Quast Real Estate Development I, LLC v. Eagle Development LLC

RENDERED: DECEMBER 15, 2023; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2022-CA-0902-MR
QUAST REAL ESTATE
DEVELOPMENT I, LLC APPELLANT
APPEAL FROM KENTON CIRCUIT COURT
v. HONORABLE MARY K. MOLLOY, JUDGE
ACTION NO. 18-CI-01055
EAGLE DEVELOPMENT LLC;
INDUSTRIAL ROAD CENTER, LLC;
AND REMKE MARKETS, INC. APPELLEES
OPINION
AFFIRMING
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BEFORE: CALDWELL, GOODWINE, AND LAMBERT, JUDGES.
GOODWINE, JUDGE: Quast Real Estate Development I, LLC (“Quast”) appeals
from an order of the Kenton Circuit Court granting summary judgment in favor of
Appellees Eagle Development LLC (“Eagle”); Industrial Road Center, LLC
(“Industrial”); and Remke Markets, Inc. (“Remke Markets”). The circuit court
found Appellees proved all conditions to enforce a restrictive covenant that runs
with the land purchased by Quast. We affirm.
BACKGROUND
The background of this case is complex and spans ten years,
numerous parcels of land, and several property owners. This case arose because
Quast knowingly purchased property subject to a restrictive covenant in 2017.
Quast filed suit seeking to invalidate an exclusive use agreement (“EUA”), which
was executed on April 6, 2007, by Eagle, Industrial, and Remke Markets.
Eagle and Industrial are separate companies both owned by Matthew
Rumpke (who is not an owner of Remke Markets). Industrial owns the parcel,
known as the Industrial Road property, on the west side of Turkeyfoot Road in
Independence, where Remke Markets, a liquor store (also leased by Remke
Markets), and CVS are located. Eagle formerly owned the property across
Turkeyfoot Road, now known as the Quast property.
In 2007, Eagle sought to develop what is now the Quast property into
a new shopping center and purchased adjoining parcels from several property
owners. After completing a survey, Eagle learned that due to the relocation of
Turkeyfoot Road, it was necessary to purchase a parcel owned by JASCRES
Management, LLC, that spanned both sides of the new Turkeyfoot Road. The
EUA came into existence because purchasing the JASCRES parcel was necessary
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for access to what is now the Quast property and for Industrial to comply with
leases, which were later assigned to it, for Remke Markets, the liquor store, and
CVS.
On March 26, 2007, Eagle and Industrial entered into a purchase
contract with Turkeyfoot Road, LLC; JACS Property, LLC; and JASCRES
Management, LLC, all owned by Joe Schreiber, to acquire the small part of the
Quast property needed for an entrance way across Industrial Road. Under the
contract, three parcels were sold to Eagle and Industrial: (1) the parcel owned by
Turkeyfoot Road, LLC, where Remke Markets is located, which was conveyed to
Industrial; (2) an adjoining property owned by JACS Property, LLC, which was
conveyed to Eagle; and (3) the property owned by JASCRES Management, LLC
that was located on both sides of the new Turkeyfoot Road, which was conveyed to
Eagle. Eagle purchased the land to access the Quast property in this transaction
with the Schreiber companies. Industrial purchased what is now the Industrial
Road property, where Remke Markets, the liquor store, and CVS are tenants.
At the time of the transactions, Schreiber had existing leases on the
Turkeyfoot Road, LLC parcel (also known as the Industrial Road property) for
Remke Markets, a liquor store, and a CVS. Each of those leases included
restrictive covenants containing language nearly identical to the EUA. The
purchase contract provided that Industrial would be assigned to those three leases.
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The tenants would not agree to the assignment unless Eagle and Industrial agreed
to the same terms, and the property across the road, now the Quast property, was
also subject to these restrictions. The selling entities, all owned by Joe Schreiber,
would not agree to the assignments of the leases or the sale of the parcels unless
Eagle and Industrial agreed to the restrictions contained in the tenant’s leases and
that the restrictions would run with the land.
To meet these conditions, Eagle, Industrial, and Remke Markets
executed the EUA on April 6, 2007, for the Quast property. The EUA provided
that no grocery store, liquor store, or drug store may operate on the Quast property
subject to certain exceptions: (1) a single building of up to 3850 square feet for
use as a convenience store/gas station that may sell food, groceries, produce, dairy,
beer, wine, or liquor; (2) the CVS located on the Industrial Road property may
relocate to the Quast property and sell the same items; (3) a restaurant occupant
may sell the restricted items as an incidental part of its principal business; (4)
limited incidental sale of restricted items in any other building. In exchange,
Remke Markets agreed not to permit any subtenant to violate the CVS restriction
so long as it remained in effect, which prohibited using the Quast property as a
drug store, health and beauty aid store, beauty supply store, or pharmacy. Further,
the EUA provided that the sale of what is now the Quast property, including the
properties owned by the Schreiber companies, was a condition precedent to the
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EUA’s effectiveness. Without the sale, the EUA would be null and void. The
EUA was recorded in the Kenton County Clerk’s Records.
On June 4, 2007, Eagle and Industrial closed on the Industrial Road
property and part of what is now the Quast property from the Schreiber companies.
On October 1, 2007, Eagle purchased additional parcels from other property
owners, which are part of what is now the Quast property. Descriptions of the
additional parcels are included in the EUA because Eagle was in negotiations to
purchase them when the EUC was executed.
On December 29, 2010, Eagle sold what is now the Quast property to
Lakeside Christian Church (“church”), subject to the restrictions in the EUA. In
2017, the church sold the property to Quast.
In addition to notice from the recording of the EUA, Quast had actual
knowledge of the restrictive covenant when it bought the property. The church
informed all prospective purchasers of the EUA and its restrictions encumbering
the property. The purchase contract included an express acknowledgment of the
EUA. Additionally, Quast’s purchase price for the property was lower than it
would have been without the use restrictions. The church sold the property to
Quast for $2,000,000 in 2017, $200,000 less than it paid in 2010. Record (“R.”) at
53.
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Since the EUA became effective, the Quast property remains an
empty lot.
On June 7, 2018, Quast filed a complaint in the Kenton Circuit Court
to quiet title against Eagle, Industrial, and Remke Markets. On February 21, 2022,
Quast moved for summary judgment against Appellees. On April 11, 2022,
Appellees responded and filed a cross-motion for summary judgment against
Quast.
On June 29, 2022, the circuit court denied Quast’s motion for
summary judgment and granted Appellees’ cross-motion for summary judgment.
The circuit court found the restrictive covenant in the EUA ran with the land, and
the restrictions were reasonable and limited as to territory. This appeal followed.
On appeal, Quast argues the circuit court erred in: (1) finding
Appellees intended for the restrictive covenant to run with the land; (2) finding
there was privity of estate; (3) failing to consider the doctrine of changed
conditions; and (4) finding the restrictive covenant was a reasonable restraint on
trade.
STANDARD OF REVIEW
To determine whether a restrictive covenant runs with the land, a
circuit court must apply the following four criteria: (1) the intent of the parties; (2)
whether the covenant touches and concerns the land; (3) whether privity
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of estate exists; and (4) notice of the covenant. KL & JL Investments, Inc. v.
Lynch, 472 S.W.3d 540, 545-46 (Ky. App. 2015). On appeal, we review Quast’s
arguments under the following standard:
We apply de novo review to the trial court’s conclusions
of law, including the “[i]nterpretation or construction of
restrictive covenants.” Colliver v. Stonewall Equestrian
Estates Ass’n, Inc., 139 S.W.3d 521, 523 (Ky. App.
2003). Under de novo review, we owe no deference to
the trial court’s application of the law to the established
facts. Interactive Gaming Council v. Commonwealth ex
rel. Brown, 425 S.W.3d 107, 111 (Ky. App. 2014);
Cinelli v. Ward, 997 S.W.2d 474, 476 (Ky. App. 1998).
Id. at 544.
ANALYSIS
First, Quast argues the circuit court erred in finding Appellees
intended for the restrictive covenant to run with the land. Under this argument,
Quast raises three sub-issues: (a) the circuit court erred in considering a deed that
was not in evidence in determining whether the restriction runs with the land; (b)
the circuit court erred in finding the parties to the EUA intended for the restrictive
covenant to apply to the Quast property because no chain of title was put in the
record to establish all parcels comprising the Quast property were subject to the
EUA; and (c) the parties to the EUA did not intend for the restrictive covenant to
apply if Eagle or Industrial failed to construct a new shopping center on what is
now the Quast property.
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Quast’s intent arguments are unpreserved. Based on our review of the
record, Quast never raised any arguments regarding the intent for the EUA to run
with the land in its complaint, motion for summary judgment, or any other
pleading. Of the four elements required for a restrictive covenant to run with the
land, Quast only contested privity of estate below. “It is axiomatic that a party
may not raise an issue for the first time on appeal.” Sunrise Children’s Services,
Inc. v. Kentucky Unemployment Insurance Commission, 515 S.W.3d 186, 192 (Ky.
App. 2016).
Additionally, the EUA expressly provides: “These restrictions . . .
shall run with the land and be binding on the Developer and their successors and
assigns.” R. at 45. The EUA further provides “‘Developer’ shall collectively mean
Eagle and Industrial, their affiliates, subsidiaries, and any entities that in part or
whole have common owners with Eagle and Industrial.” Id. Thus, the circuit court
correctly found the Appellees intended for the EUA to run with the land.
Second, Quast argues the circuit court erred in finding the restrictive
covenant runs with the land because there was no privity of estate. Quast argues
there is no privity of estate because the chain of title does not trace back to Remke
Markets. We disagree with Quast’s argument.
“Kentucky courts have held that the requisite privity of estate
necessary to establish a mutually restrictive covenant is met when a grantor-
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grantee relationship exists at the time the restriction is created.” Lynch, 472
S.W.3d at 546-47. Based on our review, this relationship existed when the
restriction was created in the EUA. As a condition precedent to the purchase of the
properties, Schreiber required Eagle and Industrial to grant Remke Markets the
exclusive right to operate a grocery store and liquor store on the Industrial Road
property, where the leased stores are located, and to exclude the possibility of any
grocery store or liquor store operating across the street on what is now the Quast
property. At the time the EUA was entered, Eagle and Industrial were the grantors
of the exclusive rights to the grantee, Remke Markets. In exchange for purchasing
the parcels from Schreiber, Eagle and Industrial agreed to burden the land to
benefit Industrial’s lessee, Remke Markets. Thus, the privity requirement was
satisfied because the burden on what is now the Quast property traces back to
Eagle. Quast agreed to assume this burden in purchasing the land at a reduced
price from the church.
Third, Quast argues the circuit court erred in failing to consider the
doctrine of change in conditions. Kentucky courts have long held: “The general
rule is that change of conditions will justify the court to relieve property from
restrictive covenants when such change is so great as clearly to neutralize the
benefit of the restrictions and to defeat the purpose of the covenant.” Robbins v.
Cornell, 311 S.W.2d 543, 546 (Ky. 1958). In Bewley v. Stieff, 273 S.W.2d 833,
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(Ky. 1954), the Supreme Court of Kentucky provided an example of when a
change in conditions warrants a release from a restrictive covenant:
It may be said to be the general rule that restrictive
covenants against use of property by business enterprises
will not be enforced where there has been a fundamental
change in the character of the property or neighborhood
from residential to business due to municipal expansion,
spread of industry or other causes which have destroyed
the residential character of the neighborhood and the
enforcement would be oppressive and inequitable.
Id. at 834. This Court reiterated change in conditions rule in Lynch:
Generally, the right to enforce a restrictive
covenant may be lost by waiver, abandonment, or by a
general change in character of the neighborhood to which
the covenant applied. Bagby v. Stewart’s Executor, 265
S.W.2d 75, 77 (Ky. 1954). “Kentucky law has long held
that changes inside the subdivision which affect its
residential character are necessary to vitiate a restrictive
residential covenant in a deed.” Elliott v. Jefferson
County Fiscal Court, 657 S.W.2d 237, 238 (Ky. 1983).
Further, “[t]he Kentucky rule recognizes that changes
outside the subdivision are beyond the control of the lot
owner.” Id.Lynch, 472 S.W.3d at 548.
As pointed out by Appellees, Quast presented no evidence that
conditions have changed. When Eagle owned what is now the Quast property
between 2007 and 2010, it did not develop a new shopping center as contemplated
by the EUA. Industrial still owns the Industrial Road property, and Remke
Markets still operates on that property. The benefit to Remke Markets still exists
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though the Quast property remains undeveloped. Based on our review of the
record, the character of the Turkeyfoot Road/Industrial Road area has not changed
significantly since Appellees executed the EUA.
Quast further asserts the circuit court failed to address its change in
conditions argument. Quast raised its change in conditions argument in its motion
for summary judgment, but it did not file a Kentucky Rules of Civil Procedure
(“CR”) 52.02 motion for a ruling on this issue. Under CR 52.04, “A final
judgment shall not be reversed or remanded because of the failure of the trial court
to make a finding of fact on an issue essential to the judgment unless such failure is
brought to the attention of the trial court by a written request for a finding on that
issue or by a motion pursuant to Rule 52.02.” Additionally, we review summary
judgments de novo, and this Court determined there was no change in conditions to
relieve Quast of the restrictive covenant. Thus, the circuit court did not commit
reversible error in failing to address Quast’s change in conditions argument.
Finally, Quast argues the circuit court erred in finding the restrictive
covenant is a reasonable restraint on trade. Kentucky courts have long held that
when “contracts in restraint of trade . . . are unlimited as to time but are confined to
a reasonable territory they are enforceable.” Hammons v. Big Sandy Claims
Service, Inc., 567 S.W.2d 313, 315 (Ky. App. 1978) (quoting Calhoun v. Everman,
Ky., 242 S.W.2d 100 (1951)). Here, the EUA does not set a specific time
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limitation, but the spatial limitation is clearly defined. The restrictive covenant
only applies to the 30+ acre Quast property. Thus, the EUA does not restrict a
grocery store, liquor store, or drug store from operating on any other commercial
property in the Turkeyfoot Road area.
Additionally, “an agreement in restraint of trade is reasonable if . . .
the restriction is such only as to afford fair protection to the interests of the
covenantee and is not so large as to interfere with the public interests or impose
undue hardship on the party restricted.” Id. (citing Ceresia v. Mitchell, 242 S.W.2d
359 (Ky. 1951)). Here, the EUA does not interfere with public interests. The
circuit court took judicial notice that “there are a handful of other grocery stores
within just a few miles of the Quast property and the surrounding residential area.”
R. at 98-99. Additionally, the EUA contains clear exceptions, so the EUA does not
impose any undue hardship on Quast especially when Quast was aware of the
restrictions at the time of purchase. Thus, the circuit court correctly found the
EUA is a reasonable restraint on trade.
CONCLUSION
For the foregoing reasons, we affirm the judgment of the Kenton
Circuit Court.
ALL CONCUR.
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BRIEFS FOR APPELLANT: BRIEF FOR APPELLEES:
Jack S. Gatlin Donald C. Adams
Covington, Kentucky James J. Englert
Cincinnati, Ohio
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