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

Citations: 56 A.3d 436; 2012 WL 6062554; 2012 R.I. LEXIS 142Docket: 2010-215-Appeal

Court: Supreme Court of Rhode Island; December 5, 2012; Rhode Island; State Supreme Court

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The Supreme Court case No. 2010-215-Appeal involves Ronald R. Fatulli and Bowen’s Wharf Company, Inc., addressing the validity of a right of first refusal concerning adjacent properties at Bowen's Wharf, Newport. The central issue is whether a right of first refusal granted by Fatulli to Bowen’s Wharf Company in 1969 has expired under Rhode Island law. 

On August 15, 1969, George H. Piltz transferred ownership of Bowen’s Wharf to Fatulli and his deceased father, who subsequently sold a portion of it (Parcel B) to Bowen’s Wharf Company while retaining a smaller portion (Parcel A). One week later, Fatulli and Bowen’s Wharf Company executed an agreement granting the latter a right of first refusal on Parcel A, which was recorded immediately.

In 2000, Fatulli sought a declaratory judgment in Newport County Superior Court, asserting that the right of first refusal had expired per G.L. 1956. § 34-4-26, which dictates that recorded rights without specified expiration dates expire ten years after execution or recording. This statute also allows for a ten-year extension if a Notice of Intention is filed prior to July 1, 1991, which Bowen’s Wharf Company did not do. The Superior Court upheld Fatulli's claim, confirming the expiration of the right of first refusal, leading to the current appeal. The Supreme Court affirmed the lower court's judgment.

On February 3, 2000, the defendant raised six affirmative defenses, including laches, waiver, estoppel, and reliance, and claimed that § 34-4-26 was inapplicable and unconstitutional concerning the Agreement. The defendant admitted that neither party filed a Notice of Intention before July 1, 1991, but denied the applicability of § 34-4-26. Following this, Fatulli moved for summary judgment on April 13, 2000, to which the defendant countered by asserting that factual disputes existed, that the Agreement involved both personalty and real estate, and that § 34-4-26 was unconstitutionally vague and violated the Contracts Clause. The Superior Court denied Fatulli’s motion on September 29, 2000, with an order issued on October 18, 2000. 

During the bench trial on April 20, 2009, Fatulli did not present witnesses and rested his case after admitting the Agreement as evidence. The defendant introduced two exhibits: a plan of Bowen’s Wharf and a deed from 1969. Witnesses called by the defendant included Bartlett S. Dunbar, who discussed a potential offer on Fatulli’s property and the right of first refusal mentioned in the Agreement, though his testimony on that topic was restricted by the statute of frauds. Ralph Stokes, an attorney and expert, testified that a right of first refusal without a termination date typically expires in ten years for third parties and criticized the statute as ambiguous. He also noted that the right of first refusal could imply the conveyance of a business rather than merely real estate. The Attorney General's office stated it had no interest in the case. On cross-examination, Stokes did not opine on whether the right of first refusal violated the Rule Against Perpetuities, which had been abolished in Rhode Island law in 1992. After the trial, both parties submitted posttrial memoranda, reiterating their previous arguments, with the defendant introducing a new interpretation of § 34-4-26 as a "notice statute" applicable only to third parties.

The defendant contended that § 34-4-26 did not apply to the property in question, which included real estate, a dock, and a lobster business, characterizing it as 'mixed property.' However, the trial justice ruled on March 22, 2010, that the right of first refusal agreement had expired in 1979, and thus, Fatulli was not required to offer Parcel A, the wharf, or the lobster business to the defendant upon a bona fide third-party offer. The court found that § 34-4-26 was applicable, asserting that a wharf or dock qualifies as real property. The trial justice dismissed the defendant’s assertion that § 34-4-26 functioned merely as a notice statute, concluding it extinguished the right of first refusal as stated in the Agreement. A judgment favoring Fatulli was entered on April 20, 2010, leading to the defendant’s timely appeal. 

On appeal, the primary issue is whether the trial justice erred in concluding that the right of first refusal lapsed under § 34-4-26, particularly concerning the dock and lobster business, and in not categorizing § 34-4-26 as a notice statute. The defendant has abandoned several arguments, including constitutional claims regarding § 34-4-26. The court will analyze only the issues raised during full briefing and oral argument. 

Factual findings by the trial justice are given substantial weight, remaining undisturbed unless clearly erroneous. Conversely, questions of law are reviewed de novo. The court first examines whether § 34-4-26 applies to the mixed property in the Agreement, which granted the defendant a right of first refusal for Parcel A, the dock, and potentially the lobster business. The defendant argued that this arrangement fell outside the scope of § 34-4-26, which pertains to recorded instruments granting rights of first refusal for real estate. The Agreement did not explicitly grant a right of first refusal on the lobster business or the dock independently, indicating that the right was contingent upon the real property.

The Agreement granted the defendant a right of first refusal for the lobster business and dock only if purchased alongside Parcel A. The court affirmed that a wharf or dock qualifies as real property and that § 34-4-26 applies to the right of first refusal pertaining to real estate, even when associated with a business and wharf. The defendant failed to provide case law supporting the argument against the statute's applicability to mixed transactions. Furthermore, the court upheld the trial justice's conclusion that § 34-4-26 is not a notice statute, as it applies solely to recorded instruments affecting real estate, which provides constructive notice of their contents. The Rhode Island recording act, G.L. 1956 § 34-11-1, distinguishes itself as a notice statute, validating unrecorded conveyances between parties with notice. The court also disagreed with the defendant's claim that § 34-4-26 discourages recording since it only pertains to recorded documents lacking a specified expiration date. The discussion includes a reference to the now-defunct Rule Against Perpetuities (RAP), noting that while it complicates the validity of the right of first refusal, it was in effect when the Agreement was executed in 1969.

The legal document pertains to the case of Ronald R. Fatulli v. Bowen’s Wharf Co. Inc., where the court evaluated the validity of a right of first refusal granted to Bowen’s Wharf Company, as opposed to an individual (Dunbar). The court referenced General Laws of Rhode Island regarding the Rule Against Perpetuities (RAP) and determined that because the right was granted to a corporation—which typically exists indefinitely—it may have been invalid from the outset under the RAP. The court affirmed that the trial justice correctly applied G.L. 1956, § 34-4-26, ruling that the defendant’s right of first refusal had expired.

The court noted that while it had not definitively ruled on the RAP's applicability to rights of first refusal in Rhode Island prior to the abolition of the doctrine, most courts in other jurisdictions have concluded that the RAP does apply. However, since the RAP is no longer in effect in Rhode Island, the court opted not to further develop jurisprudence on the matter, addressing it only to counter the defendant's assertion that the trial justice's decision was absurd. The case was remanded to the Superior Court for record purposes, affirming the lower court's judgment.