David Smalley v. Stowe Mountain Club, LLC ( 2015 )

Note: Decisions of a three-justice panel are not to be considered as precedent before any tribunal.
ENTRY ORDER
SUPREME COURT DOCKET NO. 2014-433
APRIL TERM, 2015
David D. Smalley } APPEALED FROM:
}
} Superior Court, Lamoille Unit,
v. } Civil Division
}
}
Stowe Mountain Club, LLC } DOCKET NO. 132-6-08 Lecv
Trial Judge: Helen M. Toor
In the above-entitled cause, the Clerk will enter:
Plaintiff David D. Smalley appeals pro se from a superior court judgment in favor of
defendant Stowe Mountain Club, LLC (SMC). Plaintiff contends the trial court committed
multiple errors in rejecting his claim that portions of a golf course operated by SMC violate
restrictive covenants in Smalley’s deed. We affirm.
This is the second appeal to reach the Court in this matter. As set forth in the first appeal,
Smalley v. Stowe Mountain Club, LLC (Smalley I), 2011 VT 51, 190 Vt. 53, the factual
background is 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.
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.
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.”
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.
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,
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denying the violation and raising a number of affirmative defenses,
including estoppel, laches, and unclean hands.
Id. ¶¶ 2-6.
As we noted in Smalley I, the parties filed cross-motions for summary judgment.
Smalley argued that the deed terms were clear and unambiguous, and essentially established a
200-foot non-commercial buffer around his property. SMC claimed, to the contrary, that the
deed, “[c]onstrued as a whole, . . . 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.” Id.
¶ 7. SMC also claimed 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. 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. Id.
The trial court ruled in favor of Smalley, concluding that the deed restriction was
“intended . . . to create a buffer zone” between the residential properties and resort, that the 2003
and 2004 transactions were plainly “sales,” that SMC had failed to adduce evidence to support its
affirmative defenses, and that further discovery was not required. Id. ¶ 9.
We reversed. While rejecting SMC’s claim that the deed restrictions did not run with the
land, we concluded that the trial court erred in concluding that they had created a “resort-free
‘buffer zone’ around the Smalley property.” Id. ¶ 14. We noted that “[t]he 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.” Id. ¶ 18.
That fact, in turn, raised questions about the circumstances under which the covenant would be
triggered by a conveyance of the resort property. We remanded to the trial court to allow
additional discovery on the parties’ intent with respect to the “sold and conveyed” clause in the
deed, the exact nature of the transfers at issue, and SMC’s affirmative defenses. Id. ¶ 22.
Following the remand, the parties conducted additional discovery, and the court held an
evidentiary hearing over the course of two days in April and May 2014. The parties submitted
post-trial memoranda, and the court issued a written ruling in July 2014. Apart from the
evidence previously adduced, the court found that the only one piece of evidence that “sheds
light on the intent of the covenants” was contained in correspondence between the parties and
their attorneys preceding the 1959 conveyance from MMC to Smalley’s predecessor-in-interest,
the Cookes. The court found that the letters reinforced the conclusion that the deed restrictions
were not intended to limit MMC’s own resort activities on the land that it retained adjacent to the
Smalley parcel. The court found that together with the covenants themselves, the letters
supported a finding that the parties never intended that MMC’s subsidiaries or successors would
be barred from operating a resort, or that “a sale to another party running a resort would restrict
that party from conducting resort activities on land retained by MMC.” (Emphasis in original.)
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The court also concluded that the transfers from MMC to SPR and SMC did not constitute a
“sale and conveyance,” as the transactions were simply “capital contributions” to wholly-owned
subsidiaries. Accordingly, the court entered judgment for SMC. The court denied a subsequent
motion to amend the judgment. This pro se appeal by Smalley followed.
Smalley raises numerous claims, most of which focus on whether the court erred in
construing the meaning and intent of the deed restrictions, particularly whether the golf course
land had been “sold and conveyed.” We have previously ruled that the deed restrictions at issue
are ambiguous. Smalley I, 2011 VT 51, ¶ 18. In resolving that ambiguity, the general rule is
that, “[w]hen doubt arises as to the extent of restrictive covenants, the rule . . . is that restrictions
will not be extended by implication to include anything not clearly expressed, and doubt must be
resolved in favor of the free use of the land.” Creed v. Clogston, 2004 VT 34, ¶ 17, 176 Vt. 436(quotation omitted). Furthermore, where a covenant is ambiguous, “the question of what the
parties intended to prohibit is a question of fact to be determined on all the evidence.” Id. ¶ 18.
We will uphold the court’s findings in this regard unless they are clearly erroneous. Id.
Applying these standards to the record evidence, we find no basis to disturb the trial
court’s conclusion that the parties did not intend to restrict the resort activities of MMC on the
land that it retained, nor did they intend “that a sale to another party running a resort would
restrict that party from conducting resort activities” on the land retained by MMC. Several
factors support this conclusion. First, as we observed in Smalley I, the covenants construed as a
whole were basically intended to “create and perpetuate a high-end residential development,”
2011 VT 51, ¶ 12, but do “not restrict MMC from using land that it . . . retained within 200 feet
of the Cooke/Smalley parcel for resort activities.” Id. ¶ 14. Accordingly, as the trial court here
observed, it would defy reason to conclude that MMC was free to build the golf course in
question, but when MMC sold the property to a third party “suddenly that new owner would
have to remove” any golf-related activities as a violation of the covenants.
As the trial court also found, this conclusion finds additional support in some of the
correspondence between the original parties and their attorneys in which they expressly
negotiated the terms of the restrictive provisions at issue. Although not cited specifically by the
trial court, a January 1959 letter from the purchaser proposed that the last two paragraphs of the
deed specify that the same restrictions in the purchaser’s deed “will apply to the purchasers of
any two acre lots adjoining my property.” This request was repeated in a subsequent letter dated
July 24, 1959. MMC’s attorney’s response, in a letter dated August 18, 1959, indicated that
MMC was resistant to the specific requirement that future sales of lots “be at least in 2 acre
chunks,” but assured the purchaser of MMC’s intent to maintain the quality of the development
and not do anything to depreciate its value.
Thus, while the two-acre minimum was not ultimately included in the 200-foot restrictive
covenant, the parties’ correspondence demonstrates that the covenant was designed and intended
to apply to future sales of residential lots within 200 feet of the Cooke/Smalley lot, not to land
retained and developed by MMC for resort activities or conveyed to a subsidiary or successor-in-
interest for resort development. Thus, it does not apply to SMC. Contrary to Smalley’s
assertion, this conclusion does not represent a prohibited “reformation” of the deed. Rather, it is
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an interpretation based on the parties’ intent as determined from the language and extrinsic
evidence.*
In light of our conclusion, we need not consider whether the trial court correctly
determined, as an alternative basis of decision, that “sale and conveyance” as used in the deed
does not apply to transfers specifically structured as in-house capital contributions, and whether
the transactions here fall within this category. Nor need we consider Smalley’s additional claims
concerning his entitlement to legal fees and punitive damages.
Affirmed.
BY THE COURT:
_______________________________________
Paul L. Reiber, Chief Justice
_______________________________________
John A. Dooley, Associate Justice
_______________________________________
Beth Robinson, Associate Justice
*
In discussing the August 18, 1959 letter from the resort’s attorney to the purchaser, the
court found that, although “the exact restrictions being discussed cannot be discerned because the
prior letter was not admitted in evidence,” the correspondence supported the conclusion that the
parties did not intend to apply the 200-foot restriction to the resort itself. Smalley asserts that the
“prior letter,” dated July 24, 1959, was, in fact, admitted, and the record supports his assertion.
However, he does not demonstrate, nor does the record show, how the court’s factual error was
prejudicial. Indeed, as discussed, the correspondence as a whole supports SMC’s position.
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