Goat Island S. Condo. Ass'n, Inc. v. IDC Clambakes, Inc. (In re Idc Clambakes, Inc.)

• Decision Date: 14 August 2013
• Docket Number: No. 12–1710.,12–1710.
• Citation: 727 F.3d 58
• Parties: In re IDC CLAMBAKES, INC., d/b/a The Newport Regatta Club, Debtor Goat Island South Condominium Association, Inc., America Condominium Association, Inc., Capella South Condominium Association, Inc., Appellants, Harbor Houses Condominium Association, Inc., Plaintiff, v. IDC Clambakes, Inc., d/b/a The Newport Regatta Club, Appellee.
• Court: U.S. Court of Appeals — First Circuit

727 F.3d 58

In re IDC CLAMBAKES, INC., d/b/a The Newport Regatta Club, DebtorGoat Island South Condominium Association, Inc., America Condominium Association, Inc., Capella South Condominium Association, Inc., Appellants,Harbor Houses Condominium Association, Inc., Plaintiff,

v.IDC Clambakes, Inc., d/b/a The Newport Regatta Club, Appellee.

No. 12–1710.

United States Court of Appeals, First Circuit.

Aug. 14, 2013.

William R. Grimm and Charles D. Blackman, on brief, for appellants.

William P. Devereaux, with whom Thomas R. Gonnella, Matthew C. Reeber, Benjamin L. Rackliffe, were on brief, for appellee.

Before LYNCH, Chief Judge, BOUDIN, Circuit Judge,^* and WOODLOCK, District Judge.^**

WOODLOCK, District Judge.

This case arises out of nearly twenty years of litigation conducted along multiple fronts between real estate development entities on the one hand and the condominium entities generated by this development on the other. Since at least 1994, the Plaintiff/Appellant Condominium Associations and the IDC development entities—IDC, Inc.; IDC Properties, Inc.; and IDC Clambakes, Inc., the Defendant/Appellee in this matter—have been disputing the ownership and use of certain property on Goat Island in the City of Newport, Rhode Island.

The focus of the matter now before us is framed by the fact that IDC Properties constructed and Defendant IDC Clambakes operated The Newport Regatta Club on the contested property after the Associations had asserted that the rights of IDC entities to own or develop the property had lapsed. Eventually the Rhode Island Supreme Court found in favor of the Associations. The Associations thereafter sought to evict IDC Properties from the land, and IDC Clambakes declared bankruptcy. This case comes to us on appeal from a bankruptcy court decision and concerns the question whether IDC Clambakes trespassed on the Associations' property or whether, through their actions during the pendency of the litigation, the Associations impliedly consented to operation of the Regatta Club by IDC Clambakes while title to the land remained unclear.

Despite ongoing formal disputes in the state and federal courts, the parties apparently enjoyed a generally congenial relationship regarding the Regatta Club. The Associations did not challenge building, liquor, or operating permits for IDC Properties during construction other than to question the sufficiency of planned parking space and zoning compliance. Instead, various members of the Associations regularly contracted with the Regatta Club for event space for annual meetings and private events.

The record is marbled with contradictory evidence regarding manifestations of consent for Clambakes to operate on the property. Ultimately, however, we find that the bankruptcy court's decision as to implied consent is a plausible interpretation of a problematic record. That decision is fully reasoned and supported by the evidence. Accordingly, we affirm as to that issue but nevertheless find it necessary to remand as to the issue of whether compensation is owed for Clambakes' authorized use and occupancy.

I.

The material facts and history are essentially undisputed. For the sake of clarity, we summarize only those facts pertinent to this appeal. A more complete factual and procedural history underlying the protracted litigation may be found in decisions of the District Court, the Bankruptcy Court, and the Rhode Island Supreme Court. See, e.g., In re IDC Clambakes, Inc., 484 B.R. 540, 541–44 (D.R.I.2012); In re IDC Clambakes, Inc., 431 B.R. 51, 54–57 (Bankr.D.R.I.2010); Am. Condo. Ass'n., Inc. v. IDC, Inc., 844 A.2d 117, 119–26 (R.I.2004) (“America I ”).

In 1997 and 1998, IDC Properties constructed the Newport Regatta Club on a piece of property—known throughout this litigation as the Reserved Area—in spite of an ongoing dispute over ownership and development rights to the land. IDC Properties began this development “with full knowledge of plaintiffs' claims and after they voluntarily entered into [a] tolling agreement.” In re IDC Clambakes, Inc., 360 B.R. 24, 26 (Bankr.D.R.I.2007). The Associations, IDC Properties, and Thomas Roos (the sole shareholder of each of the IDC entities) entered into this tolling agreement on January 5, 2008, having engaged in years of discussions and negotiations regarding the validity of amendments to the Condominium Master Declaration purporting to grant IDC Properties the right to develop the land when it did. After several extensions, the Tolling Agreement was set to expire on May 31, 1999.

During the process of construction and permitting for the Regatta Club, the Associations formally objected only to the parking requirements. When IDC Properties filed for a building construction permit, the America Condominium Association raised a concern by writing to the Zoning Officer that, “It's our understanding that a permit application has been filed with your Office for the purpose of constructing a bldg.... While we don't have a particular objection as to the land use with respect to the building itself, we do have a substantial problem with the parking requirements for that bldg.....” The Associations were aware that Clambakes applied for a liquor license transfer and sought to delay the transfer, but only so the Zoning Board of Appeals could resolve the parking issue dispute. Ultimately, the City Council approved the liquor license transfer from Dorell, Inc. to IDC Clambakes, Inc., the entity created in 1996 to lease and operate the Regatta Club, and the debtor appellee in this action. Nevertheless, Mr. Roos has stipulated that IDC Properties built the Regatta Club at a time when he understood that the Associations were “trying to say that Properties had no right to construct the Regatta Club.”

IDC Clambakes was not a party to the Tolling Agreement, and because the lease between IDC Properties and IDC Clambakes was never recorded and Clambakes did business under the name “Newport Regatta Club,” the record remains vague regarding the extent to which the Associations understood or were aware of the precise role Clambakes had in the development and operation of the Regatta Club.

On May 29, 1999, about six months after the use and occupancy certificate was approved, Clambakes began operating the Regatta Club and three days before the Tolling Agreement expired, the Associations filed a seven-count state court action against Mr. Roos, IDC Properties, and IDC, Inc., seeking damages and a declaration that the voting scheme that purported to extend development rights to IDC at the time it built the Regatta Club was invalid. This action “did not involve any claims of trespass, or appear to involve any issues related to trespass or damages flowing therefrom.” Goat Island S. Condo. Ass'n, Inc. v. IDC Clambakes, Inc., 382 B.R. 178, 180 (D.R.I.2008); see also America I, 844 A.2d at 125, 125 n. 13. Over the next six years, the parties litigated ownership of the Reserved Area in the Rhode Island state courts until April 8, 2005 when the Rhode Island Supreme Court declared that “title [to the Reserved Area] rested with the unit owners in common ownership” and not with IDC. Am. Condo. Ass'n, Inc. v. IDC, Inc., 870 A.2d 434, 443 (R.I.2005) ( “America II ”).

Meanwhile, during this protracted and contentious litigation over ownership of the property, the Harbor Houses Condominium Association, a plaintiff below but not an appellant in this appeal, contracted with Clambakes to use the Regatta Club for its annual meetings and various condominium unit owners regularly contracted with Clambakes to host private events at the Regatta Club. None of the Associations made any effort to enjoin Clambakes or to evict it from the property. It was not until after the Rhode Island Supreme Court's decision in America II that the Associations filed for Writs of Execution and Ejectment.

Following the Rhode Island Supreme Court's decision in America II, Clambakes tried a variety of initiatives to avoid the seemingly inevitable consequences of the Court's ruling. One week after the decision in America II, Clambakes filed a civil action in Rhode Island Superior Court, arguing among other things that it owned the contested property by adverse possession. Two months later, on June 16, 2005, Clambakes filed the current Chapter 11 case to trigger the automatic stay, see11 U.S.C. § 362, and stave off enforcement of the state court judgment while relitigating some of the issues that the state courts had already addressed. These strategies proved unsuccessful. Eventually, a bankruptcy plan was confirmed for Clambakes.

The district court vacated the bankruptcy court's initial decision, see Goat Island S. Condo. Ass'n, Inc., 382 B.R. at 179–80, and remanded the case for a more thorough development of the facts and compliance with due process. ¹ On remand, the bankruptcy court held a nine-day trial and, relevant to this appeal, held that Clambakes was not liable for trespass between March 1, 1998 and April 8, 2005 because the Associations impliedly consented to Clambake's operation of the Regatta Club. The bankruptcy court denied any award of damages for this period.

Both parties appealed to the district court. The district court affirmed, see In re IDC Clambakes, Inc., 484 B.R. 540, and this appeal followed.

II.

We review the bankruptcy court's decision without deference to the district court's ruling. “The court of appeals undertakes an independent review of [a] bankruptcy court order, utilizing the same appellate standards governing the district court review.” In re LaRoche, 969 F.2d 1299, 1301 (1st Cir.1992). Thus, we review the bankruptcy court's factual findings for clear error and its conclusions of law de novo. Jeffrey v. Desmond, 70 F.3d 183, 185 (1st Cir.1995); In re G.S.F. Corp., 938 F.2d 1467, 1474 (1st Cir.1991).

“[A factual] finding is ‘clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with...