Southern California School of Theology v. Claremont Graduate University, 012221 CAAPP2, B295488

Docket NºB295488
Opinion JudgeCHANEY, J.
Party NameSOUTHERN CALIFORNIA SCHOOL OF THEOLOGY, Plaintiff and Respondent, v. CLAREMONT GRADUATE UNIVERSITY et al., Defendants and Appellants.
AttorneyLoeb & Loeb, Paul Rohrer, W. Allan Edmiston; Greines, Martin, Stein & Richland, Robin Meadow and David E. Hackett for Defendants and Appellants. Jackson Tidus, Charles M. Clark and Kathryn M. Casey for Plaintiff and Respondent.
Judge PanelWe concur: ROTHSCHILD, P. J., BENDIX, J.
Case DateJanuary 22, 2021
CourtCalifornia Court of Appeals

SOUTHERN CALIFORNIA SCHOOL OF THEOLOGY, Plaintiff and Respondent,

v.

CLAREMONT GRADUATE UNIVERSITY et al., Defendants and Appellants.

B295488

California Court of Appeals, Second District, First Division

January 22, 2021

APPEAL from a judgment of the Superior Court of Los Angeles County No. KC068691, Dan Thomas Oki, Judge. Reversed and remanded with directions.

Loeb & Loeb, Paul Rohrer, W. Allan Edmiston; Greines, Martin, Stein & Richland, Robin Meadow and David E. Hackett for Defendants and Appellants.

Jackson Tidus, Charles M. Clark and Kathryn M. Casey for Plaintiff and Respondent.

CHANEY, J.

Claremont Graduate University and Claremont University Consortium (collectively Claremont)1 appeal from a judgment entered in favor of Southern California School of Theology[2] (SCST) after a bench trial.

The parties' dispute stems from terms included in a 1957 grant deed (and incorporated by reference into various other documents) transferring the land on which SCST's campus sits from Claremont College (now Claremont Graduate University, which is Claremont University Consortium's predecessor-in-interest) to SCST. The deed contained two conditions subsequent (recited in full below), one regarding permissible uses of the property (Educational Use Clause) and one regarding conditions that would require SCST to offer the property for sale to Claremont on agreed terms (First Offer Clause), enforceable by a power of termination and right of reentry.

In its judgment on SCST's first amended complaint and Claremont's second amended cross-complaint, the trial court concluded that both the Educational Use Clause and the First Offer Clause had expired on January 1, 1988 by operation of the Marketable Record Title Act (MRTA) (Civ. Code, § 880.020 et seq.). The trial court nevertheless concluded that the Educational Use Clause and the First Offer Clause were equitable servitudes, enforceable by injunction under MRTA. The trial court also concluded, however, that enforcing the First Offer Clause as drafted would be inequitable because it would effect a forfeiture on SCST “of as much as $36 million, being the difference between the purchase price calculation [in 1957] and the current fair market value of the property.” On that basis, the trial court chose to enforce the Educational Use Clause as written, but chose “to interpret the [First Offer Clause] as a ‘First Right of Refusal[, ]' ” and then created the terms of the First Right of Refusal by injunction.

Claremont challenges the trial court's use of the forfeiture doctrine to decline to enforce the deed's First Offer Clause and to create a first right of refusal in its stead. We agree with Claremont that the forfeiture doctrine has no application under these circumstances. We will reverse the trial court's judgment.

BACKGROUND

SCST withdrew from the University of Southern California in 1956. In 1957, it affiliated with the Claremont Colleges and purchased the land it now sits on (adjacent on two sides to Claremont Graduate University and near the remaining Claremont Colleges) for approximately $107, 500.3

As part of the transaction transferring land and affiliating SCST and the Claremont Colleges, SCST and Claremont executed, among other documents, a grant deed and a written agreement (the 1957 Agreement).4 The deed contained two conditions subsequent: “1. That no industrial or commercial activity, or any activity or condition contrary to any law or ordinance, or any activity or condition not usual and appropriate for an educational institution of collegiate grade, shall be conducted or suffered to be conducted or to exist on the real property granted”-the Educational Use Clause; and “2. That if [SCST]... desire[s] to sell or transfer the said real property or any portion thereof, or if [SCST] does not within three years from the date of this Deed establish upon the said real property its headquarters and reasonably develop the said real property as its principal establishment and headquarters, or if [SCST] should cease to exist, or if [SCST] should cease to use the said real property as its principal place of carrying on its activities, then the said real property shall be offered for sale to [Claremont] upon the terms and conditions provided in [the 1957 Agreement] made by [Claremont] and [SCST] upon the same date as the date of this deed”-the First Offer Clause. The deed made the conditions subsequent enforceable by a power of termination and right of reentry clause: “IT IS PROVIDED THAT if [SCST]... breach[es] or suffer[s] to be breached any of the foregoing conditions in any material particular then this Deed shall be null and void, and any and all right, title, estate or interest of [SCST] shall thereupon cease and terminate forthwith and shall revert to [Claremont], and [Claremont] shall have the right to re-enter the said real property and take possession thereof and eject [SCST] therefrom.”

The 1957 Agreement incorporated “the terms and conditions of the said Deed” and set forth in detail the “terms and conditions” of the First Offer Clause and, among other provisions, a number of obligations by each party giving contour to the Educational Use Clause.

In 2015, SCST approached the Claremont University Consortium to determine whether it or any of the Claremont Colleges had an interest in purchasing or leasing any part of the SCST campus or otherwise helping SCST to financially leverage the property through “partnership opportunities for new development” or by “[c]o-locating services or functions.” Claremont University Consortium and SCST negotiated, but never reached any agreement regarding SCST's campus property. SCST marketed the property for sale, and ultimately received offers.

SCST filed suit against Claremont in August 2016 asking the trial court to quiet title against Claremont and to declare that the Educational Use Clause and First Offer Clause had expired pursuant to the MRTA. Claremont cross-complained, alleging that SCST had breached the deed, the 1957 Agreement, and other agreements by marketing the property without first offering it for sale to Claremont on the terms of the First Offer Clause and seeking specific performance of the First Offer Clause and a declaration that the terms of the parties' agreements remain valid in spite of the MRTA.5

The matter was tried to the court in September 2018, and on December 18, 2018, the trial court issued a lengthy written statement of decision. The trial court concluded that the Educational Use and First Offer Clauses had expired by operation of the MRTA on January 1, 1988. The provisions in the parties' various agreements were not enforceable under a breach of contract theory, the trial court said, because “if a contractual right under such circumstances could still be enforced, it would defeat the intended purpose of the MRTA, which is to eliminate unreasonable restraints on the alienation and marketability of real property caused by an interest therein created at a remote time.”

The trial court noted, however, that under the MRTA, “an expired power of termination may still be enforced by injunctive relief where it also constitutes an equitable servitude.” The trial court concluded that the Educational Use Clause and First Offer Clause “constitute equitable servitudes enforceable by injunction.” Nevertheless, the trial court concluded that “strict enforcement of the [First Offer Clause], and its method of calculating the price to repurchase the property, would result in [SCST] suffering a forfeiture of as much as $36 million, being the difference between the purchase price calculation under the 1957 Agreement and the current fair market value of the property.” Based on its conclusion that enforcement of the First Offer Clause would result in a forfeiture by SCST, the trial court “therefore [chose] to interpret the [First Offer Clause] as a ‘First Right of Refusal.' ” The trial court then set forth extensive and detailed terms by which Claremont could exercise the first right of refusal the trial court created.

The trial court entered judgment on January 23, 2019, setting forth in judgment form the same findings and conclusions. Claremont filed a timely notice of appeal.

DISCUSSION

SCST argues that the MRTA controls and allowed the trial court to...

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