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Kutkowski v. Princeville Prince Golf Course, LLC

Supreme Court of Hawaii

May 14, 2013

ROBERT KUTKOWSKI, Petitioner/Plaintiff-Appellant/Plaintiff-Cross-Appellee,
v.
PRINCEVILLE PRINCE GOLF COURSE, LLC, a Delware Limited Liability Company, Respondent/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.

CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS (ICA NO. 28826; CIV. NO. 05-1-0004)

Joe P. Moss, and Margery S. Bronster and Rex Y. Fujichaku Bronster Hoshibata for petitioner

David W. Proudfoot and Max W. J. Graham Belles Graham Proudfoot Wilson & Chun, LLP for respondent

NAKAYAMA, ACOBA, AND MCKENNA, JJ., AND CIRCUIT COURT JUDGE NAKASONE, ASSIGNED BY REASON OF VACANCY.

OPINION

MCKENNA, J.

I. Introduction

At issue in this appeal is whether the sale of an undivided parcel of real property triggered a lessee's right of first refusal to purchase a small part of that property. Based on the specific circumstances of this case, we hold that it did. We therefore reverse the ICA's judgment on appeal and remand this case to the Circuit Court of the Fifth Circuit ("circuit court") for further proceedings consistent with this opinion.

II. Background

A. Factual Background

None of the material facts in this case are genuinely disputed. At issue in this case is a half-acre parcel of land with a house located on Anini Road on Kauai (sometimes "the Property"). The Property is part of an undivided 1040-acre parcel (sometimes "Master Parcel") now owned by Princeville Prince Golf Course, LLC ("PPGC"). In 1971, Kutkowski began subleasing the Property from John Kai. When Kai died, Kutkowski continued leasing the Property from Kai's brother, until Kutkowski himself became a direct lessee of Princeville Development Corporation under a five-year Agricultural Lease dated November 1, 1984. There was no option to purchase in the original Agricultural Lease.

After several renewals of the Agricultural Lease, Kutkowski and Princeville Corporation[1] entered into a License Agreement, dated August 23, 1998, effective from May 1, 1998 to and including April 30, 2003. It included the following "Option to Purchase" in Paragraph 2:

Licensor [Princeville Corporation] 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; PROVIDED, HOWEVER, that Licensee shall have at all times faithfully and punctually performed all of the covenants and conditions of this agreement on the part of Licensee to be performed. Licensee shall have sixty (60) days to accept the Licensor's offer or make a counter offer, PROIVDED [sic], HOWEVER, that if no sales contract is executed within one hundred twenty (120) days after Licensor's initial offer, (1) Licensor shall be free to offer the premises for sale to the general public and (2) this license agreement shall be automatically amended with occupancy to continue on a month to month term. Should the premises be thereafter sold during the term of the month to month license, Licensor shall give Licensee forty-five (45) days prior notice of termination of this license, upon which Licensee shall relinquish all rights hereunder.

(Emphasis added).

The License Agreement also contained the following provision entitled "Effect of Licensee's holding over" in Paragraph 22, which stated:

Any holding over after the expiration of the term of this agreement, with consent of Licensor, shall be construed to be a license from month to month, at the same rate as required to be paid by Licensee for the period immediately prior to the expiration of the term hereof, and shall otherwise be on the terms and conditions herein specified, so far as applicable.

A proposed sale of the Master Parcel from Princeville Corporation to PPGC was initiated on July 14, 2004. By letter dated September 6, 2004, Princeville Corporation proposed an elimination of Kutkowski's option to purchase the Property and enclosed a draft amendment to the License Agreement. Kutkowski did not sign it. Rather, in a letter, dated October 25, 2004, Kutkowski offered Princeville Corporation $250, 000 for the Property, which was rejected. The sale closed on March 17, 2005.

Kutkowski's son remains on the Property. Kutkowski has continued to pay rent to PPGC, and PPGC has accepted the rental payments.

B. Procedural Background

On January 10, 2005, Kutkowski filed a Complaint against Princeville Corporation, praying for specific performance of Paragraph 2 of the License Agreement. Kutkowski also filed a Notice of Pendency of Action over the Property. Under the terms of the March 17, 2005 sale, PPGC and Princeville Corporation entered into an Assumption Agreement, under which PPGC accepted the grant and transfer from Princeville Corporation of, inter alia, the License Agreement and Kutkowski's claim for specific performance. Thereafter, on August 3, 2005, Kutkowski and Princeville Corporation filed a stipulation substituting PPGC as the defendant for Princeville Corporation. PPGC then counterclaimed, seeking declarations that (1) the license agreement was ineffective in conveying to Kutkowski any rights in the Property, and, in the alternative, (2) that the option to purchase clause (if it ever was effective) expired by its own terms on April 30, 2003.

The parties brought cross motions for summary judgment. Preliminarily, Kutkowski and PPGC agreed that the "option to purchase" contained in the License Agreement was really a "right of first refusal" ("ROFR").[2] Kutkowski and PPGC disagreed, however, over two issues, which each acknowledged were issues of first impression in Hawaii, and which each acknowledged produced a split in authority in other jurisdictions: first, whether the ROFR survived into the holdover period, and, if it did, whether the sale of the Master Parcel triggered the ROFR over the Property.

As to the first issue, Kutkowski and PPGC each relied on the plain language of Paragraphs 2 and 22 in the License Agreement to argue, respectively, that the ROFR did and did not survive past the April 30, 2003 end date of the License Agreement. Neither contends that Paragraphs 2 and 22 are ambiguous, although each provided parol evidence (in case the circuit court found the provisions to be ambiguous) tending to support each's position.

In addition to the plain language arguments, Kutkowski and PPGC each marshaled case law from other states and federal courts in support of each's position.

As to the second issue, Kutkowski and PPGC disagreed that the sale of the Master Parcel triggered Kutkowski's ROFR over the Property. PPGC argued that even if the ROFR had survived into the holdover period, Kutkowski could not exercise the right. PPGC also argued the ROFR extended only to the Property, not the entire Master Parcel, and the Property was never offered for sale; therefore, the ROFR was never triggered.

Kutkowski, on the other hand, argued that a lessor may not preemptively defeat a lessee's ROFR over a smaller parcel by selling a larger parcel that contains the smaller parcel. Kutkowski argued the remedy in those instances is specific performance.

Further, PPGC argued that the sale of the Property was conditioned upon (a) a county-approved subdivision plan carving out the Property, and (b) PPGCs decision to sell the Property. PPGC also argued the ROFR was void and unenforceable because it was legally impossible to perform the terms of the ROFR in an area zoned for five-acre minimum lot size. Kutkowski, on the other hand, argued that it was not legally impossible for PPGC to carve out Kutkowski's Property under the Kauai County Code, just burdensome, suggesting a variance was possible.

In conclusion, PPGC requested that the circuit court enter an order dismissing Kutkowski's claims, declare that Kutkowski's ROFR did not survive into the holdover period (as requested in PPGCs Counterclaim), and expunge Kutkowski's Notice of Pendency of Action. Kutkowski, on the other hand, requested that the circuit ...


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