Dutrac Community Credit Union and Kwik Trip, Inc. v. Radiology Group Real Estate, L.C., Shamrock Properties, L.C. Duffy Family Limited Partnership Bigger Better Betty Building, L.L.C. And Quad City Oms, L.C. , 891 N.W.2d 210 ( 2017 )

IN THE SUPREME COURT OF IOWA
No. 16–0661
Filed March 3, 2017
DUTRAC COMMUNITY CREDIT UNION and
KWIK TRIP, INC.,
Appellees,
vs.
RADIOLOGY GROUP REAL ESTATE, L.C.,
SHAMROCK PROPERTIES, L.C.; DUFFY
FAMILY LIMITED PARTNERSHIP; BIGGER
BETTER BETTY BUILDING, L.L.C.; and
QUAD CITY OMS, L.C.,
Appellants.
Appeal from the Iowa District Court for Scott County, Mark R.
Lawson, Judge.
Defendants appeal the district court order granting summary
judgment in favor of the plaintiffs on their declaratory judgment action.
AFFIRMED.
Martha L. Shaff and Brandon W. Lobberecht of Betty, Neuman &
McMahon, P.L.C., Davenport, for appellants.
Peter D. Arling and Tonya A. Trumm of O’Connor & Thomas, P.C.,
Dubuque, for appellees.
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ZAGER, Justice.
We are asked to determine whether the district court properly
granted the plaintiffs’ motion for summary judgment. DuTrac
Community Credit Union owns a parcel of real estate in Waterford Place,
a commercial development located in Davenport, Iowa. DuTrac is now
attempting to sell this parcel to Kwik Trip, Inc. As part of its due
diligence, Kwik Trip discovered that the real estate was subject to a 1996
restrictive covenant that required the approval by an architectural
control committee before any building or other structure could be
erected. This committee consisted of two named individuals. One of the
named members is deceased and the other named member has now
either resigned from the committee or refuses to act on its behalf.
DuTrac and Kwik Trip filed a declaratory judgment action asking the
district court to declare the restrictive covenant unenforceable based on
the doctrines of impossibility and supervening impracticability. The
defendants filed a resistance and asserted the restrictive covenant could
be made enforceable by modification. The district court granted the
plaintiffs’ motion for summary judgment. For the reasons set forth
below, we affirm the judgment of the district court. We find the
restrictive covenant cannot be enforced as written, the defendants’
proposed modification is not a practical or effective way to carry out the
original purpose of the covenant, and the covenant should be terminated.
I. Background Facts and Proceedings.
DuTrac Community Credit Union (DuTrac) owns a parcel of real
estate located in Davenport which is legally described as “Lot 6 and the
Southerly 20 feet of Lot 5 of Waterford Place, an Addition to the City of
Davenport, Scott County, Iowa.” The land is located in an area more
commonly known by the name of its development, Waterford Place. The
3
developer of Waterford Place was Cathedral Partners, a general
partnership. Waterford Place consists of eighteen commercial lots. Kwik
Trip, Inc. (Kwik Trip) is seeking to purchase the parcel of real estate
owned by DuTrac. While investigating title to the real estate, Kwik Trip
discovered a restrictive covenant that affects the land. The restrictive
covenant states in its entirety,
No building or other structure shall be erected on any lot in
this addition without the approval of the architectural
control committee consisting of David W. Lundy and/or
Dennis J. Britt. This shall be interpreted to include approval
of the structure, design, building materials, site plan,
landscaping and signage.[1]
On September 4, 2015, DuTrac and Kwik Trip filed a petition for
declaratory judgment naming seventeen defendants. 2 All of the
defendants have an ownership interest in a parcel of real estate
contained in Waterford Place.
On September 21, Defendant Hawkeye Real Estate Investment Co.
filed an answer indicating it had no objections to the plaintiffs’ petition.
On October 6, these defendants—Radiology Group Real Estate L.C.;
Shamrock Properties L.C.; Quad City OMS, L.C.; Duffy Family Limited
Partnership; and Bigger Better Betty Building, L.L.C.—filed an answer to
1Originally, the restrictive covenant stated,
No building or other structure shall be erected on any lot in this addition
without the approval of the architectural control committee consisting of
David W. Lundy and Michael L. Duffy. This shall be interpreted to
include approval of the structure, design, building materials, site plan,
landscaping and signage.
2The named defendants were Radiology Group Real Estate, L.C.; Hawkeye Real
Estate Investment Company; Spoden Commercial Properties, L.L.C.; St. Ambrose
University; Scope Holdings, L.L.C.; 53rd & Eastern Properties, L.L.C.; Shamrock
Properties, L.C.; ESK Davenport, L.L.C.; Quad City OMS, L.C.; JCO Properties, Inc.; QC
Gums, L.L.C.; Duffy Family Limited Partnership; Bigger Better Betty Building, L.L.C.;
JTG L.L.C.; Extol, L.L.C.; TJECC, LLC, d/b/a “TJECEE, L.L.C.; and WFM Properties,
L.L.C.
4
the plaintiffs’ petition denying the allegation that the restrictive covenant
was unenforceable. 3 Defendants St. Ambrose University and JTG, L.L.C.
filed answers denying the invalidity of the restrictive covenant. Both St.
Ambrose and JTG later filed withdrawals of the previously filed answers
and consented to entry of judgment as deemed equitable by the district
court. No other named defendant filed a responsive pleading with the
court, and default judgments have been obtained against them.
In the petition for declaratory judgment, DuTrac and Kwik Trip
allege that the restrictive covenant is no longer enforceable. Specifically,
DuTrac and Kwik Trip allege that the restrictive covenant is ambiguous
so it may be interpreted as a matter of law. Additionally, the restrictive
covenant provides no process by which new members of the architectural
control committee can or shall be added. The restrictive covenant names
two members to the committee. However, David Lundy is deceased, and
Dennis Britt has either resigned from the committee or refuses to act on
its behalf. Because the restrictive covenant does not provide a method
for determining the succession of membership to the committee, DuTrac
and Kwik Trip argue the committee is now effectively defunct. DuTrac
and Kwik Trip sought a judgment from the district court declaring the
restrictive covenant unenforceable against them based on the doctrine of
impossibility and the doctrine of supervening impracticability.
The surviving member of the architectural control committee,
Dennis J. Britt, executed three separate affidavits with regard to his
participation on the architectural control committee. Britt executed the
first affidavit on December 11, 2015, and stated that he had “no interest
3Only these named defendants appealed the district court’s grant of summary
judgment and will be referred to as the appellants throughout. The other parties will be
referred to by name.
5
in being a member of the [c]ommittee, and . . . no intention of making
any decisions or taking any actions on behalf of the [c]ommittee.” He
further stated that he had no intention to act on behalf of the committee,
and thus had “effectively resigned” from it. However, on December 16,
Britt executed a second affidavit wherein he discussed the terms of his
resignation from the committee by stating “[o]nce representatives are
appointed, I will resign.” Last, on February 16, 2016, Britt executed a
third affidavit that appeared to reaffirm the statements from his first
affidavit. He stated that he signed the second affidavit “in response to a
hypothetical situation posed to [him]: namely, if [he] was still a member
of the Committee, would [he] be willing to resign upon the appointment
of new representatives?” He then clarified that the second affidavit did
not affect his refusal to act on behalf of the committee and reaffirmed
that he had effectively resigned from it.
On January 29, 2016, DuTrac and Kwik Trip filed an application
for entry of default judgment against the remaining defendants who did
not file any responsive pleadings. DuTrac and Kwik Trip also filed a
motion for summary judgment that alleged there were no genuine issues
of material fact as to the allegations contained in their petition for
declaratory judgment. The motion for summary judgment requested that
the district court declare the restrictive covenant unenforceable and
terminate the restrictive covenant. The appellants resisted the motion
for summary judgment. The appellants asserted a factual dispute
existed as to the continued viability of the architectural control
committee based on the multiple affidavits submitted by Britt.
Accordingly, DuTrac and Kwik Trip could not establish, as a matter of
law, an objective impossibility or a legally sufficient supervening
impracticality to warrant the district court invalidating or declaring the
6
restrictive covenant unenforceable. Rather, the appellants argued that
under the Restatement (Third) of Property the appropriate remedy was
not to terminate the restrictive covenant, but to modify it. The appellants
provided a proposed method to modify the restrictive covenant. Their
proposal was to have all eighteen lot owners, or those willing to serve, act
as the successor architectural control committee.
A hearing was conducted on the motion for summary judgment on
March 10, and the district court issued its order granting summary
judgment to DuTrac and Kwik Trip on March 17. The district court
concluded that, due to the death and resignation or refusal to act of its
designated members, the architectural control committee no longer
existed. Accordingly, the district court found it was objectively
impossible for DuTrac and Kwik Trip to comply with the restrictive
covenant requiring approval of the architectural control committee prior
to the erection of any building or structure. The district court also
concluded it would be inappropriate to revise or modify the restrictive
covenant. The district court declared that the restrictive covenant
establishing an architectural control committee was invalid,
unenforceable, and of no further force or effect. The appellants filed a
timely notice of appeal, which we retained.
II. Standard of Review.
We review a district court’s grant of a motion for summary
judgment for correction of errors at law. Concerned Citizens of Se. Polk
Sch. Dist. v. City of Pleasant Hill, 878 N.W.2d 252, 258 (Iowa 2016).
“Summary judgment is appropriate when there is no genuine issue of
material fact and the moving party is entitled to judgment as a matter of
law.” Iowa Arboretum, Inc. v. Iowa 4-H Foundation, 886 N.W.2d 695, 701
(Iowa 2016) (quoting McKee v. Isle of Capri Casinos, Inc., 864 N.W.2d
7
518, 525 (Iowa 2015)). The district court’s grant of a motion for
summary judgment is proper when “the pleadings, depositions, answers
to interrogatories, and admissions on file, together with the affidavits, if
any, show that there is no genuine issue as to any material fact.” Id.(quoting Iowa R. Civ. P. 1.981(3)). There is a question of material fact “if
reasonable minds can differ on how the issue should be resolved.”
Cemen Tech, Inc. v. Three D Indus., L.L.C., 753 N.W.2d 1, 5 (Iowa 2008)
(quoting Walker v. Gribble, 689 N.W.2d 104, 108 (Iowa 2004)). On our
review, we view the record in the light most favorable to the nonmoving
party. Iowa Arboretum, 886 N.W.2d at 701.
III. Analysis.
A. Impact of Britt Affidavits. The appellants argue that there is
a genuine issue of material fact as to whether Britt resigned from the
architectural control committee. The district court found that the
question of whether Britt formally resigned or not was not a material fact
in the case because neither party disputed that Britt refused to fulfill his
obligations under the restrictive covenant.
A fact is material to a case when its determination would affect the
outcome. See, e.g., Homan v. Branstad, 887 N.W.2d 153, 164 (Iowa
2016). A genuine issue of fact exists if reasonable minds may differ as to
the resolution of the question at hand. Id. If only the legal consequences
of undisputed facts are at issue, summary judgment is appropriate. Id.We conclude that the effect of the multiple affidavits submitted by
Britt is not reasonably in dispute and does not create a factual dispute.
Whether Britt formally resigned from the committee or simply refuses to
act, the result is the same. Regardless of the characterization, Britt is no
longer fulfilling his obligations as a committee member under the
restrictive covenant, nor does he intend to act in any way on behalf of the
8
committee. Likewise, as noted by the district court at the oral argument
on the motion for summary judgment, the appellants acknowledged that
nothing would be gained by a trial on the issue. We agree with the
decision of the district court that the question of whether Britt resigned
from the architectural control committee is not a question of material
fact.
B. Impossibility and Supervening Impracticability. DuTrac
and Kwik Trip argued on the motion for summary judgment that the
architectural control committee had no members and therefore the
restrictive covenant was unenforceable under the doctrines of
impossibility or supervening impracticability. In response, the appellants
argued that there was a disputed issue of material fact because it was
unclear whether Britt had actually resigned from the committee.
We have previously recognized that restrictive covenants are
contracts. Fjords N., Inc. v. Hahn, 710 N.W.2d 731, 735 (Iowa 2006); see
also Compiano v. Kuntz, 226 N.W.2d 245, 249 (Iowa 1975) (“The
restrictive covenants were agreements or promises and therefore
contractual.”). “Because restrictive covenants are contractual in nature,
we apply contract-based rules of construction to interpret them.” Sky
View Fin., Inc. v. Bellinger, 554 N.W.2d 694, 697 (Iowa 1996); see also
Compiano, 226 N.W.2d at 249.
Generally, when we interpret contracts, we look to the language
contained within the four corners of the document. Clinton Physical
Therapy Servs., P.C. v. John Deere Health Care, Inc., 714 N.W.2d 603,
615 (Iowa 2006). “In the construction of written contracts, the cardinal
principle is that the intent of the parties must control, and except in
cases of ambiguity, this is determined by what the contract itself says.”
Iowa R. Civ. P. 6.904(3)(l); see also Peak v. Adams, 799 N.W.2d 535, 543
9
(Iowa 2011). If the intent of the parties is clear and unambiguous from
the words of the contract itself, we will enforce the contract as written.
Am. Soil Processing, Inc. v. Iowa Comprehensive Petroleum Underground
Storage Tank Fund Bd., 586 N.W.2d 325, 329 (Iowa 1998).
If the language of the contract is ambiguous, then we engage in
interpretation in order to determine “the meanings attached by each
party at the time the contract was made.” Clinton Physical Therapy
Servs., 714 N.W.2d at 615 (quoting E. Allan Farnsworth, Contracts § 7.9,
at 458 (3d ed. 1999)). To the extent necessary to reveal the parties’
intent, extrinsic evidence is admissible. Id. We do not find that the
restrictive covenant is ambiguous.
In a similar case in Texas, two developers of a subdivision placed
restrictive covenants on the property. Hollis v. Gallagher, No. 03–11–
00278–CV, 2012 WL 3793288, at *1 (Tex. App. Aug. 28, 2012). One of
the covenants provided that “[n]o two-story dwelling shall be permitted
on lots 1–23 without the consent of the undersigned.” Id. The
“undersigned” were the two developers. Id. The Gallaghers purchased a
lot in the subdivision and began constructing a two-story house. Id.After construction began, another lot owner, Hollis, brought suit to
enforce the restrictive covenant. Id. The Gallaghers answered and
asserted that the restrictive covenant was unenforceable due to the
deaths of both developers. Id. at *2.
Utilizing the Restatement (Second) of Contracts, the court found
that the defense of impossibility rendered the restrictive covenant
unenforceable. Id. at *7. The developers did not leave a succession plan
in the restrictive covenant, and the court found that “[t]he plain language
of the restrictive covenant at issue made the developers ‘necessary for
10
performance.’ ” Id. at *5 (quoting Key Energy Servs., Inc. v. Eustace, 290
S.W.3d 332, 340 (Tex. App. 2009)).
Here, the text of the restrictive covenant is brief:
No building or other structure shall be erected on any lot in
this addition without the approval of the architectural
control committee consisting of David W. Lundy and/or
Dennis J. Britt. This shall be interpreted to include approval
of the structure, design, building materials, site plan,
landscaping and signage.
The language of the restrictive covenant itself is limiting in two important
places. The first sentence of the covenant restricts the approval of the
committee to buildings and structures “erected” on any lot in the
Waterford Place development. The covenant goes on to explain what
building activities require approval: “structure, design, building
materials, site plan, landscaping and signage.” Notably, the covenant
does not require approval for activities outside the original construction
of buildings or structures in the development.
The restrictive covenant also specifically names two members,
David W. Lundy and Dennis J. Britt. It provides that the two could serve
together or alone with the language “consisting of David W. Lundy
and/or Dennis J. Britt.” It does not, however, provide for any succession
plan in the event both Lundy and Britt cease to serve on the committee.
The restrictive covenant does not provide for any replacement member in
the event either Lundy or Britt resigns, refuses to act, or dies.
The language of the restrictive covenant is limited and
unambiguous. The written language of the restrictive covenant appoints
two specifically named individuals, with no succession mechanism, thus
limiting its duration. There is no mechanism to transfer authority to
another member or to appoint new members to the committee. The
language of the restrictive covenant further limits the approval process to
11
buildings and structures to be erected on lots in the development. The
restrictive covenant does not address the approval process for other
types of building on the lots, such as modifications, additions, or
reconstruction.
The next step in our analysis is to determine whether DuTrac and
Kwik Trip could comply with the terms of the restrictive covenant. The
district court found that compliance could not be achieved under the
doctrine of impossibility. We originally recognized the doctrine of
impossibility of performance in Nora Springs Coop. Co. v. Brandau, 247
N.W.2d 744, 747 (Iowa 1976). In order to excuse nonperformance, the
term must be objectively impossible to perform. Id. The impossibility of
performance cannot be due to the fault of the nonperforming party. Id.Similarly, we have also recognized the doctrine of discharge by
supervening impracticability from the Restatement (Second) of Contracts.
Am. Soil Processing, 586 N.W.2d at 330. The doctrine of discharge by
supervening impracticability provides,
Where, after a contract is made, a party’s performance is
made impracticable without his fault by the occurrence of an
event the non-occurrence of which was a basic assumption
on which the contract was made, his duty to render that
performance is discharged, unless the language or the
circumstances indicate the contrary.
Restatement (Second) of Contracts § 261, at 313 (Am. Law Inst. 1981);
see also Am. Soil Processing, 586 N.W.2d at 330.
This rule recognizes that even though a party in assuming a
duty has not qualified the language of the party’s
undertaking, the court may still relieve the party of that duty
“if performance has unexpectedly become impracticable as a
result of a supervening event.”
Am. Soil Processing, Inc., 586 N.W.2d at 330 (quoting Restatement
(Second) of Contracts § 261 cmt. a, at 313)).
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Here, compliance with the approval process contained in the
restrictive covenant was both impossible and impracticable. Under the
doctrine of impossibility of performance, it was objectively impossible for
the committee to meet to approve any buildings or structures. One
member of the committee is deceased, and the other refuses to act on the
committee’s behalf. The committee has no acting members and no
succession plan to appoint new members. DuTrac and Kwik Trip
therefore argue that our analysis should end here. Because the existing
restrictive covenant cannot be complied with, we should declare the
covenant invalid and unenforceable.
C. Restatement (Third) of Property. However, because our
cases analyzing restrictive covenants under contract law theories and the
Restatement (Second) of Contracts date from the 1970s, and because we
have never before held that a strict contractual impossibility or
impracticability standard governs restrictive covenants, the appellants
urge us to consider the restrictive covenant under the Restatement
(Third) of Property: Servitudes. Section 7.10 provides a framework for
analyzing the modification or termination of a servitude:
(1) When a change has taken place since the creation
of a servitude that makes it impossible as a practical matter
to accomplish the purpose for which the servitude was
created, a court may modify the servitude to permit the
purpose to be accomplished. If modification is not
practicable, or would not be effective, a court may terminate
the servitude. Compensation for resulting harm to the
beneficiaries may be awarded as a condition of modifying or
terminating the servitude.
Restatement (Third) of Prop.: Servitudes § 7.10(1), at 394 (Am. Law Inst.
2000).
The comments to the rule expand on the rationale behind its
adoption. Because servitudes—in this case, a restrictive covenant—
13
create valuable property rights, there are competing interests and
concerns that the court must consider. Id. § 7.10 cmt. a, at 395. On
one side, because of the potential for a servitude to be of unlimited
duration, there is a risk that “absent mechanisms for nonconsensual
modification and termination, obsolete servitudes will interfere with
desirable uses of the land.” Id. However, because important property
rights are implicated, termination or modification should be approached
with caution. Id.
We have applied the Restatement (Third) of Property: Servitudes to
a case involving an easement. See Gray v. Osborn, 739 N.W.2d 855, 861
(Iowa 2007). And some time ago, we applied the recognized viability of
the changed conditions doctrine under the First Restatement of Property
(i.e., the indirect predecessor to the Third). See Thodos v. Shirk, 248
Iowa 172, 186–88, 79 N.W.2d 733, 741–43 (Iowa 1956). Thus, we have
indicated that restrictive covenants can terminate due to changed
conditions, even when a pure contractual approach might allow the
covenant to continue. Id. Section 7.10 addresses a related but different
question: whether a covenant can be modified to allow its original
purpose to continue, even if it is not possible to implement that covenant
according to its original terms.
1. Purpose of restrictive covenant. The first step under this test is
to analyze the underlying purpose of the restrictive covenant and
whether this purpose can still be accomplished. “The test is stringent:
relief is granted only if the purpose of the servitude can no longer be
accomplished.” Id. § 7.10 cmt. a, at 395.
The restrictive covenant was created by the developer, Cathedral
Partners, an Iowa general partnership managed by the Lundy
Corporation. David W. Lundy was President of the Lundy Corporation.
14
The restrictive covenant included only Lundy and Britt as the members
of the architectural control committee. It did not include any succession
mechanism, nor did it provide for any input from any of the lot owners.
It is clear that the principal purpose of the restrictive covenant was to
benefit the developers by enhancing the marketability of the lots. The
text of the restrictive covenant indicates that the purpose was for the
developers to exercise control over the original construction of the
development to maximize the value of the remaining lots. Of course,
these kinds of covenants also presumably benefit at least some
purchasers of the lots. The purchasers buy the lots because they
appreciate that other construction in Waterford Place will not be totally
uncontrolled, but will be subject to the review of the developers. Yet two
decades have passed, and none of the current owners of lots in the
development have, or ever had, any input or architectural control over
any other lot in the development.
Once the purpose is identified, we must analyze whether it is
“impossible as a practical matter to accomplish the purposes for which
the servitude was created.” Id. § 7.10(1). As discussed above, it is now
impossible for the purpose of the restrictive covenant to be fulfilled.
Lundy is deceased and Britt has either resigned or is refusing to act on
behalf of the architectural control committee. There is no mechanism for
succession or any means for appointing new or additional members to
the committee. It is now impossible as a practical matter to accomplish
the purpose for which the restrictive covenant was created—requiring
control of construction by review of the developers.
2. Modification or termination of restrictive covenant. The second
step of the test is to determine whether modification or termination is
appropriate. The appellants argue the district court should have
15
modified the restrictive covenant under the Restatement (Third) of
Property rather than declaring it unenforceable. They contend the
district court should have appointed a new architectural control
committee that included a representative of every lot owner in Waterford
Place.
With regard to modification, the Restatement (Third) of Property
provides that the “court may modify the servitude to permit the purpose
to be accomplished. If modification is not practicable, or would not be
effective, a court may terminate the servitude.” Id. § 7.10(1), at 394. The
modification or termination of the covenant is within the discretion of the
district court. Id. The comment to this section explains,
The changed-conditions rule has traditionally been
used to terminate servitudes, rather than to modify them,
but the less drastic step should be taken if modification
would permit the servitude to continue to serve the purpose
for which it was designed to an extent that it is worthwhile.
Id. cmt. a, at 395.
We agree with the district court that the modification proposed by
the appellants is not, as a matter of law, a practicable or effective way to
carry out the purpose of the restrictive covenant. As noted above, the
covenant reserved control over construction to the developers only. No
succession plan was set forth beyond the two named individuals, and the
required approvals had no stated criteria and applied only to initial
construction, not remodeling. We think the original covenant was thus
intended by design to be a limited-duration restriction that would run its
course once, as the developers presumably anticipated, all the lots were
quickly sold. Instead, as sometimes happens, the development took a
long time to reach full maturity.
We agree with the district court that a committee comprised of all
eighteen of the lot owners, each of whom has its own economic interests,
16
is not comparable to the original covenant or a practical modification of
it. With no standards to guide it other than the members’ own interests,
and with any ten owners wielding an absolute majority, such a
committee could hamstring the sale of the remaining undeveloped lots—
which would run directly contrary to the purpose of the original
covenant. Since the proposed modification is not practical, we agree that
the appropriate remedy in this case is the termination of the restrictive
covenant.
IV. Conclusion.
Under the Restatement (Third) of Property, circumstances have
changed since the creation of the restrictive covenant which makes it
impossible as a practical matter to accomplish the purpose for which the
covenant was originally created. However, modification of the restrictive
covenant, as proposed, is not practical, nor would it be effective to
accomplish the original purpose of the restrictive covenant. Termination
of the restrictive covenant was appropriate. We accordingly affirm the
judgment of the district court granting summary judgment to DuTrac
and Kwik Trip.
AFFIRMED.
All justices concur except Waterman, J., who takes no part.