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David A. Bramble, Inc. v. Merrill F. Thomas, et ux., No. 32, Sept. Term, 2006. REAL PROPERTY - RIGHT OF FIRST REFUSAL - TRIGGERING OFFER - GOOD FAITH - MATCHING OFFER. Petitioner, David A. Bramble, Inc. ("Bramble"), a Maryland corporation engaged in the business of mining gravel and s and, is the holder of a right of first refusal in a particular parcel of land located in Caroline County ("the Property"). The landowners, John O. Lane and Rose T. Lan e ("Lanes"), received from Respondents, Merrill F. Thomas and Nancy R. Thomas ("Thomases"), an offer to purchase the Pro perty. Added by hand-written addendum to the offer was a "no mining" clause which purported to forbid mining o n the Prop erty. When Bramble attempted to exercise its right of first refusal, it omitted from its "matching" offer this prohibition on mining. After the landowners refused to convey to either the Thomases or Bramble, the Thomases filed suit in the Circuit Court for Caroline County seeking, inter alia , specific performance of their offer to purchase the Property. Both the Lanes and Bramb le moved for sum mary judgment. The C ircuit Court declared that although Bramble's preemptive right did not violate the rule against perpetuities, Bramble's purported exercise of the right of first refusal was ineffectual because the exercise was not made "on the terms of the intended sale," to wit, the omission from its exercise of the "no mining" provision. T he Cou rt of Specia l Appeals affirmed the grant of summa ry judgment. A right of first refusal, or "preemptive right," is a type of option, and subject to many of the same rules as an option agreement. Maryland law recognizes generally that the exercise of an option mu st be in exact accord with its terms. Maryland law is ambiguous, however, as to whether the exercise of a right of first refusal must match exactly the terms of a triggering offer, or whether it must match only those term s material to the offer. Other jurisdictions are likewise split on the issue. We need not decide the issue here, however, because there was a genuine dispute of material fact sufficient to defeat summary judgment, i.e., whether the "no mining" provision was added in bad faith in o rder to f rustrate P etitioner 's preem ptive rig ht in the P roperty. A property owner, for the purpose of discouraging the holder of a preemptive right in the property from exercising its right of first refusal, may not insert into the triggering offer terms which it kn ows w ill be repugna nt to the hold er. This app roach pro tects the equ itable property interest a holder of a preemptive right has in the property, allows a property owner to otherwise dispose of the property as he, she, or it deems a ppropriate, a nd comp orts with general notions of good faith and fair dealing followed generally in Maryland contract law. In the present case, summary judgment was an im proper m eans of d etermining the rights of the parties. Wh ile the "no m ining" claus e could have been inserted into the triggering offer for some legitimate reason, there is evidence on the record, if believed, that the Lanes and/or Thomases inserted the provision as a "poison pill" in order to discourage Bramble from

exercising its right. Bramble had been mining, for sand and gravel, land adjacent to the property for years. Ms. Thomas was a registered real estate agent, and likely knew the activities of the property owners in the vicinity of the property. Lastly, the hand-written addendum by which the clause w as added supports a c onclusion that the "no mining" provision was an a fter-the-fact m ethod of d issuading e xercise of B ramble's pree mptive righ t. Summary judgm ent in favor of Re spondents, therefore, w as improper.

Circuit Co urt for Caro line County Case # 05-C-04-009233

IN THE COURT OF APPEALS OF MARYLAND No. 32 September Term, 2006

DAVID A. BRAMBLE, INC. v. MER RILL F. TH OM AS, et ux.

Bell, C.J. Raker Wilner Cathell Harrell Battaglia Greene, JJ.

Opinion by Harrell, J.

Filed: January 8, 2007

The sole issue in this case concerns the propriety of th e Co urt of Sp ecia l Appeal s's affirmance of summary judgment in favor of third-party purchasers of certain real property and against the holder of a preemptive right of first refusal as to the property. David A. Bramble, Inc. ("Petitioner" or "Bramble"), the holder of the right of first refusal, attempted to exercise its pre emptive rig ht, but omitted in the purported exercise a n on-price term contained in the third-parties' trigge ring offer. T he Circuit C ourt for C aroline Co unty, in granting summary judgment to the third parties, declared that Bramble had not exercised effectively its right of first refusal. The Court of Special Appeals affirmed. For reasons we shall explain, we conclude that there was generated a genuine dispute as to a material fact whether the non-p rice term w as added to the triggering offer in bad faith. Therefore, we shall reverse. I. FACTUAL BACKGROUND With the notable exception identified supra , the facts, material and otherw ise, of this case were otherwise largely undisputed. John O. Lane and Rose T . Lane ("Lanes"), husband and wife, own a 25.99 acre parcel of unimproved real property located on Cherry Lane near Ridgely in Caroline County, Maryland (the "Property"). On 3 January 2004, Respon dents here, Merrill F. Thoma s and Nancy R. T homas ("Tho mases"), entered into an Unimproved Land Contract of Sale ("Thomas Offer") whereby the Lanes agreed to sell to the Thomases the Property for a purchase price of $105,000.00. Respondents tendered with the contract a $1,000.00 earnest money deposit. Closing was to occur on or before 16 Febru ary 2004. The Thomas Offer contained a hand-written Addendum which provided the following:

1.

Nancy Thomas is a licensed Real Estate Agent in the State of Maryland. This contract is contingent upon the release of Dav id Bramble's first right of refusal within 30 days of ratification. Buyers agree that they will not mine the above referenced prop erty.

2.

3.

The "right of first refusal" to which Paragraph 2 of the Addendum referred was originally granted by the Lanes to R WL De velopment Co mpany ("RW L") on 20 Feb ruary 1992,1 and prov ided, in pertine nt part: In the event Jo hn Ow ens Lane and Ro se T. Lan e, his wife, shall receive an offer to pu rchase their p roperty located in the Second Election D istrict of Caroline County, Maryland, described in a dee d from RWL Deve lopme nt Com pany, a Maryland Corporation, to John Owens Lane and R ose T. Lane, his wife, dated November 20, 1991, recorded in Liber 24 7, Folio 375, a Land Record Book for Caroline County, Maryland, and decide to accept the same, they shall first offer the p roperty to RWL Developm ent Compan y, its successors and/or assigns, for the price an d on the term s of the intend ed sale . RWL Development Company, its successors and/or assigns, shall have th irty (30) days from the date of such off er in which to accept or reject the same. Nothing hereinbef ore contained shall in any way delay or limit the right of any mortgagee to foreclose under a valid mortgage or deed of tru st, in accordance with the terms of such instrument, or to accept a deed in lieu of foreclosure from the grantors.[2]
1

The Right of First Refusal was recorded among the Land Records of Carolin e Coun ty in Liber No. 249, Folio 397.
2

According to a letter in this record, written by counsel for the Lanes and dated 6 (contin ued...) 2

(emphas is added). On 7 May 1993, RWL Development Company c onveyed by Deed3 to Petitioner4 its right of first ref usal. Counsel for the La nes wrote a letter to Bram ble on 6 Ja nuary 2004 notifying it that the Lanes had acc epted the Thom as Offer, contingen t upon B ramble's relea se of its right of first refu sal. A ttach ed to the le tter w as a c opy of the Thomas Offer, with the "no mining" clause. Bramble executed and delivered to the Lanes on 19 January 2004 an "Agreement of Sale," which purported to exercise its right of first refusal ("Bramble Of fer").5 Petitioner's

(...continued) Janu ary 20 04, P etitio ner o wns RW L Devel opm ent C omp any. This Deed was recorded on 11 May 1993 among the Land Records of Caroline County, Maryland, at Liber 252, Folio 712. David A. Bramble, Inc., is a corporation organized under the laws of the State of Maryland with its principal place of business in Caroline C ounty. Petitioner mines sand and grav el fro m a site lo cated adjacent to the P rope rty. RWL conveyed to Bramble the right of first refusal as part of a larger land sale, whereby Bramble received, in exchange for $445,000.00 and other valuable consideration, three parcels of la nd located on or arou nd Che rry Lane in R idgely, Maryland . One parc el is adjacent to the Pro perty, and the other two are located across Cherry Lane from the P rope rty. According to the land sale contract, dated 8 March 1993, there is a sand pit located on one of the tracts. This is the land from w hich Petitioner mines sand and gravel. It is unclear from the record whethe r Petitioner extracted natural resources from the pit before 7 May 1993. In any event, Bramble had been mining the pit since that date.
5 4 3

2

A clause inserted by Bramble into the Agreement read: WHEREAS, an off er, to purchase the land described in the aforesaid right of first refusal has been accepted by John Owens Lane and Rose T . Lane, on [3 Janu ary 2004]. It is the intent of this Agreem ent being su bmitted by D avid A. B ramble, Inc ., to (contin ued...) 3

offer matched all the terms of the Thomas Offer, except that it omitted the prohibition against mining include d in Par agraph 3 of the Thom as Off er's Add endum . Respon dents agreed on 4 February 2004 to amend certain terms in the Thom as Offer, increasing the pur chase p rice to $1 20,000 .00, with settlement to occur on 31 March 2004. The followin g day, counsel for Respondents faxed to the Lanes a revised offer ("Second Thomas Offer"), which reflected the amended price and set tlemen t terms. By letter dated 6 February 2004, the Lanes' attorney informed Petitioner of the new offer and requested advice as to whether Bramble would be willing to meet the increased sale price of $120,000.00. On 17 February 2004, counsel for Petitioner responded that, because B ramble previously had exercised its preemptive right, a binding land sale contract had been formed. According to counsel, "the Thomases [were] not at liberty to make additional offers nor [were] the Lane s at liberty to ac cept them " in connectio n with the sale of t he Prope rty. The next day, counsel f or the Lan es advised Bramble that it was the Lanes' view that the offer tendered by Petitioner was not an effective exercise of its right of first re fusa l. Specif ically, counsel informed Bramble that if it wishe d to exercise its preemptiv e right, "[it] must do so by accepting all the terms of the offer, including the restriction that the property would not be mined." B ecause the Bramble Offer, as signed and delivered, did not mirror exactly the

5

(...continued) exercise the right of first refusal, to purchase the property for the price set forth in the order heretofore accepted by John Owens Lane and Rose. T Lane, his wife. 4

terms of the Thomas Offer ratified by Respondents, it was neither an effective exercise of the right of first refusal, nor a valid acceptance. According to the Lanes, the Bramble Offer was in stead a c ounter -offer which the Lan es wer e free to accep t or rejec t. Bramble agreed to revise his offer to include a prohibition against mining, and submitted a new offer ("Se cond B ramble O ffer") wh ich purpo rted to be a valid exercise of its preemptive right. Although the Second Bramble Offer included the "no mining"

provision, it contained the original sales price o f $105,000.00. In other words, the Second Bramble Offer mirrored the provisions of the initial triggering Thomas Offer. The Second Bramble Offer was tendered on 19 February 2004, f orty-four days after Bramble was first notified of the Lane s' acceptance of the Th omas Offe r. Citing the controvers y concerning the validity of B ramble's exe rcise of its right of first refusal, and because of the fear of being sued by Bramble, the Lanes refused to convey the property to either suitor. Mr. Lane, on 7 March 2004, attempted instead to return the $1,000.00 earnest money ten dered by the T homase s with the T homas O ffer. Resp ondents answered by filing suit aga inst both the L anes and Petitioner in the Circuit Court for Caroline County in order to determine and enfo rce their asse rted rights wi th respec t to th e Pro perty. Respon dents sought in Count I a declaratory judgment that the right of first refusal was void because it violated the Ru le again st Perpe tuities. Specifically, Respondents argued, under Ferrero Construction Co. v. Dennis Rourke Corp., 311 Md. 560, 575-76, 536 A.2d 1137, 1144-45 (1988), that because Bramble was a corporation with a theoretically perpetual

5

existence, the right of first refusal might vest well beyond some life in being plus twenty one years. In Count II, Respondents sought specific performance of the Second Thomas O ffer. The Thomases requested further, in Count III, damage s in the amount of $25,000.00, for the antic ipato ry breach t hat o ccur red w hen the L anes refu sed to convey the p rope rty. The Lanes moved for summary judgment. Respondents answered and filed their own motion for summ ary judgmen t. Neither the L anes nor P etitioner filed a response to

Respondents' motion fo r summa ry judgment. The parties appeared for oral argument on the motions, rep resented by co unsel. The Circuit Court filed its written opinion on the motions on 23 February 2005. The trial judge declared first that the right of first refusal did not violate the rule against perpetuities: The right of first refusal gran ted to Dav id A. Bram ble does not violate the Rule Against Perpetuities. In the original conveyance of the right to RWL Corporation, the Right was stated to be applicable "[i]n the event John Owens and Rose T. Lane, his wife, sh all receive an offer to pu rchase their proper ty." The right thus w ould vest, if a t all, within a life or lives in being, i.e., when the last o f the tw o Lan es die. Cf. Park Station Ltd. Partnership LLLP v. Bosse , 378 Md. 122 , 135 (2003). 6

As stated earlier, Respondents initially argued that the right o f first refusal w as void under Ferrero Construction Co. v. Dennis Rourke Corp., 311 Md. 560, 536 A.2d 1137 (1988). In Ferrero Constr. Co., this Court held that the "preemptioner" (the holder of a right of first refusal) holds an equitable interest in the subject property which vests only when the property owner decides to sell. We concluded that a right of first refusal conveyed between two corporations violated the rule against perpetuities. Because both corporations had theoretically an infinite existence, we reasoned that the holder's "right of first refusal was not (contin ued...) 6

6

The trial court continued, however, that the purported exercise of the right of first refusal was ineffectua l: Although it does not violate the Rule Against Perpetuities, Bramble's right of first refusal is void for the following reasons. Bramble had the option to accept the terms of any other off er to buy the pro perty and there by purchase it himself within thirty days of the offer of another. When Bramble learned of a contract between the Lanes and the Thomases, he submitted a proposed contract to the Lanes that had different terms than the contract between the Thomases and Lanes. Specifically, the contract between the Lanes and Thomases stated that the "[b]uyers agree that they will not mine the above referenced property." Bramble's first proposed

(...continued) limited to a term of years but was of unlimited duration." Thus, the right could vest beyond "a life in being plus twenty-one years," as contemplated by the Rule Against Perpetuities. Ferrero Constr. Co., 311 Md. at 575-76 n.7, 536 A.2d at 1144 n.7 (holding that corporations may not be used as m easuring lives for the purpo ses of the Rule A gainst Perpetuities). In Park Station Ltd. Partnership, LLLP v. Bosse , 378 Md. 122, 835 A.2d 64 6 (2003), however, this Court was called upon to decide whether a right of first refusal violated the Rule when conveyed by an individual property own er to a limited p artnership (w ith potentially unlimited duration). We held that becaus e the right of first refusal, as drafted, d id not continu e in the prop erty owner's successors or assigns, this right could not vest beyond the deaths of the pro perty ow ners. Park Station, 378 Md. at 135-36, 835 A.2d at 654. The property owner, in other words, would receive, if at all, an offer to purchase the encumbered property on or before their death, thereby vesting in the pree mptioner th e opportu nity to exercise its right of first refusal within the statutory period. In the present case, the Circuit Court determined that the right of first refusal granted by the Lanes, as drafted, pertained only to offers received by the Lanes themselve s, and did not contemplate offers received by the Lanes' heir or assigns. Thus, the right of first refusal would vest on or before the death of the Lanes , a life in being a t the t ime o f the right's creation. Respondents do not chal leng e her e, by c ross-app eal, the C ircuit Co urt's conclusion that the preem ptive right does not violate the Rule Against Perpetuities. Thus, we do not consider this issue. 7

6

contract to the Lanes lac ked this provision. A n acceptan ce with terms that vary from those in an offer constitutes a rejection and counte r-offe r. Post v. Gilles pie , 219 Md. 378 (1959). The court, thus, gra nted sum mary judgm ent on Re sponden ts' Count I claim . It denied summary judgment as to Counts II and III of the complaints, however, because there were "disputes as to material facts." The Circuit Court denied the Lanes' mo tion for summary judgmen t. On 24 March 2005, the Lanes an d Respo ndents reac hed a settlem ent agreem ent as to all unresolve d claims in th e action. Respondents filed on 25 April 2005 a motion for voluntary dismissal as to Cou nts II and III, pursuant to Maryland Rule 2-506(b), which the Circuit Court granted with prejudice two days later. Bramble noted a timely appeal to the Court o f Spec ial App eals. Bramble argued exclusively on appeal that the Circuit Court erred in declaring that the corporation had not exercised effectively its right of first refusal w hen it failed to include the "no mining" clause in the Bramble Offer. The Court of Special Appeals, in an unreported opinion, affirmed the judgm ent of the Circuit Cou rt. The intermediate appellate cou rt reasoned that, because the "no mining" provision w as a material term in the triggering of fer, Petitioner's "matching" offer, which omitted the use restriction, was an ineffective exercise of the corporation's right of first refus al. Even in the absence of language indicating that the Bramble Offer was a conditional exercise of Petitioner's right of refusal, according to the court, the absence of the "no mining" clause rendered Bramble's alleged exercise insufficient

8

because Bramble, in effect, was attempting to purchase, at the same price, more rights in the property than contained in the triggering offer. On Bramble's petition, we issued a writ of certiorari. 393 Md. 244 , 900 A.2d 751 (2006). 7 II. STANDARD OF REVIEW Summary judgment is proper when "the motion [for summary judgment] and response show that there is no genuine d ispute as to any material fact and that the party in whose favor judgment is entered is entitled to judg ment as a m atter of law ." Md. R ule 2-501(f). Because a trial court decides only questions of law when considering a motion for summary judgment under Rule 2-501(f), this Court reviews a grant of sum mary judgm ent de novo in order to determine whether the trial court was lega lly correct . Walk v. Hartford Cas. , 382 Md. 1, 14, 852 A.2d 98, 105 (2 004); Todd v. Mass Transit Admin., 373 Md. 149, 154, 816 A.2d 930, 933 (2003); Sadler v. Dimensions Healthcare Corp., 378 Md. 509, 533, 836 A.2d 655, 699 (2003); Southland Corp. v. Griffith , 332 Md. 704, 712, 633 A.2d 84, 87-88 (1993). In doing so, we review independently the factual record in a light most favorable to the non-moving party and construe in favor of the non-moving party any reasonable inferences which may

7

The que stion presen ted in Bram ble's petition w as: When the holder of a right of first re fusal on re al property attempted to exercise its right to purchase but omitted a nonprice term contained in the triggering offer, should the Court of Special Appeals have affirmed a summary judgment, that as a matter of law the attempted exercise failed when there was no evidence that the omitted term was material to the sellers? 9

be drawn from the pleadin gs, adm issions, a nd aff idavits. Jurgensen v. New Phoenix Atl. Condo. Council of Unit Owners, 380 M d. 106, 1 14, 843 A.2d 8 65, 869 (2004 ). III. DISCUSSION Respon dents main tain 8 that [t]he trial court properly determined that the failure of B ramble to submit a timely offer that included a prohibition against mining constituted a counter offer. A reply to an offer that differs from the suggested method of performance is a conditional acceptance or count er offe r. Baltimore County v. Archway Motors , 35 Md. App. 158, 163, 370 A.2d 469 (1977). Bramble's deviation from the terms of the Thomas Offer was not an unqualified acceptance of this offer "for the price and on the terms of the intended sale." As such, it did not comply and the trial court wa s correct in de termining th at it had not pr operly exercised its right of first refusal in a timely mann er. Respon dents argue furth er that, because the prohibition against mining was a material term of the Thomas Offer, its exclusion from the B ramble Offer improperly would have entitled Bramble to more rights in the subject prop erty than granted by the triggering of fer. 9 Petitioner counters that even if Maryland law requires exact matching of the terms of the triggering offer when e xercising a right of first refusa l, neither the property owner nor the proposed third-party purchaser may act in bad faith to discourage or frustrate the exercise of

8

Respondents made the same argument in the Court of Spec ial Appeals.

The basis for this argument is that the Prope rty would be more profitable, and thus more valuable, if mining of the land were permitted. Because the triggering offer contained a use restriction prohibiting mining on the Property, and Petitioner attempted to eliminate the use restriction wh ile maintaining the same purchase price fou nd in the triggering offer, it was receiving, in effect, at the same price significantly more valuable property rights. 10

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the preemptiv e right, or include te rms whic h they know the preem ptive rightho lder will not accept. A. Options to Purchase and Rights of First Refusal Generally. In order to consider properly whether Petitioner's omission of the no-mining clause rendered ineffective the exercise of its pre emptive right, it is necessary first to refresh our recollection of the conceptual underpinnings of option contracts and rights of first refusal. An option is a "continuing offer to sell during the duration [of the option agreement] which on being exercised by the optionee becomes a binding and enforceable contract." Straley v. Osborne , 262 Md. 514, 521, 278 A.2d 64, 68 (1971) (quoting Diggs v. Siomporas, 248 Md. 677, 681, 237 A.2 d 725, 72 7 (1968)). It is w ell settled-law in Maryland th at to be an effective exercise of an option, th e exercise o f that option "must be u nequivoc al and in accordance with the terms of the option." Katz v. Pratt Street Realty Co., 257 Md. 103, 118, 262 A.2d 540, 547 (1970) (citing Simpers v. Clark , 239 Md. 39 5, 401, 211 A.2d 753 (1965)); Foard v. Snider, 205 Md. 435, 446, 109 A.2d 101, 105-06 (1954) ("Whatever the option requires must be done. As in the case of all offers, revocable or irrevocable, the exercise must be unconditional and in exact accord with the term s of the op tion.") (emph asis added); 1 W ILLISTON ON C ONTRACTS

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