Holdings v. Bank

• Decision Date: 22 October 2010
• Docket Number: 1091016.
• Citation: 61 So.3d 1012
• Parties: HEATHERWOOD HOLDINGS, LLCv.FIRST COMMERCIAL BANK, Jonathan L. Kimerling, and HGC, Inc.
• Court: Alabama Supreme Court

61 So.3d 1012

HEATHERWOOD HOLDINGS, LLC

v.FIRST COMMERCIAL BANK, Jonathan L. Kimerling, and HGC, Inc.

1091016.

Supreme Court of Alabama.

Oct. 22, 2010.

Charles L. Denaburg, Steven D. Altmann, and Nathan C. Weinert of Najjar Denaburg, P.C., Birmingham, for plaintiff.James R. Bussian, Robert H. Fowlkes, and Joshua B. Baker of Maynard, Cooper & Gale, P.C., Birmingham, for defendant First Commercial Bank.Lee R. Benton and Amy M. Hazelton of Benton & Centeno, LLP, Birmingham, for defendant HGC, Inc.SMITH, Justice.

The United States Bankruptcy Court for the Northern District of Alabama, Southern Division, has certified three questions to this Court pursuant to Rule 18, Ala. R.App. P.

Facts and Procedural History

In its certification to this Court, the Bankruptcy Court provided the following background information:

“In the 1970's, United States Steel Realty Development Division (‘USR’) began development of the Heatherwood subdivision [in Shelby County]. Part of the development included a parcel to be used as a golf course. Recorded plat maps of the development show or depict this parcel as a golf course. In 1999, HGC Inc. was formed by members of the Heatherwood golf course/club and homeowners in the area. HGC was to operate the Heatherwood golf course and tennis facility. In September 1999, the real property comprising this facility was deeded by USR to HGC. Although the Deed contained various restrictions, covenants and easements, there was no specific provision that required, provided for or referenced the actual or continued use of the property as a golf course.

“In 2000, HGC entered into an Asset Purchase Agreement (‘APA’) with Pine Cone Capital (‘PCC’) whereby PCC purchased all of HGC's interest, including the real property, that was the Heatherwood golf course. There were numerous drafts before the final agreement was executed. This APA provided that PCC was required to improve the property and to maintain it as a golf course for at least 25 years. PCC assigned all of its rights in the APA to Heatherwood Holdings LLC (‘HH’). HGC then executed a Warranty Deed transferring the property to HH. The restriction or requirement regarding the limited use of this property was not contained or included in the Deed from HGC to HH. At the time the Deed was prepared, an agreement was also drawn up and executed that required HH to operate the golf course for 25 years. This agreement was recorded simultaneously with the Deed.

“HH began operating the golf course and in 2001 borrowed $4 million from First Commercial Bank and executed a Note and Mortgage on this property. There is also a second Mortgage on this property for over $1.5 million that is held by Jonathan Kimerling. HH began having financial problems and in late 2008 notified HGC members that the golf course was about to cease operation. On January 6, 2009, this chapter 11 case was filed and this Adversary Proceeding was filed by the Debtor [HH] seeking to sell the property for any use, not limited to the golf course.

“HGC argues that there is an implied restrictive covenant, that the Agreement is essentially an express covenant, and that the Deed should be reformed because of a mutual mistake.¹ HGC relies in part on non-Alabama cases to support its position. HH and First Commercial Bank assert that these cases are not applicable; they argue that Alabama case law applies and none of HGC's arguments are valid.²

“This Court views the facts in one non-Alabama case cited[, Shalimar Ass'n v. D.O.C. Enterprises, Ltd., 688 P.2d 682 (1984),] as similar to the facts presented whereas the Alabama cases do not appear to have the same facts.... [T]his Court finds no clear Alabama precedent, and thus the legal issues presented should be certified to the Alabama Supreme Court to decide these issues.

“Therefore, the following questions are certified to the Alabama Supreme Court:

“1. Whether Alabama law recognizes or will imply a restrictive covenant as to a golf course constructed as part of a residential development consistent with a case with similar facts, Shalimar Ass'n v. D.O.C. Enters., Ltd., 688 P.2d 682 (Ariz.Ct.App.1984)?

“2. Whether Alabama law recognizes an implied restrictive covenant that runs with the land when the Deed conveying the property did not contain an express covenant or restriction but a separate Agreement recorded simultaneously with the Deed and recorded immediately thereafter provided that ‘Buyer covenants that it will operate the purchased assets [the real property] as a golf course for the twenty-five (25) years from the date of execution of this Agreement’?

“3. Whether Alabama law permits the owner of real property to re-sell that property for any use, not limited to the use of a golf course, when the Deed conveying the property did not contain an express covenant or restriction but a separate Agreement recorded simultaneously with the Deed and recorded immediately thereafter provided that ‘Buyer covenants that it will operate the purchased assets [the real property] as a golf course for the twenty-five (25) years from the date of execution of this Agreement’?”

Discussion

I.

To address the first certified question, we first provide a brief background of Alabama law regarding implied restrictive covenants. In Collins v. Rodgers, 938 So.2d 379 (Ala.2006), this Court stated:

“[T]he existence of an implied restrictive covenant is not to be inferred lightly. This Court has recognized that express restrictive covenants are disfavored under Alabama law and are to be strictly construed, with all doubts resolved in favor of the free and unrestricted use of land and against the covenants. See Whaley v. Harrison, 624 So.2d 516 (Ala.1993); Lange v. Scofield, 567 So.2d 1299 (Ala.1990). Logically, if express restrictive covenants are disfavored under the law, implied restrictive covenants are to be viewed with even less favor.

“Despite the disfavor with which Alabama law views implied restrictive covenants, this Court has enforced implied restrictive covenants under certain situations. See Hall v. Gulledge, 274 Ala. 105, 145 So.2d 794 (1962); Virgin v. Garrett, 233 Ala. 34, 169 So. 711 (1936); Scheuer v. Britt, 218 Ala. 270, 118 So. 658 (1928). However, in more recent cases, this Court has refused to find an implied restrictive covenant. See Ex parte Frazer, 587 So.2d 330 (Ala.1991); Swanson v. Green, 572 So.2d 1246 (Ala.1990).”

938 So.2d at 385. Through a discussion of several cases, this Court in Collins outlined the development of the law in Alabama regarding implied restrictive covenants. See Collins, 938 So.2d at 385–93.³

In Hun Es Tu Malade? # 16, LLC v. Tucker, 963 So.2d 55 (Ala.2006), this Court stated:

“This Court has recognized repeatedly that an owner of property may adopt a common scheme of development for his property by dividing his property into smaller lots or parcels and conveying those parcels with uniform restrictions. See Collins v. Rodgers, 938 So.2d at 393 (discussing numerous cases involving reciprocal negative easements).

“For example, in Scheuer v. Britt, 218 Ala. 270, 118 So. 658 (1928), this Court stated:

“ ‘ “Where the owner of a tract of land adopts a general scheme for its improvement, dividing it into lots, and conveying these with uniform restrictions as to the purposes for which the lands may be used, such restrictions create equitable easements in favor of the owners of the several lots, which may be enforced in equity by any one of such owners. Such restrictions are not for the benefit of the grantor only, but for the benefit of all purchasers. The owner of each lot has as appurtenant to his lot a right in the nature of an easement upon the other lots, which he may enforce in equity.

“ ‘ “Whether such restriction creates a right which inures to the benefit of purchasers is a question of intention, and to create such right it must appear from the terms of the grant, or from the surrounding circumstances, that the grantor intended to create an easement in favor of the purchaser.” 4 Thompson on Real Property, § 3398.

“ ‘....

“ ‘... [T]he equitable right to enforce such mutual covenants is rested on the fact that the building scheme forms an inducement to buy, and becomes a part of the consideration. The buyer submits to a burden upon his lot because of the fact that a like burden is imposed on his neighbor's lot, operating to the benefit of both, and carries a mutual burden resting on the seller and the purchaser.’

“218 Ala. at 271, 118 So. at 660 (emphasis omitted). Thus, Alabama has recognized that a grantor may create reciprocal negative easements by dividing and conveying his property in smaller lots or parcels if, in conjunction with the conveyances, he includes common restrictions in the deeds to some or all of those parcels. If the grantor so intended, those common restrictions inure to the benefit of all purchasers from that grantor.

“ ‘The question of law which exists in such cases is whether or not the grantor in the deed containing the restriction agreed expressly or impliedly that the restriction is for the benefit of the owner of other property in the subdivision, whether it had been sold or not. Such a contract may be inferred from the circumstances and terms of the instrument, and need not be expressed either verbally or in writing. The test is said to be the intention of the grantor in creating the restriction.’

“ Virgin v. Garrett, 233 Ala. 34, 37, 169 So. 711, 713 (1936).

“Thus, we must determine whether the evidence establishes that Clarence Beasley [the grantor] intended a common scheme of development.”

963 So.2d at 65–66.

In Tucker, this Court cited the following five methods of establishing that the original grantor “intended a common scheme of development”: “ ‘ “1) universal written restrictions in all of the deeds of the subdivision; 2) restrictions in a substantial number of such deeds; 3) the filing of a plat showing the restrictions; 4) actual conditions in the applicable subdivisio...