Swain v. Bixby Village Golf Course Inc.

          Appeal from the Superior Court in Maricopa County No. CV2014-051035 The Honorable John R. Hannah, Judge

          Timothy H. Barnes PC, Phoenix By Timothy H. Barnes Counsel for Plaintiffs/Appellees/Counter-Defendants

          Maynard, Cronin, Erickson, Curran & Reiter PLC, Phoenix By Daniel D. Maynard Counsel for Defendants/Appellants

          Warner, Angle, Hallam, Jackson & Formanek PLC, Phoenix By Chris R. Baniszewski Counsel for Defendant/Appellant/Counter-Claimant

          Presiding Judge Randall M. Howe delivered the opinion of the Court, in which Judge Jennifer M. Perkins and Judge David D. Weinzweig joined.

          OPINION

          HOWE, Judge

         ¶1 TTLC Ahwatukee Lakes Investors, LLC ("TTLC") appeals a final judgment granting a permanent injunction enforcing a covenant requiring the operating of a golf course on particular property. TTLC contends, among other arguments, that because the covenant was restrictive rather than affirmative, it should be interpreted to permit, but not require, the operating of a golf course on the property in question.

         ¶2 The Arizona Supreme Court has made clear in Powell v. Washburn, 211 Ariz. 553 (2006), however, that whether a covenant is deemed restrictive or affirmative, it must be interpreted according to its enactors' intent. In this case, the circumstances surrounding the creation of the covenant and the covenant's language demonstrate that its enactors intended to require the operation of a golf course on the property. Because this Court rejects TTLC's argument and the other arguments discussed below, this Court affirms the trial court's ruling granting the injunction.

         FACTS AND PROCEDURAL HISTORY

         ¶3 Ahwatukee is a "master planned community" in Phoenix, Arizona, composed of some 5,200 homes built around the Ahwatukee Country Club Golf Course and the now-closed Ahwatukee Lakes Golf Course. Several of the homes either border or feature prominent views of at least one of the golf courses. Linda W. Swain and Eileen T. Breslin each own property abutting the Lakes Golf Course.

         ¶4 Chicago Title Agency of Arizona, Inc. (the "Declarant"), was the original owner of the Lakes Golf Course and at some point, acquired the Country Club Golf Course. In 1986, it recorded a deed restriction on the Lakes Golf Course. The deed restriction was made "pursuant to A.R.S. § 42-125.01[^[1]], restricting the use of [the] property to use as a golf course, facilities, and improvements thereto, for ten (10) years[.]" The restriction further recited that it could be "amended, revoked or extended for any time at the discretion of the then owner of the property, subject to the provisions of A.R.S. § 42-125.01." Pursuant to this provision, the Declarant recorded two amendments to the deed restriction. The First Amendment extended the deed restriction's term one more year and the Second Amendment extended it five more years.

         ¶5 In November 1992, the Declarant recorded a Declaration of Covenants, Conditions, Restrictions and Easements covering both golf courses. The Declaration restated the 1986 deed restriction, along with the First and Second Amendments. It also stated that the Covenants, Conditions, and Restrictions ("CC&Rs") were established for the mutual benefit of the "Declarant and all present and future owners" and "any owner of property located within the Ahwatukee master planned community" - the "Benefitted Persons." It stated that "[b]y recording [the] Declaration, the Declarant intends to comply with the requirements and obtain the benefits of Arizona Revised Statute 42-146" -a tax valuation statute that applied a special valuation method to any property that constituted a "golf course." The Declaration provided that the property could be developed for purposes other than a golf course only if 51% of the 5,200 Ahwatukee homeowners approved of removing the deed restriction or if a court found a "material change in conditions or circumstances" that justified removing the restriction.

         ¶6 In June 2006, Bixby Village Golf Course, Inc. -with Wilson Gee as its president- and a group of investors purchased both golf courses for $5.6 million. Around this same time, Bixby leased the two properties to Ahwatukee Golf Properties, LLC ("AGP") - a limited liability company Gee and his wife owned. The lease agreement required AGP to operate the golf courses. It also provided, however, that Gee would receive a 30% bonus share of any net proceeds if the Lakes Golf Course sold for more than $4.2 million. With an eye to redeveloping the Lakes Golf Course, Gee met with the umbrella homeowner association for the Ahwatukee master-planned community-the Ahwatukee Board of Management ("ABM") - in fall 2008, and with a Phoenix City Councilman the following year.

         ¶7 In May 2013, Bixby closed and dismantled the Lakes Golf Course. It placed a barbed-wire fence around the perimeter, drained the lakes, shut off all power, stripped the sod off the greens, and removed hundreds of irrigation heads. Because of these actions, Swain and Breslin sued Bixby in October 2014, claiming that closing the course violated the CC&Rs.

         ¶8 While the lawsuit was pending, Bixby entered a contract to sell the Lakes Golf Course property to TTLC in March 2015. The contract conditioned the sale on the successful completion of a feasibility study into converting the golf course property to a residential community. Satisfied by its study, TTLC completed the transaction in June 2015, buying the property for $9 million, the value it placed on the property without the deed restriction. Under the terms of the contract, TTLC paid Bixby a $750,000 down payment and executed a non-recourse promissory note, promising to pay Bixby the remaining $8.25 million on the earlier of June 19, 2018, or 90 days "after Final Approval by the City of the Final Plat of the Real Property." The parties negotiated a non-recourse loan to protect TTLC from any substantial monetary liability if the deed restriction was not removed. The contract acknowledged that Bixby had stopped using the property as a golf course and that a lawsuit about that decision was pending.

         ¶9 Thereafter, Swain, Breslin, and Bixby stipulated to dismiss Bixby from the case. The trial court consequently dismissed all claims against Bixby -except for an attorneys' fees claim - without prejudice. Swain and Breslin then amended their complaint to name TTLC as the defendant and to add claims for injunctive relief, breach of contract, and breach of the covenant of good faith and fair dealing.

         ¶10 TTLC immediately moved for summary judgment, asserting that the Declaration did not require the owner of the Lakes Golf Course to affirmatively operate a golf course on the property. Swain and Breslin opposed the motion and cross-moved for partial summary judgment, countering that the Declaration did require a golf course. At the hearing on the motions, TTLC not only reiterated its argument that the Declaration's plain language did not require it to operate a golf course, but added that interpreting the Declaration's language to so require would violate the Thirteenth Amendment's prohibition against slavery. The court denied TTLC's motion and granted Swain and Breslin's cross-motion, finding that the Declaration requires the operation of a golf course for the benefit of those the Declaration described as Benefitted Persons and that the covenant did not violate the Thirteenth Amendment. The court also ruled that it would conduct an evidentiary hearing to determine whether injunctive relief was appropriate.

         ¶11 Meanwhile, having failed to persuade the court to accept its interpretation of the Declaration, TTLC sought to persuade the Ahwatukee homeowners to modify the Declaration to eliminate the golf course requirement. TTLC proposed eliminating the golf course and redeveloping the property into "a residential community" with "30 percent open space" and "a community supported farm in conjunction with [a] school." TTLC launched a "CC&R amendment campaign" to convince the Benefitted Persons to accept the plan. It sent multiple mailings, distributed fliers, held outdoor events, and hired "professional door knockers." After campaigning for nearly two years, however, TTLC obtained approval from only 28 percent of the homeowners, far short of the 51 percent necessary.

         ¶12 Having failed to persuade the Ahwatukee homeowners to modify the Declaration, TTLC returned to court, filing a counterclaim alleging that it was entitled under Paragraph 6 of the CC&Rs to petition the Maricopa County Superior Court to modify the Declaration if "a material change in conditions or circumstances" to the property had occurred. It argued that such a change had occurred because maintaining a stand-alone golf course would not be profitable. It also argued that it had the discretion to decide whether a material change had occurred and that, in its ...