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The Sunapee Difference, LLC v. the State of New Hampshire

April 30, 2013

THE SUNAPEE DIFFERENCE, LLC
v.
THE STATE OF NEW HAMPSHIRE



The opinion of the court was delivered by: Hicks, J.

a.m. on the morning of their release. The direct address of the court's home page is: http://www.courts.state.nh.us/supreme.

Argued: September 13, 2012

The plaintiff, The Sunapee Difference, LLC, appeals: (1) an order of the Superior Court (Nicolosi, J.) granting summary judgment to the defendant, the State of New Hampshire, on Sunapee's claims for breach of contract, equitable estoppel, promissory estoppel, breach of an implied covenant of good faith and fair dealing, reformation, and inverse condemnation; and (2) an order of the Superior Court (Mangones, J.) partially granting the State's motion to dismiss Sunapee's inverse condemnation claim. The State appeals an order of the Superior Court (Brown, J.) ruling that Sunapee has standing to bring its reformation claim. We affirm in part, reverse in part, vacate in part, and remand.

The following facts were assumed by the trial court in ruling on the State's motion for summary judgment, or are supported by the record. In 1996, the legislature authorized the New Hampshire Department of Resources and Economic Development (DRED) to draft an agreement to lease the ski area at Mount Sunapee State Park. RSA 12-A:29-a (2003). The next year, the legislature directed the commissioner of DRED, in consultation with a joint legislative committee, to develop a request for proposals (RFP) for, among other things, "a lease, concession agreement, or management contract" for the Mount Sunapee ski area. Laws 1997, ch. 119.

In October 1997, the State released a draft RFP, giving prospective operators, interested parties, and the public an opportunity to comment.

Representatives from Sunapee's predecessor, Okemo Mountain Resort, Inc.,1 attended both a public hearing on the RFP on November 12, 1997, and a mandatory informational meeting held a week later for operators considering submitting a proposal.

On January 15, 1998, the State issued the final RFP, requiring proposal submission by April 1, 1998. The RFP stated that "[i]f the Commissioner recommends the award of a lease, concession agreement or management contract resulting from this RFP, it shall not be final or binding upon the State unless and until it is approved by the Capital Budget Overview Committee and the Governor and Executive Council." Included with the RFP was a partial map of Mount Sunapee State Park showing the existing ski area. The property to be leased was depicted as a shaded area; the state park boundaries were not shown. Sunapee alleges that it understood, based upon representations by agents of the State, that the leased premises extended to the state park's northern and western boundaries.

Sunapee submitted its proposal, which the State accepted.

DRED

Commissioner Robb Thomson and Sunapee president Timothy Mueller negotiated a Lease and Operating Agreement (the Lease), which they signed on April 30, 1998. Senior Assistant Attorney General Michael Walls approved the Lease on May 4. Sunapee and Thomson had previously agreed in writing that the State, through DRED, would complete a metes and bounds survey of the leasehold premises. At the time of signing, however, no legal description of the leasehold or map showing its metes and bounds had been provided to Sunapee or attached to the Lease.

At some point after the lease agreement at issue was executed, Okemo assigned all of its right, title, and interest therein to The Sunapee Difference. For ease of reference, we will treat Sunapee as having been the party in interest all along and use the name Sunapee in this opinion to refer to Okemo as well as The Sunapee Difference.

The Capital Budget Overview Committee approved the Lease on May 14. Sometime after that date, but prior to June 10, the State produced a map and property description with the metes and bounds of the leasehold area. The leased premises as described in those documents did not extend to the northern and western boundaries of the state park, but rather left a buffer area between the park boundaries and leasehold boundaries. Those documents were appended to the Lease when Governor Jeanne Shaheen and the Executive Council approved it on June 10, 1998.

Sometime in 2000, Sunapee discovered that the northern and western leasehold boundaries described in the Lease were not coterminous with those of the state park. Sunapee's attorney, George Nostrand, contacted Attorney Walls, who agreed that an error had been made and suggested the lease be amended to correct it. Director of Parks Richard McLeod also acknowledged an error. Nevertheless, while Nostrand and Walls exchanged proposals for amending the Lease between January and April 2001, the Lease was never amended.

From the time it responded to the RFP, Sunapee had proposed expanding the ski area to the east. During the RFP pre-submittal stage, the State provided prospective operators with eastern expansion plans the State had itself developed but had never implemented. Sunapee's plans were thwarted, however, when old growth forest was discovered in the area of its proposed expansion. At that point, expanding to the west became the only viable option.

In 2000, Sunapee obtained options to buy privately-owned land bordering the western boundary of the state park. Because the leasehold and state park boundaries were not described as coterminous in the Lease, however, this land could not be used for expansion without including the buffer land in the leasehold. Accordingly, Sunapee requested that DRED approve inclusion of the buffer land in an amendment to the Lease.

On February 27, 2002, George Bald, who was then commissioner of DRED, announced that he would recommend such a lease amendment to the Governor and Executive Council only after Sunapee met three enumerated conditions. Around this time, Sunapee informed the State that its purchase options on land adjacent to the state park would soon expire. Based upon Bald's assurances that he still favored the western expansion plan as long as Sunapee satisfied his enumerated conditions, Sunapee exercised the purchase options for $2.1 million.

Although Sunapee met Bald's conditions, the expansion plan was not presented to the Governor and Council while Bald was commissioner and while Craig Benson was Governor. In 2004, Sean O'Kane became commissioner of DRED. He imposed additional conditions, which Sunapee also met.

John Lynch became Governor in 2005. While campaigning, he strongly opposed Sunapee's plan for expansion. Once in office, Governor Lynch urged Commissioner O'Kane to reject the plan, but O'Kane nevertheless recommended that the State conditionally approve a lease amendment expanding the leasehold. Governor Lynch, however, refused to bring the amendment before the Executive Council.

In October 2007, Sunapee sued the State for damages or, alternatively, mandamus relief, alleging breach of contract, estoppel, breach of an implied covenant of good faith and fair dealing, and inverse condemnation. The State moved to dismiss, which the trial court denied except as to the mandamus claim and so much of the inverse condemnation claim as concerned "land outside the boundaries of [Sunapee's] original lease." The mandamus claim was dismissed without prejudice and Sunapee was given leave to amend its bill of complaint to add a claim for reformation of contract. Sunapee filed its amended bill of complaint, adding a reformation count, in December 2008.

The State moved to strike the reformation claim on the ground that Sunapee had assigned all of its right, title and interest in the Lease to CNL Income Mount Sunapee, LLC (CNL), and, therefore, lacked standing to bring a reformation claim. The State also moved for summary judgment on all claims. The trial court granted that motion, assuming, without deciding, that Sunapee had standing to seek reformation of the Lease. Sunapee appealed.

In its response in that appeal, the State again asserted that Sunapee lacked standing to seek reformation of the Lease. Because standing is jurisdictional, we declined to proceed with the appeal without a finding on the issue. Furthermore, because standing is a question of fact and the record was insufficient for us to determine the issue as a matter of law, we remanded for a factual finding by the trial court. Although the State challenged standing only with respect to the reformation claim, we remanded for a determination of standing as to all counts, while otherwise retaining jurisdiction of the appeal.

On remand, the trial court ruled that: (1) a release of claims against the State contained in the assignment to CNL (the Release) did not apply to Sunapee and therefore did not bar any of its claims; and (2) Sunapee retained the right to assert its reformation claim. The State filed an appeal, which we accepted. Accordingly, the standing issue and all issues decided by summary judgment are currently before us.

I. Standing

We begin with the issue of standing. As Sunapee notes, the State has appealed only the trial court's finding that Sunapee has standing to seek reformation of the lease, and thus has conceded that Sunapee has standing as to its other claims. We therefore consider Sunapee's standing with respect to the reformation claim only.

On appeal, the State concedes that the Release language applies only to CNL and not to Sunapee. Nevertheless, it argues that the trial court erred in finding that Sunapee has standing to pursue the reformation claim because:

(1) Sunapee, having "assigned all of its right, title, and interest in the Lease to CNL[,] . . . is no longer a party to the Lease, and . . . [therefore] lacks standing to seek its material reformation"; and (2) CNL, having acquired any claim for reformation that Sunapee may have had, released those claims.

"In evaluating whether a party has standing to sue, we focus on whether the party suffered a legal injury against which the law was designed to protect." Libertarian Party of N.H. v. Sec'y of State, 158 N.H. 194, 195 (2008) (quotation omitted). We will uphold the trial court's ruling on a jurisdictional challenge based upon a lack of standing unless that decision is not supported by the evidence or is legally erroneous. Birch Broad. v. Capitol Broad. Corp., 161 N.H. 192, 199 (2010).

The State's first argument appears to rest on the "general rule that a non-party to a contract has no remedy for breach of the contract," Arlington Trust Co. v. Estate of Wood, 123 N.H. 765, 767 (1983), and, by analogy to that rule, no right to reform the contract. Thus, the State first asserts that following the assignment to CNL, "Sunapee Difference [was] no longer a party to the Lease." See Tulley v. Sheldon, 159 N.H. 269, 272 (2009) (noting that a lease is a form of contract). Sunapee counters that "[t]he assignment did not completely terminate [its] privity with the State," and asserts that it still stood in privity of contract. Cf. Robo Sales, Inc. v. McIntosh, 495 S.W.2d 420, 423 (Mo. 1973) (noting that court of equity will reform a lease as between original parties and those in privity). We pause, then, to consider the nature of the relationship between the parties to a lease, and the effect of an assignment on that relationship.

"Between the lessor and the lessee there is both privity of contract and privity of estate, so long as the lessee retains the term." The Trustees of Dartmouth College v. N. Clough, 8 N.H. 22, 28 (1835). "A grant by the lessee of his entire interest constitutes an assignment." Machinist v. Koorkanian, 82 N.H. 249, 252 (1926). Such an assignment terminates the privity of estate between lessor and lessee, but "there still remains the privity of contract between them, created by the lease, which is not affected by the assignment. The lessee still continues liable on his covenant [to pay rent] by virtue of the privity of contract." La Societe v. Owen, 79 N.H. 318, 319 (1919) (quotation omitted). This is true even where the lessor assents to the assignment. Id. The assignor "remain[s] liable for the rent in the absence of novation, substitution or release." Machinist, 82 N.H. at 253.

As the foregoing makes clear, Sunapee is correct in claiming continued privity of contract with the State. This does not, however, afford Sunapee standing to reform the lease with respect to the description of the leasehold property. While Sunapee, through privity of contract, remains liable on its covenant to pay rent, "that liability will remain unchanged and unaffected by any decree that can be made upon this bill [in equity], which is brought to reform the instrument in a particular in no way connected with the amount of the rent, or the times and mode of its payment." Cole v. Lake Company, 54 N.H. 242, 272 (1874) (finding assignors were not necessary parties in an action to reform a lease).

Nevertheless, the trial court found that "[i]n assigning the lease to CNL, Sunapee specifically reserved its rights in the litigation against the State." In other words, notwithstanding what otherwise may have been the legal consequence in the absence of an indication of contrary intent, cf. National Reserve Co. v. Metropolitan Trust Co., 112 P.2d 598, 602 (Cal. 1941) (Given "[a]n unqualified assignment . . . with no indication of the intent of the parties, . . . the assignment of a contract passes from assignor ...


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