Fairfield Pagosa, Inc., In re

• Decision Date: 06 November 1996
• Docket Number: 95-3691,Nos. 95-3535,s. 95-3535
• Citation: 97 F.3d 247
• Parties: In re FAIRFIELD PAGOSA, INC.; Fairfield Communities, Inc., Debtors. PAGOSA LAKES PROPERTY OWNERS' ASSOCIATION, INC., a Colorado Non-Profit Corporation, Appellant/Cross-Appellee, v. FAIRFIELD PAGOSA, INC.; Fairfield Communities, Inc.; First National Bank of Boston, Appellees/Cross-Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 247

97 F.3d 247

29 Bankr.Ct.Dec. 1053

In re FAIRFIELD PAGOSA, INC.; Fairfield Communities, Inc., Debtors PAGOSA LAKES PROPERTY OWNERS' ASSOCIATION, INC., a Colorado Non-Profit Corporation, Appellant/Cross-Appellee, v. FAIRFIELD PAGOSA, INC.; Fairfield Communities, Inc.; First National Bank of Boston, Appellees/Cross-Appellants.

Nos. 95-3535, 95-3691.

United States Court of Appeals Eighth Circuit.

Submitted April 8, 1996.

Decided Oct. 2, 1996.

Rehearing Denied Nov. 6, 1996.

Gerald Sawatzky, Pagosa Springs, CO, argued (James E. Smith, Little Rock, AR, on the brief), for Appellant/Cross-Appellee.

Mark W. Batten, Boston, MA, argued (James F. Dowden, Little Rock, AR, and Joseph L. Kociubes and Allison R. Handel, Boston, MA, on the brief), for First National.

Gregory M. Gordon, Dallas, TX, argued (Barbara J. Oyer, on the brief), for Fairfield Communities.

Before McMILLIAN and FAGG, Circuit Judges, and BURNS, ^* District Judge.

McMILLIAN, Circuit Judge.

This case is on appeal and cross-appeal from an order entered in the United States District Court ¹ for the Eastern District of Arkansas affirming an order of the bankruptcy court ² in adversary proceedings which arose in the Chapter 11 bankruptcy case for Fairfield Communities, Inc. (FCI), the debtor. Pagosa Lakes Property Owners' Ass'n v. Fairfield Communities, Inc. (In re Fairfield Communities, Inc.), No. LR-C-94-243 (E.D.Ark. Sept. 25, 1995) (hereinafter district court order). The bankruptcy court's order disposed of a claim brought by the Pagosa Lakes Property Owners' Association, Inc. (PLPOA), ³ on behalf of owners of property in the Pagosa Development (Pagosa) located in southwest Colorado, and a counterclaim brought by FCI. Id., Nos. 92-4078/92-4079 (Bankr.E.D.Ark. Mar. 11, 1994) (hereinafter bankruptcy court order). On appeal, PLPOA argues that the bankruptcy court erred in holding that (1) PLPOA does not have equitable ownership of certain real property within Pagosa under either a promissory estoppel theory or a trust theory and (2) the disputed land is subject to a valid mortgage lien held by the First National Bank of Boston ^BB notwithstanding a restrictive covenant of use and enjoyment of the land for the benefit of Pagosa property owners. On cross-appeal, FCI argues that, if PLPOA does have an ownership interest in the disputed property, then that interest is avoided under 11 U.S.C. § 544. For the reasons discussed below, we affirm.

I.

This case concerns the treatment in bankruptcy of certain real property referred to as the "recreational amenities" within Pagosa. Pagosa is a 26,000-acre planned community containing residential subdivisions surrounding a core business area. The recreational amenities include lakes, parks, golf courses, tennis courts, equestrian facilities, and open spaces called greenbelts. In 1990, a wholly-owned subsidiary of FCI, Fairfield Pagosa, Inc. (FPI), held legal title to the recreational amenities, subject to a mortgage lien held by FNBB. FPI was the indirect successor in interest to the original developer of Pagosa, Eaton International Corporation (EIC).

On October 3, 1990, FCI filed for bankruptcy under Chapter 11. FPI was subsequently merged into FCI as part of the bankruptcy court's reorganization plan. PLPOA initiated an adversary proceeding in the bankruptcy case claiming that, although FCI, as FPI's parent, held legal title to those recreational amenities which had not been conveyed to PLPOA at the time of the bankruptcy filing, ⁴ PLPOA was the true equitable owner of those amenities. On that basis, PLPOA claimed that the property was excludable from FCI's bankruptcy estate.

The bankruptcy court held an eight-day trial on PLPOA's claim of equitable ownership of the recreational amenities and related issues raised by FCI, the debtor, and FNBB, the mortgage lienholder. Twenty-nine witnesses testified at the trial. Following the trial, the bankruptcy court set forth its findings of fact and conclusions of law in a 63-page memorandum opinion. The detailed findings of the bankruptcy court are briefly summarized as follows.

EIC began construction of Pagosa in 1969. Bankruptcy court order, slip op. at 6. In 1983, FCI purchased the stock of EIC. FPI, FCI's wholly-owned subsidiary, became the owner and manager of Pagosa. Id. at 6 & n. 7. (Hereinafter, EIC and its successors in interest vis-a-vis the Pagosa Development are sometimes categorically referred to as "the developer.") While the development of Pagosa was in its early stages, EIC formally established PLPOA. The terms governing the powers and duties of PLPOA and its membership were stated in documents entitled "Declarations of Restrictions" (DORs). In 1970 and 1971, EIC recorded DORs in the office of the Clerk and Recorder of Archuleta County, Colorado. ⁵ Id. at 6. Of particular importance in the present case is Paragraph 10 of the DORs, which states (emphasis added):

10. OWNERSHIP, USE AND ENJOYMENT OF PARKS AND RECREATIONAL AMENITIES

A. All parks, recreational facilities and other amenities within the Subdivision are private, and neither [the developer's] recording of the plat nor any other act of [the developer] with respect to the plat, shall be construed as a dedication to the public, but rather all such parks, recreational facilities and other amenities shall be for the use and enjoyment of members or associate members of [PLPOA], to residents of rental properties, other classifications of persons as may be designated by [the developer], and to the guests of such members of [PLPOA] or other residents of Pagosa who qualify for the use and enjoyment of the facilities.

B. The ownership of all recreational facilities within the Subdivision shall be in [the developer] or its designee, however, [the developer] may convey or otherwise transfer any or all of the facilities to [PLPOA] and such conveyance shall be accepted by it, provided it is free and clear of all financial encumbrances.

Id. at 7.

Other documents introduced as evidence at trial included "Property Reports" (PRs), ⁶ which the developer was required by federal law to provide to prospective property buyers, and "Statements of Record" (SORs), which were filed by the developer with the Department of Housing and Urban Development. The language contained in these reports varied. On the one hand, some of these documents expressly provided that the developer would from time to time turn over or transfer to PLPOA unencumbered recreational amenities. Id. at 8-9, 13-14. Among those documents, some stated that the timing of such transfers would depend on the construction of the common facilities, progress of the development, and PLPOA's financial ability to maintain the recreational amenities, id. at 9, 14; and yet others expressly noted that the developer reserved the right or the option to retain the recreational amenities. Id. at 8, 13-14. On the other hand, some of the documents did not mention transfer of the recreational amenities at all. Id. at 9-11. Additionally, some of the documents specifically referred to FNBB's interest in the Pagosa property as a creditor of FCI. Id. at 10, 12, 17.

The bankruptcy court also received into evidence numerous other forms of documentary evidence, including real estate contracts, contracts of sale, statements of conditions of agreement, and purchase and sale agreements which had been executed by purchasers of Pagosa property. Id. at 42-43. Referring to this body of documentary evidence, the bankruptcy court observed "[t]here is no mention in any of [these] documents of any conveyance of the [recreational] amenities." Id. at 43.

One of the witnesses who testified at trial was David Eaton, vice president and later president of EIC. Id. at 17. Eaton had been employed by EIC from 1968 to 1983. Eaton testified that he put the DORs in writing and that, at the time, he intended to retain EIC's ownership of the recreational amenities by preserving an option either to dispose of or to keep the recreational amenities in the future. Id. at 17-18. He further testified that the PRs and SORs were meant to be consistent with the DORs. Id. at 18-19. On cross-examination, Eaton also testified that in the Stock Purchase Agreement, through which FCI purchased all of EIC's assets, EIC represented that it had good, valid, and merchantable title to all the properties conveyed to FCI, including the recreational amenities which were carried on EIC's books. Id. at 19. He confirmed that the stock purchase agreement did not list any right or claim of PLPOA to ownership of the recreational amenities. Id. Randy Warner, founder and former president and chairman of FCI, testified that he was familiar with the 1983 stock purchase as well as the documents related to the recreational amenities and that he understood that EIC had no obligation to convey the recreational amenities to PLPOA. Id. at 40-41.

Leonard Avery Carey, a former vice president of EIC and general manager of Pagosa during the years 1972 to 1979, testified that he authorized sales representatives under his supervision to tell prospective purchasers of Pagosa property that the amenities would be conveyed to PLPOA upon the completion of projects and PLPOA's financial ability to maintain such property. Id. at 22. This testimony by Carey was confirmed by the testimony of numerous other witnesses, including EIC representatives who sold Pagosa properties and individuals who purchased Pagosa properties from EIC. Id. at 22-36. By contrast, individuals, who were employed by FCI at or following the time FCI bought out EIC's stock, testified that FCI did not refer to PLPOA's eventual ownership of the recreational amenities as a selling point to potential property owners; in fact, they testified, it was FCI's policy to refer to the recreational amenities as FCI's assets, consistent with the language of the DORs, the PRs, and the SORs. Id. at 36-41.

FCI also presented evidence demonstrating that it had made capital...