600 N. FREDERICK v. BURLINGTON No. 89, September Term, 2010.
19 A.3d 837 (2011)
419 Md. 413
600 NORTH FREDERICK ROAD, LLC v. BURLINGTON COAT FACTORY OF MARYLAND, LLC.
Court of Appeals of Maryland.
Reconsideration Denied June 16, 2011.
Kurt J. Fischer ( Melissa L. Mackiewicz of DLA Piper LLP (US), Baltimore, MD), on brief, for Respondent.
Argued before BELL, C.J., HARRELL, BATTAGLIA, GREENE, MURPHY, ADKINS and BARBERA, JJ.
"Gallia est omnis divisa in partes tres. . . ."
This case requires us to determine if and when a declaration of covenants regarding real property (essentially a contract), which requires the owner(s) to be signatories to any modification in order to be effective, may be modified by the written consent of less than all of the owners. 600 North Frederick Road, LLC ("Petitioner")—owner of one parcel of the three-parcel tract of land in Montgomery County—appeals here from the judgment of the Court of Special Appeals affirming the judgment of the Circuit Court for Montgomery County approving such a modification. The Circuit Court held that Petitioner's predecessor in interest and the owner of one of the other parcels could modify bilaterally an earlier declaration executed and recorded by a single predecessor owner at a time when all three parcels were under single ownership—a modification that now limits Petitioner's development rights on its later-acquired parcel—notwithstanding that the earlier of the two declarations provided that any purported modification required the consent of the owner(s) of all three parcels. Further, the Circuit Court ruled that the revised declaration applied not only to any third-party (i.e., non-owner) developer of the restricted parcel, but to Petitioner as owner of the proposed-for-development restricted parcel.
Petitioner claims here, as it did before the trial and intermediate appellate courts, that, because the original declaration required expressly the consent of the owner or owners of all of the parcels, an attempt to modify the agreement in a writing executed by less than all of the owners (or their successors or assigns) is ineffective, and, as such, the revised declaration is invalid and unenforceable. In response, Burlington Coat Factory of Maryland, LLC ("Burlington" or "BCF"), assignee-leaseholder on one of the parcels and an express beneficiary of the revised declaration, relies on authorities from other jurisdictions which hold effectively that two parties to a tripartite agreement may modify that agreement, in writing, provided that the modifications do not prejudice the non-signatory party. We hold, for reasons to be explained more fully infra, that, because the foreign authorities upon which Burlington relies are consistent with Maryland appellate courts' long-standing jurisprudence regarding modification of contracts, the modifications in the revised declaration are valid and enforceable absent an adequate showing of prejudice by the non-consenting parcel's owners. Further, we hold that the restrictions contained in the revised declaration apply, not only to third-party developers of the restricted parcel, but also to Petitioner as owner of that parcel. Accordingly, although we agree with virtually everything held by the Court of Special Appeals, this
I. FACTS AND LEGAL PROCEEDINGS
This case involves a tract of land in Gaithersburg, Montgomery County, Maryland. At some point prior to 1976, the tract was subdivided into three parcels, denominated as "Parcel One," "Parcel Two," and "Parcel Three." Parcel One, the smallest of the three lots (approximately 2.47 square acres in area), is situated on the northeast corner of the tract, at the intersection of Perry Parkway and North Frederick Avenue (Maryland Route 355). Parcel Two (approximately 7.53 square acres) is west of Parcel One, and also abuts Perry Parkway and Route 355. Parcel Three, the largest of the lots, is west of Parcels One and Two, and abuts Perry Parkway on the south, Montgomery Village Avenue on the northwest, and Route 355 on the northeast.
In 1976, all of the parcels were owned by Danac Real Estate Investment Corporation ("Danac"). On 22 April 1976, Danac entered into a thirty-year lease with Montgomery Ward & Co, Inc. ("Ward") involving Parcels One and Two. Pursuant to the lease, Ward constructed a retail store on Parcel One (the Leasehold) and the majority of its supporting surface parking on Parcel Two (the easement). Ward's use of Parcel Two for parking was subject expressly to Danac's right to develop Parcel Two. Ward's need for parking on Parcel Two would be accommodated in any development proposal by Danac, presumably by a parking structure or structures. The lease provided further that Danac was required to seek and obtain Ward's consent before commencing development on Parcels Two and/or Three, which consent was not to be withheld unreasonably. The lease was silent as to the precise location or types of any such future development. At the end of the original thirty-year lease term, Ward had the option, provided it was not in default at the time of its obligations under the Lease, to extend the lease for a period of ten additional years, with two additional options, each for a like period.
In October 1983, Danac sought Ward's consent (as required under the 1976 Lease and affirmed in the 1981 Declaration) to develop Parcel Two with an office complex. Ward—which closed its retail store on Parcel One in March 1983 (the building continued apparently to house two minor sub-tenants) and apparently was in negotiations with prospective assignees of its interest in the Lease—objected to Danac's plan, asserting that proposed buildings would destroy the line of sight of occupants of vehicles on Roue 355 to Ward's store entrance, as well as the majority of the surface parking in front of the store. Believing apparently that the development as proposed would interfere with its ability to negotiate a favorable assignment of the Lease, Ward filed a complaint, on 16 October 1984, for declaratory judgment in the Circuit Court for Montgomery County against Danac and Eretz, asking the Circuit Court to:
Danac filed an answer and asserted various counterclaims, alleging that Ward "intentionally interfered with Danac's use and enjoyment of its rights by their refusal and failure to permit Danac to commence construction on Parcel [Two]."
During the pendency of that litigation, throughout 1987 and 1988, most
Owners of the Three Parcels as of the Execution of the 1992 Declaration
To illustrate the location of the Restricted Development Area delineated in the 1992 Declaration, we insert here Figure Two, which reflects the RDA in cross-hatching and is based on an exhibit in evidence below, modified slightly for clarity purposes.
On 22 July 1994, after the 1992 Declaration was executed (on 14 July 1992) and recorded (sometime between 14 and 22 July 1994), the 1984 litigation was dismissed with prejudice.
At some point prior to 1998, Burlington Coat Factory ("BCF") began investigating whether the largely vacant Ward store on Parcel One would be a suitable site in which to open one of its retail clothing stores. Robert Grapski ("Grapski"), BCF's Senior Vice President of Real Estate, explained that the covenant in the 1992 Declaration prohibiting residential development on Parcel Two was attractive to BCF as a potential tenant of the Ward store, opining that "residential mixed with retail [in close proximity] . . . is not a healthy mix." Further, Grapski explained that the covenant against construction activities on Parcel Two during the Thanksgiving-Christmas holiday season was desirable to BCF, as BCF does sixty-to-seventy percent of its business in the holiday shopping season, and "to be under construction during that time of the year is suicidal." Ultimately, on 23 October 1998, Ward assigned to BCF its interest as tenant under the 1976 Lease and, thereafter, BCF began operating a retail store in the
In the Fall of 2003, Petitioner became interested in acquiring Parcels One and Two. After conducting a due diligence review, outside counsel for Petitioner determined that the 1992 Declaration was not binding on the owner of Parcel Two, but, as explained more fully infra, believed the covenants applied only to third-party developers of Parcel Two.
Petitioner engaged another developer for Parcel Two, JPI Enterprises, Inc. ("JPI"). Under their agreement, JPI would purchase and develop Parcel Two, and Petitioner would remain the owner of Parcel One. Petitioner's counsel wrote to Grapski, explaining that JPI's proposed development of Parcel Two included a 300-unit apartment complex, retail stores, and a parking garage. Petitioner's counsel expressed the view that, although Petitioner sought "to get feedback from Burlington on the plans, and obtain Burlington's full cooperation during the construction of the project," "[w]hether Burlington's consent is necessary is an open question legally. . . ." After additional correspondence and meetings between counsel and representatives of Petitioner, BCF, and JPI,
On 7 June 2007, Petitioner filed a seven-count "Complaint for Declaratory Relief" against BCF in the Circuit Court for Montgomery County, asking that the Circuit Court declare:
BCF filed an answer and counterclaim, asking the Circuit Court to declare that BCF did not withhold unreasonably its consent, and, pursuant to a fee-shifting provision in the 1976 Lease, to require Petitioner to pay its expenses and attorney's fees, assuming that BCF would be the successful party in the litigation.
On 21 January 2008, Petitioner moved for summary judgment, arguing generally that the 1992 Declaration is unenforceable and/or void for mutual mistake and lack of consideration. BCF opposed Petitioner's motion and filed a cross-motion for summary judgment, arguing generally that the 1992 Declaration is valid and enforceable, and that it prohibits the proposed JPI development on Parcel Two. Following a hearing, the Circuit Court, by order and memorandum opinion, on 4 June 2008, ruled that: (1) the issue of whether there was adequate consideration for the 1992 Declaration was withdrawn by Petitioner and thus moot; (2) the 1992 Declaration did not create an interest that violates the Rule Against Perpetuities or an unreasonable restraint on alienation of property; (3) the covenants contained in the 1992 Declaration run with the land; (4) the 1992 Declaration was not based upon a mutual mistake of fact; and (5) Petitioner did not breach the 1976 Lease merely by advancing JPI's proposal to develop Parcel Two. The Circuit Court, however, denied the parties' competing motions for summary judgment regarding the following issues, deferring their resolution for a trial:
At trial, Petitioner injected another issue, namely, whether "the 1992 Declaration is invalid because it was not signed by the owners of Parcels [One], [Two] and [Three] as required by the 1981 Declaration." Resolution of this flagship issue is at the core of the present case.
On 27 May 2009, the Circuit Court, in a thirty-three page memorandum opinion, rejected Petitioner's claim that "the 1992 Declaration's restrictions on `Developer' are not applicable to the Owner of Parcel [Two]," explaining rather that:
Next, regarding the missing-signatories argument, the Circuit Court held that the 1992 Declaration was valid and enforceable notwithstanding the fact that the owners of Parcel Three were not signatories to it, relying on the California Supreme Court case of Hotle v. Miller,
Petitioner appealed timely to the Court of Special Appeals. The Court of Special Appeals, in an unreported opinion, discussed: (1) the validity of the 1992 Declaration; (2) assuming the validity of the 1992 Declaration, the application of the 1992 Declaration to Petitioner as the owner of Parcel Two; and (3) whether BCF's withholding of consent to development of Parcel Two was unreasonable. In agreeing with the Circuit Court regarding the missing-signatories argument, the panel of the intermediate appellate court explained:
Regarding the issue of whether the 1992 Declaration applied to Petitioner as the owner of Parcel Two, or applied merely to third-party developers of Parcel Two, our appellate brethren explained:
Finally, regarding the issue of whether BCF's withholding of consent to development of Parcel Two was unreasonable, the Court of Special Appeals opined:
600 North Frederick Road, LLC, filed timely a Petition for Writ of Certiorari, which we granted, 600 N. Frederick Road, LLC v. Burlington Coat Factory of MD, LLC,
For the reasons that follow, although we agree with the holding and much of the reasoning of the opinion of the Court of Special Appeals, we must vacate its judgment and remand the case to that court with directions to remand the case to the Circuit Court for Montgomery County for further proceedings not inconsistent with this opinion.
II. STANDARD OF REVIEW
In the present case, we are reviewing the declaratory judgment of the Circuit Court for Montgomery County, issued by way of memorandum opinion following a bench trial. Maryland Rule 8-131(c) ("Action tried without a jury") provides:
The question of whether circumstances exist in which a contract (even a declaration containing covenants pertaining to real property), requiring the parties to be signatories to any written modification for the modification to be effective, may be modified nonetheless with the consent of less than all of the parties, is a question of law that we review under a non-deferential standard. See Parker v. State,
In its complaint in the Circuit Court, Petitioner averred that BCF "has unreasonably withheld its consent to the construction of the J[PI] Development." In its unreported opinion, the Court of Special Appeals concluded that "[t]here is substantial evidence in the record supporting the Circuit Court's conclusion that [BCF] acted reasonably and in good faith" in withholding consent to the JPI development on Parcel Two. According to BCF, "[b]ecause [Petitioner] has not challenged before this Court this separate and independent basis for the decisions of the Courts below, the questions that [Petitioner] presents before this Court as to the validity of the 1992 [Declaration] are not justiciable." See Bailiff v. Woolman,
The Circuit Court's rationale for why BCF's withholding of its consent to the JPI development plan for Parcel Two was not unreasonable was not a "separate and independent basis" for the declaration by the Circuit Court. That is, the Circuit Court, although tipping its hand as to the merits of whether the consent was withheld unreasonably, ruled ultimately that:
Thus, because the Circuit Court's memorandum opinion on this point was expressed in an "oh, by the way" manner, it cannot constitute a "separate and independent basis" for its ruling, such that the failure to point to that basis on appeal would make the issues before this Court moot.
In any event, it is not a surprise that Petitioner does not ask us to determine whether BCF's withholding of consent as to the development proposal for Parcel Two was unreasonable, considering, as decided correctly by the Circuit Court, that issue was rendered moot by the fact that the contracts with Avalon Bay and JPI expired. The issues we explore today involve not the parties' actions with respect to any potential development that was proposed in the past, but rather, the vitality and reach of the 1992 Declaration and, if effective, how the parties (and their successors and assigns) must conduct themselves under the 1992 Declaration prospectively.
B. The Case of the Missing Signatories
1. The Parties' Contentions
In its first challenge to the validity of the 1992 Declaration, Petitioner argues that "the 1992 [Declaration] was invalid because all of the Parcel owners[
In response, BCF contends that Petitioner's "suggestion that the 1992 [Declaration is] invalid because the Parcel [Three] Owners did not join them is contrary to settled contract law." Rather, BCF argues, "the parties to a contract remain free to modify the contract or create a new agreement as long as the modification does not alter or affect the rights of a party who does not join in the modification," and that "so long as it does not affect the rights of a party that does not join, a contract modification is binding on those parties that join in the modification, but not on parties that fail to join in it."
Because BCF (and the Circuit Court and the Court of Special Appeals) rely for support on (and Petitioner attempts to distinguish) the California Supreme Court's opinion in Hotle, supra, we shall consider that case first. In Hotle, a husband and wife opened a bank account, executing a deposit agreement that provided:
Hotle, 334 P.2d at 850. More than a decade after the bank account was opened, and without the consent of or knowledge by the bank, the husband and wife "orally agreed that regardless of how title was held, all of their property had been acquired as their community property. . . ." Id. Thereafter, the husband executed a will "in which he undertook to dispose of all of the community property, and [wife] executed a waiver of claim to her share of the community property in view of her election to accept the terms of the will." Id. When he died, executors of his estate sought to treat the deposit agreement as modified by the couple's subsequent agreement, such that they could distribute the balance of the bank account as community property, in accordance with the terms of the will. Id. Executors of the now-deceased wife's estate, argued, however, that "the [oral] agreement cannot operate to change the rights of the parties in the joint tenancy bank account, [and] that title to it therefore vested in [the wife] when she survived [the husband]. . . ." Id.
The California Supreme Court, speaking through Justice Roger Traynor, explained that although the deposit agreement— which was in conformance with a statute existing at the time the agreement was executed, but which had been repealed by the time of the filing of the court's opinion—"is conclusive evidence of the intention of the depositors at that time to vest title in the survivor . . . . [i]t in no way deprives the depositors of their freedom of contract to make subsequent agreements changing their interests in the account." Hotle, 334 P.2d at 851. The court noted two cases—Ehrman v. Rosenthal, 117 Cal. 491, 49 P. 460 (1897), and Fitts v. Mission Health and Beauty Shop, 58 Cal.App. 362, 208 P. 691 (1922)—commenting that "those cases correctly hold that two parties to a tripartite agreement cannot change it to the prejudice of the third party." Hotle, 334 P.2d at 852; see Lakeshore Commercial Fin. Corp. v. Drobac,
Interpreting Hotle in the present case, BCF contends that "the 1992 [Declaration] could supplement the 1981 [Declaration] as between the Owner and Tenant of Parcels [One] and [Two], without the agreement of the Owners of Parcel [Three], because the[ latter] had no right whatsoever under the 1981 [Declaration] to control the nature and scope of development on Parcel [Two]." In response, Petitioner argues that the rule in Hotle is "contrary to the prior holdings of this [C]ourt, . . . . [considering that] the Court has previously held that the making of a valid contract requires signatures where `the parties have made them necessary at the time they expressed their assent and as a condition modifying that assent." (quoting Porter v. Gen. Boiler Casing Co.,
2. Our Analysis
Generally, "[w]here the language of [a] contract is unambiguous, its plain meaning will be given effect." Aetna Cas. & Surety Co. v. Ins. Comm'r, State of Md.,
Maryland jurisprudence has considered with some frequency allowance of the modification of contracts. See, e.g., Comptroller of the Treasury v. Citicorp Int'l Commc'ns, Inc.,
That Maryland courts apply a "reasonably strict construction," see Miller v. Bay City Property Owners Ass'n, Inc.,
Declaring that we subscribe to and apply in this case the rule in Hotle does not end our inquiry, however. Under that rule, "two parties to a tripartite agreement cannot change it to the prejudice of the third party." Hotle, 334 P.2d at 852 (emphasis added). Thus, our inquiry shifts to whether the Parcel Three owners are prejudiced by the 1992 Declaration, for, if they are, the 1992 Declaration may be nothing more than an unsuccessful attempt to modify and replace the 1981 Declaration. The Circuit Court, in this suit where the owners of Parcel Three are not parties and did not participate in any capacity, found baldly that "[t]he rights of the Parcel [Three] owner were not affected by the 1992 Declaration." The Court of Special Appeals opined:
To this point, Petitioner argues to us:
In response, urging that the 1992 Declaration in no way prejudices the relevant owners of Parcel Three, BCF avers:
Absent extrinsic evidence to the contrary (none of which we could find in this record), nothing in the 1992 Declaration seems to affect, negatively and patently, the rights of the relevant owners of Parcel Three to develop Parcel Three, then-existing under the 1981 Declaration. That is not to say, however, that the only form of prejudice capable of defeating a bilateral modification of a tripartite agreement is hindrance of development rights. We think it would be unfair, without giving the relevant owners of Parcel Three an opportunity to be heard, to declare affirmatively at this point that, because the current record is devoid of any demonstrable evidence of prejudice to the owners of Parcel Three, they will suffer no prejudice from the 1992 Declaration. There is not an abundance of reported cases discussing the extent to which two parties may modify a tripartite agreement; certainly not enough to make the rule adopted and applied today a well-settled rule of law such that the owners of Parcel Three could be charged reasonably to have been on notice to make known any potential prejudice they would suffer as a result of the 1992 Declaration.
Therefore, on remand, the owners of Parcel Three should be permitted to weigh-in, as parties or otherwise, if they wish, and the Circuit Court to offer and, if necessary, conduct an evidentiary hearing—allowing the owners of Parcel Three to participate
C. Assuming the 1992 Declaration is Valid, To Whom Does It Apply?
1. The Parties' Contentions
Petitioner argues that, should we find that the 1992 Declaration is valid and enforceable, we should conclude nonetheless that "the onerous restrictions of the 1992 [Declaration] never were intended to be applied to the owner [of Parcel Two]" and that it applies merely to third-party developers. Petitioner contends generally:
(Internal citations and quotations omitted.) BCF replies:
2. Our Analysis
In City of Bowie v. MIE Properties, Inc.,
(Quoting Belleview Constr. Co. v. Rugby Hall Cmty. Ass'n,
In the present case, we need not travel beyond the first level of inquiry
The restrictions on any such "Future Improvements"—i.e., building only in the newly-created RDA, etc.—were not limited to the "Declarant" or any third-party developer. We count at least five instances in the 1992 Declaration in which clarification is given that such restrictions apply "whether or not the [Future Improvements ] shall be undertaken pursuant to the ground lease. . . ." See, e.g., Paragraph 1(c) ("Any improvements constructed in the future on Parcel [Two], whether or not the same shall be constructed pursuant to such ground lease, shall hereinafter be referred to as the `Future Improvements.'"); Paragraph 2 ("The following provisions shall apply to and govern the construction of any Future Improvements on Parcel [Two], whether or not the same shall be undertaken pursuant to the ground lease. . . ."); Paragraph 5 ("No construction of any Future Improvements on Parcel [Two], whether or not the same shall be undertaken pursuant to the ground lease described . . . above, shall be permitted, unless. . . ."); Paragraph 6 ("[T]he following restrictions shall apply to all construction and development activities undertaken on Parcel [Two] in connection with the construction of any Future Improvements, whether or not the same shall be undertaken pursuant to the ground lease. . . ."). If the foregoing was not clear enough, Paragraph 8 reiterates:
Notwithstanding the abundance of language suggesting that the 1992 Declaration's restrictions apply to anyone pursuing Future Improvements on Parcel Two (and not merely a third-party developer), Petitioner argues—in what the Court of Special Appeals deemed a "somewhat vague and confusing" manner—that "by virtue . . . of the 1992 [Declaration], the restrictions imposed on development only apply to development of Parcel Two by the `Developer,'" and that, accordingly, "to rule that the 1992 [Declaration] applied to the Owner of Parcel [Two] . . . the lower courts were required to find that the term `Developer' includes the Owner of Parcel Two." As that argument goes, if "Developer" and "Owner of Parcel Two" are one in the same, then there would be no reason to include both Paragraphs 6(d) and 7, which, aside from the former pertaining to "Developer" and the latter pertaining to "Owner of Parcel [Two]," both provide that that party "will not change any approaches, entrances or exits on Parcel [Two] without the prior written consent of each Parcel
This argument lacks merit. Paragraph 6 states merely that if a "Developer" (i.e., the party undertaking the Future Improvements) should undertake to construct Future Improvements, the Developer may not change entrances or exits on Parcel Two without the consent of the tenants of Parcel One. Paragraph 7 provides that the Owner—who may or may not be the "Developer"—may not change the entrances or exits on Parcel Two without the consent of the tenants of Parcel One. Thus, Petitioner is wrong when it says that "the only difference in the two provisions is that Paragraph 6 applies to `Developer' and Paragraph 7 applies to the `Owner of Parcel [Two].'" The difference is when those provisions apply; Paragraph 6 applies to the Developer in the event it undertakes Future Improvements; Paragraph 7 applies to the Owner of Parcel Two regardless of whether it undertakes Future Improvements.
Because the 1992 Declaration is clear facially that its development restrictions apply equally to the owner of Parcel Two, as it does to third-party developers, we think it unnecessary to consider "the circumstances surrounding the execution of the instrument." MIE, 398 Md. at 679, 922 A.2d at 522 (quoting Belleview, 321 Md. at 157, 582 A.2d at 495). Were we to go down that path, however, we would think it important to note that the 1984 litigation commenced after Ward refused consent to Danac's proposed development of Parcel Two with an office complex, complaining that Danac's plan would destroy the line of sight to Ward's entrance. Thus, in challenging Danac's rights to develop Parcel Two under the 1981 Declaration, Ward was seeking to protect the Parcel One tenants' line of sight to the retail store's entrance from Route 355. It is illogical to conclude that the 1992 Declaration, the culmination of approximately eight years of litigation over the potential development of Parcel Two, would be intended to protect the Parcel One tenant's line of sight from developments undertaken by third-party developers, but not by the owner of Parcel Two.
In summary, we hold that, barring an adequate and persuasive showing of prejudice to the owners of Parcel Three (a determination that may be made on remand), the 1992 Declaration is a valid and enforceable modification of the 1981 Declaration. Therefore, we hold also that the restrictions in the 1992 Declaration apply with equal force to Petitioner as they do to third-party developers of Parcel Two.
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