Creque v. Texaco Antilles Ltd ( 2005 )

Opinions of the United
2005 Decisions States Court of Appeals
for the Third Circuit
5-24-2005
Creque v. Texaco Antilles Ltd
Precedential or Non-Precedential: Precedential
Docket No. 03-3463
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2005
Recommended Citation
"Creque v. Texaco Antilles Ltd" (2005). 2005 Decisions. Paper 1083.
http://digitalcommons.law.villanova.edu/thirdcircuit_2005/1083
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2005 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 03-3463
MARGARET CREQUE
Appellant
v.
TEXACO ANTILLES LTD., a/k/a/ TEXACO ANTILLES
LIMITED, AND TEXACO CARIBBEAN
On Appeal from the District Court of the Virgin Islands
(D.C. No. 01-cv-00122)
Chief District Judge: Honorable Raymond L. Finch
District Judge: Thomas K. Moore
Submitted April 20, 2005
Before: NYGAARD, RENDELL, and SMITH, Circuit Judges.
(Filed: May 24, 2005)
Michael C. Dunston, Esq.
12 D Bjerge Gade
Charlotte Amalie
St. Thomas, USVI, 00802
Counsel for Appellant
1
Richard R. Knoepfel, Esq.
Adriane J. Dudley, Esq.
Dudley Clark & Chan
9720 Estate Thomas, Suite 1
Charlotte Amalie
St. Thomas, USVI, 00802
Elliot H. Scherker, Esq.
Julissa Rodriguez, ESq.
Greenberg Traurig
1221 Brickell AVenue
Miami, FL 33131
Counsel for Appellee
_____
OPINION OF THE COURT
NYGAARD, Circuit Judge.
This case calls upon us to decide whether a conveyance of
real property between two subsidiary corporations, each wholly-
owned by the same parent, is the equivalent of a “bona fide offer to
purchase” triggering a right of first refusal on the property. The
District Court answered this question in the negative. We will
affirm.
I.
In 1957, Appellant Margaret Creque purchased a tract of
land known as Lot No. 1A Estate Demerara, St. Thomas, U.S.
2
Virgin Islands. In 1963, Texaco Antilles Ltd. (“TAL”), a
Canadian corporation and a wholly-owned subsidiary of Texaco,
Inc., acquired the adjacent Lot No. 1 Estate Demerara. At that
time, Creque and TAL entered into an agreement by which TAL
sold Creque the northern portion of Lot No. 1, designated as Lot
No. 1B Estate Demerara, and granted her the right of first refusal
to purchase all of Lot No. 1 “on the same terms and at the same
price as set forth in a bona fide offer to purchase . . .” the
property. (App. at 1657). TAL also granted Creque the right to
take over tenancy of Lot No. 1 and to operate the gas station
located upon it in the event of a change in tenancy.
A decade later, in 1973, Canada changed its tax law in a
manner that would have resulted in an increased tax liability for
TAL of approximately $470,000 per year. To avoid this new
expense, general tax counsel for Texaco recommended to Texaco
that TAL transfer all its assets and liabilities to Texaco
Caribbean, Inc. (“TCI”), another wholly-owned subsidiary of
Texaco, incorporated in Delaware. (App. at 1675–78).
Accordingly, on September 27, 1973, the Boards of TAL and
TCI each approved the sale of TAL’s assets to TCI for $5,000
3
and the assumption of TAL’s liabilities. 1 (App. at 1684–91). It
is important to note that the five directors on the Board of TAL
comprised five of the six directors of TCI’s Board. The transfer
was accomplished by deed on May 16, 1974.
Creque exercised her right to take tenancy of Lot No. 1 as
the operator of the gas station in 1987. Through a dispute over a
proposed rent increase, she learned in 1995 of the 1974
transaction between TAL and TCI. As a result, Creque sought,
without success, to exercise her right of first refusal to purchase
Lot No. 1. She then brought the present lawsuit in the Territorial
Court of the Virgin Islands against TAL and TCI, seeking
damages and specific performance.
TAL and TCI moved for summary judgment, arguing that
the conveyance of Lot No. 1 to TCI was an intra-company
transfer rather than a sale. The Territorial Court denied the
motion and sent the case to trial. Prior to trial, the Defendants
filed a renewed motion for summary judgment, which the Court
1
Although the record has some conflicting figures, it
appears that TCI ultimately paid TAL $500,000 and gave it a
promissory note worth approximately $2.6 million, representing the
difference of TAL’s assets and liabilities.
4
also denied. A jury entered a verdict in favor of Creque and the
Defendants appealed to the Appellate Division of the United
States District Court for the District of the Virgin Islands. A
three judge panel reversed the Territorial Court’s denial of the
renewed motion for summary judgment. It held that Creque
“failed to set forth any evidence . . . that a disputed issue of
material fact existed regarding whether TCI made a ‘bona fide
offer to purchase’ the property from TAL.” (App. at xi). The
District Court, therefore, vacated the entry of judgment in favor
of Creque and remanded the case to the Territorial Court with
instructions to dismiss with prejudice. Creque now appeals.
II.
We have jurisdiction pursuant to 28 U.S.C. § 1291. We
exercise plenary review over the grant or denial of summary
judgment. E.g. Curley v. Klem, 298 F.3d 271, 276 (3d Cir.
2002). Summary judgment is appropriate if, when viewing all
evidence in the light most favorable to the non-moving party, and
when giving that party the benefit of all reasonable inferences,
there are no genuine issues of material fact and the moving party
is entitled to judgment as a matter of law. Id. at 276–77.
5
III.
“A right of first refusal is a conditional option
empowering its holder with a preferential right to purchase a
property on the same terms offered by or to a bona fide
purchaser.” 17 C.J.S. Contracts § 56 (2004); Crivelli v. General
Motors Corp., 215 F.3d 386, 389 (3d Cir. 2000) (“A right of first
refusal grants the holder . . . the option to purchase the grantor’s .
. . property on the terms and conditions of sale contained in a
bona fide offer by a third party to purchase such property.”). We
have held that a right of first refusal “cannot be exercised until
receipt of a bona fide third party offer.” Gleason v. Northwest
Mortgage, Inc., 243 F.3d 130, 139 (3d Cir. 2001); accord Park-
Lake Car Wash, Inc. v. Springer, 352 N.W.2d 409, 411 (Minn.
1984) (holding that as a condition precedent to the exercise of a
right of first refusal “the owner must have received a bona fide
offer from a third party which he or she is willing to accept”).
The agreement entered into by TAL and Creque in 1963
provided that Creque: “shall have the right of first refusal to
purchase Lot No. 1 Estate Demerara . . . on the same terms and at
the same price as set forth in a bona fide offer to purchase.”
6
(App. at 1666). At issue, therefore, is whether there was a bona
fide third party offer to purchase Lot No. 1 at some point during
the transaction between TAL and TCI. If there was, then the
condition precedent to the exercise of the right of first refusal has
been satisfied.
There is no case law from this Circuit or from the courts
of the Virgin Islands resolving the issue of whether a right of
first refusal is triggered by the conveyance of land between
related parties. We will therefore look elsewhere for guidance.
The first and most analogous case is Sand v. London &
Co., 121 A.2d 559 (N.J. Super. Ct. App. Div. 1956). In that case,
a corporation owned by two partners conveyed a parcel of its
land subject to a right of first refusal to another corporation,
which the two partners also owned. The transaction was
prompted by the owners’ desire to avoid tax liability and to
improve the financial position of both corporations. Id. at 518.
Reasoning that the same individuals remained in control both
before and after the transaction, and that there was no “arms’
length dealing” between the buyer and seller—who were in
actuality the same individuals—the Court held that the
7
conveyance did not invoke the right of first refusal. Id.
The Supreme Court of Colorado employed similar
reasoning in Kroehnke v. Zimmerman, 467 P.2d 265 (Colo.
1970). The Kroehnke Court held that a conveyance of real
property by its individual owners to their wholly-owned
corporation did not trigger the right of first refusal attached to the
property. Id. Because the owners of the property essentially sold
it to themselves, the Court reasoned that there was no “arms’
length sale . . . which customarily characterizes a sale in the open
market.” Id. at 267.
Three years after Kroehnke, the Supreme Court of Idaho
decided Isaacson v. First Security Bank of Utah, 511 P.2d 269(Idaho 1973). Isaacson involved the conveyance of land subject
to a right of first refusal from father to son for one-third of the
land’s market value. The Court held that although the
conveyance took the form of a sale, it was appropriate to look
beyond formalities to the true nature of the transaction. It held
that “[w]hile the transaction at issue partook of the form of a
sale, we have no doubt that the trial court was correct in
concluding that [in reality] the transfer was more of a gift than a
8
sale.” Id. at 272. Thus, it held that the right of first refusal had
not been triggered.
In Belliveau v. O’Coin, 557 A.2d 75 (R.I. 1989), the
Supreme Court of Rhode Island considered whether the
conveyance of land for tax purposes from its individual owner to
a corporation she owned with her husband triggered a right of
first refusal on the land. For two reasons, the Court held that it
did not. First, the Court reasoned, the conveyance was
effectuated for legitimate tax purposes and was not an “arms’
length transaction.” Id. at 78 (citing Sand, 121 A.2d at 562).
Second, the conveyance resulted in no significant transfer of
control or ownership to an unrelated third party. Belliveau, 557
A.2d at 78–79. The Court therefore held that the right of first
refusal could not be exercised by virtue of the conveyance at
issue.2
Most recent is McGuire v. Lowery, 2 P.3d 527 (Wyo.
2
For the sake of equity, the Court held that the right of first
refusal could still be exercised at some point in the future, if the
owning corporation attempted to sell the land to an unrelated party
in an arms’ length transaction. We likewise hold that Creque’s
right of first refusal still encumbers the title to the land. See infra,
note 4.
9
2000). In McGuire, as in Sand and Kroehnke before, individual
owners of real property conveyed land subject to a right of first
refusal to their wholly-owned corporation. The Supreme Court
of Wyoming, as in these earlier cases, held that the conveyance
did not invoke the right of first refusal. It held that for a
conveyance to “trigger a right of first refusal, it must involve an
arms-length transaction resulting in an actual change in control
of the burdened property rather than simply moving it from the
individual owners to an entity entirely controlled by them.” Id. at
532.3
From these cases we derive a few general principles.
3
The McGuire Court distinguished Prince v. Elm Inv. Co.,
Inc., 649 P.2d 820 (Utah 1982), in which the Supreme Court of
Utah held that a transfer of property from a sole owner to a
partnership in which the owner was one of the two partners did
invoke the right of first refusal. The Court in Prince found
significant the fact that there had been a change in control of the
property because management decisions could no longer be made
solely by the original owner, but instead had to be made
unanimously by the partners. Id. at 821. By contrast, in McGuire,
Sand, and Kroehnke no such change in control took place.
Although in Belliveau the change in control of the burdened
property appears to have been somewhat similar to that in Prince,
the Supreme Court of Rhode Island in Belliveau found Prince
distinguishable. Belliveau, 557 A.2d at 79. It reasoned that no
substantial transfer of control to an unrelated third party had
occurred. Id.10
First, the absence of arms’ length dealing between commercially
related parties generally precludes the exercise of a right of first
refusal. See Fina Oil and Chem. Co. v. Amoco Prod. Co., 673
So.2d 668, 672 (La. Ct. App. 1996) (citing Harlan Albright,
Preferential Right Provisions and their Applicability to Oil and
Gas Instruments, 32 S.W.L.J. 803, 811 (1978)). Second, and
significant for the present case, a right of first refusal is not
triggered, “where the evidence indicate[s] that motives of
business convenience prompted the transfer of the leased
property to the grantor’s wholly owned corporation, or the
transfer from one corporation to another corporation owned and
controlled by the same interests.” Thomas J. Goger, Annotation,
Landlord and Tenant: What Amounts to ‘Sale’ of Property for
Purposes of Provision Giving Tenant Right of First Refusal if
Landlord Desires to Sell, 70 A.L.R.3d 203 (2005) (emphasis
added); see McGuire, 2 P.3d at 532; Kroehnke, 467 P.2d at 265;
Sand, 121 A.2d at 559. In each of these situations, the
conveyance does not result in a change in ownership or control
and therefore does not invoke a right of first refusal on the
property.
11
Applying these principles, we hold that the conveyance
between TAL and TCI did not trigger Creque’s right of first
refusal. There was no arms’ length dealing and no change in
control of the property occurred. It is true, as Creque points out,
that the conveyance took the form of a sale (which, she argues,
necessarily implies the existence of a bona fide offer to purchase)
and was reported as a sale on both TAL and TCI’s tax returns.
Nevertheless, we must look beyond formalities and accounting
entries to the true nature of the conveyance. Cf. Isaacson, 511
P.2d at 272 (construing a transaction between father and son as a
gift despite the formal appearance of a sale).
The conveyance was directed by the parent corporation,
Texaco, so that it could avoid additional tax liability. The record
reveals no consideration of any particular benefit for either
subsidiary, the formal parties to the conveyance. Also, there is
no evidence of the type of negotiation between TAL and TCI that
would denote an open market sale. Instead, the terms of the deal
were set by Texaco. Finally, and perhaps most significantly,
because TAL and TCI had all-but identical boards of directors,
the same entity retained control over Lot No. 1 after the
12
conveyance. Moreover, as the parent corporation, Texaco
ultimately remained in control of Lot No. 1 at all times. The
conveyance was, in reality, a restructuring and not a sale.
A right of first refusal to purchase real property is not
triggered by the mere conveyance of that property. Only when
the conveyance is marked by arms’ length dealing and a change
in control of the property may that right be exercised. See Sand,
121 A.2d at 559; McGuire, 2 P.3d at 532; Belliveau, 557 A.2d at78–79; Kroehnke, 467 P.2d at 267; cf. Pellandini v. Valadao, 7
Cal. Rptr. 3d 413, 417–18 (Cal. Ct. App. 2003) (holding that the
transfer of an interest in real property from one co-tenant to the
other did not constitute a “bona fide offer,” and therefore did not
trigger the plaintiff’s right of first refusal). Where, as here, a
corporation conveys property from one of its wholly-owned
subsidiaries to another in good faith for a legitimate business
purpose, there has been no bona fide third party offer sufficient
to trigger a right of first refusal on the property. Therefore, the
condition precedent to Creque’s exercise of her right of first
13
refusal has not yet been satisfied.4
IV.
The District Court properly determined that TAL and TCI
were entitled to judgment as a matter of law. We will affirm.
4
As the conveyance was not a triggering event, it would be
inequitable to permit TCI to avoid complying with the right of first
refusal should it ever decide to sell the property. Because the
original 1963 agreement between Creque and TAL was recorded
with the deed and is an encumbrance on the title that “runs with the
land,” Creque continues to possess the conditional option in
question.
14