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Bill Signs Trucking, LLC v. Signs Family Limited Partnership
December 18, 2007
D047861

Court Affirms Judgment On Purchase Rights Of Tenant

William Signs owned Bill Signs Trucking, LLC (BST). Signs hired Robert Neal as manager of the business, and as agreed, Neal would eventually obtain ownership of the business. Signs and Neal became close friends.

Previously, in 1988, Signs had purchased several parcels of land for development purposes. In 1992, Signs made two important business decisions:

•    He created the Signs Family Limited Partnership (SFLP) in which he transferred one of the parcels to it, along with other real and personal property. Signs was the sole general partner in SFLP and he was originally the sole limited partner.
•    He also created the William B. Signs, Jr. Children’s Trust (Children’s Trust) to benefit Duncan and her children. Signs conveyed 62 percent of his limited interest in SFLP to Duncan as trustee of the Children’s Trust.

In 1994, Signs married Lori. Signs had one child, Tammy Duncan, from a former marriage. Signs and Lori had entered into a prenuptial agreement which provided that on his death, Lori will receive 20 percent of his limited interest in SFLP and other assets.

A few months after the marriage, Signs executed the William Boyd Signs, Jr. Trust (Signs Revocable Trust) and transferred his assets to it with Lori, Duncan, and her children to become beneficiaries on his death.

In 1999 SFLP and BST entered into a lease agreement of the portion of the parcel of property on which the business operated. Under the agreement, SFLP agreed to give BST preemptive purchase rights.

A week later, Signs amended amended the Signs Revocable Trust to remove Neal as first successor trustee and to designate Lori and Duncan as co-trustees, and to delete the 20 percent bequests to Neal.

When Signs died in January 2001, Lori and Duncan became involved in disputes and litigation regarding the management of SFLP. Duncan wanted out of the partnership.

During mediation, Lori and Duncan approved a Signs Family Limited Partnership Distribution Agreement (SFLP Distribution Agreement), under which partnership assets are to be divided and dissolved. Duncan was to receive a specified percentage of the general interest, increasing her total interest. Lori was to receive a specified percentage of the general interest. Also, Lori was to buy out Duncan’s interest in the property for $5 million.

After knowing what happened, Neal and BST sued SFLP, Lori, Duncan and the Children’s Trust for “specific performance and related counts”.

During trial the court found the following important facts on the case:

•    The lease was ambiguous and allowed parol evidence on Signs’ intent.
•    that Signs did not intend that a transfer between family members would trigger Neal’s preemptive purchase rights
•    the proposed transaction was not a bona fide sale to a third party.

The court also denied Neal’s claim for specific performance of the lease.

In reviewing the case, the Fourth Appellate District affirmed a judgment. The court held that a tenant’s preemptive purchase rights under a commercial lease are not triggered by the conveyance of an interest in the property between copartners in a family limited partnership that owns the property and is the landlord. It also approved the following facts:

•    that parol evidence is admissible to interpret a lease that is ambiguous on its face.
•    the lease in this case contained both a right of first offer and a right of first refusal
•    that Signs’s estate planning documents confirmed the intention that ownership of the property remain in the family as long as possible
•    proposed transaction was not a bona fide sale to a third party but rather a  proposed transfer which adjusted the interests of co-owners who are may not be considered a new party with lease control.

Finally, the court agreed that in this case, BST neither lost nor gained through the proposed transfer. Its preemptive purchase rights continued in the event of an actual third party offer.