In re Homestead at Whitefish LLC
| Decision Date | 15 June 2020 |
| Docket Number | Case No. 14-60353-BPH |
| Parties | In re THE HOMESTEAD AT WHITEFISH LLC, Debtor. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Montana |
In this Chapter 111 case, K2M, LLC, ("K2M") GFY87, LLC, ("GFY87" of ") Great Northern Ventures, LLC, ("Great Northern") PMJ, LLC, ("PMJ") Mark Kvamme, ("Kvamme") and Paul Johannsen ("Johannsen") (collectively, K2M, Great Northern, PMJ, Kvamme, Johannsen, are referred to as "Movants") request that this Court enforce the release, injunction, and other terms in The Homestead at Whitefish LLC's, ("Debtor") Second Amended Plan [of Reorganization] ("Plan"), which was confirmed on November 7, 2014.
A little more than a year after Debtors' Plan was confirmed creditors Don and Emily Maschmedt (the "Maschmedts") filed an action in state court. In 2017, Maschmedts filed their First Amended Complaint asserting a litany of claims and requesting various forms of relief under different theories. Maschmedts' claims relate back to and involve their purchase of Lot 1 in Debtor's failed real estate project in 2007. The acquisition of Lot 1 was a prepetition transaction between Maschmedts and Debtor. Maschmedts allege that they entered a stipulationwith Debtor in connection with confirmation of the Plan that "expressly reserved their right to pursue such litigation under the terms of the Plan."2 As a result, neither the release, injunction, exculpation or other terms in the Plan and Confirmation Order apply to them.
Movants filed 4 briefs at ECF Nos. 194, 232, 235, and 273. Maschmedts also filed 4 briefs at ECF Nos. 202, 233, 234, and 274, each arguing increasingly divergent interpretations of the parties stipulated language, which the Court included in its Confirmation Order.3 Generally, Movants argue that the language is very narrow, while Maschmedts essentially argue that neither the Plan, nor Confirmation Order have any effect on them or their prepetition claims against the Debtor. A hearing was held on March 1, 2018.4
This dispute requires the Court to ascertain Maschmedts and Movants' intent when agreeing to the stipulated language and its effect on the parties' rights vis-a-vis the Plan, and Confirmation Order. The Court's analysis requires consideration of Maschmedts' prepetition claims against the Debtor, the instruments that correspond to the underlying transaction between Maschmedts and Debtor, and ultimately a determination of whether Paragraph 35 broadly excluded Maschmedts from the Plan and Confirmation Order, or narrowly assured them that their ownership of Lot 1, and other real property interests would not be disturbed by the Plan.
Maschmedts initially argued that this Court lacked jurisdiction because the "claims asserted within their First Amended Complaint do not present a close nexus to the Plan or Confirmation Order, and thus, are not related to the underlying bankruptcy.5 This Court concluded in a separate decision that it had jurisdiction. The findings and conclusions in the Court's prior Memorandum at ECF No. 238, are incorporated by reference.
Debtor6 acquired land and intended to develop a planned community known as the "Homestead at Whitefish." According to marketing materials the community would provide the property owners with access to amenities. The amenities included access to a concierge, a lodge style clubhouse, the Lewis and Clark cabins, Homestead Barn, an elaborate entrance to the community known as the "Hitching Post," the "Meadow at Chinook Lake" and Waterfall Park. Property owners also had access to all terrain vehicles, (ATVs), snowmobiles and watercraft.
The original plan included development of forty, 20 acre lots, 300 acres of open space and common area, and 155 acres for future development. The Debtor planned to market and sell the 20 acre lots in four phases. Beginning in 2005, 16 lots were marketed as part of the first phase. Debtor sold 9 lots. Only 7 of the 9 sales were to third-party purchasers, the other 2 lots were sold to Movant K2M. The last sale occurred in December 2009.
To accomplish Debtors' vision of a planned community with amenities, Debtor as the "Declarant" recorded a comprehensive Declaration of Covenants, Conditions, Restrictions and Easements, ("Covenants") in late 2005, almost 2 years before Maschmedts' acquired Lot 1.7 The Covenants were binding ("run with the land and will be binding upon all persons or entities having any right title or interest in all or any part of the Property (including Declarant))".8 The Covenants set forth certain obligations and duties of the parties. Particularly relevant to this dispute are the covenants involving, the period of (a) Declarant Control, (b) the Association, (c) Common Area, (d) the amenities, (e) and Special Declarant Rights.
Many provisions in the Covenants are discretionary, or capable of amendment during the period of Declarant Control. Under the Covenants, the period of Declarant Control continued until "the earlier of December 2017, sale of 90% of the lots in each of the plats, or termination by the Declarant."9 On the petition date, the period of Declarant Control was still in effect because it had not been terminated, 90% of the lots had not been sold, and December 2017 was more than 3 years away.
The Covenants established the Homestead at Whitefish Association ("Association").10 Each property owner was a member of the Association.11 All members in the Association were entitled to vote on Association matters, based on one vote per lot.12 Upon termination of thePeriod of Declarant Control, the Association was to be Declarant's successor and assume all of the rights, duties, and responsibilities of Declarant under the Covenants.13
Under the Covenants, the Association "may" acquire, hold, operate, and dispose of personal and real property including, dwelling units or "cabins."14 Owners and their guests could use the cabins in accordance with a reservation system, and payment.15 The system was permissive, and could be eliminated if the Association voted to dispose of the cabins. Any decision to sell or otherwise dispose of the cabins required the consent of owners holding 67% or more of the votes of the Association.16
Common Area is defined as "any real property described in Exhibit B to the Covenants, and any other property in which the Homestead at Whitefish Owner's Association, Inc., owns an interest for the common use, benefit and enjoyment of some or all of the Members."17 On the date the Covenants were recorded, "Common Area" included the following:
All private road and utility easements, utility easements, equestrian/pedestrian trail easements, and all other easements of any kind shown on Certificate of Survey No. 16496, records of Flathead County, Montana.18
Owner's Property Rights included, "a perpetual, nonexclusive easement for access to and from his Lot and for the use and enjoyment of the Common Area."19 Prior to expiration of the Periodof Declarant Control, Declarant could, but was not obligated to convey additional property to the Association to expand the Common Area.20
During the period of Declarant Control the Declarant maintained exclusive control over the direction, size and scope of the project.21 Declarant had the right to withdraw from the Homestead at Whitefish property initially subject to the Declaration.22 As stated in Article XVI, "Declarant reserves the right to withdraw from the jurisdiction of these Covenants any parcel of the property provided however, that no parcel may be withdrawn after it has been conveyed to a purchaser."23 This broadly permits the Declarant to withdraw property subject to the Declaration. Finally, the Declarant had the right after the sale of lots, but prior to expiration of the period of Declarant Control to terminate, extend, modify, amend or revoke the Declaration as to the whole or any portion of the Property, absent written objection by 80% or more of the property owners.24
Maschmedts executed a Buy-Sell Agreement dated August 27, 2007 for the purchase of Lot 1 ("Buy-Sell").25 The Buy-Sell includes a contingency for an inspection "for suitability of intended use," but it does not refer to any amenities, or include an amenity contingency.26 TheBuy-Sell includes an addendum that: (i) explicitly states that the property is being sold subject to the Covenants; (ii) Maschmedts reviewed the Covenants; (iii) telephone, electric power, and fiber optic cable had been provided to the property; (iii) Maschmedts received and reviewed a copy of the recorded Plat of the Homestead at Whitefish; and, (iv) Maschmedts were responsible for installation of a septic system and well.27 Maschmedts' Buy-Sell did not include a contingency for the completion of construction of any amenity.28
A few months after the Buy Sell was signed, Debtor conveyed Lot 1 of the Amended Plat of Lot 1 & Open Space "A" of the Homestead at Whitefish Phase 1, together with a driveway easement to Maschmedts.29 The conveyance was by Warranty Deed ("Deed") and an exhibit to the Deed depicts the driveway.30 In addition, the driveway exhibit shows access to Lot 1 is accessed from Nixon Road by crossing Lot 2 via a shared driveway easement.31 The Deed covenants that Lot 1 is free from all encumbrances except, rights of way, notices, declarations, conditions, covenants, restrictions, by-laws, articles, certificates, plat notes and easements of record.32 The Deed does not explicitly refer to any amenities, or convey to Maschmedts the explicit right to use any amenities.
Prepetition Maschmedts used...
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