Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of San Diego County No. GIN047475, Michael B. Orfield, Judge.
HALLER, J.
Villa Vista Mobile Estates Transitional Team (Transitional Team) sued Richard Collins, the owner of a mobilehome park, alleging Collins violated a City of San Marcos ordinance providing mobilehome residents with a right of first refusal to purchase the property. The trial court granted Collins's summary judgment motion on various grounds, including that the undisputed facts established the Transitional Team did not properly exercise the right of first refusal because its offer was materially different from the third party offer. Transitional Team appeals. We affirm.
Collins's wife was also a named defendant. Both parties were sued as trustees of a family trust that owned the property. For ease of reference, we refer to the defendants as "Collins" in the singular.
FACTUAL SUMMARY
Collins owned a 10-acre mobilehome park (Park) in the City of San Marcos, and rented mobilehome spaces to residents who owned their mobilehomes. In late 2003, the mobilehome residents became interested in collectively purchasing the mobilehome park from Collins. The residents retained an experienced consultant, Gerald Fisher, president of Mitchell Conversion Consultants, Inc., to assist them in a possible purchase. Fisher recommended the residents purchase the Park by forming a nonprofit mutual benefit corporation to take title to the property, which he said would eliminate the need to obtain certain governmental permits and would avoid a property tax reassessment.
Shortly after, the residents informed Collins of their interest in purchasing the property, and Collins expressed a willingness to sell the Park to the residents if the parties could reach an agreement on the terms. The residents initially worked on the purchase through the homeowners association. However, in October 2004, the residents formed the Transitional Team, an unincorporated association consisting of approximately 47 of the 85 mobilehome owners. After numerous attempts during an 18-month period, the residents were unable to reach an agreement with Collins. During this time, the residents took no steps to form the nonprofit mutual benefit corporation that had been recommended by Fisher.
On July 29, 2005, Collins entered into a contract to sell the mobilehome park to a third party, Cal-Am Properties, Inc. (Cal-Am), subject to the mobilehome residents' right of first refusal provided in the San Marcos Municipal Code (the Mobilehome Ordinance). (San Marcos Mun. Code, § 16.20 et seq.) In relevant part, the Ordinance provides that "[i]f a mobilehome park owner receives a bona fide offer . . . the mobilehome park owner shall offer to sell the park upon the same price and terms and conditions to the mobilehome owners. . . . " (§ 16.20.020(c).) Once that offer is made, the "[m]obilehome owners shall have the right to purchase the park, provided the mobilehome owners meet the price and terms and conditions of the mobilehome park owner, by executing a contract with the mobilehome park owner within forty-five (45) days . . . ." (§ 16.20.030(a).)
The Ordinance states: "Mobilehome Park Owner Duty of Notification: [¶] (a) If a mobilehome park owner offers a mobilehome park for sale, he shall notify the mobilehome owners of his offer, stating the price and terms and conditions within five (5) days of the offering. [¶] (b) If the mobilehome park owner thereafter elects to offer the park at a price lower than the price specified in his notice to the mobilehome owners and/or under different terms and conditions . . ., the mobilehome park owner shall notify the mobilehome owners within five (5) days of said changed price or terms and conditions. [¶] (c) If a mobilehome park owner receives a bona fide offer without the solicitation thereof to purchase the park that he intends to consider or make a counter offer to, the mobilehome park owner shall offer to sell the park upon the same price and terms and conditions to the mobilehome owners." [¶] "Mobilehome Owners Right to Purchase [¶] (a) The mobilehome owners shall have the right to purchase the park, provided the mobilehome owners meet the price and terms and conditions of the mobilehome park owner, by executing a contract with the mobilehome park owner within forty-five (45) days, unless agreed otherwise, from the date of mailing of the notice of the offer. If a contract between the mobilehome park owner and the mobilehome owners is not executed within such forty-five (45) day period, then, unless the mobilehome park owner thereafter elects to submit a counter offer to the noticed offer, at a price lower than the price specified in notice to the mobilehome owners, he has no further obligation under this subsection, and his only obligation shall be as set forth in subsection (b). [¶] (b) If the mobilehome park owner thereafter elects to consider an offer or make a counter offer at a lower price and/or under different terms and conditions than the price or terms and conditions as specified in his notice to the mobilehome owner, the mobilehome owners will have an additional fifteen (15) days to meet the price and terms and conditions of the mobilehome park owner by executing a contract." (San Marcos Mun. Code, §§ 16.20.020, 16.20.030.) All further section references are to the San Marcos Municipal Code, unless otherwise specified.
In the contract, Cal-Am agreed to pay $4,950,000 in cash for the property, including a nonrefundable deposit of $500,000. Escrow was to close on September 15, 2005, and there was no loan contingency. If Cal-Am failed to timely close after the due diligence period, the deposit would constitute liquidated damages.
On the same date of the Cal-Am agreement, Collins sent a letter to each of the Park's mobilehome owners offering the Park for sale to them under the same price, terms and conditions as the Cal-Am agreement, and stated the offer was open for the period required in the Mobilehome Ordinance (45 days). Collins detailed the terms of the Cal-Am agreement, and provided copies of the entire agreement to several owner representatives. In the letter, Collins stated that the residents should sign a copy of the Cal-Am agreement and timely return the agreement if they wished to "purchase the Park for the price and terms and conditions set forth in the Purchase Agreement."
Forty-five days later, on September 12, 2005, one of the residents (Elizabeth Puzak) responded to Collins's letter, on behalf of the Transitional Team. Puzak enclosed a copy of the Cal-Am purchase agreement signed by herself and one other resident (Larry Fetterly), but stated the offer was subject to the modifications stated in an Addendum that was attached to the agreement. These modifications included: (1) the $500,000 deposit is "fully refundable until the document(s) transferring title to the Property are recorded"; and (2) "the Closing Date shall occur on January 10, 2006." Puzak and Fetterly also modified the Cal-Am agreement by refusing to initial the liquidated damages provision in the agreement.
Collins refused to accept the offer because the modifications materially changed the Cal-Am offer. The escrow date was particularly important to Collins because he had arranged a tax-deferred property exchange that required the sale of the Park to take place in September 2005. Additionally, the Transitional Team's refusal to agree to a nonrefundable deposit as liquidated damages substantially increased the financial risk of the deal because it would tie up the property for an additional four months without any consequences to the mobilehome owners if they decided not to complete the deal.
The Transitional Team then brought a lawsuit against Collins, alleging breach of contract and seeking an order of specific performance requiring Collins to sell the Park to the Team based on the terms of the Cal-Am agreement and the Addendum. The Transitional Team also recorded a notice of lis pendens on the property. Shortly after, the Transitional Team filed an amended complaint seeking contract damages as an alternate remedy to specific performance. Collins later successfully moved to expunge the lis pendens, and in March 2006, Collins sold the Park to Cal-Am.
Collins then moved for summary judgment on numerous grounds, including: (1) the Mobilehome Ordinance providing mobilehome owners with a right of first refusal is unconstitutional; and (2) the Transitional Team did not properly exercise its right under the Ordinance because the Team's offer was materially different from the Cal-Am offer. With respect to the latter argument, Collins presented the declaration of an experienced real estate broker specializing in mobilehome park sales, who stated that a refundable deposit is inconsistent with generally accepted real estate practices, and a longer escrow period with a financing contingency substantially reduced the value of the purchase offer to Collins. Collins also proffered the deposition testimony of Puzak and Fetterly, in which they admitted that each of the 47 individual mobilehome owners would require financing before the Transition Team could close the deal, and neither the Transitional Team, nor the owners, had begun the process of obtaining such loans.
In opposing the summary judgment motion, the Transitional Team argued that: (1) Collins waived his right to challenge the constitutionality of the Mobilehome Ordinance by his statements and conduct in dealing with the mobilehome owners, and (2) the Transitional Team's proposed modifications to the Cal-Am offer did not invalidate its proper exercise of the right of first refusal because the modifications were consistent "with the commercial realities and the intent of the parties."
In support of the latter argument, the Transitional Team presented evidence that it intended to purchase the property using a method proposed by its consultant and recommended in a publication of the California Department of Real Estate. Under this method, mobilehome park residents create a nonprofit mutual benefit corporation, and members purchase shares in the corporation. The corporation then negotiates with the seller to purchase the park. After the purchase, the corporation subdivides the park, and sells (or leases) the subdivided interests to the residents. This method avoids the necessity of complying with numerous time consuming and cumbersome government regulations pertaining to the subdivision of a single parcel (such as the need to obtain a subdivision map). It also avoids a property tax reassessment on a change of ownership.
However, to use this nonprofit corporation method for the park ownership conversion, the nonprofit corporation must deposit "[a]ll funds of tenants for the purchase of the mobilehome park . . . in escrow until the document transferring title of the mobilehome park to the nonprofit corporation is recorded." (Bus. & Prof. Code, § 11010.8, subd. (a)(4).) The Transitional Team submitted the declaration of its consultant, Fisher, who stated this requirement is not met if a purchase agreement states that a deposit is nonrefundable or provides for liquidated damages. Fisher also opined that a purchase using the nonprofit mutual benefit corporation method would take a "minimum of 90-days and up to 120 days to complete." According to Fisher, it takes this amount of time for a nonprofit corporation to obtain a permit from the Department of Corporations to allow it to sell shares to the individual residents, and to ensure the 47 individual loans by mobilehome owners will close concurrently. Fisher stated that although there are other methods for mobilehome park ownership conversion, such as a stock cooperative or a condominium conversion model, these methods are substantially more time consuming.
Based on this evidence, the Transitional Team argued that it could not have agreed to a nonrefundable deposit, and the extended time for the escrow was reasonable because it was necessary to permit it to purchase the property using the nonprofit mutual benefit corporation model. The Transitional Team thus argued the modifications were "commercially necessary" and therefore did not preclude its valid exercise of the right of first refusal.
After considering the parties' submissions and arguments, the court granted Collins's summary judgment motion. The court found there was a triable issue of fact as to whether Collins waived his right to challenge the constitutionality of the Mobilehome Ordinance, and thus refused to grant summary judgment on this ground. But the court found summary judgment was warranted on another basis—the undisputed facts showed the Transitional Team "did not validly exercise any right of first refusal granted by the [Mobilehome Ordinance] because the purported 'acceptance' of the offer was not sufficiently matching by any commercial standard." The court stated that when considering the modifications together, "they were a substantial and unreasonable departure from the original offer by [Cal-Am] and abrogated any duty on the part of [Collins] to respond."
DISCUSSION
I. Review Standards
A summary judgment motion "shall be granted if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." (Code Civ. Proc., § 437c, subd. (c).) A triable issue of material fact exists only if "the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) We consider all of the evidence and inferences reasonably drawn from the evidence, and must view the evidence in the light most favorable to the opposing party. (Id. at p. 843.) We review a summary judgment de novo. (Campbell v. Derylo (1999) 75 Cal.App.4th 823, 826.)
II. Overview
On appeal, the Transitional Team contends the court erred in finding that it did not properly exercise its right of first refusal under the Mobilehome Ordinance. In his respondent's brief, Collins counters that we need not reach this issue because the Mobilehome Ordinance is unconstitutional, citing a decision from another division of the Fourth District Court of Appeal, which held that a similar provision in a City of San Juan Capistrano ordinance was unconstitutional on its face. (Gregory v. City of San Juan Capistrano (1983) 142 Cal.App.3d 72, 87-91, overruled on other grounds in Fisher v. City of Berkeley (1984) 37 Cal.3d 644, 686, fn. 43.) Collins, however, does not challenge the trial court's ruling that there was a triable issue of fact as to whether Collins—by his conduct and statements to the mobilehome residents—waived the right to challenge the constitutionality of the ordinance. Collins further makes no argument in his appellate brief that such waiver would be legally invalid.
The Gregory court held the ordinance created an unconstitutional taking because it abrogated a property owner's right to sell property to persons of its choice and appropriated the legally recognized property right to sell a right of first refusal, without furthering a sufficient governmental interest. (Gregory v. City of San Juan Capistrano, supra, 142 Cal.App.3d at pp. 88-89.) The court rejected the city's proffered justification that the ordinance was to provide " 'mobilehome residents a measure of control over their own living situations,' " reasoning that this justification was "entirely insufficient to legitimate the uncompensated appropriation of significant private property rights." (Id. at p. 89; see Forty-Niner Truck Plaza, Inc. v. Union Oil Co. (1997) 58 Cal.App.4th 1261, 1272.)
On this record, we shall assume the correctness of the trial court's decision on the waiver issue, and thus do not reach the issue of the constitutionality of the right of first refusal requirement in the Mobilehome Ordinance. We instead focus on the issue whether Collins's refusal to accept the Transitional Team's offer to purchase was proper under the Ordinance. For the reasons explained below, we determine the Transitional Team's modifications to the offer materially changed the agreement and therefore did not constitute a proper exercise of its right to purchase the Park. Thus, there was no contract formed and the Transitional Team's breach of contract claims fail as a matter of law. Based on this conclusion, we do not reach additional issues raised by Collins, including whether the Transitional Team had the legal authority to accept the offer on behalf of the 47 residents. Additionally, because there was no contract formed, we do not reach the parties' arguments pertaining solely to specific performance. Specific performance is an equitable remedy for a breach of contract and is not an independent cause of action. (5 Witkin, Cal. Procedure (4th ed. 1997) Pleading, § 740, p. 198.)
III. Analysis
A right of first refusal is "a preemptive right to purchase property on the terms and conditions of an offer to purchase by a third person . . . ." (C. Robert Nattress & Associates v. CIDCO (1986) 184 Cal.App.3d 55, 66 (Nattress).) In exercising the right, the party must generally agree to the same terms and conditions of the third party offer so that the seller receives the same value or benefit of the bargain. (Id. at pp. 70-73; see Bill Signs Trucking v. Signs Family Limited Partnership (2007) 157 Cal.App.4th 1515, 1523.) This required matching is made clear in the language of the Mobilehome Ordinance: "If a mobilehome park owner receives a bonafide offer . . . the mobilehome park owner shall offer to sell the park upon the same price and terms and conditions to the mobilehome owners." (§ 16.20.020(c), italics added.) Once that offer is made, the "mobilehome owners shall have the right to purchase the park, provided the mobilehome owners meet the price and terms and conditions of the mobilehome park owner . . . ." (§ 16.20.030(a), italics added.) If the mobilehome owners' offer is not the same and the park owner does not elect to accept the new terms, the owner"has no further obligation under this subsection . . . ." (§ 16.20.030(a),italics added.)
In this case, it was undisputed the Transitional Team's offer was not on the "same . . . terms and conditions" as the Cal-Am offer. The Transitional Team deleted the requirement that the $500,000 deposit be made nonrefundable, and refused to agree that this deposit would constitute the liquidated damages for the buyer's failure to complete the purchase. The Transitional Team also extended the escrow closing date by 117 days, from September 15, 2005 to January 10, 2006. The undisputed evidence also showed the Transitional Team intended that this January 2006 closing date would further depend on the ability of: (1) the Transitional Team to form a nonprofit mutual benefit corporation; (2) the corporation to timely obtain a permit to sell shares to the residents; and (3) the 47 mobilehome owners to obtain and close individual loans to allow their purchase of shares of this newly formed corporation. These terms and conditions differed substantially from Cal-Am's "all cash" offer with no financing contingency.
It is undisputed these changes materially reduced the value of the agreement to Collins. The Transitional Team was proposing to make the deposit fully refundable at any time without any limitation. This essentially provided Transitional Team with a "free look" at the property for a four-month period, during which Collins would be obligated to keep the property off the market without payment and without recourse should the Transitional Team fail to purchase the property. Additionally, the extension of the closing date pushed the date into the next calendar year. The undisputed evidence showed Collins was prepared to engage in a tax-deferred exchange which required the sale of the Park to take place in 2005. This exchange would have taken place but for the Transitional Team's filing of the suit and recording of the lis pendens, which precluded Collins from timely consummating the tax-deferred exchange.
Taken together, the proposed modifications would have required Collins to incur substantial economic risk and to forgo a strong and viable purchase offer. There is nothing in the Mobilehome Ordinance suggesting the city intended that a property owner be subjected to this form of economic detriment. The Transitional Team's addendum was a counteroffer that terminated the Transitional Team's power of acceptance. As such, a valid contract was not formed.
The Transitional Team contends, however, that its modifications did not invalidate the offer because a party exercising a right of first refusal is entitled to change the offer "consistent with commercial realities and the interests of the parties." We agree that "[b]ecause the party exercising a right of first refusal is stepping into a contract made by a third party, the court must consider commercial realities and allow modifications consistent with the intent of the parties whose contract created the right of first refusal." (Arden Group, Inc. v. Burk (1996) 45 Cal.App.4th 1409, 1414-1415 (Arden Group).) This does not mean, however, that the seller is obligated to accept modifications if they materially change the terms of the contract. Absent evidence that the parties intended to allow the modifications, the critical consideration is whether the offer has the same "net effect" to the seller, i.e., if the seller receives the same value or benefit of the bargain. (See Nattress, supra, 184 Cal.App.3d at pp. 70-73.) Generally, "the seller is bound by the standard of a reasonable person and must accept the offer by the holder of the preemptive right that produces the economic equivalent of the offer by the third party." (1 Miller & Starr, Cal. Real Estate (3d ed. 2000) § 2:10, p. 43, italics added; see McCulloch v. M & C Beauty Colleges, Inc. (1987) 194 Cal.App.3d 1338, 1345, 1346.)
In this case, the Transitional Team's offer was not the economic equivalent of Cal-Am's offer, and the modifications were not reasonably necessary to the mobilehome owners' exercise of their rights. These facts distinguish this case from the decisions upon which the Transitional Team relies. (See Arden Group, supra, 45 Cal.App.4th 1409; Mitchell v. Exhibition Foods, Inc. (1986) 184 Cal.App.3d 1033 (Mitchell).)
In Arden Group, a grocery store chain (Arden) entered into an agreement to purchase property from the property owner subject to the existing tenant's right of first refusal. Because the tenant was using the property for a gas station, the purchase agreement required the property owner to remove the gas tanks and provided that the owner would remain liable for any hazardous waste on the property. (Arden Group, supra, 45 Cal.App.4th at pp. 1411-1412.) The tenant then timely exercised its option on the same terms, except (1) the property owner was not required to remove the gas tanks (because the tenant would continue to use the tanks); and (2) the tenant agreed to remain liable for hazardous waste after it initially took possession of the property. (Id. at pp. 1412-1413.) The property owner accepted the offer, and Arden (the third party) sued, claiming the tenant did not validly exercise its right of first refusal because the offer was not identical. (Id. at pp. 1413-1414.) The court rejected this argument, explaining "the only differences in the two deals are those made necessary by the fact that the [tenants] are buying as tenants in possession who will continue to use the property in the same manner it has been used for more than 50 years. The removal of the tanks, the clean-up arrangements, the testing for contamination, and [the property owner's] continuing clean-up responsibility became non-issues when the [tenants] became the buyers, and the modification of the deal simply acknowledged that fact, no more and no less. Indeed, to carry Arden's position to its logical conclusion would preclude the substitution of the [tenants] as buyers because, under the terms of Arden's offer, Arden must be the named buyer. We reject that notion as absurd . . . ." (Id. at p. 1415, italics omitted.)
In Mitchell, the reviewing court similarly upheld a trial court's finding that the tenant's exercise of its right of first refusal was valid even though the tenant deleted certain provisions of the third party offer that had no applicability to it. (Mitchell, supra, 184 Cal.App.3d at pp. 1040-1044.) The court emphasized that the tenant's contractual right of first refusal must be understood in the context of the parties' reasonable expectations and the landlord's implied covenant of good faith and fair dealing in the original lease. (Id. at pp. 1043-1044.) Because the landlord presumably understood that the tenant intended to continue his existing business if it exercised the right, the landlord could not validly reject the exercise of this right merely because the tenant deleted some of the provisions that would have required the tenant to change its existing manner of conducting the business. (Id. at p. 1044.) The court additionally held that the landlord could not delete certain provisions of the third party offer pertaining to lease extensions. (Ibid.)
In both Arden and Mitchell, the tenant exercising the right of first refusal modified provisions of the third-party offer that were contrary to the tenant's intended continued use of the property and these modifications did not detrimentally affect the value to be received by the landlord. (Arden Group, supra, 45 Cal.App.4th at p. 1415; Mitchell, supra, 184 Cal.App.3d at p. 1044.) The courts determined that when the landlord and tenant initially negotiated their original lease and provided the tenant with a right of first refusal to purchase (and/or lease) the property, they could not have reasonably intended the exercise of this right would require the tenant to essentially put itself out of business by removing necessary equipment before it could purchase (or continue the lease of) the property. (Mitchell, supra, at p. 1044.)
In this case, the record does not similarly support a conclusion that the Transitional Team's proposed modifications were necessary to the residents' continued use of the property or their purchase of the property. The Transitional Team argues that its modification of the offer was "commercially necessary" because the Cal-Am offer "deprived the [Transitional] Team and the residents of the ability to purchase the Park through a collective purchase by a nonprofit corporation . . . ." However, there is no indication that in enacting the Ordinance, San Marcos city officials intended that the right of first refusal would provide the residents the right to purchase a mobilehome park in this manner. Instead, the language of the ordinance expressly states that the offer must be on the "same . . . terms and conditions" as the third party offer. (§ 16.20.020(c), italics added.)
In this regard, we are unpersuaded by the Transitional Team's emphasis on state statutes enacted to promote resident ownership of mobilehome parks through the use of the nonprofit corporation model. (See Civ. Code, § 798.80 [requiring mobilehome park owner to provide notice to a nonprofit corporation formed by mobilehome residents if the owner enters into a listing agreement to sell park].) There is nothing in these statutes compelling an owner to sell the mobilehome property on terms and conditions that are less favorable than the terms and conditions offered by a third party. Additionally, we presume San Marcos city officials were aware of these state laws when the city enacted the Mobilehome Ordinance. However, they elected not to include any language in the Ordinance providing that the owner must accept an offer that allows for this type of a purchase method.
Although we do not reach the issue, the constitutionality of such an ordinance would be highly questionable given the Gregory decision invalidating a less restrictive right of first refusal. (Gregory v. City of San Juan Capistrano, supra, 142 Cal.App.3d at pp. 88-89.)
Moreover, at least with respect to one of the modifications—the extension to the escrow period—the evidence does not support that the modification was necessary to a purchase of the property by a nonprofit mutual benefit corporation. To support this argument, the Transitional Team points to its consultant's declaration stating that it normally takes 90 to 120 days for the Department of Corporations to process a permit approving of a nonprofit mutual benefit corporation selling shares of stock. However, the mobilehome owners had been seeking to purchase the Park through a nonprofit corporation for approximately two years. Yet at the time they made the offer, they still had not formed this corporation or taken any steps to obtain a permit needed to sell shares to the residents. Further, the mobilehome owners had full notice of the offer on July 29, 2005, and yet waited the full 45 days to notify the Park owner that they intended to accept the offer, and then asked for almost four additional months to close escrow. On this record, the extension of the escrow period was not a necessary prerequisite to purchasing the property through the nonprofit mutual benefit corporation model.
The Transitional Team argues that "[a]t the very minimum" there was a question of fact as to whether its counteroffer was commercially reasonable under the circumstances. However, they do not cite to any facts supporting this conclusion. Instead, they rely on McCulloch v. M & C Beauty Colleges, Inc., supra, 194 Cal.App.3d 1338, which is factually inapposite. McCulloch concerned the value of two different parcels of property to be used as security for the purchase, and did not hold that the issue of the similarity of offers will always present a factual question. Moreover, in upholding a jury verdict, the McCulloch court reaffirmed that a property owner has broad authority to " 'refuse to sell the real property to the holder of the right of first refusal, as long as the refusal to sell is not unreasonable or arbitrary . . ., or the declination to sell is not without just cause or excuse.' " (Id. at pp. 1345, 1346.)
In this case, the undisputed evidence established Collins refused to accept the Transitional Team's offer because the offer imposed a substantially increased financial burden on Collins. On this record, Collins's refusal to accept the offer was reasonable and justified.
DISPOSITION
Judgment affirmed. Appellant to pay respondents' costs on appeal.
WE CONCUR: McCONNELL, P. J. BENKE, J.