Sunday, July 26, 2015

Antagonistic Arguments About Access

Post and Beam Equity Group, LLC v. Sunne Village Development Property Owners Association, 2015 VT 60

By Andrew Delaney

If you base your judgment of property owners associations on SCOV opinions alone, it’d seem that they’re more trouble than they’re worth. I, for one, won’t be looking to buy anything in a subdivision anytime soon.

Post and Beam (P&B) owns a couple adjacent commercial parcels in West Dover. On one parcel, it’s got a couple restaurants and some parking. The other parcel is used for parking for restaurant patrons. Here’s the twist: the second parcel is made up of three lots, all of which are part of the Sunne Village Development and include a “perpetual right of way and easement for lot owners over Sunne Village Lane.” Owning those lots makes P&B a member of the Sunne Village Development Property Owners Association (POA).

The restaurant parcel, which is not part of the subdivision, has access from Route 100 and Sunne Village Lane. The parking-lot parcel has access from Sunne Village Lane and No Name Road. The SCOV threw in a schematic to help visualize, but I can’t find it anywhere now—sorry.

So in 2010 the POA—assuming a POA can get an idea into its head—“believed that P&B had plans to close the entry onto P&B’s property from Route 100 and to use the Sunne Village Lane entrance exclusively.” The parties came to an oral agreement and P&B closed the Route 100 entrance. But then the POA came back with some kind of written agreement that included new terms and required P&B to trade in its easements for a revocable license. P&B wasn’t playing that, and reopened the Route 100 entrance.

During negotiations, the POA took the deeded-rights-are-for-residential-only position, while allowing a non-P&B restaurant access through Sunne Village Lane. When negotiations failed, the “the POA placed—without notice or warning to P&B—large boulders across the Sunne Village Lane entrance to P&B’s restaurants.” P&B consulted with the police and removed the boulders. I don’t know about you but this is starting to sound like some Wiley E. Coyote and the Roadrunner goings-on.

About a year later, the POA threw a guardrail up in the same location—again without notifying P&B. The POA also put up a bunch of “‘Private Lane—Residents Only’ signs on the entrance to Sunne Village Lane from Route 100.” These shenanigans “had a significant adverse impact on P&B’s business.”

So P&B sued the POA—and sued it good. P&B asked the trial court to declare: (1) that it has an express deeded easement over Sunne Village Lane to access the restaurant property; and (2) “that it has a prescriptive easement over the existing Sunne Village Lane entrance to the restaurant property.” P&B also asked for—and we’re going to just start up numbering again here: (3) compensatory and punitive damages for nuisance; (4) an injunction against the POA interfering with road access; (5) “a judgment that the POA had violated the Vermont Common Interest Ownership Act (VCIOA)”; (6) a finding that the POA officers and directors breached their duties of “good faith, loyalty, and ordinary prudence to the POA’s members.” P&B also sought attorney’s fees and costs.

After a trial, the court ruled that there were express deeded easements to the lots on the parking-lot parcel, but that those easements couldn’t be for the benefit of the restaurant parcel because the commercial use would materially increase the burden on the servient estate (a “servient estate” is the land the easement applies to—in other words, if my driveway by easement goes through your yard, you’d have the servient estate). The trial court concluded, however, that P&B had established a prescriptive easement based on its use since the mid-70s.

The court also went P&B’s way on the nuisance, violation-of-the-covenants-and-the-VCIOA, and violation-of-care-and-loyalty-to-unit-owners claims. The trial court ordered the POA to take down the guardrail and no-trespassing signs, and awarded compensatory damages of just over $100K. “Finding that the POA’s conduct was intentional, malicious, and ‘truly reprehensible,’ the court concluded that P&B was entitled to punitive damages of $5000.” P&B also got attorney’s fees and costs of just over $100K. All in all, the judgment ended up at about $210K in P&B’s favor.

The trial court denied the POA’s motion to consider and the POA appeals. Essentially, it argues that: (1) there wasn’t evidentiary support for compensatory damages, and even if there was, the trial court screwed up the math; (2) there wasn’t a nuisance ‘cause P&B didn’t prove actual harm to its business; (3) some attorney’s fees and costs were wrong; and (4) punitive damages were wrong. P&B cross appeals ‘cause it wants the express easement mentioned in its deeds to extend to commercial use.

The SCOV first tackles the compensatory damages. At trial, P&B argued that it lost business as a result of the boulder-con-guardrail fiasco, and the trial court agreed. The numbers were loosely based on a year-to-year comparison, with the trial court avoiding some of the months claimed because there was a good ski season, prices went up, and the menu changed, so it wasn’t one of those easy-to-figure-out situations. Still, the trial court figured, P&B lost about $72.5K as a result of the POA’s disruptive activities.

Now, I would say that the POA went a certain term that represents a certain type of simian excrement, but the SCOV puts it more delicately: “The POA raises a host of challenges to the trial court’s compensatory-damages calculation.” First, it argues that there’s no basis for damages because the restaurants were never profitable. Second, it argues a comparison for the entire time the guardrail was up would’ve shown an increase in revenue. And finally, it argues the trial court did math all bad and stuff.

The SCOV notes that damages calculating is generally a factual endeavor and that as long as there’s sufficient evidence to support them to a reasonable certainty, damages are discretionary and will stand. If damages can’t be precisely calculated, the award will stand unless grossly excessive—all that sounds good for P&B so far.

The plaintiff has to establish “the extent of damages by a preponderance of the evidence.” It doesn’t have to be perfect proof, but there needs to be evidentiary support. And so, while a calculation might be difficult, that doesn’t preclude damages.

The SCOV rejects “the POA’s suggestion that because P&B had not been profitable, it could not recover compensatory damages for the reduced business that the trial court found resulted from the POA’s obstruction of the Sunne Village Lane entrance.” This makes sense—compensatory damages are to put one back in the same position one would be in without the harm. So, even if a restaurant isn’t per se profitable, it’s still entitled to be made whole.

But the SCOV doesn’t agree with the lost-revenue model of calculating damages used by the trial court. It reasons that the trial court needed evidence about “the impact of the reduction in patronage on P&B’s costs,” in order to reliably quantify the lost profits. The SCOV points to a soon-to-be-summarized-here case (seriously, we swear), as well as a couple other cases for the idea that profits must be offset by the reduced cost of doing business. In this case, the SCOV notes that depending on the circumstances, lost revenue may closely correspond with lost profits or it could grossly overstate them—depending on fixed costs like rent and utilities and flexible costs like food and staff. There’s nothing in the record on this point, though, and so the SCOV reverses the compensatory damages award.

Next, the SCOV tackles the POA’s guardrail-isn’t-a-nuisance-because-no-actual-harm argument. A “nuisance” (as the term is used in legal lingo) is proved by showing an unreasonable and substantial interference with the use and enjoyment of another’s property. In this case, there was testimony about confused drivers not being able to use the entrance. And the POA threw it up with no warning right before ski season. It’s pretty much, like, a textbook nuisance, and the SCOV affirms.

We now get into the punitive-damages piece, the VCIOA piece, and the nitty-gritty facts that come along with them. After the boulder incident but before the clandestine guardrail installation there were some negotiations, and P&B refused to sign the proposed pay-the-POA-money-and-waive-your-rights agreement. The dude negotiating (POA’s vice president) even said he probably wouldn’t sign it if he were in P&B’s shoes but he wasn’t the one losing a driveway. After the guardrail went up, the POA’s veep sent what the trial court called a “strong-arming” email. The way it’s described, it sounds a bit to me like Tony Soprano saying, “It’d be unfortunate was youse to lose all dat bizness ‘cause youse can’t play ball. You know what I’m sayin’?”

The POA has various covenants that the trial court found were ignored during negotiations. For example, the POA didn’t notify the membership or put it to a vote before it threw up the guardrail and signs. There was no official board meeting. The decision was made through emails and phone calls. The POA spent about $7K on the issue and seemingly hid it from the membership.

As a POA member, P&B had a right to be notified of these goings-on, but it received no such notice. It seems the board agendas and meeting minutes were kept from P&B. The litigation itself was kept from POA members, although there was an “emergency meeting” after the first day of trial to ask the membership to “ratify” the board’s actions up to that point.

Members who questioned the board’s actions were misled about the state of things. The trial court found at least one such statement to be “intentionally misleading and inaccurate.” Near the end of trial in an email to the membership, the POA finally disclosed that legal fees were over $26K (as opposed to an estimate of $3K at the 2012 annual meeting). The membership hadn’t authorized this. The POA also apparently misled members about whether there was actual ongoing litigation.

Based on the above and some other findings, “the trial court concluded that the POA board engaged in intentional, unreasonable, bad-faith, and malicious behavior, supporting an award of punitive damages in the amount of $5000.” The POA argues on appeal that the trial court’s finding of malice was unsupported by the evidence; there’s no evidence of “personal animus”; and that there were just some budgetary and administrative lapses.

The SCOV notes that punitive damages are the province of the factfinder, and it won’t disturb it unless it’s grossly excessive or unsupported by the evidence. Punitive damages are intended to punish truly reprehensible conduct.

First, the SCOV rejects the POA’s contention that a showing of “personal animus” is a prerequisite for awarding punitive damages. Malice can be shown by insult or oppression or reckless or wanton disregard of another’s rights. The SCOV also rejects the POA’s other arguments, reasoning that the POA’s actions were harmful to P&B and outside the scope of decency.

The attorney’s fees piece has a twist, but is relatively straightforward. The VCIOA contains a fee-shifting provision (you win; you get attorney’s fees, more or less). Initially, however, P&B made common-law claims only, and it wasn’t until after the first day of trial that P&B added its VCIOA claims. The trial court awarded fees for the whole shebang. The POA argues that P&B should only get attorney’s fees on the VCIOA claims, not its original common-law claims.

The SCOV goes through the whole American rule (pay your own way) and fee-shifting-statute difference, and touches on a few cases dealing with fee-shifting statutes. When all claims involve a common core of facts, you can’t parse out each claim for purposes of awarding attorney’s fees, and the full amount gets awarded. On the other hand, if the claims are separate and distinct, then you can parse out the claims and award fees only on those claims involving a fee-shifting provision. While the SCOV acknowledges that “this is a close case,” but concludes “that the trial court did not abuse its discretion in determining that most of the evidence presented was relevant to all claims.”

Litigation tip: if there’s a fee-shifting provision applicable to a claim, try to tie that claim to all the others. 

Finally, the SCOV deals with P&B’s cross-appeal on its express deeded easement. One of the easements is for all normal and usual use. The easements aren’t limited to residential use only, and so P&B maintains that its commercial use is just fine.

The trial court disagreed, looking to the subdivision plan which lays out building lots for residential purposes; the covenants that refer to access to residential lots; and the “normal and usual” use language. P&B contends that its predecessor owned a restaurant and purchased the lots to add a parking lot to the restaurant.

Interpreting an express easement is a question of law, and the SCOV reviews it from the beginning. The parties’ intent controls. I’ve always thought that was fun because it basically asks the judiciary to be psychics. Who says law is boring?

One of the important considerations in this context is whether a proposed use will substantially increase the burden on the servient estate (we covered that term like a year ago at the beginning of this summary). Commercial use is a hell-of-a-lot-more burdensome than residential use.

Here, the SCOV notes that there is not a ton of guidance within the language of the easement itself. But considering that this was primarily a residential subdivision, the SCOV gives three reasons for rejecting P&B’s the-prior-owner-bought-a-parking lot argument-and-the-language-doesn’t-restrict-it argument: (1) it requires inferring that the original developer understood that the initial purchaser thought he was buying a parking lot, and there’s no direct evidence to support that; (2) the transfer occurred after the covenants had been filed and restrictions had attached to existing owners’ lots; and (3) the first parcel was used as far back as ’75 and the developer could’ve assumed that parcel one would be the access to parcel two, which wouldn’t place such a burden on the subdivision roads. That last one is a little unclear to me. But it’s late; I’m tired; and if I’m wrong, you, dear reader, are welcome to correct me.

So for those keeping score at home: the SCOV affirms the judgment for P&B on its nuisance claim and the award of punitive damages and attorney’s fees. The SCOV affirms the P&B’s-deeded-easement-for-access-does-not-include-access-for-patrons-of-two-restaurants judgment, and reverses the compensatory-damages award for lack of evidence.

Thank you and good night.

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