In re Hayes, BAP No.MT-09-1024-MoPaH (B.A.P. 9th Cir. 8/11/2009), BAP No.MT-09-1024-MoPaH.
| Decision Date | 11 August 2009 |
| Docket Number | Bk. No. 07-60316-RBK.,BAP No.MT-09-1024-MoPaH.,No. MT-09-1025-MoPaH.,MT-09-1025-MoPaH. |
| Parties | In re: JAMES LEE HAYES and JENNIFER LYNN HAYES, Debtors. ROBERT JARDON; NANCY JARDON; FRANK CREASIA; KEVIN SYVRUD; AMY SYVRUD; BRIAN HEENEY; LINDA HEENEY, Appellants, v. JAMES LEE HAYES; JENNIFER LYNN HAYES; THOMAS HANSON; SUE HANSON; ROBERT DRUMMOND, Chapter 13 Trustee; EDWARD SIMMONS; LINDA SIMMONS, Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Appeal from the United States Bankruptcy Court for the District of Montana Honorable Ralph B. Kirscher, Chief Bankruptcy Judge, Presiding
Before: MONTALI, PAPPAS, and HOLLOWELL, Bankruptcy Judges.
The parties in this case have a long and contentious history. The ultimate dispute is over use of a water ski lake between the parties that own the lake, Debtor-Appellees Jeff and Jennifer Hayes ("Debtors" or "Lakeowners") and Appellants, four lot owner parties ("Landowners") within a subdivision created by Debtors' predecessors. The Landowners had been granted rights by Debtors' predecessors via restrictive covenants and bylaws to use the lake.2 After a trial, the bankruptcy court approved Debtors' amendments to the bylaws, which the Landowners claim violate their rights granted under the restrictive covenants. Based on the following reasons, we AFFIRM in part and REVERSE in part.
The facts are not in dispute, but are necessary to understand the context of this appeal. In 1990, the Hansons purchased four parcels of property consisting of 80 acres near Helena, Montana. On the west 40 acres the Hansons built No Wake Lake.3 On the eastern parcels, consisting of Lots 8 and 12, the Hansons built a water ski lake, referred to both as Serenity Lake and Water Ski Mania ("Serenity Lake," or "Lake"), and developed a minor subdivision on the east shore of Serenity Lake consisting of five lots described as Water Ski Mania Estates subdivision ("WSME"). Those five lots were eventually purchased by the Landowners and the Simmonses.
In conjunction with the development of WSME, the Hansons drafted and executed restrictive covenants (the "Covenants") which were recorded on November 5, 1991. The Covenants provided the WSME landowners a lifetime right to use Serenity Lake, subject to certain conditions set forth by the Lakeowners. The provisions of the Covenants relevant on this appeal are as follows (emphasis added):
Section I. DEFINITIONS:
The owner or owners of Serenity Lake are referred to as the" Lakeowners" and the record owner of any lot in WSME is referred to as a "Landowner."
An "Association" composed of the Landowners is established to control common property and coordinate other matters of interest to the Landowners.4
Section VI. LAKE USE:
A unique aspect of landownership in WATER SKI MANIA ESTATES is the lifetime right to use the adjacent body of water presently called Serenity Lake . . . . All decisions concerning the lake will be made by the lakeowner.
a. Landowner use of the lake is subject to negotiations between the Association and the Lakeowner, however, landowner use of the lake for water ski activities shall be the primary consideration to the use of the lake except for commercial activities which may be scheduled during the week, and the advance scheduling water ski tournaments and or clinics which shall be limited to four (4) weekends per year.
b. Each landowner shall have the right to reserve semi-exclusive use of the lake for a period of time not to exceed two (2) non-consecutive days in any one year. Such semi-exclusive use must be reasonably scheduled in advance and will be granted by the Lakeowner, for such purposes as private parties, class reunions, family gatherings or similar events.
c. Time frames: Primary consideration for use of the lake shall be for landowner use being 70 hours per week during prime time which is 8 a.m. to 9 p.m. with at least 35 hours being exclusive for landowner use. Business and ski club shall have use of the lake a maximum of 44 hours per week during prime time.
d. The landowner rights to the use of the lake shall include access to the lake, boat ramp and the common dock.
e. The landowner shall obtain and keep current sufficient insurance on any water craft they use on the lake to cover his/her liability for the lake structure and accidents thereupon. Landowners shall also assume responsibility for their guests.
f. A maximum of six (6) landowners shall be allowed the use of the lake. Five (5) landowners shall be owners of lots in WATER SKI MANIA ESTATES and one landowner shall be the owner of a single family dwelling built on property immediately west of the lake.
i. Landowner's use of the lake is subject to the by laws of WATER SKI MANIA.
In conjunction with developing Serenity Lake and WSME, the Hansons operated a business, Water Ski Mania ("WSM"), consisting of a ski school, private ski club, and boat and water ski equipment sales. Section VI.i. of the Covenants, quoted above, further subjects the Landowners' use of the Lake to Water Ski Mania's "By Laws And Rules And Regulations" ("Bylaws") and sets forth internal governance of WSM as well as Lake usage provisions for landowner and non-landowner users. No Landowners dispute receiving a copy of both the Covenants and Bylaws upon purchasing their property.
Initially, the Hansons resided on Lot 1 of WSME, selling Lots 2-5 between 1991 and 1994. In 1996, the Hansons decided to sell Lot 1 and build a new home. They met with the five WSME Association members seeking the Landowners' blessing on relocating their proposed new home from the west side of Serenity Lake (as contemplated in Section VI.f. of the Covenants) to its southeastern corner because otherwise, while they had retained sufficient property on the west side of the Lake to build a home, it would be too close to the home built by the buyer of the western 40 acres. Additionally, since the Hansons had already built a dock on the southeastern corner of the Lake, they desired to have their home in close proximity to their dock. Four of the Landowners gave oral consent, while the fifth Landowner, the Heeneys, gave oral consent only after the Hansons agreed to reduce their commercial use of the Lake from twenty to sixteen hours per week.
Sometime after the 1996 meeting, the Hansons sold Lot 1. Furthermore, four of the Landowners filed an amendment to the Covenants to specify that the Hansons were the "sixth" Landowner, even though they did not have a "single family dwelling built on property immediately west of the lake," so they could use the Lake during the 35 exclusive Landowner hours referenced in Section VI.c. of the Covenants. The Heeneys would not consent to the written amendment and thus it was never approved.
The Hansons completed their home on the southeastern corner of the Lake in 2002. In April 2002, the Hansons filed a declaratory judgment action in state court to declare that even though their new house was located on the southeastern corner of Serenity Lake, by the parties' oral agreement they were the "sixth" Landowner referred to in Section VI.f. of the Covenants and entitled to the 35 exclusive Landowner use hours. The Heeneys opposed the declaratory relief action and moved for summary judgment. The Heeneys prevailed. The state court held that the Covenants had, under state law, vested the Landowners with property rights that ran with the land, and any modifications of those rights would be subject to the state statute of frauds which required the Hansons' purported transfer of the sixth lot rights from the west side to the southeast side of the Lake to be in writing, or a fully executed oral agreement, to be enforceable. On appeal, the Montana Supreme Court affirmed. See Hanson v. Water Ski Mania Estates, 2005 MT 47, 326 Mont. 154, 108 P.3d 481. However, since the Hansons still owned the Lake and the property "immediately west of the lake," the Court determined that if the Hansons "[chose] to build a single family dwelling there in accordance with the WSME covenants, nothing in the District Court's Order of Summary Judgment preclud[ed] them from doing so." Hanson, 2005 MT 47, ¶ 13, 326 Mont. 154, ¶ 13, 108 P.3d 481, ¶ 13. The parties in this appeal agree that Debtors, as purchasers of all of the Hansons' rights and interests, have the right to use Serenity Lake, just not during the 35 exclusive hours reserved for WSME Landowners.
The record in a prior BAP appeal reflects the years of contentious relations between the Lakeowner-Hansons (and the Lakeowner-Debtors) and the WSME Landowners over the Covenants and Bylaws. See BAP Nos. MT-07-1389 and MT-07-1404-PaDJu. Various parties have offered to buy the Hansons' interest over the years, but withdrew their offers after discovering that the Landowners were treating the Lakeowners' rights to use the Lake as subordinate to their rights in several ways, such as holding unauthorized water ski clinics and tournaments, inviting guests to use the Lake without paying any guest fees (causing other members of the ski club to not renew their memberships), and the Heeneys building a dock on the Lake that the Debtors alleged is not authorized and creates a hazard. Mr. Heeney has given third parties the impression that he is the owner of Serenity Lake. Furthermore, it appears the Landowners have used their right of first refusal granted in the Covenants as more like a right of last approval, thereby further scaring off potential buyers of the Hansons' or Debtors' interests.
In July 2004, the Hansons sold to Debtors their remaining interests in Lots 8 and 12, which consisted of approximately 27 acres and the improvements thereon, including the Lake, Lake bed, the water in the Lake, one domestic water right, two commercial water rights, the Hanson home, a dock, and a boat launch. The sale also...
To continue reading
Request your trial