Southern California School of Theology v. Claremont Graduate Univ. ( 2021 )

Filed 1/22/21
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
SOUTHERN CALIFORNIA B295488
SCHOOL OF THEOLOGY,
(Los Angeles County
Plaintiff and Super. Ct. No. KC068691)
Respondent,
v.
CLAREMONT GRADUATE
UNIVERSITY et al.,
Defendants and
Appellants.
APPEAL from a judgment of the Superior Court of Los
Angeles County, Dan Thomas Oki, Judge. Reversed and
remanded with directions.
Loeb & Loeb, Paul Rohrer, W. Allan Edmiston; Greines,
Martin, Stein & Richland, Robin Meadow and David E. Hackett
for Defendants and Appellants.
Jackson Tidus, Charles M. Clark and Kathryn M. Casey for
Plaintiff and Respondent.
____________________________
Claremont Graduate University and Claremont University
Consortium (collectively Claremont)1 appeal from a judgment
entered in favor of Southern California School of Theology2
(SCST) after a bench trial.
The parties’ dispute stems from terms included in a 1957
grant deed (and incorporated by reference into various other
documents) transferring the land on which SCST’s campus sits
from Claremont College (now Claremont Graduate University,
which is Claremont University Consortium’s predecessor-in-
interest) to SCST. The deed contained two conditions subsequent
(recited in full below), one regarding permissible uses of the
property (Educational Use Clause) and one regarding conditions
that would require SCST to offer the property for sale to
Claremont on agreed terms (First Offer Clause), enforceable by a
power of termination and right of reentry.
1Claremont University Consortium (currently known as
The Claremont Colleges, Inc.) oversees centralized planning,
services, and programs for the Claremont Colleges—Pomona
College, Scripps College, Claremont McKenna College, Harvey
Mudd College, Pitzer College, Keck Graduate Institute, and
Claremont Graduate University. Claremont Graduate
University was established in 1925 as Claremont College, but is
now its own corporate entity separate from the Claremont
University Consortium.
2SCST does business as the Claremont School of Theology.
SCST is not one of the Claremont Colleges, but is an “affiliate” of
the Claremont Colleges. According to the Claremont University
Consortium’s policy and procedure manual, affiliate “status . . .
has recognized a special collaborative educational relationship
between the affiliate and at least one of the member Claremont
Colleges . . . [and a] mutual benefit to both the affiliate and
members of The Claremont Colleges.”
2
In its judgment on SCST’s first amended complaint and
Claremont’s second amended cross-complaint, the trial court
concluded that both the Educational Use Clause and the First
Offer Clause had expired on January 1, 1988 by operation of the
Marketable Record Title Act (MRTA) (Civ. Code, § 880.020 et
seq.). The trial court nevertheless concluded that the
Educational Use Clause and the First Offer Clause were
equitable servitudes, enforceable by injunction under MRTA.
The trial court also concluded, however, that enforcing the First
Offer Clause as drafted would be inequitable because it would
effect a forfeiture on SCST “of as much as $36 million, being the
difference between the purchase price calculation [in 1957] and
the current fair market value of the property.” On that basis, the
trial court chose to enforce the Educational Use Clause as
written, but chose “to interpret the [First Offer Clause] as a ‘First
Right of Refusal[,]’ ” and then created the terms of the First Right
of Refusal by injunction.
Claremont challenges the trial court’s use of the forfeiture
doctrine to decline to enforce the deed’s First Offer Clause and to
create a first right of refusal in its stead. We agree with
Claremont that the forfeiture doctrine has no application under
these circumstances. We will reverse the trial court’s judgment.
BACKGROUND
SCST withdrew from the University of Southern California
in 1956. In 1957, it affiliated with the Claremont Colleges and
purchased the land it now sits on (adjacent on two sides to
3
Claremont Graduate University and near the remaining
Claremont Colleges) for approximately $107,500.3
As part of the transaction transferring land and affiliating
SCST and the Claremont Colleges, SCST and Claremont
executed, among other documents, a grant deed and a written
agreement (the 1957 Agreement).4 The deed contained two
conditions subsequent: “1. That no industrial or commercial
activity, or any activity or condition contrary to any law or
ordinance, or any activity or condition not usual and appropriate
for an educational institution of collegiate grade, shall be
conducted or suffered to be conducted or to exist on the real
property granted”—the Educational Use Clause; and “2. That if
[SCST] . . . desire[s] to sell or transfer the said real property or
any portion thereof, or if [SCST] does not within three years from
the date of this Deed establish upon the said real property its
headquarters and reasonably develop the said real property as its
principal establishment and headquarters, or if [SCST] should
cease to exist, or if [SCST] should cease to use the said real
property as its principal place of carrying on its activities, then
3 The trial court’s statement of decision contains the
following note: “While the court has not been presented with
evidence of the actual purchase price in 1957, the parties do not
appear to dispute that this was the price.”
4 In 2001, the parties entered into an agreement to “amend
and reaffirm” the 1957 Agreement. The 2001 agreement
specifically referenced the First Offer and Educational Use
Clauses and restated terms of the 1957 Agreement. In 2006,
Claremont and SCST were both parties (among several other
entities) to an agreement that acknowledged the 1957 Agreement
and that it had been “amended and reaffirmed” by the 2001
agreement.
4
the said real property shall be offered for sale to [Claremont]
upon the terms and conditions provided in [the 1957 Agreement]
made by [Claremont] and [SCST] upon the same date as the date
of this deed”—the First Offer Clause. The deed made the
conditions subsequent enforceable by a power of termination and
right of reentry clause: “IT IS PROVIDED THAT if [SCST] . . .
breach[es] or suffer[s] to be breached any of the foregoing
conditions in any material particular then this Deed shall be null
and void, and any and all right, title, estate or interest of [SCST]
shall thereupon cease and terminate forthwith and shall revert to
[Claremont], and [Claremont] shall have the right to re-enter the
said real property and take possession thereof and eject [SCST]
therefrom.”
The 1957 Agreement incorporated “the terms and
conditions of the said Deed” and set forth in detail the “terms and
conditions” of the First Offer Clause and, among other provisions,
a number of obligations by each party giving contour to the
Educational Use Clause.
In 2015, SCST approached the Claremont University
Consortium to determine whether it or any of the Claremont
Colleges had an interest in purchasing or leasing any part of the
SCST campus or otherwise helping SCST to financially leverage
the property through “partnership opportunities for new
development” or by “[c]o-locating services or functions.”
Claremont University Consortium and SCST negotiated, but
never reached any agreement regarding SCST’s campus property.
SCST marketed the property for sale, and ultimately received
offers.
SCST filed suit against Claremont in August 2016 asking
the trial court to quiet title against Claremont and to declare that
5
the Educational Use Clause and First Offer Clause had expired
pursuant to the MRTA. Claremont cross-complained, alleging
that SCST had breached the deed, the 1957 Agreement, and
other agreements by marketing the property without first
offering it for sale to Claremont on the terms of the First Offer
Clause and seeking specific performance of the First Offer Clause
and a declaration that the terms of the parties’ agreements
remain valid in spite of the MRTA.5
The matter was tried to the court in September 2018, and
on December 18, 2018, the trial court issued a lengthy written
statement of decision. The trial court concluded that the
Educational Use and First Offer Clauses had expired by
operation of the MRTA on January 1, 1988. The provisions in the
parties’ various agreements were not enforceable under a breach
of contract theory, the trial court said, because “if a contractual
5 The operative pleadings at trial were SCST’s first
amended complaint, alleging causes of action to quiet title for
properties in both the deed and a 1972 deed (for a different parcel
of land), a declaration that the Educational Use Clause and First
Offer Clause had expired by operation of the MRTA, rescission of
the parties’ 2001 agreement, and a declaration that clauses of the
2001 agreement reaffirming the deed’s power of termination
would constitute a forfeiture; and Claremont’s second amended
cross-complaint, alleging causes of action for breach and
enforcement of the deed, breach and enforcement of the 1957
Agreement, breach and enforcement of the parties’ 2001
agreement, breach and enforcement of the parties’ 2006
agreement, reformation of the deed, the 1957 Agreement and/or
the 2001 agreement, promissory or equitable estoppel, breach
and enforcement of the 1972 deed, specific performance of the
deed, the 1957 Agreement, the 1972 deed, and the 2001 and 2006
agreements, restitution, and declaratory relief.
6
right under such circumstances could still be enforced, it would
defeat the intended purpose of the MRTA, which is to eliminate
unreasonable restraints on the alienation and marketability of
real property caused by an interest therein created at a remote
time.”
The trial court noted, however, that under the MRTA, “an
expired power of termination may still be enforced by injunctive
relief where it also constitutes an equitable servitude.” The trial
court concluded that the Educational Use Clause and First Offer
Clause “constitute equitable servitudes enforceable by
injunction.” Nevertheless, the trial court concluded that “strict
enforcement of the [First Offer Clause], and its method of
calculating the price to repurchase the property, would result in
[SCST] suffering a forfeiture of as much as $36 million, being the
difference between the purchase price calculation under the 1957
Agreement and the current fair market value of the property.”
Based on its conclusion that enforcement of the First Offer
Clause would result in a forfeiture by SCST, the trial court
“therefore [chose] to interpret the [First Offer Clause] as a ‘First
Right of Refusal.’ ” The trial court then set forth extensive and
detailed terms by which Claremont could exercise the first right
of refusal the trial court created.
The trial court entered judgment on January 23, 2019,
setting forth in judgment form the same findings and conclusions.
Claremont filed a timely notice of appeal.
DISCUSSION
SCST argues that the MRTA controls and allowed the trial
court to invoke the forfeiture doctrine to rewrite the terms of the
parties’ First Offer Clause. Claremont disagrees. Even if the
MRTA applies, Claremont contends, the First Offer Clause is an
7
equitable servitude that must be enforced as written.6 We need
not decide whether the MRTA applies to the parties’ dispute
because even if it does apply, the First Offer Clause is an
equitable servitude that the MRTA does not extinguish.
A. Equitable Servitude
Claremont does not challenge the trial court’s conclusion
that the Educational Use Clause and First Offer Clauses are
equitable servitudes enforceable by injunction pursuant to the
MRTA. (Civ. Code, § 885.060, subd. (c).) SCST characterizes the
trial court’s conclusions memorialized in the statement of
decision and judgment as a finding that the First Offer Clause
was not an enforceable equitable servitude. According to SCST,
the trial court declined to find that the First Offer Clause was an
enforceable servitude, and instead used equitable powers to
create a first right of refusal. SCST argues that the trial court
derived this equitable power from Civil Code section 885.060,
subdivision (c), which allows the trial court to enforce equitable
servitudes.
SCST’s assertion is factually incorrect. The trial court
expressly concluded that the First Offer Clause was an
enforceable equitable servitude: “The [Educational Use Clause]
and the [First Offer Clause] in the 1957 Agreement and
6 Claremont contends alternatively that the MRTA does not
render its other agreements with SCST (and their similar
provisions or reaffirmations of the deed and the 1957 Agreement)
unenforceable because they are independently enforceable
contracts. Because we conclude that the trial court’s application
of the forfeiture doctrine to interpret the First Offer Clause as a
first right of refusal was error, we do not reach Claremont’s
remaining contentions.
8
subsequent agreements of the parties are equitable servitudes
enforceable by injunction.”
Moreover, the text of Civil Code section 885.060,
subdivision (c) does not grant the trial court the kind of equitable
authority SCST urges. By its terms, section 885.060, subdivision
(c) limits the enforcement of an equitable servitude to the terms
the parties negotiated and renders it unenforceable by a power of
termination; it does no more and no less. The statute explains
that a deed restriction “for which a power of termination has
expired under [MRTA]” is not extinguished by operation of MRTA
“if the restriction is also an equitable servitude alternatively
enforceable by injunction. Such an equitable servitude shall
remain enforceable by injunction and any other available
remedies, but shall not be enforceable by a power of termination.”
(Civ. Code, § 885.060, subd. (c), italics added.)
The doctrine of equitable servitudes makes enforceable at
equity a covenant appurtenant to other benefited property that
might be otherwise unenforceable. (Marra v. Aetna Const. Co.
(1940) 15 Cal.2d 375, 378-379.) “A covenant running with the
land is created by language in a deed or other document showing
an agreement to do or refrain from doing something with respect
to use of the land. [Citation.] An equitable servitude may be
created when a covenant does not run with the land but equity
requires that it be enforced.” (Committee to Save Beverly
Highlands Homes Ass’n v. Beverly Highlands Homes Ass’n (2001)
92 Cal.App.4th 1247, 1269 (Beverly Highlands); see Citizens for
Covenant Compliance v. Anderson (1995) 12 Cal.4th 345, 354-
355.) Equitable servitudes are enforceable “although they benefit
or restrict only a single parcel of land.” (Marra, at p. 378.)
9
The Educational Use Clause and the First Offer Clause
both constitute “language in a deed . . . showing an agreement to
do or refrain from doing something with respect to use of the
land,” and are equitable servitudes. (Beverly Highlands, supra,
92 Cal.App.4th at p. 1269; Nahrstedt v. Lakeside Village
Condominium Assn. (1994) 8 Cal.4th 361, 379.)
B. Changed Conditions and Forfeiture
The trial court “interpret[ed] the [First Offer Clause] as a
First Right of Refusal in the event [SCST] chooses to sell or
transfer all or a portion” of its campus property. In its statement
of decision, the trial court explained that it “finds that the
Educational Use [Clause] and [First Offer Clause] constitute
equitable servitudes enforceable by injunction. However,” the
trial court concluded, “the calculation . . . for the repurchase of
[SCST’s] property by [Claremont] constitutes an unreasonable
forfeiture and is unenforceable.” The trial court concluded that
“strict enforcement of the [First Offer Clause], and its method of
calculating the price to repurchase the property, would result in
[SCST] suffering a forfeiture of as much as $36 million, being the
difference between the purchase price calculation under the 1957
Agreement and the current fair market value of the property.”
Claremont contends that the trial court erred when it
applied the forfeiture doctrine to rewrite the terms of the parties’
agreement. SCST contends that the trial court—under the
doctrine of changed conditions—acted within its discretion by
replacing the First Offer Clause with the first right of refusal
terms it set forth in the statement of decision and judgment.
Neither the statement of decision nor the judgment
purports to have applied the doctrine of changed conditions to
decline to enforce the First Offer Clause. To the contrary, the
10
statement of decision and judgment refer expressly to the
forfeiture doctrine. To be clear, the trial court did not conclude
that conditions had changed sufficient to decline to enforce the
First Offer Clause; it instead concluded that enforcing the First
Offer Clause as written would effect a forfeiture. Neither do the
facts of this case support application of the doctrine of changed
conditions.
Increases in property value alone do not constitute changed
conditions sufficient to invalidate otherwise enforceable equitable
servitudes: “The fact that unrestricted use of the property would
be more profitable does not warrant failure to enforce the
restriction if the original purpose of the covenant can still be
realized.” (Robertson v. Nichols (1949) 92 Cal.App.2d 201, 208.)
If the inverse were true, it is difficult to imagine an equitable
servitude on any property in the state that would long be
enforceable. Neither the statement of decision nor the judgment
mentions any other condition of the property that has changed
that would permit the trial court to disregard the First Offer
Clause.
The forfeiture doctrine, codified in Civil Code section 3275,
provides that where the terms of an obligation effect a forfeiture,
a party may, under certain circumstances, be relieved from
failure to comply with the terms of the obligation.
The trial court concluded that the deed’s First Offer Clause
and the 1957 Agreement’s terms establishing the repurchase
price for Claremont set the repurchase price at “approximately
$3.5-$4 million . . . . If, however, the [Educational Use Clause]
and the [First Offer Clause] are no longer enforceable, [SCST]
may be able to sell the real property to developers for any lawful
purpose, including a commercial or residential development, for
11
its current market value of as much as $40 million.” The trial
court ultimately concluded that the difference between the $40
million potential market value of unencumbered property and the
$3.5-$4 million that the property might be valued under the First
Offer Clause’s terms constituted a forfeiture.
The forfeiture doctrine does not apply where there is no
forfeiture. (Hendren v. Yonash (1966) 243 Cal.App.2d 672, 677
(Hendren).) “The question in each [forfeiture] case is as to what
is the contract between the parties.” (Ibid.)
Contracts are, by their very nature, allocations of risk and
responsibility as between the parties. (See Kanovsky v. At Your
Door Self Storage (2019) 42 Cal.App.5th 594, 598-599.) Here, the
parties allocated the risks and responsibilities regarding the
inevitability of increased property value in 1957 in the deed and
the 1957 Agreement. The parties agreed that Claremont’s
repurchase price under the First Offer Clause would be
“computed as follows: whichever of the following defined amounts
be lower, either (1) the fair market value of the land granted, and
the improvements and fixtures thereon, as of the date when the
notice of offer is given, or (2) the sum of the following amounts:
the purchase price of the land granted in the sale from
[Claremont] to [SCST][7] plus taxes and assessments paid by
[SCST] thereon since the date of conveyance by [Claremont] to
[SCST] plus the original cost of improvements and fixtures
thereon but less a reasonable allowance for depreciation and
obsolescence of such improvements and fixtures.”8 (Italics
7 Again, approximately $107,500.
8SCST and Claremont agreed that if they were unable to
agree on the price “or on any of the calculations relating thereto,
12
added.) Indeed, by the terms of the agreement, SCST was to bear
the risk that the property either increased in value or decreased;
the parties agreed that Claremont’s first offer right was to be the
lower of either the fair market value of the property or the
calculation based on the price SCST paid for the land.
We conclude that enforcing the First Offer Clause as
written would operate no forfeiture to either party; indeed, each
party would receive that for which they bargained, and that to
which they agreed. (See Barkis v. Scott (1949) 34 Cal.2d 116,
122-123.) Whether SCST stays at its location in Claremont or
moves and triggers the First Offer Clause, it will have received
what it bargained for. That more than six decades have passed
and land has appreciated in value does not render the terms of
the parties’ agreement a forfeiture for either party. Rather, the
trial court’s “interpretation” of the First Offer Clause as a first
right of refusal would materially alter the parties’ allocation of
their respective risks and contractual rights and responsibilities.
Absent a forfeiture to be avoided, the forfeiture doctrine is
inapplicable. (Hendren, supra, 243 Cal.App.2d at p. 677.)
DISPOSITION
The judgment is reversed. The matter is remanded to the
trial court. On remand, the trial court is directed to vacate its
judgment and enter judgment enforcing as written the First Offer
Clause and Educational Use Clause as equitable servitudes
then the question shall be submitted to arbitration, said
arbitration to be conducted in accordance with, and to have the
validity and effect provided by, the provisions on arbitrations of
the Code of Civil Procedure of the State of California as then in
force.”
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under Civil Code section 885.060, subdivision (c). Appellants are
awarded their costs on appeal.
CERTIFIED FOR PUBLICATION
CHANEY, J.
We concur:
ROTHSCHILD, P. J.
BENDIX, J.
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