Friday, May 25, 2012

Twelve Bar Supplemental Blues

Montgomery v. 232511 Investments, Ltd., 2012 VT 31 (mem.).

If you practice land use law in Vermont the phrase Stowe Club Highlands acts like a CIA sleeper agent’s trigger and will cause you to automatically rattle off the three conditions that allow you to alter an existing permit (unanticipated change in law or fact, unanticipated change in conditions, or changes in technology). 

If you don’t, the phrase probably conjures up the image of a yuppie playing the bagpipes in front of a ski lift.

But like any good legal precedent, the Stowe Club Highlands analysis comes with a back story that has played out across the legal landscape for nearly 30 years.

Beginning in 1985, the Stowe Club Highlands sought to develop a 236-acre parcel into a series of homes, open space, and a resort.  The group received the necessary permits from the state and a Resort Planned Unit Development (PUD) permit from the town.  The later gave the Club the authority to subdivide and develop the property along the lines of a pre-approved plan that granted flexibility in lot sizes, setback, and other zoning requirements. 

The Club subdivided and sold several of the housing lots to individuals who constructed houses and began to occupy the land.  All was well for a short while.  Then times, resources, and circumstances being what they are, the plan started to fall apart.  The original owners of the club sold to new buyers who sold to new buyers, and before long there was a new developer in town who did not want a big resort but did want to profit by filling the remaining land with more houses.

Unfortunately, for the developer, there were those original permits.  When developers announced their plans to amend and modify the plan, many of the individual homeowners who expected a resort or open space were not particularly pleased.  Individually and as a homeowners association, they opposed the Club’s attempts to modify the permits, and the litigation on the Act 250 permit gave birth in 1996 to the Stowe Club Highland analysis, which says that you cannot modify or amend an existing permit unless there is a change in technology, an unanticipated change in the facts or law, or an unexpected condition (“we changed our mind” or “Gee, it really costs a lot to build a resort” does not make the grade as unanticipated facts or conditions). 

Since that decision, Club has been stuck in what the Italian poets might call Local Zoning Hell.  With no less than four appeals over the past six years, the owners of the Club have been bravely, doggedly, and somewhat foolishly trying to extract themselves from a Resort PUD permit. 

The problem is that the Club needs to exchange its Resort PUD for a Planned Residential Development (PRD) Permit to put in more houses.  It sounds simple.  Just switch out U for R, but land use is never that easy.  To succeed, the Club must control the property—all 236 acres.  That means that either every landowner has to get on board and sign off on the application, or the Club has to produce a legal document that shows that each individual homeowner within the 236 acres is obligated to support the obligation.

Given the remote possibility of the former (call it the freezing over of local zoning hell), the Club, after a few false starts had opted to try for the latter.  Thus, it began executing various amendments to the original declaration of covenants that carried titles like: “Second Amended and Restated Declaration of Covenants, Easements, Conditions and Restrictions for the Stowe Club property known as the Twelfth Supplement.” 

The fact that each of these supplements was executed after the individual lots had been sold, developed, and re-sold several times over did not sit well with the Town, the Environment Court, or the SCOV.  As you might expect, these so-called supplements were rejected, and the consistent ruling was that the Club continued to lack the control and authority necessary to apply for a modification to a PRD.

Today’s case is kind of a clean-up action to those prior zoning cases.  Basically, the homeowners got sick of these supplements popping up every time the Club felt the stars had aligned for another shot at the PRD cup.  So the homeowners brought an action in the trial court to have these supplements declared void.

As the litigation progressed, the Club and the Homeowners’ Association entered into an agreement where a thirteenth supplement was adopted by the parties and the tenth and twelfth supplements at issue in the litigation were declared null and void. 

Hold onto the confetti.  The trial court, with the parties’ consent, adopted this settlement agreement into a final order.  It then took up the issue in regard to the individual homeowners, and it ruled that the tenth and twelfth supplements were void and unenforceable as a matter of law.  This would not be that big a deal—essentially the trial court came to the same conclusion for the individuals as the parties did in their dealt—but the trial court then went on to award attorney’s fees to the homeowners. 

And that is what brought on today’s appeal where the Club first asks the SCOV to reverse the trial court on the ruling that the tenth and twelfth supplements were void.  The SCOV wastes no time in denying this argument by noting that it is moot.  The parties have changed their situation by agreeing through their thirteenth supplement to void the tenth and twelfth supplements.  The SCOV is not going to rule whether the supplements were or were not valid.  That issue became academic once the thirteenth was signed, and the SCOV will not revisit it because its ruling will not change the parties’ positions.

This leaves the Club with two arguments.  First, it takes issue with the award of attorney’s fees to the homeowners.  Second, it takes issue with the trial court’s denial of the Club’s motion for attorney’s fees.  Both come up short.

To the questions of attorney’s fees for the homeowners, the Club argues that the attorney’s fees are inappropriate because the thirteenth supplement, which settled the case, occurred outside of court and cannot be the basis for court-awarded attorney’s fees. 

This gives the SCOV some pause.  In earlier cases, the SCOV had allowed attorney’s fees for anyone who brought a lawsuit that resulted in relief—whether it was a jury verdict or an early, out-of-court settlement.  The SCOV notes, however, that this so-called “catalyst” theory has been rejected by the U.S. Supreme Court.  This is the second time the SCOV has noted this distinction, and for a second time, the SCOV declines to overrule the catalyst theory of attorney’s fees. 

Instead, the SCOV notes that today’s case deserves attorney’s fees under either regime.  Not only did the homeowners catalyze the settlement by filing the initial lawsuit, but they brought it to the trial court for its review and acceptance.  This final act, referred to as a judicial imprimatur over the settlement, is enough to trigger attorney’s fees under either the U.S. Supreme Court’s more restrictive version.

The SCOV then devotes a few lines to showing why the homeowners were in fact the prevailing parties and that they suffered actual harm that required them to file a lawsuit to protect themselves from the threat and property-value-lowering shadow of the tenth and twelfth supplements. 

In short, no dice for the Club.

This leaves the SCOV to take up the last question of whether the Club should have received attorney’s fees too since it prevailed on some of its sewer-system supplements, which the homeowners also challenged in the action.  The SCOV affirms the trial court’s denial, but the reasoning is slightly different from the process above. 

When the homeowners sought attorney’s fees, they did so under a common-ownership statute.  When the Club sought fees, they did so under provisions within the Declaration.  Unfortunately, that language only granted attorney’s fees if the Club had to enforce the sewer covenants against someone who was violating them or attempting to violate them. 

That, the SCOV notes, is not the case here.  No one was attempting to violate the sewer easements.  The homeowners were simply challenging their validity, and that is not enough to trigger the Declaration’s attorney’s fees.  End of story.

Or should we say, the end for now.  Basically, today’s litigation puts every one back at square one.  Well, almost everyone— presumably the attorneys have not invested their hourly rates in either Facebook stock or JP Morgan Chase’s new 401k Gambling Fund. 

The Club now has the burden to figure out what it wants to do.  It is unlikely to obtain permission from the landowners, and it seems convinced that a resort will not work.  Their attorney has hopefully warned them not to bring in spite pigs.  Apart from that, there seems to be little left for the Club to do.  Maybe a scaled back resort?  Anyone want to sponsor a mini-golf and root beer stand?   

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