Ronald R. Fatulli v. Bowen's Wharf Co., Inc.

Supreme Court
No. 2010-215-Appeal.
(NC 00-12)
Ronald R. Fatulli :
v. :
Bowen’s Wharf Co., Inc. :
NOTICE: This opinion is subject to formal revision before
publication in the Rhode Island Reporter. Readers are requested to
notify the Opinion Analyst, Supreme Court of Rhode Island,
250 Benefit Street, Providence, Rhode Island 02903, at Telephone
222-3258 of any typographical or other formal errors in order that
corrections may be made before the opinion is published.
Supreme Court
No. 2010-215-Appeal.
(NC 00-12)
Ronald R. Fatulli :
v. :
Bowen’s Wharf Co., Inc. :
Present: Suttell, C.J., Goldberg, Flaherty, Robinson, and Indeglia, JJ.
OPINION
Justice Indeglia, for the Court. Located in the City of Newport, Bowen’s Wharf is a
thriving tourist destination that includes an active marina as well as a variety of retailers,
restaurants, and art galleries. In this appeal, we are called upon to decide a question that will
clarify the rights and obligations of two adjacent landholders whose combined property
comprises the entirety of Bowen’s Wharf. The question presented for our review is whether the
trial justice erred in finding that a right of first refusal granted to Bowen’s Wharf Company, Inc.
(Bowen’s Wharf Company or defendant) by Ronald R. Fatulli (Fatulli or plaintiff) in 1969 has
expired by operation of law. For the reasons set forth in this opinion, we affirm the judgment of
the Superior Court.
I
Facts and Travel
On August 15, 1969, George H. Piltz deeded the entirety of Bowen’s Wharf to Fatulli and
his father, who has since died. That same day, the Fatullis sold defendant a portion of Bowen’s
Wharf, known as Parcel B, and retained Parcel A, which is the subject of this litigation. Parcel A
is smaller than Parcel B and is situated at the wharf’s western extent, where it juts out into the
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harbor. Parcel B is located on the portion of the wharf closest to Thames Street, which runs
north to south along the parcel’s eastern edge.
One week later, on August 21, 1969, the parties executed an agreement (Agreement) in
which Fatulli granted defendant the right of first refusal on Parcel A. 1 Specifically, Fatulli
granted defendant:
“the right of first refusal to purchase all of that certain lot or parcel
of land, with the buildings and improvements thereon, indicated as
Parcel ‘A’ on that certain plat entitled ‘Bowen’s Wharf, Thames
Street, Newport, Rhode Island’ prepared by Aquidneck Associates,
Inc., dated August 4, 1969, Drawing No. 69042, together with the
dock adjacent thereto, either separately, or together with the lobster
business presently conducted thereon, at the same price and upon
the same terms, provisions and conditions as shall be contained in
any written bona fide offer for the purchase thereof * * *.”
The Agreement was recorded in the land evidence records of the City of Newport on the day it
was executed.
More than thirty years later, on January 11, 2000, Fatulli filed an action seeking
declaratory relief in Newport County Superior Court. He sought a declaration that the right of
first refusal in the Agreement had expired by operation of G.L. 1956 § 34-4-26, which governs
the expiration of recorded rights affecting real estate. That statute, which was enacted in 1989
(P.L. 1989, ch. 374, § 1), provides in pertinent part as follows:
“(a) Any recorded contract, deed, or other instrument
entered into which creates a * * * right of first refusal to purchase
real estate, * * * which by its own terms, does not provide for a
specific expiration date, shall expire ten (10) years after the date of
execution, or ten (10) years after recording, if no date of execution
is contained in the instrument.” Section 34-4-26(a).
The statute further provides that “[a]ny rights created prior to the passage of this act may be
extended for a period of ten (10) years by refiling a Notice of Intention to extend said rights in
1
Fatulli’s father also was a party to the Agreement.
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the Land Evidence Records prior to July 1, 1991.” Section 34-4-26(b). Because the Agreement
did not provide for a specific expiration date, and because defendant had not filed a Notice of
Intention to extend its rights under the Agreement, Fatulli contended that the right of first refusal
had expired.
In an answer filed on February 3, 2000, defendant raised six affirmative defenses,
including laches, waiver, estoppel, and reliance. The defendant also asserted that § 34-4-26 was
both inapplicable to the Agreement and unconstitutional. The answer also set forth
counterclaims for declaratory and injunctive relief. The defendant admitted Fatulli’s allegation
that neither party had filed a Notice of Intention prior to July 1, 1991, but denied that § 34-4-26
applied to the Agreement.
Thereafter, on April 13, 2000, Fatulli moved for summary judgment. The defendant
raised several arguments in opposition to Fatulli’s motion. First, it claimed that factual issues
precluded the entry of summary judgment. Second, it argued that § 34-4-26 did not apply
because the Agreement included personalty as well as real estate. Finally, it asserted that § 34-4-
26 was unconstitutionally vague, violated the Contracts Clause of the United States Constitution,
and unconstitutionally affected vested rights.
On September 29, 2000, a hearing justice of the Superior Court denied Fatulli’s motion
for summary judgment. An order to that effect was entered on October 18, 2000. 2
The case came before a justice of the Superior Court for a bench trial on April 20, 2009. 3
Fatulli did not call any witnesses to testify; instead, he rested his case after the Agreement was
2
In the interim period between the hearing and entry of the order, on October 5, 2000, Fatulli
filed an amended complaint. His amended complaint contained an additional allegation that the
right of first refusal in the Agreement violated the Rule Against Perpetuities.
3
At the start of the proceedings, the trial justice noted that defendant had challenged the
constitutionality of G.L. 1956 § 34-4-26 and inquired whether, pursuant to Rule 24(d) of the
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entered into evidence as a joint exhibit. Before defendant called its witnesses to the stand, two
additional exhibits were admitted into evidence: (1) a plan of Bowen’s Wharf; and (2) the deed
dated August 15, 1969, in which Piltz granted Bowen’s Wharf to the Fatullis.
The defendant called two witnesses: Bartlett S. Dunbar and Ralph Stokes. Dunbar
testified that he formed Bowen’s Wharf Company as a development company in 1969. Although
his role was not explicitly stated on the record, in an affidavit filed before trial, Dunbar stated
that he was the president of Bowen’s Wharf Company. According to Dunbar, he met with
Fatulli in the 1990s to discuss “perhaps making an offer on the property [owned by Fatulli].”
Dunbar confirmed that he did not make an offer to purchase the property at this meeting, but
testified that they discussed the right of first refusal referred to in the Agreement. The trial
justice did not allow Dunbar to testify about the substance of that discussion, and noted that such
testimony was barred under the statute of frauds and the rules of evidence.
The defendant next called Ralph Stokes to the stand. Stokes, an attorney and an expert in
the law of titles and real estate conveyances, testified that, among title insurance underwriters, it
is “universally agreed” that a right of first refusal without a termination date expires in ten years
as to third parties. He also stated that the issue of whether the right expires “as to the parties
themselves * * * does not come up * * * frequently, if ever * * *.” Stokes characterized the
statute as “badly drafted” and “ambiguous at best,” noting that the statute seemed to invalidate
not only rights of first refusal, but also recorded instruments themselves. Finally, Stokes testified
that “[t]he right of first refusal in this matter * * * seemed to suggest that it also conveyed a
business. That is not * * * an interest in real estate.”
Superior Court Rules of Civil Procedure, it had notified the Attorney General of this challenge.
The record reflects that, after a brief recess, a representative of the Attorney General informed
the court that “[a]t this time, the Attorney General’s Office has no interest in this case.”
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On cross-examination, Fatulli’s counsel asked Stokes if he “[had] an opinion as to
whether or not * * * that right of first refusal, when it was executed in 1969, * * * violate[d] the
Rule Against Perpetuities.” Stokes said he did not have an opinion on that, but noted that the
Rule Against Perpetuities was “kicked out of Rhode Island law in 1992.” 4
After trial, the parties submitted posttrial memoranda, in which they reiterated the
arguments set forth at trial and in their pretrial filings. The defendant’s posttrial memorandum
included a novel reading of the statute that it had not advanced previously: that § 34-4-26 was a
“notice statute” and applied only to third parties. The defendant also expanded upon its defense
that § 34-4-26 did not apply to the property referred to in the Agreement. Since that property
comprised not only real estate, but also a dock and a lobster business, defendant argued that the
statute did not apply to such “mixed property.”
In a written decision issued on March 22, 2010, the trial justice found that “the parties’
right of first refusal agreement expired in 1979. Accordingly, [Fatulli] is not obligated to offer
Parcel A, the wharf, or the lobster business to [d]efendant in the event of a bona fide third party’s
offer.” The trial justice found that § 34-4-26 applied to the subject matter of the Agreement,
citing precedent from this Court and other authority for his conclusion that “a wharf or dock may
properly be characterized as real property.” The trial justice rejected defendant’s argument that §
34-4-26 was a notice statute and, as such, did not apply to extinguish the right granted in the
Agreement as between the parties themselves. Judgment for Fatulli was entered on April 20,
2010. Thereafter, defendant timely appealed to this Court.
4
In fact, as we note below, the General Assembly modified the common-law Rule Against
Perpetuities in 1987 and abolished it altogether in 1999. See infra part IV-C.
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II
Issues on Appeal
The question presented for our review is whether the trial justice erred in finding that the
right of first refusal granted in the Agreement between the parties has expired by operation of §
34-4-26. In answering this question, we must address two underlying issues: whether the trial
justice erred in (1) finding that § 34-4-26 extinguished defendant’s right of first refusal not only
as to Parcel A, but also as to the dock and the lobster business; and (2) declining to characterize §
34-4-26 as a notice statute. Additionally, we address certain policy considerations stemming
from the application of § 34-4-26 to this dispute.
We note that defendant has abandoned several contentions which it raised before the trial
justice and on prebriefing before this Court, including various constitutional challenges to § 34-
4-26 and its application to the Agreement in this case. We analyze only the arguments defendant
pressed on full briefing and at oral argument. See State v. Rolon, 45 A.3d 518, 519 n.1 (R.I.
2012) (deeming arguments raised in prebriefing statement but not in full brief to be waived,
citing Article I, Rule 16(a) of the Supreme Court Rules of Appellate Procedure).
III
Standard of Review
“This Court gives great weight to the factual findings of a trial justice sitting without a
jury in a civil matter * * *.” Butterfly Realty v. James Romanella & Sons, Inc., 45 A.3d 584,
588 (R.I. 2012) (quoting Cahill v. Morrow, 11 A.3d 82, 86 (R.I. 2011)). On appeal, we will
leave such findings undisturbed unless they are “clearly erroneous or unless the trial justice
misconceived or overlooked material evidence or unless the decision fails to do substantial
justice between the parties.” Id. (quoting Cahill, 11 A.3d at 86). By contrast, “we review in a de
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novo manner a trial justice’s rulings concerning questions of law.” Id. (quoting Cahill, 11 A.3d
at 86).
IV
Analysis
A
Does § 34-4-26 Apply?
First, we address defendant’s argument that the terms of § 34-4-26 do not apply to the
“mixed property” described in the Agreement. As noted above, the Agreement granted
defendant “the right of first refusal to purchase all of that certain lot or parcel of land * * *
indicated as Parcel ‘A’ * * * together with the dock adjacent thereto, either separately, or
together with the lobster business presently conducted thereon * * *.” (Emphasis added.)
Section 34-4-26 applies to “recorded * * * instrument[s]” which “create[ ] * * * a right of first
refusal to purchase real estate.” The defendant contends that, because the Agreement granted it a
right of first refusal not only on Fatulli’s land, but also on Fatulli’s wharf and lobster business,
that right is not one which falls within the embrace of § 34-4-26.
Although defendant could have chosen to exercise his right of first refusal (while it was
still extant) on (1) the land and the dock; or (2) the land, the dock, and the lobster business, a
careful reading of the Agreement shows that it did not grant defendant a right of first refusal on
either the lobster business or the dock alone. Rather, the Agreement granted defendant a right of
first refusal on the lobster business and the dock only when purchased in conjunction with Parcel
A.
We agree with the trial justice’s finding that, on these facts, “a wharf or dock may
properly be characterized as real property.” We also agree with his finding that “§ 34-4-26’s
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application to the right of first refusal to purchase a parcel of real estate is not fatally diluted by
the fact that the right also applies to a business and a wharf.” The trial justice observed that
“[d]efendant cited no case law on the proposition that § 34-4-26—or any other statute governing
real property—does not apply to ‘mixed transactions.’” Our own review of Rhode Island case
law confirms that defendant’s argument on this point is unsupported. Because the right of first
refusal granted to defendant in the Agreement falls within the plain terms of the statute, we must
reject defendant’s argument that § 34-4-26 does not apply to that right.
B
Is § 34-4-26 a Notice Statute?
The defendant next argues that § 34-4-26 is a notice statute and, as such, operates to
extinguish rights of first refusal only as to third parties, not as between the original contracting
parties. We believe that the trial justice did not err in declining to characterize § 34-4-26 as a
notice statute. Notice statutes distinguish between those with notice of another’s interest in
property and those without such notice. 5 See 11 Thompson on Real Property § 92.08(b) at 159-
160 (2d Thomas ed. 1998). Section 34-4-26 cannot—and does not—draw this distinction
because it applies only to recorded instruments affecting real estate. The world is therefore on
notice of all instruments within the statute’s reach. See G.L. 1956 § 34-13-2 (“A recording * * *
shall be constructive notice to all persons of the contents of instruments and other matters so
recorded * * *.”); see also Davies v. Little, 111 R.I. 496, 502, 304 A.2d 661, 665 (1973)
(recording of agreement granting right of first refusal on property constitutes constructive
notice). Accordingly, we affirm the trial justice’s finding that § 34-4-26 is not a notice statute.
5
Rhode Island’s recording act, G.L. 1956 § 34-11-1, is a notice statute. It provides in pertinent
part that: “[e]very conveyance of lands * * * shall be void unless * * * recorded * * *; provided,
however, that the conveyance, if delivered, as between the parties, * * * or those having notice
thereof, shall be valid and binding though not acknowledged or recorded.” (Emphases added.)
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C
Policy Considerations
We disagree with defendant’s contention that § 34-4-26 discourages recording of
instruments since it does not apply to unrecorded instruments. As noted above, the statute
applies only to “recorded contract[s], deed[s] or other instrument[s] entered into which create[ ] a
* * * right of first refusal to purchase real estate * * * which by [their] own terms, [do] not
provide for a specific expiration date * * *.” Section 34-4-26(a) (emphasis added). If one who
obtains a right of first refusal wishes to avoid the statute’s reach, he or she need only specify an
expiration date for that right in the instrument through which it is created.
In the same vein, defendant points out that, if the Agreement had never been recorded, §
34-4-26 would not apply to the right at issue here, and that right would have therefore remained
intact. The defendant characterizes such a result as “absurd.” In addressing this argument, we
must resort to the Rule Against Perpetuities (RAP), a now-defunct doctrine in Rhode Island.
Although we do so with little relish, we must analyze the RAP’s application to the Agreement to
explain why it is questionable whether the right of first refusal at issue here was ever valid to
begin with.
The classic formulation of the RAP is as follows: “No interest is good unless it must vest,
if at all, not later than twenty-one years after some life in being at the creation of the interest.”
John Chipman Gray, The Rule Against Perpetuities § 201 at 191 (4th ed. 1942). Although
Rhode Island statutorily abandoned the RAP in 1999, the doctrine was in full force and effect
when the Agreement was executed in 1969. See G.L. 1956 § 34-11-38, as enacted by P.L. 1999,
ch. 403, § 1; 3 The Law of Future Interests § 1450 at 502 (3d Borron ed. 2004). Because the
Agreement granted a right of first refusal not to Dunbar personally, but to Bowen’s Wharf
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Company, and because a corporation normally exists in perpetuity, that right may have been void
ab initio under the RAP. 6 See G.L. 1956 §§ 7-1.2-202(d); 7-1.2-302(b)(1); Ferrero Construction
Co. v. Dennis Rourke Corp., 536 A.2d 1137, 1144 (Md. 1988) (right of first refusal of unlimited
duration granted to a corporation was invalid in view of the RAP).
Having concluded that the trial justice did not err in deciding that § 34-4-26 applies to the
right granted in the Agreement or in declining to characterize that statute as a notice statute, we
hold that the defendant’s right of first refusal has expired by operation of § 34-4-26.
V
Conclusion
For the reasons set forth in this opinion, we affirm the judgment of the Superior Court, to
which we remand the record in this case.
6
We acknowledge that this Court never decided whether the RAP applied to rights of first refusal
before Rhode Island abolished the doctrine. See Brough v. Foley, 572 A.2d 63, 67 (R.I. 1990)
(describing Rhode Island law on this issue as “unsettled”). However, among courts in other
jurisdictions that have considered this issue, a majority have concluded that it does. See Old Port
Cove Holdings, Inc. v. Old Port Cove Condominium Association One, Inc., 986 So.2d 1279,
1285-86 (Fla. 2008) (reviewing split of authority). Because this issue is not essential to our
holding, and because the RAP is now defunct in Rhode Island, we decline to expand our
jurisprudence on this doctrine. We address the RAP’s application to the Agreement only to
refute defendant’s claim that the trial justice’s ruling produced an absurd result.
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RHODE ISLAND SUPREME COURT CLERK’S OFFICE
Clerk’s Office Order/Opinion Cover Sheet
TITLE OF CASE: Ronald R. Fatulli v. Bowen’s Wharf Co., Inc.
CASE NO: No. 2010-215-Appeal.
(NC 00-12)
COURT: Supreme Court
DATE OPINION FILED: December 5, 2012
JUSTICES: Suttell, C.J., Goldberg, Flaherty, Robinson, and Indeglia JJ.
WRITTEN BY: Associate Justice Gilbert V. Indeglia
SOURCE OF APPEAL: Newport County Superior Court
JUDGE FROM LOWER COURT:
Associate Justice Edward C. Clifton
ATTORNEYS ON APPEAL:
For Plaintiff: Jeremiah C. Lynch, III, Esq.
For Defendant: James F. Hyman, Esq.