Case Title: Smalley v. Stowe Mountain Club, LLC

Citation: 

Docket Number: 2010-204

State: vermont

Court: Vermont Supreme Court

Date: 2011-05-20T00:00:00Z

Document:
2011 VT 51













Smalley v. Stowe Mountain Club
(2010-204)
 
2011 VT 51
 
[Filed 20-May-2011]
 
NOTICE:  This opinion is
subject to motions for reargument under V.R.A.P. 40 as well as formal revision
before publication in the Vermont Reports.  Readers are requested to
notify the Reporter of Decisions, Vermont Supreme Court, 109
State Street, Montpelier, Vermont 05609-0801 of any errors in order that
corrections may be made before this opinion goes to press.
 
 
2011 VT 51 
 
No. 2010-204
 
David Smalley
Supreme Court
 
 
 
On Appeal from
     v.
Lamoille Superior Court 
 
 
 
 
Stowe Mountain Club, LLC
January Term, 2011
 
 
 
 
A.
  Gregory Rainville, J.
 
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.
 
 
¶ 1.            
BURGESS,
J.           
   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 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 of the parties, not
the language used, is the dominating factor, and the circumstances existing at
the time of the execution of the deed, the situation of the parties and the
subject matter are to be considered.").
¶ 11.    SMC
asserts that the parties' intentions here are self-evident from the deed
language providing that the sixteen enumerated restrictive covenants "shall . .
. be treated as covenants running with the land," enforceable by the grantor
and its "successors or assigns" and binding upon the grantee "and all future
assigns."  Language of "succession," such as "heirs and assigns," is
generally construed to express an intention that the restrictive covenant run
with the land.  Gardner, 2005 VT 56, ¶ 8
(quotation omitted).  SMC argues, therefore, that a contrary intent
may be inferred from the absence of such language within the penultimate deed
provision applying the enumerated covenants to any sale or conveyance of land
within 200 feet of the Cooke/Smalley property.  
¶ 12.    The claim
is unpersuasive.  As the trial court here concluded, the original deedconstrued
as a wholeevinces a clear and unambiguous intent to create and perpetuate a
high-end residential development.  The enumerated residential covenants
and conditions that expressly run with the land make this intent
manifest.  The corollary condition applying the residential restrictions
to additional parcels sold and conveyed within 200 feet of the property was
manifestly a part of this scheme, and integral to its future viability and
implementation.  Thus, it is readily apparent thatconstrued in contextthe
200-foot restriction, like the other residential covenants, was intended to run
with the land.  See Main St. Landing, Inc. v. Lake
St. Ass'n, 2006 VT 13, ¶ 7, 179 Vt. 583, 892 A.2d 931 (mem.) (in
discerning parties' intent, "the court must consider the deed as a whole . . .
to arrive at a consistent, harmonious meaning"); Kipp v. Chips Estate,
169 Vt. 102, 105, 732 A.2d 127, 129 (1999) (noting that "master rule for the
construction of deeds" is to determine parties' intent "from the entire instrument"
which must "prevail[] over technical terms or their formal arrangement"
(quotation omitted)); Rogers v. Watson, 156 Vt. 483, 488, 594 A.2d 409,
412 (1991) (observing that intent to have restriction run with the land "can be
implied as well as expressed" and may be inferred from surrounding deed
language and circumstances); Welch, 125 Vt. at 504, 218 A.2d  at 702
(determining whether restrictive covenant runs with the land rests parties'
intent construed in light of "the circumstances, . . . the situation of the
parties and the subject matter" of the deeded transaction).  
¶ 13.     
The trial court also correctly rejected SMC's claim that the 1977 deed
eviscerated the restriction by failing to expressly reaffirm it.  The
secondary deed's sole stated purpose was to "correct" any errors in the
boundaries in the original deed, and was expressly "subject" to the residential
covenants and conditions contained therein.  As noted, the 200-foot
restriction was functionally integral to those covenants and was implicitly
preserved to the same extent that they were by the corrected deed. 
Accordingly, we find no error.  
¶ 14.   Finally, and
principally, SMC contends the trial court erred in construing the original deed
to create a 200-foot "buffer zone" around the property free from resort
activity, and in finding that the 2003 and 2004 corporate conveyances triggered
this restriction.  We review de novo the trial court's construction of the
terms of a writing and whether they are
ambiguous.  Creed v. Clogston, 2004 VT 34, ¶ 13,
176 Vt. 436, 852 A.2d 577; Morrisseau v. Fayette, 164 Vt. 358, 366, 670 A.2d 820, 826 (1995).  The plain language of the deed supports
SMC's claim that the trial court erred in construing it to create a resort-free
"buffer zone" around the Smalley property.  The deed by its terms imposed
no restriction on resort activity within 200 feet of the lot.  Rather it
provided that any land "sold and conveyed" by MMC within 200 feet of the
property was subject to the covenant restricting resort activity.  The
deed is clear and unambiguous to this extent, and we are directed to no other
language in the deed or extrinsic evidence reasonably suggesting a contrary
meaning.  See Creed, 2004 VT 34, ¶ 13 (reaffirming rule that, where
meaning of deed term "is clear and unambiguous, there is no room for
construction and the instrument must be given effect according to its terms"
(quotation omitted)).  Thus, we conclude that the deed does not restrict
MMC from using land that it has retained within 200 feet of the Cooke/Smalley
parcel for resort activities, but instead applies only where the land has been
"sold and conveyed."  
¶ 15.     The
remaining question, therefore, is whether MMC and its successors "sold and
conveyed" land within 200 feet of the Cooke/Smalley property, and thus
triggered the covenant restricting its use for resort purposes.  The trial
court agreed with Smalley that the meaning of the phrase "sold and conveyed"
was clear and unambiguous under "real property law" and plainly applied to the
2003 and 2004 inter-corporate conveyances.  The salient question, however,
is not what the phrase means in technical legal terms, but what it meant to the
parties.  See Kipp, 169 Vt. at 105, 732 A.2d  at 129 (reaffirming
"master rule" that "the intention of the parties . . . prevails over technical
terms or their formal arrangement").  Because nothing in the deed
prevented the resort from using its retained land for resort purposes, SMC
asserts that the parties' intent was simply to ensure that residential properties
sold to third parties met the aesthetic standards incorporated in the
enumerated covenants and conditions.  "Paper" transfers of resort property
from one corporate alter-ego to another with no real change in ownership and
control, therefore, should not qualify as a sale and conveyance as understood
by the parties or trigger the restriction.  Indeed, SMC asserts that
applying the restriction to bar the resort from developing its own property
would defeat the clear intent of the parties.
¶ 16.    The trial
court characterized the argument as "creative" but entirely without
authority.  The issue, however, is closer than the trial court
acknowledged.  Indeed, courts have held in a variety of contexts that the
meaning of "sale" or "sold" may vary depending on the intent of the contracting
parties, and may even require a substantive transfer of ownership.  In Premier
Van Schaack Realty, Inc. v. Sieg, 2002 UT App. 173, 51 P.3d 24, for
example, a realtor claimed that he was entitled to a commission from a client
who transferred his property to a limited liability company.  The court
rejected the realtor's claim, holding that, although the LLC was a separate
legal entity, the listing agreement contemplated an actual transfer of the
seller's ownership interest, not a mere change in the form of ownership, and
thus the transaction did not constitute a "sale or exchange" within the meaning
of the contract.  As the court explained, "[w]hether a sale or exchange
for valuable consideration occurred is a fact-intensive inquiry that requires
more than a mere showing that an owner transferred his property to a separate
legal entity."  Id. ¶ 16.  Because
the facts showed that the seller retained "substantially the same ownership
interest," there was no "sale or exchange as contemplated in the
Agreement."  Id. 
¶ 17.    A similar
conclusion in a different context was reached in Barry v. Barry, 78 F.3d 375 (8th Cir. 1996).  There, a former shareholder of a small family
corporation claimed that she was entitled to additional consideration from an
earlier sale of her stock under a contract provision triggered by any
subsequent "sale of shares of the Corporation."  Id.
at 381.  The alleged triggering event was a transfer of corporate
shares in exchange for shares in another corporation, but there was no transfer
of corporate ownership to outsiders.  The court concluded that the meaning
of "sale" in the agreement was ambiguous because it was uncertain "whether the
actual control of the shares must be transferred," and therefore "remand[ed]
for a jury to consider extrinsic evidence to determine whether the parties
intended that the shares needed to change control in a real sense before [the
plaintiff's] rights under the agreement would be triggered."  Id. at 382.  Other courts have held that a sale
or conveyance may require a real change of ownership or control as well as
consideration.  See, e.g., NSK, Ltd. v. United States, 115 F.3d 965, 975 (Fed. Cir. 1997) (holding that term "sold" requires "both a transfer
of ownership to an unrelated party and consideration"); Mandell v. Gavin,
816 A.2d 619, 625 (Conn. 2003) (finding no transfer for "consideration," an
essential element of a sale, where party merely transferred property to limited
liability company and "there was no bargained for exchange"). 
¶ 18.    Thus, the
construction of "sold and conveyed" advanced by SMC is not wholly unprecedented,
as the trial court here concluded, and indeed finds some support in the terms
of the deed construed as a whole.  The covenants and conditions designed
to maintain a high-end residential development, coupled with the absence of
similar restrictions on land retained by the resort, could reasonably suggest
that the parties did not intend to restrict development of land under the
ownership or control of MMC.  Therefore, the parties may not have intended
to include transfers of resort property lacking any real change in ownership or
control within the meaning of "sold and conveyed."  Since the deed
language is reasonably susceptible of more than one meaning, it must be
considered ambiguous.  See Kipp, 169 Vt. at 107, 732 A.2d  at 131 (holding that ambiguity will be found where writing, viewed in its
entirety, fairly admits of more than one meaning).   The trial
court's conclusion to the contrary, therefore, was in error.
    
¶ 19.    Although
the trial court here found no ambiguity, it went on to find that"[e]ven if
[it] were to consider extrinsic evidence"there was no factual support for
SMC's claim that the 2003 and 2004 transfers were essentially paper transfers
for no consideration.  The court relied, in this regard, on the warranty
deeds accompanying the transfers which recited that they were "in consideration
of ten and more dollars paid to its full satisfaction" and the Vermont transfer
tax returns identifying the "Total Price Paid" in each case as in excess of
$200,000.     These documents are not, however,
dispositive of the issue.  Indeed, the transfer tax returns explained that
the "price paid" simply represented Stowe's current "assessed value" and that
the conveyances represented merely a "[c]apital contribution to [a] limited
liability company."   Furthermore, information set forth in a
property tax return raises only a "presumption" of accuracy which "may be
fairly rebutted."  Imported Car Ctr., Inc. v.
Billings, 163 Vt. 76, 82, 653 A.2d 765, 770 (1994) (quotation omitted). 
Nor does the venerable doctrine of "estoppel by deed" necessarily bind the
parties to the recited consideration of "ten and more dollars" in the
deeds.  See Weed v. Weed, 2008 VT 121, ¶ 13, 185 Vt. 83, 968 A.2d 310 (holding that extrinsic evidence proved that "parties here did not bargain
for the recited sum of ten dollars" set forth in deed and that conveyance was
without consideration); Means v. United Fidelity Ins. Co., 550 S.W.2d 302, 310 (Tex. Civ. App. 1977) ("The principles of estoppel by deed generally
do not apply to the recitation of the amount of consideration.").   
¶ 20.    The trial
court also found that there was insufficient evidence to support SMC's claim
that the transfers represented "a mere change in the form of ownership by the
same owner."  SMC had submitted the sworn affidavit of a planning manager
employed by the resort since 1994 statingon personal knowledgethat each
transaction "was an inter-corporate transfer between affiliated entities all
owned or controlled by AIG for non-monetary consideration" in which MMC
"acquired a 99% ownership interest in SPR" and SPR in turn "acquired a 100%
ownership interest in SMC."  Although the trial court dismissed the
affidavit as insufficient without "supporting documentation," it was not
required to prove the facts asserted but only to show that they were genuinely
in dispute, and for this purpose it was adequate.  See Johnson v.
Harwood, 2008 VT 4, ¶ 6, 183 Vt. 157, 945 A.2d 875 (in opposing summary
judgment, "the adverse party's response, by affidavits or . . . otherwise . . .
, must set forth specific facts showing that there is a genuine issue for
trial" (quoting V.R.C.P. 56(e)).  
¶ 21.    The same
conclusion applies to SMC's affirmative defenses of equitable estoppel, laches,
and unclean hands, which the trial court rejected as factually and legally
insufficient.  All of these defenses turn on Smalley's alleged failure to
assert the restrictive covenant for an unreasonable period of time, thereby
prejudicing SMC and rendering the covenant's enforcement
  inequitable.  See Mann v. Levin, 2004 VT 100, ¶¶ 26-27,
177 Vt. 261, 861 A.2d 1138 (setting forth elements of laches and equitable
estoppel).  The affirmative defenses were supported by a sworn affidavit
of the resort's planning manager, who stated that Smalley had engaged in
numerous meetings with the resort to discuss golf-course issues during its
year-long construction and had cooperated with construction personnel, yet
failed to raise the restrictive covenant until a year after its
completion.  This was sufficient to raise a genuine issue of fact as to
the fairness of allowing Smalley to assert the restrictive covenant.  See Segerstrom
v. Knott, 149 Vt. 391, 392-93, 543 A.2d 706, 707 (1988) (holding that
affidavit attesting to stipulated agreement between parties was sufficient to
raise genuine issue of fact concerning affirmative defense).    
¶ 22.    The
motion for summary judgment in this case was filed within four months of the
complaint andas the parties acknowledgeadditional discovery remains to be
accomplished concerning the exact nature of the 2003 and 2004 transfers, the
intent underlying the "sold and conveyed" clause in the deed, SMC's affirmative
defenses, and related issues.   Accordingly, we conclude that the
judgment must be reversed, and the case remanded for further proceedings.[2]    
The judgment is reversed and
the case is remanded for further proceedings consistent with the views
expressed herein.          
                    
 
         
                       
           
                              
 
 
FOR THE COURT:
 
 
 
 
 
 
 
 
 
 
 
Associate
  Justice
 

[1] 
The court also issued an order in July 2009 denying a follow-up motion for
reconsideration.   
[2] 
Our holding renders it unnecessary to address SMC's claim that the injunctive
relief granted exceeds the trial court's equitable authority.