Rappaport v. Banfield, No. 80-2-03 Wncv (Katz, J., July 14, 2005)

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STATE OF VERMONT                                        SUPERIOR COURT
Washington County, ss.:                             Docket No. 80-2-03 Wncv


JEROME RAPPAPORT

v.

LAURA BANFIELD and
DUANE WELLS


                                    ENTRY


       Defendants Banfield and Wells seek judgment on the scope of
Plaintiff Rappaport’s right of first refusal, and on the propriety of the sale in
which the right eventually was exercised.

       The facts, briefly, are as follows. Rappaport, a neighboring
landowner with extensive land holdings, held a deeded right of first refusal
on a 25-acre lot, which was one of several contiguous lots held by Banfield.
The combined Banfield property included a home and significant additional
acreage. Rappaport also held a deeded easement on the 25-acre lot to use it
for certain agricultural purposes, and it has been so used for a long time.
There is no dispute that this 25-acre lot, so long as it is kept open, provides
magnificent views from the home on the combined Banfield property;
otherwise the Banfield home would have no such views.
        At the time when Banfield determined to sell the combined property,
Rappaport (and probably Banfield) believed that Rappaport’s right of first
refusal extended to the entire Banfield property, not just the 25-acre lot.
Rappaport now does not dispute that the deeded right of first refusal only
applies to the 25-acre parcel. But, he alleges that the common
understanding dating back many years between him and the Banfields was
that the right extended to the whole Banfield property, and that the parties
acted according to that understanding. He seeks enforcement of that
understanding even though no writing evidences it sufficiently for purposes
of Vermont statute of frauds, 12 V.S.A. § 181.

        A contract for the sale of lands is unenforceable if not signed “by the
party to be charged therewith.” 12 V.S.A. § 181. While a right of first
refusal is not a contract for sale itself, it is an interest concerning land, and
thus falls within the statute of frauds. See id. § 181(5); cf. McGuirk v.
Ward, 115 Vt. 221, 224 (holding an option to buy land concerns lands and
therefore comes within the statute of frauds). There is no writing signed by
the Banfields in this case. Nevertheless, Rappaport claims an equitable
right to specific performance of his understanding of the right of first
refusal under In re Estate of Gorton, 167 Vt. 357 (1997).

       The principles in Gorton do not apply here. In Gorton, the Vermont
Supreme Court applied an exception to the statute of frauds, Restatement
(Second) of Contracts § 129 (1981). That rule permits enforcement of an
oral agreement to convey land where “repudiation by one party after the
other has fully performed amounts to a virtual fraud.” Gorton, 167 Vt. at
361. At the outset, Rappaport’s allegations do not clearly claim that there
ever was an oral agreement between the parties explicitly on the issue of the
scope of the right of first refusal. His vague allegations suggest a mutual
misunderstanding on the scope of the deeded right more than any specific
agreement different from the deeded one. See id. at 364 (vagueness and
indefiniteness as to essential terms of agreement can preclude court from
granting specific performance). Nevertheless, assuming there was such an
agreement, and that Rappaport reasonably relied on it, still Rappaport does




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not explain how his reasonable reliance caused him to substantially and
irretrievably change his position, a necessary element of his claim. See id.
at 362. The Gorton appellants, quite to the contrary, alleged that they
rightfully took possession of the disputed property, substantially improved
the property, quit their jobs to care for the seller, etc., all in reliance on a
specific oral agreement to convey the property. Rappaport merely advances
his own disappointment at learning of the more limited scope to the right of
first refusal in the deed. He does not suggest that he “performed” any
obligations under the supposed agreement; he does not even explain what
his obligations were. We see no basis for applying the exception to the
statute of frauds, which we conclude applies to this case and makes the
claimed oral agreement unenforceable. Rappaport’s right of first refusal is
limited to the 25-acre lot.

        Having determined the scope of Rappaport’s right, we examine its
nature. The deeded right purports to grant to Rappaport, “In the event of
the sale [of the 25-acre lot] . . . the first right to purchase said property at
the highest price” offered to Banfield, within 30 days of such an agreement
to sell. Such a right of first refusal is known “more technically as a
preemptive option, as a right of preemption, or simply as a preemption.”
Hare v. McClellan, 662 A.2d 1242, 1247 (Conn. 1995).

       A right of pre-emption is a right to buy before or ahead of
       others; thus, a pre-emptive right contract is an agreement
       containing all the essential elements of a contract, the
       provisions of which give to the prospective purchaser the
       right to buy upon specified terms, but, and this is the
       important point, only if the seller decides to sell. It does not
       give the pre-emptioner the power to compel an unwilling
       owner to sell, and therefore is distinguishable from an
       ordinary option.

Id. (quoting Annot., 40 A.L.R.3d 920, 924 (1971)). Such a right of first
refusal is triggered by a good faith offer by a third party that is acceptable
to the seller. “A third-party offer is [made in good faith] if it was made




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‘honestly and with serious intent,’ that is, if the offeror genuinely intends to
bind itself to pay the offered price.” Uno Restaurants Inc. v. Boston
Kenmore Realty Corp., 805 N.E.2d 957, 963 (Mass. 2004) (in analogous
circumstances, explaining in detail the propriety of a third party’s good
faith offer on one unit it valued substantially higher than others for which it
made a separate offer).

        The parties devote the lion’s share of their briefing to cases in which
the seller attempts to breach the right of first refusal by packaging the
burdened lot with others, and attempting to sell one larger lot. The “vast
majority of courts” addressing such situations do not allow the right to be
so defeated; the “package deal” simply renders “nugatory a substantial right
which the optionee had bargained for and obtained.” Chapman v. Mut. Life
Ins. Co. of N.Y., 800 P.2d 1147, 1151 (Wyo. 1990) (quoting Guaclides v.
Kruse, 170 A.2d 488, 495 (N.J. Super. 1961)). Though there are other
approaches, the majority of courts would simply enjoin the package deal
altogether, rather than consider the right of first refusal triggered by it, and
then try to fashion a price for the right-holder. Chapman, 800 P.2d at 1152.
The Chapman court explains its purpose in adopting the majority position
as follows:

       It is undesirable for a court to reform the contract by placing a
       value on the property. If at all possible that should be left to
       the parties and the market they choose to contract in.
       Monetary damages are not necessary where the parties may
       be readily restored to their former positions without suffering
       irreparable harm. Returning the parties to the positions they
       occupied before the attempted sale of the larger parcel
       recognizes their agreement and provides the opportunity for
       its performance without judicial intrusion into establishment
       of the price term of any desired sale.

Id. The “package deal” is problematic even where the parties attempt to
allocate a value to the burdened portion of the deal; such allocations are too




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readily manipulated to defeat the right. Pantry Pride Ent., Inc. v. Stop &
Shop Cos., 806 F.2d 1227, 1231-32 (4th Cir. 1986).

        Even though the litigation has focused narrowly on “package deal”
issues, this is not at all a “package deal” case. Wells made two independent
offers: one for the lot burdened by the right of first refusal, one for the rest
of the property. Rappaport has come forward with no evidence suggesting
that Banfield or her agents had any role whatsoever in determining the
purchase prices Wells would offer. Nor is there any evidence that either
offer was contingent in any way on the other, whether overtly or secretly.
Moreover, both offers were made at the same time. Thus, Banfield was
free to accept one contract and not the other. Though Wells wanted to price
the 25-acre lot high to discourage Rappaport from exercising his right of
first refusal, he had a great incentive to not allocate too much of the total
price to the 25-acre lot: Banfield might accept a disproportionately high
price on the 25-acre lot and reject a disproportionately low price on the rest
of the property. We see in the record no less than good faith offers in a
competitive, arms-length environment by a third party, Wells. Rappaport
simply provides no evidence to the contrary.

        Rapapport’s theory in this case, essentially, is that the court should
infer that his right has not been preserved because the offer price on the 25-
acre lot is simply far too high. He says, “I am requesting that the Court
order that the 25.1-acres be sold without any connection—whether formal
or informal—to a sale of the balance of the Banfield property. That is the
only way I believe that the true market value of the 25.1-acres can be
assessed, and for my right of first refusal to be fairly honored.” Aff. of
Jerome Rappaport ¶ 5, filed Aug. 25, 2003. Further,

              In this case, there is strong evidence of manipulation.
       The same purchaser acquired 78 acres of land from defendant
       Banfield . . . . There was an allocation of $150,000.00 in
       value to the 25-acre parcel that was already subject to an
       easement in favor of Mr. Rappaport. That price of $6,000.00
       per acre exceeded the only appraised value by $92,000.00




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       And to make maters [sic] worse, the parcel is farm land
       already subject to an easement interest that essentially renders
       it unmarketable. In effect, the defendants are claiming that
       the fair market value of the right to erect a single structure on
       25.1 acres, which otherwise are subject to a perpetual
       easement for the raising of crops and the pasturing of cattle, is
       $150,000.00. That assertion is preposterous.

Rappaport’s Mem. in Opp. to Second Mot. for Summ. J. 10, filed Feb. 9,
2005). That is, Rappaport claims a right to purchase the 25-acre lot at an
objectively determined fair market value calculated without any
consideration of the 25-acre lot’s relation to the balance of the Banfield
property. Rappaport never had any such right.

       Rappaport’s right was to buy at the highest good faith offer that
Banfield could inspire from a third party. Obviously, a great deal of the
value of 25-acre lot depends on its location and role relating to the Banfield
home; while open, it alone provides the outstanding view. Nothing in the
language of the right of first refusal limited Banfield’s ability to attempt to
maximize the sales prices of her property by selling the burdened lot at the
same time as the rest of it. To put it the other way: nothing required
Banfield to sell the burdened lot only after she sold the rest of the property,
or vice-versa. Nor is there any evidence to suggest that the prices might
have come in differently if she did. Rappaport’s right of first refusal simply
gave him no power to affect how a third party would bid.

       It may well be true that Wells, the third party, attempted to
maximize the price of the 25-acre lot in a patent effort to dissuade
Rappaport from exercising the right of first refusal. But Wells’ actions in
that regard are not evidence of any breach of Rappaport’s right of first
refusal. Wells had one bite at the apple: make the best offer first and hope
Rappaport does not exercise; Wells had no ability to counter-bid. Wells
was an arms-length third-party “competitor for the property” without any
contractual obligations to Rappaport. Uno Restaurants., 805 N.E.2d at 964.
Banfield had no obligation to reject Wells’ offer and renegotiate one with a




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price allocation more favorable to Rappaport. See id. at 965. That the
value of the 25-acre parcel was highly dependent on its relation to the rest
of the Banfield property does not make this a “package deal” type of case.
The parties have submitted no cases so holding.

       “Rights of first refusal provide the weakest protection of all possible
option arrangements. By its very nature, a right of first refusal that burdens
land desired by a third party encourages the third party to offer the highest
price possible.” Id. at 966 (citation omitted). Rappaport has come forward
with no evidence suggesting any sort of collusion or other improper effort
to undermine the exercise of his right of first refusal. Banfield merely
received what Rappaport considered to be a remarkably high bid; she found
the bid acceptable and notified Rappaport that his right of first refusal had
begun to run. Rappaport eventually exercised the right on the terms offered
by Wells, and now owns the 25-acre lot. Wells got the rest of the property.

        There are no genuine disputes of material fact to resolve in this case,
nor is there any basis for relief for Rappaport.

       Defendants’ motion for summary judgment is granted.




    Dated at Montpelier, Vermont, __________________________, 20___.




                                             __________________________
                                                                  Judge




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