Heatherwood Holdings, LLC. v. First Commercial Bank (In Re Heatherwood Holdings, LLC.)
454 B.R. 495
Bankr. N.D. Ala.2011Background
- Heatherwood is a residential golf-course community in Shelby County, Alabama; USX developed Heatherwood and recorded covenants, easements, and plat maps identifying a golf course, with marketing materials urging club membership for homeowners.
- Heatherwood Documents and marketing materials instructed homeowners to join Heatherwood Golf Club and to maintain the golf-course-oriented community.
- USX transferred the Heatherwood Golf Club to HGC in 1999 under a Special Warranty Deed, with a side agreement outlining ongoing golf-course operation commitments.
- HH, a debtor, sought to sell Heatherwood golf-course property free and clear of liens and any use restrictions; FCB held the first mortgage, and HGC asserted implied and express covenants restricting use to a golf course.
- HH obtained Chapter 11 bankruptcy protection, and this adversary proceeding questioned whether implied or express covenants running with the land bind future owners, and whether sale free of such covenants is permissible.
- The Court certified Alabama law questions to the Alabama Supreme Court and ultimately held that an implied restrictive covenant restricting use to a golf course exists, and that it is not terminated by later economic changes; the 25-year operation covenant was not merged into the deed and is enforceable against HH.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Alabama recognizes an implied restrictive covenant running with the Heatherwood golf-course property. | HGC and homeowners rely on Shalimar-based implied covenants; implied covenants run with the land. | HH/FCB argue no implied covenant; merger into deed and lack of notice bar enforcement. | Yes; an implied covenant exists and runs with the land. |
| Whether HH had notice of the implied covenant at purchase and whether estoppel by deed defeats enforcement. | HH/Heatherwood homeowners had notice via documents and public records. | HH/FCB contend lack of notice and estoppel by deed bars enforcement. | HH had actual, constructive, and inquiry notice; estoppel by deed does not defeat enforcement. |
| Whether the 25-year operation covenant runs with the land as a covenant or is personal to HH. | HGC argues it runs with the land; it was intended to bind successors. | The covenant is personal to HH and not a true running-with-the-land covenant. | Not a running-with-the-land covenant; the provision is personal to HH. |
| Whether the 2(d)(ii) capital-improvements covenant was satisfied and whether reversion is appropriate. | HH spent at least $2.5 million on improvements. | HGC seeks reversion for underfunding. | HH complied; reversion not appropriate. |
Key Cases Cited
- Shalimar Ass'n v. D.O.C. Enters., Ltd., 142 Ariz. 36 (Ariz.Ct.App. 1984) (implied restrictive covenants in residential developments can bind successors when a common development scheme exists)
- Collins v. Rodgers, 938 So. 2d 379 (Ala.2006) (development of implied covenants to enforce mutual burdens in subdivisions)
- Ex parte Frazer, 587 So.2d 330 (Ala.1991) (restrictive covenants disfavored; integration/merger considerations)
- Swanson v. Green, 572 So.2d 1246 (Ala.1990) (methods of establishing a common scheme of development (five factors))
- Virgin v. Garrett, 233 Ala. 34, 169 So. 713 (Ala.1936) (test for whether restriction benefits purchasers and runs with land)