SKI, Ltd. v. Mountainside Props., Inc.

• Court: Vermont Supreme Court
• Writing for the Court: ROBINSON, J.
• Citation: SKI, Ltd. v. Mountainside Props., Inc., 2015 VT 33, 114 A.3d 1169 (Vt. 2015)
• Decision Date: 06 February 2015
• Docket Number: No. 14–001.,14–001.
• Parties: SKI, LTD. v. MOUNTAINSIDE PROPERTIES, INC.

114 A.3d 1169

2015 VT 33

SKI, LTD.

v.MOUNTAINSIDE PROPERTIES, INC.

No. 14–001.

Supreme Court of Vermont.

Feb. 6, 2015.

Christopher D. Roy of Downs Rachlin Martin PLLC, Burlington, for Plaintiff–Appellee/Cross–Appellant.

Peter H. Banse of Banse & Banse, P.C., Americus, Georgia, for Defendant–Appellant/Cross–Appellee.

Present: REIBER, C.J., DOOLEY, SKOGLUND, ROBINSON and CRAWFORD, JJ.¹

Opinion

ROBINSON, J.

¶ 1. This appeal concerns the parties' respective rights and obligations arising from a contract for the sale of land from SKI, Ltd.'s predecessor-in-interest to Mountainside Properties, Inc. The contract included a “right of first offer” (ROFO) with respect to an adjacent parcel. Mountainside appeals a declaratory judgment of the trial court concluding that the terms of the ROFO provision constitute an unlawful restraint on alienation. SKI cross-appeals the trial court's judgment that the offer that it made to Mountainside pursuant to the ROFO violated the covenant of good faith and fair dealing implied in the agreement, and that it therefore was not free to sell the property to another buyer on the terms offered to Mountainside upon Mountainside's rejection of the offer. Both parties argue that the trial court erred in proposing an offer by SKI to Mountainside on alternative terms which the court concluded would satisfy the requirements of the ROFO while avoiding an unlawful restraint on alienation. We affirm in part and reverse in part.

¶ 2. The relevant facts, as found by the trial court, are as follows. This case begins with the 1988 purchase and sale agreement between Mountainside (a Vermont corporation), and Killington, Ltd., a former subsidiary of and predecessor-in-interest to SKI (a Delaware corporation). At the time, Killington, Ltd. owned the Killington Ski Area. Mountainside purchased thirty-three acres from Killington, Ltd. for the purpose of residential development. At the time, Mountainside also wanted to purchase the adjoining sixty-two acre tract, but the Killington, Ltd.-owned sewage-treatment facility which provided service to the area lacked sufficient capacity to serve the homes that Mountainside intended to build on that parcel.² Given the limited sewage capacity, Mountainside purchased the thirty-three acres and negotiated a ROFO on the remaining sixty-two acres; it hoped to be able to purchase the remaining acreage when Killington, Ltd. had more sewage capacity.

¶ 3. Accordingly, in § 6(e) of the 1988 purchase and sale agreement for the thirty-three acres, the parties agreed, with respect to the sixty-two-acre parcel, as follows:

Seller grants Purchaser the option to purchase, at market value as determined by Killington, Ltd., the adjacent [sixty-two acre] parcel of land ... when and if Seller in its sole discretion decides to sell such parcel, together with sufficient off-site sewage disposal rights to provide sewage disposal to the designed number of dwelling units thereon as determined by Killington, Ltd. If Purchaser fails to exercise this option within thirty days of receipt of a written offer, Seller may sell said land and sewage disposal capacity to others at the stated price or more, but shall not thereafter sell said land and sewage disposal capacity, or any part thereof, at a lesser price without first extending to Purchaser the further opportunity and time to purchase at the lower price.

The agreement provides that the seller's obligations under the agreement “shall be binding upon its successors and assigns.”

¶ 4. Subsequently, Mountainside improved the thirty-three-acre parcel with connector ski trails to the Killington Ski Area, new

roads, and sewer and electrical lines. The connector trail crosses the sixty-two-acre parcel. Mountainside also drilled wells on the sixty-two acre parcel to benefit the thirty-three acres, pursuant to an easement with Killington, Ltd.

¶ 5. In 2006, Mountainside entered into negotiations with Killington, Ltd. to purchase the sixty-two acres, but the parties did not reach an agreement. Soon after these failed negotiations, Mountainside learned that Killington, Ltd. was selling off its properties. Mountainside reminded Killington, Ltd. of the ROFO on the sixty-two acres.

¶ 6. In 2007, Killington, Ltd. sold the Killington Ski Resort to three entities as tenants in common (TICs).³ Killington, Ltd. sold the TICs all the real estate it owned—except for the sixty-two acres subject to Mountainside's ROFO. At the same time, it sold its sewage-treatment plant to the TICs. In connection with these sales, Killington did not take any steps to retain any rights for sewage capacity to serve the sixty-two acres it retained; the trial court found that there was no evidence presented as to whether there was sewage capacity available at that time. Killington, Ltd. merged into SKI, and SKI proceeded to sell or otherwise divest itself of all its assets—except the sixty-two acres. After these transactions, the TICs owned the Killington Ski Resort and the sewage-treatment plant, and SKI retained the sixty-two-acre parcel as its sole remaining asset.

¶ 7. Mountainside, through its sole owner Stephen Durkee, has been actively involved in land development in Killington since 1981. After the 2007 sale, Mountainside became interested in the TICs' development plans for the area, including the 400–acre planned unit development, and actively opposed one of their development plans. Mountainside's challenge reached this Court, and we ruled in its favor. In re SP Land Co., 2011 VT 104, ¶ 28, 190 Vt. 418, 35 A.3d 1007. At the time that the trial court issued its judgment, Mountainside remained in litigation with the TICs over their development plans for the Killington area.

¶ 8. In 2012, SKI decided to sell the sixty-two-acre parcel. Because any offer to Mountainside would have to include sewage disposal rights, SKI contacted the TICs to obtain sewage rights. The TICs agreed to provide sewage capacity for eight single-

family dwellings so that an offer could be made to Mountainside, but only on the condition that Mountainside agree not to contest any permits for the development of land by SP Land Co. or the TICs. Accordingly, on August 30, 2012, SKI made a written offer to Mountainside for the sale of the sixty-two acres. The accompanying purchase and sale agreement set the purchase price at $390,000 and provided for sewage capacity for eight single-family dwellings. The agreement stated:

As consideration for the allocation of the [wastewater-treatment] Rights, TICs have required the Seller, its subsidiaries and affiliates, successors and assigns including Purchaser, its subsidiaries and affiliates to agree not to contest, either directly or indirectly, any application for a federal, state or local permit for the planning and construction of improvements to the lands owned or leased by the TICs and/or SP Land Company, LLC,⁴ their successors and assigns in the Town of Killington, Vermont, including, without limitations, those improvements contemplated by [four specific development projects].

In its letter, SKI indicated that Mountainside had thirty days to “exercise its option” under § 6(e) of the 1988 agreement and that if Mountainside did not accept the offer, SKI would sell the property to another party “at the stated price or more.”

¶ 9. Because Mountainside was already in litigation with the TICs, it was unlikely that it would accept the “no contest” terms. The TICs represented to SKI that going forward it would be requiring the no-contest terms in any contract to provide sewage capacity.

¶ 10. Mountainside did not accept the offer and advised that it did not believe the offer complied with the ROFO because the no-contest terms were not contemplated by the ROFO. For that reason, Mountainside indicated that it would continue to treat the ROFO as “an outstanding and enforceable right.”

¶ 11. SKI responded that another entity controlled the sewage capacity and that SKI therefore did not control the no-contest provision. SKI indicated that because Mountainside declined its offer, Mountainside had failed to exercise its right under § 6(e) of the agreement and SKI was free to sell the property to a third party, provided that the ultimate purchase price was no less than that offered to Mountainside, and the terms no less favorable.

¶ 12. SKI subsequently found an out-of-state buyer for the sixty-two acres who was willing to purchase the property for $415,000, along with sewage capacity subject to the no-contest provision. SKI executed a purchase and sale agreement with the buyer but was unable to close the deal because Mountainside had filed a notice of its ROFO in the Killington land records and the title insurance company was unwilling to issue title insurance without resolution of the dispute over Mountainside's rights.

¶ 13. In June 2013, SKI filed a complaint against Mountainside in the superior court seeking, among other things, a declaratory judgment that SKI's offer to Mountainside had fully satisfied the terms of the ROFO.

¶ 14. In a judgment issued after a bench trial, the trial court concluded that SKI's offer to Mountainside, subject to the no-contest condition, violated the covenant of good faith and fair dealing implied in the 1988 agreement. The court explained that, although the condition was imposed by the third-party TICs, and not by SKI itself, SKI acted in bad faith by extending an offer that it knew Mountainside would reject. The court explained:

It was never anticipated in the ROFO that Mountainside would have to give up its rights to oppose development within the Killington Ski Area, development that could affect its property, in order to exercise its rights under the ROFO.... There is no way Mountainside could have expected that it would have to accept this type of clause in order to exercise its rights under the ROFO.

¶ 15. In response to SKI's suggestion that Mountainside could have made a counteroffer that excluded the no-contest terms, the court responded that SKI...