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Castle Props., Inc. v. Wasilla Lake Church of Nazarene

Supreme Court of Alaska

April 10, 2015

CASTLE PROPERTIES, INC., Appellant,
v.
WASILLA LAKE CHURCH OF THE NAZARENE, Appellee

Appeal from the Superior Court of the State of Alaska, Third Judicial District, Palmer, Eric Smith, Judge. Superior Court No. 3PA-11-02112 CI.

Kenneth D. Albertsen, Palmer, for Appellant.

Ronald L. Baird, Office of Ronald L. Baird, Anchorage, for Appellee.

Before: Fabe, Chief Justice, Winfree, Stowers, Maassen, and Bolger, Justices.

OPINION

Page 991

BOLGER, Justice.

I. INTRODUCTION

Castle Properties, Inc. held a right of first refusal on approximately 2.4 acres of unimproved land owned by the Wasilla Lake Church of the Nazarene (Church). The City of Wasilla (City) offered the Church another parcel of approximately 17 acres in exchange for this property. Having learned of the City's offer, Castle Properties requested a copy of the purchase and sale agreement memorializing the exchange. The Church, apparently unaware of the right of first refusal, denied this request. Castle Properties then informed the Church that it was exercising its right of first refusal and submitted a cash offer, which the Church rejected.

Castle Properties filed suit, and the superior court found that Castle Properties received adequate notice when it obtained the city ordinance approving the City's offer and that the Church acted reasonably in rejecting Castle Properties' competing cash offer. We conclude that the superior court did not clearly err in finding that Castle Properties received adequate notice, that Castle Properties exercised its rights by making a competing offer, and that the Church's response did not violate the covenant of good faith and fair dealing.

II. FACTS AND PROCEEDINGS

The property underlying this dispute is located in the Lakebrook Subdivision in Wasilla, near the Cottonwood Creek Mall. Castle Properties seeks to purchase the southern

Page 992

portion of Tracts 3 and 4 (Property), bounded by the Palmer-Wasilla Highway to the north and Cottonwood Creek to the south.[1]

In 1984 the Baugh Construction and Engineering Profit Sharing Trust (Trust) began acquiring property in the Lakebrook Subdivision. Gary Baugh, the trustee, believed that if the Trust could acquire contiguous properties across Tracts 1 through 5, they would present " an attractive piece of real estate for a developer." The Trust first acquired the southern portions of Tracts 1 and 2 and then set its sights on the southern portions of Tracts 3, 4, and 5.

At this time, title to Tracts 3 and 4 was held by the " Alaska District, Church of the Nazarene." But the church association that would eventually become the Wasilla Lake Church of the Nazarene negotiated with the Trust and executed the relevant transaction. Tract 5 was owned by the Church's pastor, John Vaughn, and his wife. Vaughn wanted the Church to purchase the northern portion of Tract 5. And according to Baugh, the Trust was interested in acquiring the southern portion, contingent on the possibility of someday acquiring the adjacent portions of Tracts 3 and 4.

The parties therefore crafted the following exchange. The Trust purchased the entirety of Tract 5 from the Vaughns for $310,000. The Trust then kept the southern portion for itself, but sold the northern portion to the Church, in exchange for $100,000 and a right of first refusal to purchase the southern portions of Tracts 3 and 4 -- the Property. The end result was as follows: the Vaughns sold Tract 5 for $310,000; the Church acquired the northern portion of Tract 5; and the Trust, in essence, paid $210,000 for the southern portion of Tract 5 plus the opportunity to purchase the adjoining Property at some point in the future.

The document memorializing the right of first refusal stated that the Church " grant[ed] the . . . Trust First Right of Refusal on any future sale" of the Property. There is no evidence that the parties agreed to more detailed terms regarding the duties owed by either party pursuant to this right. The Trust recorded this document in 1996. In 2002 Castle Properties purchased all of the Trust's interests in Tracts 1 through 5 -- including the right of first refusal to purchase the Property.

As early as 2004 the Church's board began discussing the shortcomings of the Church's facilities and the need to relocate to a larger and more suitable site. The Church decided to sell the Property as part of this relocation strategy, and in 2010 the Church listed the Property for $600,000. Gary Lundgren, Castle Properties' owner, submitted two cash offers for the Property through his agent, Kevin Baker. These offers were made in April and July 2010 for $265,000 and $300,000, respectively. The Church rejected both offers, but the Church's real estate agent, Tammy Ervin, inquired whether Lundgren had 20 acres of land available for an exchange instead. Baker told Ervin that Lundgren was not interested in a property exchange. He did not mention Castle Properties' right of first refusal at this time.

Around the same time the Church signed a non-binding letter of intent with the City to exchange the Property for approximately 20 acres of City land. On April 11, 2011, a draft ordinance ratifying this exchange was introduced. The ordinance identified the City property to be traded (City Trade Land) and its approximate acreage. The accompanying staff report specifically noted the Church's " desire to relocate onto a large parcel." And attached to the ordinance was a title report with the tax-assessed value of the parcel encompassing the City Trade Land.

Castle Properties was unaware of the City's offer until April 2011, when Baker attended a City Council meeting where the exchange was discussed. Having learned of the potential conveyance to the City, Baker tried to acquire a copy of the Purchase and Sale Agreement (Purchase Agreement) between the City and the Church, but his requests were denied. Baker testified that he also attempted to set up a meeting with the

Page 993

Church but that the Church declined to participate.

On May 18, 2011, Castle Properties recorded a document entitled " Notice of Exercise of First Right of Refusal." This notice stated that, having learned of the City's offer, Castle Properties was exercising its right to purchase the Property on " equivalent terms," which Castle Properties deemed to be $153,000. There was testimony at trial suggesting that the then-current Church leaders were unaware of Castle Properties' right of first refusal until this document was recorded.

On May 27 Castle Properties' attorney sent the Church a letter reiterating Castle Properties' election to exercise its right of first refusal by purchasing the Property for $153,000, noting that " [a] real estate broker has confirmed that this is the upper end of fair market value for the [City] Trade Land." Castle Properties informed the Church that it had placed $153,000 in escrow, urged that " time [was] of the essence," and requested a closing by June 7, unless " alternative arrangements" had been made. The Church responded with a letter informing Castle Properties that its right of first refusal appeared unenforceable and that unless Castle Properties could show legal authority to the contrary, the Church intended to close the transaction with the City on August 11.

Castle Properties filed suit on August 9, seeking specific performance of its right of first refusal. Castle Properties also recorded a lis pendens on the Property. The Church counter-claimed, seeking a decree quieting title to ...


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