Monday, August 17, 2015

Good fences make good neighbors, unless only one person pays for them

Birchwood Land Co. Inc. v. Krizan, 2015 VT 37

By Jeffrey M. Messina

This case finds its way to SCOV's door on an appeal of a superior court decision denying plaintiff’s motion for attachment and granting defendant’s motion to dismiss for failure to state a claim.

Plaintiff Birchwood Land Company’s (“Birchwood”) complaint alleged that Defendant Krizan was unjustly enriched by Birchwood’s construction of an access road and other infrastructure to her property so she was able to develop the property without contributing to the cost of the improvements. We should all be so lucky.

Defendant purchased a vacant and landlocked parcel over 30 years ago. The deed to the parcel made reference to a recorded plat, so Defendant acquired an implied access easement over the portion of the adjacent parcel depicted on the plat (now owned by Birchwood) as a matter of law. (Until recently), this was the sole means of access to her property. Without frontage on a public road or access to utilities and other related infrastructure, the property was undevelopable and, importantly, in those 30 years of ownership, she made no effort to develop the property.

In 2002, Birchwood purchased the land surrounding Defendant’s parcel, including the strip of land on which the access easement is located, and obtained approval to develop its property—including the construction and extension of the roadway and the installation of water, sewer, electrical lines, and other related infrastructure. Though Defendant’s property was not included in the development approval, Birchwood extended road access and water and sewer line connections to her property. Wasn’t that nice?

Birchwood completed the road and infrastructure improvements in 2007. It wasn’t cheap.

Once Birchwood completed the improvements—can you see it coming?—Defendant notified the town she wanted to develop her property. The Town, finding Defendant’s lot now developable, significantly increased the assessed value of her parcel. Birchwood calculated Defendant’s proportionate share of expenses for the construction and extension of the roadway and related infrastructure—not including the water and sewer connection cost—and billed Defendant. Apparently, Defendant initially said she would reimburse for the cost of extending the sewer and water connections to her property. She then seemed to change her mind. This suit followed.

Birchwood alleged that Defendant was unjustly enriched by its creation of the public road access to her lot, arguing she should be required to bear a proportionate cost of the construction. In connection, Birchwood filed a motion for attachment of Defendant’s real estate. In response, Defendant filed a motion to dismiss for failure to state a claim upon which relief can be granted.

Birchwood claimed it was entitled to restitution for the improvements it made to the road, utilities, and other related infrastructure because Defendant was unjustly enriched as a “free rider” at Birchwood’s expense, arguing she held onto her undeveloped property for thirty years waiting for the adjoining property owner to make any necessary improvements. Additionally, Birchwood argued that, as an easement holder over the access road, Defendant was obligated to contribute to the improvements.

Defendant denied she held an easement over the road, or had any duty to contribute to Birchwood’s improvements because they were voluntary, unrequested, and in Birchwood’s self-interest. The trial court agreed with Krizan and found no actionable claim for unjust enrichment.

The court denied Birchwood’s motion for attachment and granted Defendant’s motion to dismiss. This appeal follows.

SCOV reviews decisions on a motion to dismiss de novo under the same standard as the trial court, upholding a motion to dismiss for failure to state a claim only if “it is beyond doubt that there exist no facts or circumstances that would entitle the plaintiff to relief.” SCOV's review of the trial court’s decision on such a motion is limited to determining “whether the bare allegations of the complaint are sufficient to state a claim.”

On appeal, Birchwood makes two unjust-enrichment arguments: (1) that Defendant was unjustly enriched by the substantial increase in the value of her property due to the improvements and should be required to return some of that increase in value as a proportionate share of the improvement costs; and (2) that as co-holder of an easement providing access to her property, Defendant is required to share in the cost of improvements to the access road. SCOV begins with the first argument.

According to SCOV, Vermont case law does recognize claims of unjust enrichment, but to date has not determined the validity of a claim of unjust enrichment for unrequested benefits—the I’m-doing-this-and-you-get-something-out-of-it-so-pay-me kind of benefit. The Court concedes that this application of unjust enrichment is an undeveloped area of Vermont law, so it looks beyond our precedents to decide this appeal.

Apparently, the Court frequently adopts provisions of the Restatement where our law is undeveloped, and does so here.

SCOV cites Section 30 of the applicable Restatement, which provides that a claim of unjust enrichment for benefits conferred on the recipient by the claimant’s unrequested intervention is available only to the extent that “(a) liability in restitution replaces a money obligation or spares the recipient necessary expense; (b) the recipient obtains a benefit in money; or (c) relief may be granted to the claimant by specific restitution.” Restitution for voluntarily conferred benefits rarely is granted, but is available in limited circumstances where it “may be achieved in a manner that avoids any forced exchange.” SCOV therefore determines the analysis requires the determination of whether Defendant was under any obligation to pay for the improvements.

The Court, in applying this subsection, considers that a claimant generally cannot compel the recipient to pay for benefits voluntarily conferred if—had the transaction been proposed as a contract—the recipient would have been able to reject it. If adjacent property owners are under no obligation to make infrastructure improvements unless and until they develop their lots, a claimant who undertakes the improvements cannot recover in restitution from the benefitted recipient, even if the recipient’s property value increased as a result of the improvements.

Accordingly, SCOV finds no allegations that either party was obligated to undertake the improvements and explicitly adopts Section 30 of the Restatement—embracing the principle that incidental benefits—those benefits conferred on the recipient by work that the claimant undertook for its own benefit—rarely are recoverable in restitution unless the benefits are a consequence of mistake, fraud, or compulsion. Birchwood’s unjust-enrichment claim fails under this analysis.

SCOV then tackles Birchwood’s second argument: that Defendant had an obligation to pay for the improvements based on the implied easement that she held over the access road to her landlocked parcel. SCOV determines it “need not reach that question to resolve this case” and goes back to the Restatement for support.

Section 26 of the Restatement provides an exception to the general prohibition on restitution for voluntarily conferred benefits, and entitles a claimant to restitution “[i]f the claimant incurs necessary expense to protect an interest in property and in doing so confers an economic benefit on another person in consequence of the other’s interest in the same property.” However, a claim under Section 26 must satisfy two basic requirements: (1) “the claimant’s expenditures must have been necessary to protect an interest in property,” such that “there is a claim under § 26 in respect to necessary repairs, but not in respect of improvements,” and (2) “there must be a nexus of interests such that the benefit is conferred on the recipient in consequence of the recipient’s interest in the same property.”

The Court states that “mere physical proximity is not sufficient to satisfy the ‘nexus of interests’ requirement, but the interests of adjacent owners may be linked by servitude,” like the implied easement allegedly held by Defendant over the access road. The Court then graciously provides an example:
If two parties share the use of an easement over a roadway, they are both obligated for the maintenance and upkeep of the roadway. As such, the party who has made the repairs has a claim of restitution against the other party to recover a portion of the reasonable expenditure. However, that same claimant has “no claim of restitution for the cost of improvements (as distinct from repairs) to which [the recipient] did not agree.
It’s the improvements-over-repairs analysis that determines the outcome. The emphasis focuses on the maintenance and upkeep, not unnecessary improvements. As such, the SCOV adopts Restatement Section 26 as consistent with Vermont law and concludes that Birchwood’s unjust-enrichment claim fails because it made voluntary improvements to the road rather than necessary repairs.

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