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LEG Investments v. Boxler

April 1, 2010


APPEAL from a judgment of the Superior Court of Placer County, Margaret Wells, Court Commissioner. Reversed with directions. (Super. Ct. No. TCV1129).

The opinion of the court was delivered by: Cantil-sakauye, J.


LEG Investments (LEG) owns a 50 percent undivided interest in a vacation home at Lake Tahoe as cotenant with Thomas and Donalee Boxler (the Boxlers). After disputes arose between the cotenants and LEG unsuccessfully tried to sell its interest, LEG sought a partition by sale. The trial court determined the right of first refusal in the tenancy in common (TIC) agreement waived the right to partition. The court denied LEG's motion for summary judgment or summary adjudication on the right to partition, and granted the Boxlers' motion for summary adjudication on the affirmative defenses of express and implied waiver and on the cause of action in their cross-complaint for a judicial declaration that the owners of the property had waived the right to partition. The court also awarded the Boxlers $86,955 in attorney fees based on the attorney fee provision in the TIC agreement.

LEG appeals, contending the trial court erred in granting summary adjudication as to the affirmative defenses of waiver. LEG contends the right of first refusal in the TIC agreement is not an absolute waiver of the right to partition, but requires only that the selling cotenant first comply with the right of first refusal by offering its interest to the other cotenant before seeking partition. LEG asserts it complied with this requirement. LEG further contends the trial court erred in denying summary adjudication on its cause of action for partition. Finally, LEG contends the award of attorney fees must be reversed. We agree and reverse.


Ownership of the Property and the TIC Agreement

In 1976, Carl and Judith Bumpass and the Boxlers purchased the lakefront property at 4960 North Lake Boulevard, Carnelian Bay, California (the Property). Each couple owned a 50 percent undivided interest in the Property as cotenants.

In 1993, the Bumpasses transferred their interest in the Property to Raymond and Sharon Schwerdtfeger. The Schwerdtfegers and the Boxlers entered into the TIC agreement "to establish their rights and duties with respect to each other as tenants in common."

Section 6 of the TIC agreement provided for a right of first refusal if an owner wanted to sell his interest. Paragraph 6.1 provided in part: "If and when either Owner decides to sell their [i]nterest in the Property and that Owner receives a bona fide offer for its purchase from any other person or entity, the other Owner shall have the first right of refusal to purchase the selling Owner's Interest in the Property for the price and on the terms provided for in such bona fide offer." The remainder of paragraph 6.1 spelled out the procedure for accepting or refusing the right of first refusal. If the right was refused, "the selling Owner may enter into an agreement to sell the Interest to the offeror at the price and under terms no less favorable than those set forth in the notice of offer given to the other Owner."

The term of the TIC agreement was for 30 years from execution, with automatic five-year extensions until termination was agreed to by the owners. Paragraph 7.8 of the TIC agreement provided: "This Agreement shall be binding upon and inure to the benefit of the parties hereto, their heirs, devisees, transferees, executors, administrators, successors, assigns, and all other persons hereafter holding an Interest in the Property. The covenants herein shall be deemed to run with the land, both as to benefit and burden."

The TIC agreement provided the prevailing party in "any action between the parties seeking enforcement or interpretation of any of the terms and conditions of this Agreement" shall be awarded court costs and reasonable attorney fees. The TIC agreement also contained an integration clause, providing "[t]his Agreement and the items incorporated herein contain all of the agreements of the parties hereto with respect to the matters contained herein."

A memorandum of the TIC agreement was recorded in Placer County.

In 1998, LEG purchased the Schwerdtfegers' interest in the property. LEG is a general partnership. Eppie Johnson is a general partner of LEG.

LEG Attempts to Sell its Interest

Johnson claimed there were disputes and problems with the Boxlers as co-owners almost immediately after LEG's purchase. The Boxlers or their guests often failed to clean the Property and the Boxlers refused to pay for reasonable and necessary landscaping, maintenance, cleaning and repairs. In 2003, LEG offered to sell its interest in the Property or purchase the Boxlers' interest for $750,000. The Boxlers declined both offers.

In 2005, C.R. Gibb, a sophisticated real estate investor with many years of experience in the Lake Tahoe real estate market, offered to purchase LEG's interest in the Property for $1.4 million, subject to his approval of the Boxlers as co-owners. Pursuant to paragraph 6.1 of the TIC agreement, LEG transmitted Gibb's offer to the Boxlers and offered them a right of first refusal to purchase LEG's interest on the same terms. The Boxlers declined. "We will not be exercising our right of first refusal for your bona fide offer of $1,400,000.00." After meeting with the Boxlers, Gibb determined they were unwilling to contribute to renovations and repairs. Gibb would not approve the Boxlers as co- owners and withdrew his offer to purchase.

In March 2006, LEG demanded the Boxlers agree to list the Property for sale or purchase LEG's interest. If neither option was acceptable, LEG would file an action for partition by sale. In response, counsel for the Boxlers stated his clients "would consider purchasing LEG Investments' one-half interest based upon an appraisal, provided there was an appropriate discount in the appraisal attributable to ownership of a fractional interest." Boxlers' counsel also stated that a partition action could give rise to sanctions in light of a previous partition action which LEG had dismissed.*fn2

LEG's Partition Action

In May 2006, LEG filed a complaint for partition by sale. The first cause of action was for partition by sale of the Property, including both the real property and personal property of household furnishings and furniture. The complaint alleged partition by sale was more equitable than division in kind because it was impracticable to physically divide the Property. It further alleged, "The relationship between the parties has so deteriorated that the absolute right to partition by sale is the only available remedy. [¶] [D]efendants have refused to pay for and provide reasonable and necessary maintenance, cleaning, and repairs, and otherwise pay for the reasonable expenses incident to ownership of similarly situated properties."

The first cause of action recited the proposed sale to Gibb, the offer to the Boxlers of the right of first refusal, their failure to exercise that right, Gibb's disapproval of the Boxlers as co-owners, and the Boxlers' refusal to sell the property or purchase LEG's interest. In paragraph 22 of the first cause of action, LEG alleged it had demanded that the Boxlers "account for and pay reasonable or necessary maintenance, cleaning, repairs, improvements, and expenses relating to the ownership and use of the Property, but Defendants have failed and refused to make such an accounting or pay to Plaintiffs [sic] such reasonable amount."

The second cause of action sought injunctive relief to prevent waste due to the Boxlers' refusal to pay for reasonable and necessary maintenance, repairs, expenses, and improvements.

In the prayer, the complaint sought partition by sale of the property, expenses for litigation guarantee, title reports and partition, an accounting of expenses incurred, appointment of a receiver or broker for sale of the Property, and a preliminary and permanent injunction against waste.

The Boxlers answered with a general denial. They asserted four affirmative defenses: failure to state a cause of action; express contractual waiver of the right to partition; implied waiver of the right to partition; and unfairness. The affirmative defenses of waiver were based on the original parties' intention that the Property be used as a long-term vacation home and the provisions in the TIC agreement, particularly the right of first refusal. The Boxlers alleged partition was unfair because LEG had acquired the Property at a discount reflecting their fractional interest. A partition sale of the entire Property at nondiscounted value would result in a windfall to LEG and resulting unfairness to the Boxlers.

The Boxlers' Cross-Complaint

The Boxlers filed a cross-complaint with two causes of action. The first cause of action sought a judicial determination whether LEG could compel a judicial decree sale of the entire Property or whether the owners of the Property had waived the right to force a sale by judicial decree. The second cause of action sought specific performance of paragraph 6.1 of the TIC agreement, that prior to any sale or transfer of its interest, LEG obtain a valid, good faith offer for acquisition of LEG's interest and present it to the Boxlers ...

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