Hughes v. New Life Dev. Corp.

• Decision Date: 19 November 2012
• Docket Number: No. M2010–00579–SC–R11–CV.,M2010–00579–SC–R11–CV.
• Parties: R. Douglas HUGHES et al. v. NEW LIFE DEVELOPMENT CORPORATION et al.
• Court: Tennessee Supreme Court

387 S.W.3d 453

R. Douglas HUGHES et al.

v.NEW LIFE DEVELOPMENT CORPORATION et al.

No. M2010–00579–SC–R11–CV.

Supreme Court of Tennessee,

at Nashville.

Feb. 15, 2012 Session.

Nov. 19, 2012.

Joseph A. Woodruff and Alyssa M. Leffall, Nashville, Tennessee; and Douglas S. Hale, Franklin, Tennessee, for the appellants, New Life Development Corp., Robby McGee, Jeffrey M. Dunkle, and B.J. Cline.

Frederick L. Hitchcock and Willa B. Kalaidjian, Chattanooga, Tennessee, for the appellees, R. Douglas Hughes, M. Lynne Hughes, Louise Hubbs, and Guy Hubbs.

John P. Williams, Nashville, Tennessee, for the Amicus Curiae, The Home Builders Association of Middle Tennessee.

OPINION ¹

WILLIAM C. KOCH, JR., J., delivered the opinion of the Court, in which GARY R. WADE, C.J., JANICE M. HOLDER, CORNELIA A. CLARK, and SHARON G. LEE, JJ., joined.

WILLIAM C. KOCH, JR., J.

This appeal involves the validity and effect of amendments to restrictive covenants for a residential development and amendments to the charter and bylaws for the homeowners' association serving the development. After the death of the president of the original corporate developer, a successor developer purchased the original developer's remaining property with the intent to continue to develop the property. Several homeowners filed suit in the Chancery Court for Franklin County, alleging that the successor developer's new development plan violated restrictive covenants. The trial court granted the successor developer a judgment on the pleadings, and the homeowners appealed. The Court of Appeals remanded the case for further proceedings, principally on the question of whether a general plan of development, or the plat for the subdivision, gave rise to certain implied restrictive covenants. Hughes v. New Life Dev. Corp., No. M2008–00290–COA–R3–CV, 2009 WL 400635, at *9–10 (Tenn.Ct.App. Feb. 17, 2009). While the successor developer's application for permission to appeal was pending, the homeowners' association amended its charter and the restrictive covenants to address certain issues identified by the Court of Appeals. Thereafter, the homeowners filed a second suit, principally contesting the validity of the amendments. The trial court consolidated the two suits and granted the successor developer a summary judgment on all claims in both suits. However, the trial court also enjoined the successor developer from acting contrary to its corporate charter. The homeowners appealed a second time. On this occasion, the Court of Appeals concluded that the procedure used to amend the charter and restrictive covenants was valid but remanded the case with directions to determine whether these amendments were reasonable and to determine whether the plat supported the existence of implied restrictive covenants. Hughes v. New Life Dev. Corp., No. M2010–00579–COA–R3–CV, 2011 WL 1661605, at *9–11 (Tenn.Ct.App. Apr. 29, 2011). The successor developer filed an application for permission to appeal, asserting that Tennessee law did not support the Court of Appeals' reasonableness inquiry and that the plat provided no basis for the existence of implied restrictive covenants. We have determined that the amendments were properly adopted and that there is no basis for implied restrictive covenants arising from a general plan of development or from the plat.

I.

This is a case involving two families who purchased lots in a new subdivision that advertised permanent access to a set of dedicated wilderness preserves on the property surrounding their homesites. After the land was sold to a new developer, that developer began making plans to convert that land to a golf course and dozens of additional home sites. The homeowners sued to protect the wilderness preserves, hoping that the courts would enforce what the homeowners believed was a restrictive covenant on the land.

Cooley's Rift ² is a private residential development near Monteagle, Tennessee. The original developer of Cooley's Rift was Raoul Land and Development Company (“Raoul Land Development”). On November 6, 2002, Raoul Land Development recorded a plat (“the 2002 plat”) for Cooley's Rift Subdivision Phase I that showed twenty-four delineated lots, roads accessing the lots, a lake bordering some of the lots, and a surrounding area of land.

Days later, Raoul Land Development recorded a Declaration of Covenants and Restrictions (“the Declaration”) for Cooley's Rift. The Declaration stated in its introduction that Raoul Land Development would cause to be incorporated the Cooley's Rift Homeowners' Association (“the Association”) to exercise certain functions set out in the Declaration. The Declaration also specifically referenced bylaws (“the Bylaws”) for the Association, indicating that the initial text of the Bylaws was attached to and made a part of the Declaration.³ In December 2002, the Association was incorporated and its charter (“the Charter”) filed in accordance with the Tennessee Nonprofit Corporation Act, Tenn.Code Ann. §§ 48–51–101 to 48–68–105 (2002 & Supp.2011).

Douglas and Lynne Hughes purchased a lot in Cooley's Rift from Raoul Land Development, as did Guy and Louise Hubbs (collectively “the Homeowners”). According to the Homeowners, promotional materials for the development indicated that Cooley's Rift, which comprised approximately 1,450 acres of land, would have only eighty homesites, up to eight acres in size each, and would have nearly 1,000 acres preserved in perpetuity.⁴ The promotional materials, however, also indicated that the design concept was preliminary in nature and was subject to change by the developer without notice.

Raoul Land Development did not complete the Cooley's Rift development. Although the record does not specifically address the reason, the parties have indicated that the one-time president of Raoul Land Development, Gaston C. Raoul, III, passed away. Regardless, on September 6, 2005, Raoul Land Development conveyed to New Life Development Corporation ⁵ (“New Life”) eleven unimproved lots in the subdivision and approximately 1,400 acres of undeveloped land surrounding the platted lots. The special warranty deed contains a lengthy metes and bounds description of a tract of land approximately 1,532 acres in size. The deed indicates that this tract includes the twenty-four lots shown on the 2002 plat, but the deed specifically excludes thirteen of the lots as having been previously conveyed by Raoul Land Development. The deed provides that the conveyance is subjectto various provisions, conditions, encroachments, and easements, specifically including the restrictions in the recorded Declaration. The deed also specifically references the 2002 plat.

New Life eventually undertook to continue development of the real property it had purchased from Raoul Land Development. On June 24, 2006, New Life convened a special meeting of the Association. Present at the meeting were representatives of New Life, which owned eleven platted lots and surrounding acreage, and the owners of nine of the remaining thirteen platted lots. At this meeting, New Life presented a conceptual development plan, subject to change, that depicted an eighteen-hole golf course and approximately 650 homesites.⁶

On April 16, 2007, the Homeowners filed suit against New Life in the Chancery Court for Franklin County. They alleged that New Life had announced an intention to develop its property in ways that violated the Declaration and the general plan created by Raoul Land Development. The suit was designated as Case No. 18,444. The Homeowners alleged that, in purchasing their lots, they had reasonably relied upon the representations of Raoul Land Development that Cooley's Rift would be developed in accordance with its general plan. Specifically, according to the Homeowners, this general plan contained two forest preserves that were to remain undeveloped: an East Preserve and a West Preserve. The Homeowners further alleged that New Life took title subject to the plan. The Homeowners' complaint contained seven counts as follows:

(1) an action for enforcement of three express restrictions of the Restrictive Covenants;

(2) a derivative action on behalf of the Homeowners Association to enforce the express covenants;

(3) a derivative action for an injunction quia timet “to prevent New Life from altering or destroying any of the Amenities and Preserves;”

(4) a derivative action for specific enforcement of “the transfer of title to the Amenities and Preserves to the Homeowners Association, as required by the Restrictive Covenants;”

(5) an alternative derivative action for a constructive trust to protect the Homeowners Association's rights in the Amenities and Preserves;

(6) action for enforcement of Cooley's Rift development plan created by [Raoul Land Development] and “enforceable by the Plaintiffs as implied covenants that are binding upon New Life as the successor to the Raoul [Land Development] Company with the knowledge of the Cooley's Rift Plan;” and

(7) a direct action to impose a constructive trust.

Hughes I, 2009 WL 400635, at *2.⁷ On April 25, 2007, New Life filed an answer and a motion for judgment on the pleadingsor, in the alternative, for a summary judgment.

The trial court granted New Life's motion for judgment on the pleadings. The court found that the Declaration confined the covenants “to those lands that fall within the boundaries of the lots and roads as shown on the recorded plat.” Hughes I, 2009 WL 400635, at *2. Based on the language in the Declaration, the court also found that “there were no implied covenants applicable to New Life's unsubdivided property.” Hughes I, 2009 WL 400635, at *2.

The Homeowners appealed to the Court of Appeals. The Court of Appeals agreed with the trial court that the express terms of the Declaration limited the application of the covenants to the platted lots. Thus, the Court of Appeals concluded that the Declaration did not support the Homeowners' argument that the covenants applied...