Benders Landing Estates Property Owners Association, Inc. v. LGI Land, LLC ( 2018 )

In The
Court of Appeals
Ninth District of Texas at Beaumont
_________________
NO. 09-16-00183-CV
_________________
BENDERS LANDING ESTATES PROPERTY OWNERS ASSOCIATION,
INC., Appellant
V.
LGI LAND, LLC, Appellee
________________________________________________________________________
On Appeal from the 284th District Court
Montgomery County, Texas
Trial Cause No. 15-03-03011-CV
________________________________________________________________________
MEMORANDUM OPINION
Appellant Benders Landing Estates Property Owners Association, Inc. (BLE
POA) initiated suit against Appellee, LGI Land, LLC, by filing its application for
temporary restraining order, temporary injunction, permanent injunction, and
original petition. BLE POA filed its first amended petition, eliminating claims for
breach of contract and injunctive relief, but still sought a declaratory judgment
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pursuant to Chapter 37 of the Texas Civil Practice and Remedies Code and attorney’s
fees. See generally Tex. Civ. Prac. & Rem. Code Ann. §§ 37.001-.011 (West 2015).
BLE POA is the property owners association for the Benders Landing Estates
community, and LGI is the property developer of that community. The dispute
concerns the transfer of certain rights and obligations between the parties pursuant
to a restrictive covenant and an instrument entitled Assignment of Developer’s
Rights.
On October 7, 2015, the trial court denied BLE POA’s traditional motion for
summary judgment and granted LGI’s traditional motion for partial summary
judgment. The trial court’s order declared the Assignment was “valid and binding.”
BLE POA appeals the denial of its traditional motion for summary judgment. In two
issues on appeal, BLE POA asks first, whether the trial court erred in denying its
motion for summary judgment and second, whether the trial court abused its
discretion by granting attorney’s fees to LGI. We reverse and render in part and
remand in part.
Background
As the property developer, LGI executed the Declaration of Covenants,
Conditions and Restrictions for the Benders Landing Estates community on May 12,
2011, and filed the Declaration in the real property records on May 13, 2011. Certain
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rights and powers would pass from LGI to BLE POA on the “Control Transfer Date,”
as set forth in article VII, section 7.01 of the Declaration. Section 7.01 provides in
pertinent part, “Developer shall have, retain and[,] reserve certain rights as
hereinafter set forth with respect to the Association from the date hereof, until . . .
the Control Transfer [D]ate[.]” The Control Transfer Date is defined in article IV,
section 4.02(b) as occurring “[a]t the discretion of the Developer or in any event at
such time as eighty percent (80%) of the Lots in all sections of the Subdivision are
conveyed by Developer . . . .” The parties agree that the Control Transfer Date
described in the Declaration occurred on March 1, 2013, and the rights of LGI passed
to BLE POA at that time.
The dispute arose following the execution of the Assignment of Developer’s
Rights by the parties on March 26, 2013. That document acknowledged the Control
Transfer Date of March 1, 2013; however, that instrument also contained express
language that the “Assignment shall be effective as the Control Transfer Date on
March 1, 2013, regardless of the last date executed below.” The Assignment
attempts to reserve and carve-out rights to be held by LGI, while at the same time
attempting to have BLE POA “grant” rights back to LGI that had already transferred
to BLE POA. The Assignment states the “Assignor desires to assign all of its rights
and powers under the Declarations (including these referenced in Article IV, Section
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4.02(b) of the Declarations) to Assignee except those rights reserved, carved out
and excluded below, and Assignee desires to accept the assignment thereof”
(emphasis in original). The Assignment provides
Assignor hereby assigns and transfers to Assignee all of the Assignor’s
remaining rights and powers (including, without limitation, the power
to grant any consents and approvals) under the Declarations except
those rights specifically enumerated in “a.” through “i.” below, and
Assignee hereby accepts the assignment of Assignor’s rights and
powers under the Declarations. This Assignment intends to assign from
Assignor to Assignee the full and complete power and authority which
the Assignor has or may have under the Declarations, except for and
as to those reserved rights and carve-outs/exclusions, below. This
Assignment does not pass any liabilities from Assignor to Assignee that
may have been incurred by Assignor prior to the effective date of this
Assignment. Assignee grants to Assignor, and consents to and
approves Assignor’s reservations, carve-outs and exclusions, and
Assignor specifically accepts Assignee’s grant, consent and
approval and reserves unto itself the following rights and carves
out and excludes each from this assignment[.] (emphasis in original).
The Assignment goes on to list certain enumerated rights and powers in provisions
“a” through “i” that LGI would continue to hold. The language contained in the
Assignment is contrary to the Declaration, which provided that the rights and powers
held by LGI transferred to BLE POA upon the Control Transfer Date.
BLE POA asserted that the rights of LGI automatically transferred to BLE
POA on the Control Transfer Date of March 1, 2013. Accordingly, BLE POA argued
in its Amended Motion for Summary Judgment that the Assignment was an improper
reservation of rights that LGI no longer held, because they expired on March 1, 2013.
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BLE POA further asserted that the reservations by LGI in the Assignment were an
attempt to circumvent the provisions in the Declaration by reserving control after the
Control Transfer Date, and the attempted reservations were void ab initio. Finally,
BLE POA argued that by adding rights and powers into the Assignment, LGI
attempted to amend the Declaration in violation of article IX, which outlines the
amendment procedures, and the BLE POA’s Articles of Incorporation.
LGI filed its traditional motion for partial summary judgment claiming the
Assignment was a valid, enforceable contract and sought a declaration of the same.
LGI’s motion did not address the issue of attorney’s fees, but rather asked the trial
court to consider them separately, depending on the court’s ruling on its summary
judgment motion. BLE POA filed a traditional motion for summary judgment and
an amended motion for summary judgment seeking a declaration from the trial court
that provisions 1(a) through 1(i) of the Assignment are void ab initio and are of no
force and effect and that the Control Transfer Date occurred on March 1, 2013.
Standard of Review
We review a trial court’s summary judgments de novo. See Joe v. Two Thirty
Nine Joint Venture, 145 S.W.3d 150, 156 (Tex. 2004). When the parties file cross-
motions for summary judgment and one motion was granted, but the other denied,
the appellate court should determine all questions presented and may reverse the trial
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court’s judgment and render such judgment as the trial court should have rendered,
including rendering judgment for the other movant. Jones v. Strauss, 745 S.W.2d
898, 900 (Tex. 1988). In making its determination, the appellate court should review
the summary judgment evidence presented by both sides. FM Props. Operating Co.
v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000). When a trial court’s order granting
summary judgment does not specify the grounds relied upon, the reviewing court
must affirm summary judgment if any of the summary judgment grounds are
meritorious. Id. at 872. Moreover, “the appealing party must show it is error to base
[summary judgment] on any ground asserted in the motion.” Star-Telegram, Inc. v.
Doe, 915 S.W.2d 471, 473 (Tex. 1995). Additionally, we review a trial court’s
interpretation of restrictive covenants de novo. Raman Chandler Props., L.C. v.
Caldwell’s Creek Homeowners Ass’n, 178 S.W.3d 384, 390 (Tex. App.—Fort Worth
2005, pet. denied).
Analysis
In its first issue, BLE POA argues the trial court erred when it failed to grant
its motion for summary judgment.
The Declaration executed by LGI on May 12, 2013, and recorded on May 13,
2013, constitutes the original restrictive covenants for the real property involved in
this case. The Assignment subsequently executed by the parties attempted to amend
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and substantively alter the rights and powers under the Declaration and, unlike the
original Declaration, the Assignment contained no expiration date. The plain
meaning of the term “amend” is to change, correct, or revise. Cont’l Cars, Inc. v.
Tex. Motor Vehicle Comm’n, 697 S.W.2d 438, 441 (Tex. App.—Austin 1985, writ
ref’d n.r.e.). In theory, under the Assignment, LGI could retain the enumerated rights
and powers in perpetuity, which directly contradicts the “Period of Developer’s
Rights and Reservations” contained in article VII, section 7.01 of the Declaration.
The language of the Assignment would, if valid, broaden the powers of LGI to
amend plats, annex property, and modify designated Reserves without further
consent of BLE POA. Although styled as an “Assignment,” the substance of the
instrument would amend and contradict the material terms of the original
Declaration.
BLE POA argues it is entitled to summary judgment based upon the original
restrictive covenant and seeks a declaration that provisions 1(a)–1(i) of the
Assignment are void ab initio and are of no force and effect and a declaration that
the Control Transfer Date occurred on March 1, 2013. LGI, on the other hand, claims
it is entitled to summary judgment based on the amendment contained in the
Assignment, which LGI contends incorporates the theory of modification of the
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original contract. See Dyegard Land P’ship v. Hoover, 39 S.W.3d 300, 308 (Tex.
App.—Fort Worth 2001, no pet.).
“A declaration containing restrictive covenants in a subdivision defines the
rights and obligations of property ownership, and the mutual and reciprocal
obligation undertaken by all purchasers in a subdivision ‘creates an inherent property
interest possessed by each purchaser.’” W. Hills Harbor Owners Ass’n v. Baker, 516
S.W.3d 215, 220 (Tex. App.—El Paso 2017, no pet.) (quoting Inwood N.
Homeowners’ Ass’n, Inc. v. Harris, 736 S.W.2d 632, 636 (Tex. 1987)). We apply
the general rules of contract construction when construing restrictive covenants.
Pilarcik v. Emmons, 966 S.W.2d 474, 478 (Tex. 1998); Raman Chandler, 178
S.W.3d at 391. In construing a restrictive covenant, the court’s primary task is to
determine the intent of its framers. See Wilmoth v. Wilcox, 734 S.W.2d 656, 658
(Tex. 1987).
“A subdivision developer is generally free to amend restrictions in covenants
for the subdivision prior to the sale of lots in the subdivision, assuming the
amendments do not violate public policy.” Youssefzadeh v. Brown, 131 S.W.3d 641,
644 (Tex. App.—Fort Worth 2004, no pet.). “However, the sale of subdivision lots
triggers any amendment mechanism set forth in the dedication.” Id.; Dyegard, 39
S.W.3d at 313. “When the power to amend the land use restriction is reserved in the
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developer, the amendment of a restrictive covenant must be in the precise manner
authorized by the dedicating agreement.” Youssefzadeh, 131 S.W.3d at 644–45;
Dyegard, 39 S.W.3d at 313. The same “precise manner” requirement should be
required when the amendment mechanism lies other than with the developer.
Youssefzadeh, 131 S.W.3d at 645. “In order for a subsequent instrument to amend
the original restrictive covenant, the instrument creating the original restrictions
must establish both the right to amend such restrictions and the method of
amendment.” Scoville v. SpringPark Homeowner’s Ass’n, Inc., 784 S.W.2d 498, 504
(Tex. App.—Dallas 1990, writ denied); see also City of Pasadena v. Gennedy, 125
S.W.3d 687, 697–98 (Tex. App.—Houston [1st Dist.] 2003, pet. denied) (stating that
a party attempting to rely on amendment to restrictive covenants had the burden to
demonstrate that the deed restrictions were validly amended). Therefore, we must
look to the Declaration and determine who has the right to amend the restrictions
and the method for amending them; whether the amendment corrects, improves, or
reforms the restrictions rather than destroying them; and whether the amendment is
illegal or against public policy. See Raman Chandler, 178 S.W.3d at 390–91.
The Declaration contained two provisions for amendments. Article IX, section
9.03 governed amendments by LGI prior to the Control Transfer Date. Article IX,
section 9.02 governed amendments by BLE POA. Specifically, article IX, section
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9.03 of the Declaration provides in pertinent part, “The Developer shall have and
reserves the right at any time and from time to time prior to the Control Transfer
Date, without the joinder or consent of any Owner or other party, to amend this
Declaration by an instrument in writing duly signed, acknowledged, and filed for
record[.]” (emphasis added). LGI judicially admitted in its motion for partial
summary judgment that the Control Transfer Date occurred on March 1, 2013. Thus,
this amendment procedure would not be available to LGI pursuant to the plain
language of the Declaration.
According to article IX, section 9.09 of the Declaration, “Upon the
Developer’s Assignment of its rights as of the Control Transfer Date to the
Association, the Association shall be entitled to exercise all the rights and
prerogatives of the Developer.” Therefore, as of March 1, 2013, BLE POA was
entitled to exercise all the rights and prerogatives of LGI. Accordingly, the
amendment provision governing the Assignment is article IX, section 9.02 of the
Declaration. That provision provides as follows:
This Declaration may be amended or changed . . . by the written
agreement or signed ballot of Owners (including the Developer)
entitled to cast not less than two-thirds (2/3rds) of the votes of all of the
Owners. If the Declaration is amended by a written instrument signed
by those Owners entitled to cast not less than two-thirds (2/3rds) of all
of the votes of the Owners of the Association, such amendment must
be approved by said Owners within three hundred sixty-five (365) days
of the date the first Owner executes such amendment. The date an
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Owner’s signature is acknowledged shall constitute prima facia [sic]
evidence of the date of execution of said amendment by such Owner.
Those Members (Owners, including the Developer) entitled to cast not
less than two-thirds (2/3rds) of all of the votes of the Members of the
Association may also vote to amend this Declaration, in person, or by
proxy, at a meeting of the Members (Owners, including the Developer)
duly called for such purpose, written notice of which shall be given to
all Owners at least ten (10) days and not more than sixty (60) days in
advance and shall set forth the purpose of such meeting.
Notwithstanding any provision contained in the Bylaws to the contrary,
a quorum, for purposes of such meeting, shall consist of not less than
seventy percent (70%) of all Members (in person or by proxy) entitled
to vote. Any such amendment shall become effective when an
instrument is filed for record . . . accompanied by a certificate, signed
by a majority of the Board of Directors, stating that the required number
of Members (Owners, including the Developer) executed the
instrument amending this Declaration[.]
Because the Declaration contains an amendment provision governing the
manner and mechanism for making changes, any amendment to that restrictive
covenant must be in the “precise manner” authorized by the Declaration. See
Youssefzadeh, 131 S.W.3d at 645; see also VICC Homeowners’ Ass’n., Inc. v. Los
Campeones, Inc., 143 S.W.3d 832, 836–37 (Tex. App.—Corpus Christi 2004, no
pet.) (holding trial court did not err in declaring Amended Covenants void and noting
there was no evidence in the record to indicate the required procedures for amending
were followed). There is no question that the Assignment constituted an attempted
amendment to the Declaration. Under the original Declaration, the time LGI retained
certain rights and powers was governed and limited by that instrument to the Control
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Transfer Date of March 1, 2013. Additionally, the original Declaration clearly
delineated the rights and responsibilities of LGI and BLE POA, and the Assignment
changed which party held those rights.
Despite LGI’s assertion that the Assignment is a valid contract and that it
became effective on the Control Transfer Date, LGI has not proven the amendments
followed the “precise manner” authorized by the Declaration. The Declaration
provided two options for the parties to amend under article IX, section 9.02.
Specifically, the applicable provision mandated that any changes to the Declaration
be undertaken by either: 1) a written agreement or signed ballot approved by two-
thirds of the members; or by 2) a vote by two-thirds of the property owners at a duly
called meeting for that purpose. If the parties chose to amend by a vote, the
Declaration dictates “[a]ny such amendment shall become effective when an
instrument is filed for record . . . accompanied by a certificate, signed by a majority
of the Board of Directors, stating that the required number of Members (Owners,
including the Developer) executed the instrument amending this Declaration [.]” The
summary judgment record evidence submitted by BLE POA in support of its motion
for summary judgment conclusively proves that the required procedures of either
amendment mechanism provided for in section 9.02 of the Declaration were not
complied with before executing the Assignment. There is no written agreement or
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ballot signed by the requisite number of owners, nor is the Assignment accompanied
by the necessary certificate signed by the majority of the Board of Directors stating
that a required number of members executed the instrument amending the
Declaration following a vote.
The evidence in the record establishes the restrictive covenants contained in
the original Declaration included express amendment procedures. The parties agree
that the Control Transfer Date was March 1, 2013. Because the Assignment
constituted an amending instrument to a restrictive covenant as a matter of law, the
parties could only amend the Declaration in the “precise manner” authorized by the
original Declaration. Accordingly, we hold the Assignment of Developer’s Rights is
void ab initio. See Youssefzadeh, 131 S.W.3d at 645. Therefore, the trial court erred
when it granted the amended partial summary judgment of LGI and denied the
motion for summary judgment of BLE POA. We sustain BLE POA’s first issue.
Because of our disposition of the first issue, LGI is no longer a prevailing
party. We sustain BLE POA’s second issue and reverse that part of the trial court’s
judgment awarding attorney’s fees to LGI and remand this issue to the trial court for
further proceedings if necessary. See Tex. Civ. Prac. Rem. Code Ann. § 37.009
(providing for reasonable and necessary attorney’s fees as are equitable and just in
declaratory judgment actions).
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Conclusion
We conclude provisions 1(a)–1(i) of the Assignment in this case constitute an
improper amendment to a restrictive covenant, specifically the Declaration.
Accordingly, provisions 1(a)–1(i) of the Assignment are void ab initio and of no
force and effect. It is undisputed that the Control Transfer Date is March 1, 2013.
The trial court erred in denying BLE POA’s traditional motion for summary
judgment and in granting LGI’s traditional motion for partial summary judgment.
We reverse the final judgment dated February 26, 2016, and render judgment that
provisions 1(a)–1(i) of the Assignment in this case constitute an improper
amendment to the restrictive covenants in the Declaration and provisions 1(a)–1(i)
of the Assignment are void ab initio and of no force and effect. We reverse that
portion of the judgment awarding attorney’s fees and remand that issue to the trial
court for further proceedings consistent with this opinion.
REVERSED AND RENDERDED IN PART, REMANDED IN PART.
________________________________
CHARLES KREGER
Justice
Submitted on October 20, 2017
Opinion Delivered March 8, 2018
Before Kreger, Horton, and Johnson, JJ.
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