Smalley v. Stowe Mountain Club Llc.

• Decision Date: 20 May 2011
• Docket Number: No. 10–204.,10–204.
• Parties: David SMALLEYv.STOWE MOUNTAIN CLUB, LLC.
• Court: Vermont Supreme Court

25 A.3d 539

2011 VT 51

David SMALLEY

v.STOWE MOUNTAIN CLUB, LLC.

No. 10–204.

Supreme Court of Vermont.

May 20, 2011.

Russell D. Barr and Daniel A. Seff of Barr & Associates, P.C., Stowe, for Plaintiff–Appellee.Christopher D. Roy of Downs Rachlin Martin PLLC, Burlington, for Defendant–Appellant.Present: REIBER, C.J., DOOLEY, JOHNSON, SKOGLUND and BURGESS, JJ.BURGESS, J.

¶ 1. In this dispute between neighboring landowners, defendant Stowe Mountain Club, LLC (SMC) appeals from a judgment in favor of plaintiff David Smalley on his claim that portions of a golf course built and operated by SMC violate restrictive covenants in Smalley's deed. SMC contends that, in granting declaratory and injunctive relief in favor of Smalley, the trial court: (1) misconstrued the deed; (2) erroneously refused to allow additional discovery relating to certain contested issues; and (3) exceeded the proper scope of injunctive relief. We agree with the first two claims, and therefore reverse and remand.

¶ 2. The undisputed material facts may be summarized as follows. Smalley's property consists of a single-family residence on a 1.97 acre parcel located on Spruce Peak Road in the Town of Stowe. The property was acquired by Smalley's predecessor-in-interest, Nancy Cooke, in a 1959 deed from the Mount Mansfield Company (MMC), which operates the Stowe Mountain Resort. The deed contained sixteen separate “restrictions and conditions” to be “treated as covenants running with the land,” nearly all of which were concerned with maintaining the property's residential quality. The first condition provided that no building on the property “shall be used for purposes other than a private dwelling.” Others required that the cost of the residence and garage to be constructed on the property “shall be not less” than a certain dollar amount; that the “design and materials” for the exterior of all buildings to be constructed must be “approved in writing by an architect” designated by MMC; that “the premises and buildings constructed thereon shall at no time be used or occupied for the purpose of any trade, manufacture or business or as a school, hospital, charitable institution, hotel, inn, motel, cabin, boarding house, lodging house or place of public resort”; that no “billboards, advertising signboards or signs of any kind” were to be erected on the property; that no animals were to be kept on the property except for dogs, cats, or stabled horses; and that no timber or trees were to be cut except as necessary to the residential development of the property.

¶ 3. Following the list of restrictions and conditions, the deed additionally stated:

It is understood between the Grantor and the Grantee herein that the conditions, restrictions and covenants in this deed are for the purposes of this deed only and may vary from those in deeds of other property heretofore, now or hereafter owned by the Grantor, except that land within 200 ft. of the boundaries of the lot here conveyed to Grantee shall be sold and conveyed by the Grantor subject to the same conditions, restrictions and covenants as are contained in this deed.

¶ 4. Over the next several years, MMC subdivided and sold a number of additional residential lots on Spruce Peak Road in the vicinity of the Smalley property, all subject to the conditions and restrictions set forth in the 1959 deed. Most of the lots, like the Smalley parcel, adjoined land owned and used by MMC for resort purposes such as ski trails and access to the resort and resort parking. In 1977, Cooke and MMC entered into a second warranty deed “to correct any errors or deficiencies” relating to a boundary in the original deed. The corrected deed provided that it was “subject to certain covenants and restrictions of a residential nature as more specifically set forth” in the original 1959 deed. In January 1994, Cooke conveyed the property to Smalley. Like the corrected deed, the Smalley deed made the conveyance “subject to certain covenants and restrictions of a residential nature as more specifically set forth” in the original 1959 deed and, with one exception not relevant here, further provided that “[t]he balance of the covenants and restrictions” in the 1959 deed “shall remain valid and in effect.”

¶ 5. In 2005 and 2006, SMC constructed a golf course in the area of Spruce Peak. Portions of two holes are located within 200 feet of the Smalley lot. The construction was preceded and facilitated by two transfers, one in 2003 in which MMC conveyed the golf course property to Spruce Peak Realty, LLC (SPR), a transfer which it characterized in its tax return as a tax-exempt capital contribution, and a second in 2004 when SPR in turn conveyed the property to its own limited liability company, SMC, similarly characterized at the time as a capital contribution.

¶ 6. The golf course opened for play in the summer of 2007. One year later, in June 2008, Smalley filed this action against SMC, alleging that the 2003 and 2004 transfers of property within 200 feet of his lot triggered the covenant prohibiting use of the property conveyed “for the purpose of any ... business or ... place of public resort.” Accordingly, Smalley claimed that use of the property as a golf course violated his deeded property rights, and entitled him to a permanent injunction. SMC answered, denying the violation and raising a number of affirmative defenses, including estoppel, laches, and unclean hands.

¶ 7. The parties filed cross-motions for summary judgment in late 2008. Smalley argued that the restrictive covenants were unambiguous and clearly established his right to declaratory and injunctive relief. SMC claimed, to the contrary, that the golf course property was not “sold and conveyed” in 2003 and 2004 within the meaning of the 1959 deed because there was no monetary consideration or real change of ownership; the transactions were merely inter-corporate capital transfers among affiliated entities, all of whom were wholly owned or controlled by their parent corporation American International Group (AIG). Thus, it claimed that the deed restrictions were never triggered by an actual “sale” within the contemplation of the parties. Construed as a whole, it asserted, the deed evinced a clear and unambiguous intent to establish a common scheme to maintain the quality of lots sold by MMC to third parties for residential development, but there was never an intent to bar the resort itself from developing the property it retained. Thus, SMC maintained that it would defeat the parties' intentions to apply the “sold and conveyed” language to paper transactions in which the resort retained actual ownership and control of the property and sought to develop it through a wholly owned affiliate.

¶ 8. Alternatively, SMC asserted that the meaning of the deed was ambiguous and further discovery was required to determine the parties' intentions. Smalley, in response, claimed that the transfers were plainly “sales” as that term is commonly understood in the law of real estate transactions. In the event the court agreed with SMC's interpretation, however, Smalley also asserted that further discovery would be necessary to discern the “actual consideration” underlying the 2003 and 2004 transactions and “the nature of the alleged inter-corporate relationship between SMC, SPR and MMC.” In a subsequent reply memorandum, SMC raised several additional arguments, notably that the 200–foot restriction did not run with the land or benefit Cooke's successors-in-interest, and that the 1977 corrected deed had superseded the original deed and terminated the restriction.

¶ 9. The trial court heard argument and issued an amended final decision in May 2009.¹ The court rejected SMC's arguments in their entirety. It concluded that the 200–foot restriction in the 1959 deed was intended to be perpetual, not personal to the parties; that the 1977 corrective deed had not extinguished the restriction; that the restriction was “intended ... to create a buffer zone” between the residential properties and the resort; and that the 2003 and 2004 transfers were plainly “sales” as that term is understood under conventional real estate law and therefore sufficient to trigger the 200–foot restriction. The court also determined that SMC had failed to adduce evidence to support its affirmative defenses, and that there was no likelihood additional discovery would produce a genuine issue of material fact. Following additional briefing, the court issued a final judgment in May 2010, permanently enjoining SMC from further violation of the restrictive covenant and ordering that it “remove those portions of the golf course which have been constructed within 200 feet of Smalley's property, and ... desist from any public or business use of the said buffer zone for any and all purposes associated with said golf course.” The court stayed its judgment pending this appeal.

¶ 10. SMC challenges each of the trial court's conclusions as either erroneous or premature. Beginning with the nature of the covenant, it contends the trial court erred in finding that the 200–foot restriction was enforceable by Smalley as a covenant running with the land. Four conditions have traditionally been required for a restrictive covenant to run with the land: it must be in writing; it must “touch and concern” the land; privity of estate must exist between the parties; and the parties must have intended that it run with the land. Gardner v. Jefferys, 2005 VT 56, ¶ 6, 178 Vt. 594, 878 A.2d 259 (mem.). Although the most recent iteration of the Restatement (Third) of Property: Servitudes adopts a “simplified approach” to deeded covenants, observing that under “modern American law a covenant benefit or burden runs with the land if intended to do so,” id. § 1.3 cmt. b (2000) (emphasis added), this has, in fact, been a cornerstone of Vermont law for years. See Welch v. Barrows, 125 Vt. 500, 504, 218 A.2d 698, 702 (1966) (“The intention...