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Dye v. Diamante a Private Membership Golf Club LLC

Supreme Court of Arkansas

February 16, 2017

GARY DYE ANDLINDA DYE, INDIVIDUALLY AND ONBEHALF OF PERSONS SIMILARLYSITUATE DAPPELLANTS
v.
DIAMANTE, A PRIVATE MEMBERSHIP GOLF CLUB, LLC APPELLEE

         APPEAL FROM THE SALINE COUNTY CIRCUIT COURT [NO. 63CV-12-90-2] HONORABLE GARY M. ARNOLD, JUDGE.

          James A. Armogida, for appellant.

          Rose Law Firm, a Professional Association, by: Richard T. Donovan and Betsy Turner; and McMillan, McCorkle & Curry, LLP, by: J. Philip McCorkle, for appellee.

          SHAWN A. WOMACK, Associate Justice.

         The 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.[1] We affirm the judgment of the trial court on all points.

         Facts and Procedural Background

         In 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 1997.

         The 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.

         In 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 attorney's fees.

         The 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

         The 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).

         I. Transfer Fees

         The 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).

         Here, 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.

         II. Restraint on Alienation

         The 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).

         In 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)).

         In the 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.

         The 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.

         Here, 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.

         III. Incorporation of By-laws as Well as Rules and Regulations

         The 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).

         This 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.).

         Here 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 incorporated.

         IV. Deferment of Dues

         The 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 (1969).

         The 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 was time-barred.

         Alternatively, 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 ...


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