, agrees with the trial court's reasoning, and it also asserts that the right of first refusal is not enforceable because it lacks a triggering term. See Booker v. Hall, 248 Ga.App. 639, 548 S.E.2d 391 (2001).

(a) Booker is inapplicable here because MCP clearly understood that the right of first refusal had been triggered. See OCGA § 13-2-4 (2005) ("[T]he meaning placed on the contract by one party and known to be thus understood by the other party at the time shall be held as the true meaning."); M.W. Buttrill, Inc. v. Air Conditioning Contractors, 158 Ga.App. 122(1), 279 S.E.2d 296 (1981) (indefinite contract can become definite and enforceable through the subsequent acts, words, and conduct of the parties); Rollins v. Gault, 153 Ga.App. 781, 782, 266 S.E.2d 560 (1980) (evidence may be received to aid in the interpretation of an ambiguous right of first refusal).¹

(b) The second issue is whether IH was offered the same terms as Schejola, and if not, whether any differences were material.

"A right of first refusal is a preemptive right; it sets a requirement that when the owner decides to sell, the person holding the right of first refusal must be offered the opportunity to buy." (Footnote and emphasis omitted.) Studio X, Inc. v. Weener, Mason & Nathan, 276 Ga.App. 652, 654, 624 S.E.2d 157 (2005). "In exercising a right of first refusal, the holder of the right is empowered to contract `at the same price and upon the same terms and conditions' as those contained in a bona fide third-party offer. Shiver v. Benton, 251 Ga. 284, 288, 304 S.E.2d 903 (1983)." Bouy, Hall & Howard & Associates v. Savannah Airport Com'n, 256 Ga. 181, 181-182(1), 345 S.E.2d 349 (1986). See also Corbin on Contracts, § 11.3. If the offers were in fact different, whether the difference in terms is material is determinative. See Shiver v. Benton, 251 Ga. at 288-289(2), 304...