GARY DYE ANDLINDA DYE, INDIVIDUALLY AND ONBEHALF OF PERSONS SIMILARLYSITUATE DAPPELLANTS
DIAMANTE, A PRIVATE MEMBERSHIP GOLF CLUB, LLC APPELLEE
FROM THE SALINE COUNTY CIRCUIT COURT [NO. 63CV-12-90-2]
HONORABLE GARY M. ARNOLD, JUDGE.
A. Armogida, for appellant.
Law Firm, a Professional Association, by: Richard T. Donovan
and Betsy Turner; and McMillan, McCorkle & Curry, LLP,
by: J. Philip McCorkle, for appellee.
A. WOMACK, Associate Justice.
appellants are class representatives of a group of property
owners located in Hot Springs Village. They are appealing an
order from the circuit court of Saline County declaring the
terms of a covenant between the appellants and Appellee
enforceable and denying disgorgement of fees. The appellants
have eight points on appeal. We affirm the judgment of the
trial court on all points.
and Procedural Background
1994, Cooper Communities, Inc. ("Cooper") and Club
Corporation of America announced plans to build a private
golf course with 450 dwelling units that would have access to
the course. The private golf club ("Diamante") was
meant to be the premier amenity associated with the
development. Each of the properties located in the
development was subject to covenants contained in
supplemental declarations ("Declarations"), which
were filed in the land-records office in Saline County in
Declarations require that all property owners in the
development become "full" golf members. Further,
all property owners must pay monthly dues, pay a transfer fee
anytime the properties are sold, and give Diamante lien and
foreclosure rights to collect unpaid fees. The portions
requiring the payment of monthly dues, mandatory golf
membership, and granting the club lien rights are referred to
as "Tie-in" provisions. The Declarations also
authorize the club to create other categories of membership
which may be made available to the general public. The
Declarations also state that the provisions would be subject
to the club's "Article, By-laws, if any, and Rules
and Regulations." In 1994, Diamante adopted rules and
regulations that authorized the creation of other golf
memberships that were less privileged than the full golf
memberships. The club also later adopted by-laws in 2006.
2012, the class representatives, Gary and Linda Dye, filed
suit in the circuit court of Saline County against Diamante
seeking a declaratory judgment that the provisions contained
in the Declarations were unenforceable. In 2013, the Saline
County Circuit Court authorized the certification of a class
of 450 property owners excluding the Appellee, Cooper Land
Development, Inc., and its affiliates. On November 25, 2013,
DC Member Group Inc., a nonprofit corporation founded by
three Diamante property owners, filed a complaint to
intervene in the suit and asked the court to declare the
tie-in provisions valid and enforceable. On April 28, 2014,
the appellants filed a fourth amended and supplemented
petition for declaratory judgment and asked the court to
declare the covenants contained in the Declarations
unenforceable; order the club to disgorge dues paid during
the suit; mandate that dues recovered go directly to the
maintenance and upkeep of the course; and obtain applicable
circuit court declared that the supplemental provisions were
valid and enforceable and that there had been no breach of
the Declarations; it also denied the disgorgement of any
fees. The appellants appealed the court's decision and
their eight points of appeal are addressed below.
standard of review for an appeal from a bench trial is
whether the court's findings were clearly erroneous or
clearly against the preponderance of the evidence.
McSparrin v. Direct Ins., 373 Ark. 270, 272, 283
S.W.3d 572, 574 (2008); Poff v. Peedin, 2010 Ark.
136 at 5, 366 S.W.3d 347, 350. A finding is clearly erroneous
when, although there is evidence to support it, the reviewing
court on the entire evidence is left with a definite and firm
conviction that a mistake has been committed. Arkansas
Transit Homes, Inc. v. Aetna Life & Cas., 341 Ark.
317, 320, 16 S.W.3d 545, 547 (2000).
appellants argue in their first point that the circuit court
erred in holding that the transfer fee contained in the
Declarations is not a violation of Ark. Code Ann. §
18-12-107. The statute provides, "A transfer fee
covenant recorded with respect to real property in this state
after July 27, 2011, [d]oes not run with the title to the
real property; and [it] [i]s not binding upon or enforceable
at law or in equity." Ark. Code Ann. §
18-12-107(b)(1)(A)-(B) (Repl. 2015) (internal marks omitted).
The statute further specifically states, "[t]his section
does not validate a transfer fee covenant recorded in this
state before July 27, 2011." Ark. Code Ann. §
18-12-107(b)(2) (Repl. 2015).
the Declarations were properly recorded in Saline County in
1997, long before July 27, 2011. Further, the Declarations
clearly impose a transfer fee whenever any of the lots are
sold. The statute destroys a contractual right to apply
transfer fees to property, and is therefore not remedial or
procedural. The appellants argue that the statute grants the
court discretion to declare invalid any transfer fees that
were created before the act. However, the statute by its very
terms does not specifically invalidate transfer fees recorded
before the act. Therefore, we hold that the court did not err
in declaring the transfer fees enforceable.
Restraint on Alienation
appellants argue in their second point that the court erred
in holding that the Declarations were not an unlawful
restraint on the alienation of property. The purpose behind
prohibiting restraints on alienation of property "is to
insure that property is reasonably available for development
by forbidding restraints that keep property from being used
for a lengthy period of time." Broach v. City of
Hampton, 283 Ark. 496, 498, 677 S.W.2d 851, 854 (1984).
If a covenant assessment is vague or indefinite, it is a
restraint on alienation. See Kell v. Bella Vista Vill.
Prop. Owners Ass'n, 258 Ark. 757, 761-63, 528 S.W.2d
651, 654-55 (1975).
Kell this court held that assessments under a
homeowner's association were not an unreasonable
restraint on alienation when they contained a formula for
determining the amount of the assessment. Id. at
764, 528 S.W.2d at 655. There we found that the assessment
was specifically for maintenance and improvements and further
specified that funds would be used for "the payment of
taxes and insurance thereon, and repair, replacement, and
additions thereto, and for the cost of labor, equipment,
materials, management and supervision thereof."
Id. at 763, 528 S.W.2d at 655. This purpose allows a
formula to be determined which would prevent an arbitrary or
capricious assessment. Id. at 763-64, 528 S.W.2d at
655 (citing Peterson v. Beekmere, Inc., which held
an assessment is void when it is not required to benefit the
subservient estate. 117 N.J.Super. 155, 174 (1971)).
instant case, the Declarations state that the monthly golf
membership dues will be collected for the "use,
enjoyment, and maintenance of the club." The
Declarations also specifically state "the amount of said
monthly dues will be determined solely by the Club in
accordance with its Articles, By-Laws, if any, and Rules and
Regulations." Appellants argue that these two provisions
are too vague and indefinite for a formula to be crafted to
determine the amount of the assessment. However,
Diamante's ability to determine the amount of the dues
would be limited by their purpose, which is for the use and
maintenance of the club. This would prevent Diamante from
collecting dues completely unrelated to that specific
purpose. We therefore hold that the circuit court did not err
when it did not find that the assessment was an unlawful
restraint on alienation.
dissent relies on Broach v. City of Hampton to
determine that the transfer fees in this case were
unreasonable. In that case we recognized that a restraint on
alienation is a provision that by its terms penalizes the
power to transfer property, such as a provision in a deed
that prohibits the property from being alienated in the
future. 283 Ark. 496, 500, 677 S.W.2d 851, 854 (1984);
Restatement (First) of Property: Definitions § 404
(1944). Direct restraints, as the dissent correctly points
out, are subject to a reasonableness standard where the court
weighs the benefit against the burden imposed. Restatement
(Third) of Property: Direct Restraints on Alienation §
3.4 (2000) However, an indirect restraint is a provision
which does not directly prohibit the alienation of property
but has the incidental effect of limiting the use of the
property, including the amount realized upon sale.
Restatement (Third) of Property: Indirect Restraints on
Alienation and Irrational Servitudes § 3.4 (2000). Such
a servitude is otherwise not invalid, unless it lacks a
rational basis. Id.
the transfer requirement does not directly prohibit the
transfer of property. It will only affect the amount received
by an owner at sale, and there is a rational basis to support
the provision. If the dissent were correct, then virtually
all transfer fees would be invalid because the former
property owner would no longer share in the benefit
associated with the land.
Incorporation of By-laws as Well as Rules and
appellants argue in their third and fourth points that the
circuit court erred when it determined that the club's
by-laws, rules, and regulations were incorporated into the
Declarations. For simplicity, we will address both of their
points below. The Arkansas Code provides that no restrictive
covenant will be effective unless it is "recorded in the
office of the recorder of the county in which the property is
located." Ark. Code Ann. § 18-12-103(b) (Repl.
2015). Further, "[a]ny restriction on the use of land
must be clearly apparent in the language of the asserted
covenant." Cochran v. Bentley, 369 Ark. 159,
166, 251 S.W.3d 253, 260 (2007). However, this court has also
stated that "[w]hen a contract refers to another writing
and makes the terms of that writing a part of the contract,
the two documents become a single agreement between the
parties and must be construed together."
Ingersoll-Rand Co. v. El Dorado Chem. Co., 373 Ark.
226, 233, 283 S.W.3d 191, 196 (2008).
court has also specifically stated that restrictive covenants
may be amended later. Eagle Mortg. Corp. v. Johnson,
244 Ark. 765, 770, 427 S.W.2d 550, 553 (1968). Further, in
Kell this court cited cases from other jurisdictions
that permit a recorded instrument to incorporate an
unrecorded document. See 258 Ark. at 764, 528 S.W.2d
at 655 ("and the cases from other jurisdictions cited
therein"); see also Moorestown Mgmt., Inc. v.
Moorestown Bookshop, Inc., 249 A.2d 623, 628
(N.J. Sup. Ct. Ch. Div. 1969) (By-laws were validly
incorporated into a lease by reference.); Rodruck v. Sand
Point Maint. Comm'n, 295 P.2d 714, 719 (Wash. 1956)
(Deeds validly contained a covenant which was incorporated
into a corporation's by-laws.).
both the by-laws and rules and regulations were validly
incorporated in the covenant. The Declarations repeatedly
mention that property owners would also be subject to the
provisions contained in both documents. The case law from
both this court and other jurisdictions indicates that
potential buyers are on notice of unrecorded documents that
are specifically referenced within properly recorded
instruments, and that this is a standard practice. This rule
does not change with respect to recorded covenants affecting
land. While the by-laws were not created in this case until
2006, nine years after the Declarations were filed, the
by-laws, as they relate to the present controversy, simply
provide details and amendments to issues that were
specifically contemplated and mentioned in the Declarations
as filed in 1997. The dissent argues that allowing Diamante
to reference its by-laws and regulations without recording
them undermines the purpose of the recording requirement.
However, the recording act is designed to put subsequent
purchasers on notice of interests affecting real property.
There is clearly enough information in the Declarations to
allow a purchaser to make an inquiry as to their contents.
Therefore, we hold that the by-laws and rules and regulations
were sufficiently referenced in the Declarations to be
Deferment of Dues
appellants argue in their fifth point that the trial court
erred when it held that the Declarations did not prevent the
club from deferring dues, and that challenges otherwise are
barred by the statute of limitations. The Arkansas Code
requires actions based on a breach of a written covenant to
be brought within five years. Ark. Code Ann. § 16-56-115
(Repl. 2005). Declaratory relief is "dependent on and
not available in the absence of a justiciable controversy,
" and is "intended to supplement rather than
supercede ordinary causes of action." Martin v.
Equitable Life Assur. Soc. of the U.S., 344 Ark. 177,
181, 40 S.W.3d 733, 736 (2001). Lastly, the statute of
limitations begins to run when there is a "complete and
present cause of action, " which is, absent concealment
or wrong, when the "injury occurs, not when it is
discovered." Gunn v. Farmers Ins. Exch., 2010
Ark. 434, at 8, 372 S.W.3d 346, 352; Hunter v.
Connelly, 247 Ark. 486, 491-92, 446 S.W.2d 654, 657
trial court found that it was generally known by 2003 that
the club was actively deferring dues. Assuming,
arguendo, that 2003 is the date for the tolling of
the statute, the latest that suit could have been brought was
in 2008. The Dyes brought their suit in 2012, four years
after the statute had run. The court therefore did not err in
holding any action based on Diamante's deferment of dues
even if the limitation period had not run, the deferment of
dues would not be a breach of the Declarations. We have
previously stated that, "[w]here the language of the . .
. covenant is clear and unambiguous, application of the
[covenant] will be governed by our general rules of
interpretation; that is, the intent of the parties governs as
disclosed by the plain language of the restriction."
White v. McGowen, 364 Ark. 520, 522, 222 S.W.3d 187,
189 (2006). However, we cautioned that the courts will not
enforce covenants when "they do not apply ...