Kutkowski v. Princeville Prince Golf Course, LLC

• Decision Date: 20 March 2012
• Docket Number: No. 28826.,28826.
• Citation: 128 Hawai'i 344,289 P.3d 980
• Parties: Robert KUTKOWSKI, Plaintiff–Appellant/Plaintiff–Cross–Appellee, v. PRINCEVILLE PRINCE GOLF COURSE, LLC, a Delaware Limited Liability Company, Defendant–Appellee/Defendant–Cross–Appellant, and Doe Corporations 1–5, Doe Limited Liability Companies 1–5, Doe Partnerships 1–5, Doe Entities 1–5, John Does 1–5, and Jane Does 1–5, Defendants.
• Court: Hawaii Court of Appeals

128 Hawai'i 344
289 P.3d 980

Robert KUTKOWSKI, Plaintiff–Appellant/Plaintiff–Cross–Appellee,
v.
PRINCEVILLE PRINCE GOLF COURSE, LLC, a Delaware Limited Liability Company, Defendant–Appellee/Defendant–Cross–Appellant,
and
Doe Corporations 1–5, Doe Limited Liability Companies 1–5, Doe Partnerships 1–5, Doe Entities 1–5, John Does 1–5, and Jane Does 1–5, Defendants.

No. 28826.

Intermediate Court of Appeals of Hawai‘i.

March 20, 2012.

289 P.3d 981

Margery S. Bronster, Rex Y. Fujichaku, (Bronster Hoshibata), and Joe P. Moss, on the briefs, for Plaintiff–Appellant/ Plaintiff–Cross–Appellee.

David W. Proudfoot, Dawn N. Murata, (Belles Graham Proudfoot Wilson & Chun, LLP) and Colleen Hanabusa, on the briefs, for Defendant–Appellee/ Defendant–Cross–Appellant.

Opinion of the Court by LEONARD, J.

128 Hawai'i 345

Plaintiff–Appellant/Cross–Appellee Robert Kutkowski (Kutkowski ) appeals from the Final Judgment entered on October 2, 2007 (Judgment ), and challenges the Order Granting in Part and Denying in Part Defendant Princeville Prince Golf Course, LLC's Motion for Summary Judgment Filed May 11, 2007, Denying Plaintiff Robert Kutkowski's Motion for Summary Judgment Filed on June 1, 2007, and Ordering the Entry of Final Judgment Herein, entered on August 6, 2007 (Summary Judgment Order ), by the Circuit Court of the Fifth Circuit (Circuit Court ).¹ This case arises from a dispute over a right of first refusal contained in a lease agreement for a half-acre parcel that is part of a much larger undivided parcel, the owner of which, Princeville Corporation (Princeville Corp. ), sold the parcel to Defendant–Appellee/Cross–Appellant Princeville Prince Golf Course, LLC. (princeville LLC ). at the time of the sale, kutkowski was a holdover tenant. The case was resolved on cross summary judgment motions, with the Circuit Court concluding that the right of first refusal carried over to the holdover period, but that it was not triggered by the sale of the large undivided parcel.

On appeal, Kutkowski challenges the Circuit Court's conclusion that the right of first refusal was not triggered. In its cross appeal, Princeville LLC challenges the Circuit Court's conclusion that the right of first refusal carried over to the holdover period.

We affirm the Judgment, holding that: (1) when a lease for a specified term is not extended or renewed, and the lessee holds over after the expiration of the lease, unless otherwise agreed, Hawai‘i law implies that the parties' rights and obligations with respect to that holdover tenancy continue as set forth in the expired lease agreement; (2) although a holdover tenancy continues subject to the conditions of that tenancy determined by the original lease, the law will not imply a continued obligation to sell the leased property, absent an expression of the lessor's agreement to continue such obligation during a holdover tenancy; (3) where, as in this case, a right-to-first-refusal provision is not expressly limited to the term of the lease, another lease provision expressly makes all "applicable" lease provisions applicable to a holdover tenancy, and nothing in the lease agreement renders the right-to-first-refusal provision inapplicable to the holdover tenancy, the right to first refusal is applicable during the holdover tenancy; (4) generally, the desire to sell a large tract of land may not be taken as a manifestation of the seller's intention or desire to sell a smaller, undivided, parcel contained within it, so as to convert a right of first refusal on the smaller parcel into an exercisable option for its purchase; (5) Kutkowski's requested relief of specific performance would require a wholesale reformation of the parties' agreement and, inter alia, require judicial establishment of a price term, which would directly contradict the bargained-for rights of the parties; (6) Hawai‘i courts will not allow a property owner and a purchaser to, in effect, destroy a bargained-for right of first refusal before its expiration and, in many circumstances, would order an injunction of a prospective sale or the rescission and/or reconveyance of a completed

128 Hawai'i 346

289 P.3d 982

sale, in order to maintain the status quo, preserving a lessee's right of first refusal until its exercise, waiver, or termination at the expiration of the lease; and (7) under the circumstances of this case, including that the lessee holding the right of first refusal did not seek to enjoin or rescind the sale of a large undivided parcel of land that neither triggered nor destroyed a right of first refusal applicable to a small portion of that land, the requested relief of specific performance of the right of first refusal was properly denied.

I. BACKGROUND

Prior to 1998, Princeville Corp. owned an approximately 1,040–acre parcel of land located on the North Shore of Kaua‘i, above Anini Beach (Master Parcel ). Kutkowski's licensed premises (Premises ) is an approximately one-half acre portion of the Master Parcel, located at 3731A Anini Road, Kilauea, Kaua‘i, Hawai‘i.

In 1971, Kutkowski entered into an agreement to sublease the Premises from John Kai, the tenant of the Premises at the time. On November 1, 1984, after Mr. Kai's death, Kutkowski entered into an Agricultural Lease for the Premises, with Princeville Development Corp.,² for a five-year term ending on November 1, 1989, with a monthly rent of $80.

Prior to the expiration of the Agricultural Lease, Kutkowski and his wife, Janet Kutkowski (collectively, the Kutkowskis ), wrote a letter to Michael Y. Loo (Mr. Loo ), then the Vice President of Real Estate and Development for Princeville Development Corp., dated October 5, 1989, to request a renewal of the lease for another five-year term and an option to purchase the Premises. Kutkowski testified in a deposition that he did not remember whether he signed a new lease, but between 1989 and 1998 the Kutkowskis remained on the Premises, paying $200 per month for rent.

In 1998, Mr. Loo received another letter from the Kutkowskis, dated March 28, 1998, expressing their desire to negotiate a fixed rent of $750 per month and also include in the lease an option to purchase the Premises. This letter stated, "If this property is dividable from the large amount of property Princeville owns, we would be very serious about making a market value offer on this parcel."

Mr. Loo received a memorandum from William Powell (Mr. Powell ), of Wm. Powell Associates, Ltd., the managing agent for the Premises, dated April 26, 1998. The memorandum stated, in relevant part:

This will confirm our verbal conversation regarding the above tenant [Robert Kutkowski]. Their lease will be for five years at $750.00 per month, net to the Landlord.

The tenant will be provided a first right of refusal in case of subdivision and sale of the property he occupies. This first right of refusal shall not survive termination of the lease.

Kutkowski sent a letter addressed to Mr. Powell, dated April 30, 1998, and copied Mr. Loo. Kutkowski expressed in his letter that he would like to retract his initial acceptance of the $750 monthly rental rate and have it lowered to $550 per month with a $50 increase each year for 5 years, or a fixed monthly rent of $600. He also stated, "We are still very interested in keeping the first option to buy this property in the lease agreement."

Kutkowski sent another letter to Mr. Powell, dated June 15, 1998, with a copy to Mr. Loo. In the letter, Kutkowski confirmed that he accepted the new rent increase proposed in a letter he received on June 3rd and he stated, "Also I hope the new Lease Agreement will state an option for me to purchase the property if it's available someday."

On August 23, 1998, the Kutkowskis entered into a License Agreement with Princeville Corp. in which Princeville Corp. granted the Kutkowskis a license for a five-year term to continue to occupy and use the Premises. The License Agreement commenced on May 1, 1998, and expired on April 30, 2003. The

128 Hawai'i 347

289 P.3d 983

rent was set at $600 per month, increasing each year to an amount of $900 per month for the last year of the term. The License Agreement included a clause captioned "Option to Purchase," which expressly reserved to the licensor, Princeville Corp., the right to "sell the licensed premises" during the term of the License Agreement and provided Kutkowski a right to purchase the Premises if Princeville Corp. decided to sell. The offer would be subject to terms and conditions provided by Princeville Corp. Paragraph 2 of the License Agreement sets forth this term, more properly characterized as a right of first refusal (Right of First Refusal ), as follows:

2. Option to Purchase: Licensor [Princeville Corp.] expressly reserves the right to sell the licensed premises during the term of this license and to place such signs and notices on or about the premises for such purpose, subject only to the rights of the Licensee [the Kutkowskis] contained herein. In the event Licensor decides to sell the premises, it shall be first offered to Licensee on terms and conditions provided by Licensor;

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