Opinion
Cause No. IP98-0771-C-T/G
September 29, 2000
ENTRY ADDRESSING LEGAL ISSUES
This cause comes before the court for ruling on the legal issues presented by the Defendants' motion for summary judgment, motion to strike certain evidence designated by the Plaintiff in opposing the summary judgment motion, and motion for sanctions.
Having carefully considered the issues, the law and the record, the court enters the following decision.
I. Background
Prior to 1987, SMT Realty Ltd. ("SMT"), an Indiana limited partnership, owned all real property located in an area known as Allison Pointe in Marion County, Indiana, which SMT planned to develop. On September 8, 1987, SMT executed the Declaration of Development Standards, Covenants and Restrictions for Allison Pointe (the "Park Declaration"). Article II of the Park Declaration, "Real Estate Subject to this Declaration," provides in pertinent part:
The Real Estate, each portion thereof, and all improvements thereon shall be held, used, transferred, sold, conveyed, leased, mortgaged and occupied subject to the terms, provisions, covenants and conditions of this Declaration. . . .
(Decl., Art. II at 6, Defs.' Ex. 1.) The "Real Estate" includes "the land contained within Allison Pointe. (Decl., Art. I(dd) at 5.) Article IV, "Proposed Development," states in pertinent part:
The Developer plans to create a mixed use business park with the following possible uses: multiple office buildings, hotels, restaurants, health club, branch bank, heliport and other uses consistent with a mixed use business park. The Preliminary Plan identifies generally the size, location and characteristics of various proposed Parcels within the Park. . . . While the Preliminary Plan provides a projection for the development of the Park, the Developer reserves the right to vary the size, location, use and characteristics of actual Parcels.
(Decl., Art. IV at 8.) (Emphasis added.) Pursuant to the Park Declaration, "Developer" means SMT "or any successor in interest or assign which is expressly designated as a successor Developer in a recorded instrument executed by the preceding Developer." (Decl. Art. I(s) at 5.)
The Park Declaration established a Development Advisory Board ("DAB"), comprised of five members. (Decl., Art. V.) All development (including but not limited to construction and use) of any parcel in Allison Pointe is subject to prior approval by the DAB. The Park Declaration granted the "Developer" the authority to appoint the five members of the DAB until such time as the Developer executed and recorded an instrument stating that its right to appoint is terminated, but not later than the date on which Allison Pointe is fully developed. Upon termination of the Developer's right to appoint the DAB, the DAB's members are appointed by the Board of Directors of the Allison Pointe Owners Association.
Also on September 8, 1987, SMT sold a portion of its land in Allison Pointe, approximately ten acres (the "Klefstad Property" or "Property"), to Plaintiff Klefstad Companies, Inc. ("Klefstad"), an Illinois corporation. The sale was part of SMT's overall development plan to create a "mixed use" office park. Both Klefstad and SMT were represented by counsel during the purchase.
Contemporaneously with the sale to Klefstad, SMT and Klefstad executed and recorded the "Declaration of Additional Covenants and Restrictions" (the "Covenant") on September 9, 1987. Both SMT and Klefstad understood at the time that the purpose behind the Covenant was to preserve the particular development scheme envisioned for Allison Pointe by Defendant William N. Carlstedt, Jr., and SMT. For purposes of the Defendants' summary judgment motion, the court assumes that the development scheme is defined as follows: a "mixed use" office park consisting of buildings that rose in ascending height northward from the entrance of Allison Pointe, located on 86th Street, toward Interstate 465 and culminating with a twelve-story office building with floor plates up to approximately 15,000-19,000 square feet per floor built by Klefstad (the "Office Tower").
In addition, SMT envisioned that Allison Pointe would also include among others: (1) a luxury hotel with conference center, (2) a heliport, (3) a day care center, (4) a health club, and (5) two full service restaurants. It is undisputed that the heliport, day care center, health club and luxury hotel have not yet been developed at Allison Pointe.
Paragraph 1 of the Covenant provides in pertinent part: "Klefstad acknowledges and agrees that SMT has materially relied upon the covenants and restrictions herein imposed upon and with respect to the Real Estate [Klefstad Property] and would not have agreed to sell the Real Estate without such covenants and restrictions." (Covenant ¶ 1, Defs.' Ex. 2 at 1.) Paragraph 2 states that:
Establishment of Covenants and Restrictions. Klefstad hereby declares that the Real Estate is now held and shall be transferred, sold, leased, conveyed, mortgaged and occupied subject to the covenants and restrictions contained herein, which shall apply to and bind the immediate and remote successor owners of all or any portion of the Real Estate.
(Id. at 1-2.) Klefstad declared and agreed in paragraph 3(a) of the Covenant that it would develop the Klefstad Parcel only "as an office project by the construction thereon of a twelve-story office building and related improvements in substantial conformity with the rendering and site plan. . . ." (Id. at 2.) The site plan and rendering show approximately 19,026 square feet per floor. Paragraph 7 of the Covenant provides:
Duration. This Declaration and the covenants and restrictions set forth herein shall be binding upon and run with the Real Estate and shall inure to the benefit of and be binding upon SMT and Klefstad and their respective legal representatives, heirs, assigns and successors-in-interest for a term commencing with the date this Declaration is recorded and continuing for a term concurrent with that of the Park Declaration.
(Covenant ¶ 7, Defs.' Ex. 2 at 4.) In addition, the Covenant expressly states that the Klefstad Property is subject to the Park Declaration:
Park Declaration. The parties hereto acknowledge that the Real Estate in all respects is subject, in addition to this Declaration, to that certain Declaration of Development Standards, Covenants and Restrictions for Allison Pointe (the "Park Declaration") recorded in the Office of the Recorder of Marion County on September 9, 1987 as Instrument No. 87-10548.
(Id. ¶ 4, at 3.)
In October 1987 the public securities markets suffered a major crash. Within a short period of time, the commercial office real estate market in Indianapolis (as throughout the nation) slipped into a long-term depression. Following this depression, Klefstad encountered difficulties in financing construction of the Office Tower and, therefore, suspended its efforts to develop the Property.
On October 6, 1988, SMT changed its name to Allison Pointe Realty L.P. ("APR").
On May 4, 1995, APR conveyed to Citimark Land Partnership No. 1 ("Citimark") the property that it still owned in Allison Pointe. Also on that date, Citimark conveyed the property received from APR to Defendant New Boston Alliance Limited Partnership ("New Boston"), a Delaware limited partnership. Defendant New Boston Fund, Inc. (the "Fund"), is a Delaware corporation and the general partner of New Boston. New Boston subsequently sold off several parcels of real estate in Allison Pointe . . .
In April 1996, APR was dissolved.
On June 16, 1996, Citimark executed an Assignment, pursuant to which it purported to assign all of its rights, interest, duties and obligations as "Developer" under the Park Declaration to New Boston. Since that time, New Boston, through the Fund has claimed to be the Developer of Allison Pointe.
In 1997, after the Indianapolis real estate market had recovered from the real estate depression, Klefstad once again considered developing the Property. Klefstad had determined that it would not be profitable to construct the Office Tower as originally designed and that it would need to build two buildings with larger floor plates in order to develop the Property.
In December 1997, a representative of Klefstad met with Jerome L. Rappaport, Jr., of New Boston, Carlstedt and Roger Eiteljorg, then president of the Allison Pointe Owners Association, and presented them with Klefstad's revised development plan ("Klefstad's Proposal"). The Proposal sought a variance to the Covenant's restriction that Klefstad's development on the property be a twelve-story building with approximately 15,000-19,000 square foot floor plates. Klefstad proposed to build two four-story buildings with floor plates of approximately 26,000 square feet. At that time, Rappaport asked Klefstad to allow another owner of property at Allison Pointe (an entity in which Rappaport had a financial interest) to use one acre of Klefstad's Property for twenty-four months without compensation to accommodate the overflow parking from a restaurant in Allison Pointe.
Klefstad turned down this request. Rappaport then informed Klefstad that New Boston would not cooperate with Klefstad if Klefstad would not cooperate with other owners of property at Allison Pointe. On several occasions Klefstad again requested Rappaport to consider its Proposal, but it never received a favorable response.
On April 1, 1998, Citimark and New Boston entered into a First Amendment to Assignment (the "First Amendment"), effective July 5, 1996, which provided that Citimark assigned all of its rights in the Covenant to New Boston.
In May 1998, Klefstad presented its Proposal for development of the Property at a meeting of the Allison Pointe Owner's Association attended by some of the purported members of the DAB. On June 2, 1998, Carlstedt, on behalf of the DAB, rejected the Proposal. Almost immediately thereafter, on June 10, 1998, Klefstad commenced this action.
Carlstedt, Rappaport, Roger Eiteljorg, Mike Dickman and William M. McAvoy have been identified by Rappaport as the five members of the DAB.
Klefstad claims that as a result of the denial of the Klefstad Proposal, it lost Monroe Guaranty Insurance Company as a potential tenant. Klefstad claims that Monroe Guaranty had expressed a willingness to lease as much as 75,000 square feet of office space from it in Allison Pointe, provided that Klefstad constructed two buildings each approximately four stories high with floor plates averaging 30,200 square feet.
II. Motion to Strike
The Defendants move to strike certain evidence designated by the Plaintiff in opposition to the Defendants' summary judgment motion, namely ¶¶ 2, 5, 9, 11, 22 and 23 of Stephanie Walsh's affidavit and Plaintiff's Exhibits 23, 30 and 35, contending that the evidence is inadmissible as hearsay or based on hearsay. Even if the evidence were admissible, with the exception of ¶ 13 of Ms. Walsh's affidavit which is addressed below, (see infra at 12-13), it makes no difference to the outcome of the Defendants' summary judgment motion. Thus, the motion to strike is DENIED.
III. Motion for Summary Judgment
New Boston moves for summary judgment on all Counts of the Complaint. Count I of the Complaint is against New Boston, the Fund and Rappaport and seeks a Declaratory Judgment that the restrictions in the Covenant are void and/or unenforceable and that the DAB is obliged to consider Klefstad's Proposal, without regard to the restrictions. Count II, against Carlstedt, Dickman, Eiteljorg, McAvoy and Rappaport (collectively the "Individual Defendants"), seeks a Declaratory Judgment that those individuals have no power to act upon Klefstad's Proposal because no "Developer" with the power to appoint them did so; that their rejection of that Proposal has no force or effect, and that they are liable for damages proximately caused by their actions. Count III seeks to enjoin the Individual Defendants from interfering with "the proper appointment of the DAB and with the appropriate and fair consideration of" Klefstad's Proposal. Count IV, against all Defendants, alleges a conspiracy to interfere with Klefstad's right to have a fair and appropriate consideration of its Proposal. Count V, against Rappaport only, alleges tortious interference with a prospective economic advantage. Counts IV and V seek both actual and punitive damages.
A. Summary Judgment Standard
Summary judgment is appropriate where "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 and that the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The court construes the evidence and draw all reasonable inferences based on the evidence in the light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
Once a properly supported summary judgment motion is made, the nonmovant must "go beyond the pleadings" and designate specific facts to support or defend each element of the claim, demonstrating a genuine issue for trial. Celotex, 477 U.S. at 322-23. The nonmovant must come forward with sufficient evidence supporting the claimed factual dispute in order to avoid summary judgment. Anderson, 477 U.S. at 249. "If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Id. at 249-50.
B. Count I: Enforceability of the Covenant
One of the purposes of a restrictive covenant "is to maintain or enhance the value of land by controlling the nature and use of lands subject to a covenant's provisions." Campbell v. Spade, 617 N.E.2d 580, 583 (Ind.Ct.App. 1993); see also Bob Layne Contractor, Inc. v. Buennagel, 301 N.E.2d 671, 678 (Ind.Ct.App. 1973). The law does not favor restrictive covenants, but they should be enforced if they are unambiguous and do not violate public policy. See, e.g., Hrisomalos v. Smith, 600 N.E.2d 1363, 1366 (Ind.Ct.App. 1992). Klefstad first argues that the Covenant is not enforceable because it violates public policy. This is so, it claims, for two reasons: (1) the purpose of the Covenant has been destroyed, and (2) enforcing the Covenant would constitute an unreasonable restraint on competition.
A restrictive covenant should be invalidated as against public policy when the changes both within the area covered by the covenant and the surrounding area "are so radical in nature that the original purpose of the covenant has been defeated." Cunningham v. Hiles, 395 N.E.2d 851, 854 (Ind.Ct.App. 1979), modified by 402 N.E.2d 17 (Ind.Ct.App. 1980); see also Hrisomalos, 600 N.E.2d at 1366-67; Burnett v. Heckelman, 456 N.E.2d 1094, 1097 (Ind.Ct.App. 1983). However, "the degree of change `must be so great as clearly to neutralize the benefits of the restriction to such an extent as to defeat the purpose of the covenant.'" Burnett, 456 N.E.2d at 1097 (quotation omitted). To ultimately prevail on this claim, Klefstad, as the party against whom enforcement of the covenant is sought, bears the burden of showing that the Covenant should not be enforced. See Cunningham, 395 N.E.2d 855 n. 3. To do this, Klefstad must establish not only the particular changes, but also, "how the changes have adversely affected the purpose of the covenant." Id. Thus, the court's inquiry is whether Klefstad has come forward with evidence to demonstrate that the degree of change in Allison Pointe and the surrounding area since 1987 are so great as clearly to neutralize the benefits of the Covenant to such an extent as to defeat the Covenant's purpose.
The parties disagree as to the purpose of the Covenant. Defendants claim that the Covenant's purpose was to build a twelve-story building and develop Allison Pointe as a commercial office park. In considering the Defendants' motion for summary judgment, however, the court accepts Klefstad's version of the purpose of the Covenant. Thus, the court takes as true that the purpose of the Covenant was to preserve Allison Pointe as a "mixed use" office park consisting of buildings that rose in ascending height northward from the entrance of Allison toward Interstate 465 and culminating with the Office Tower and also including among others: (1) a luxury hotel, (2) a heliport, (3) a day care center, (4) a health club, and (5) two full service restaurants.
As explained below, the parties' dispute about the purpose of the Covenant does not preclude entry of summary judgment.
Klefstad has cited no Indiana appellate or supreme court case in which a restrictive covenant was invalidated as against public policy because of changes within the area covered by the covenant and the surrounding area, and the court's own research has found none. In cases in which trial courts have relied on such changes to invalidate restrictive covenants, their decisions have been reversed. See, e.g., Hrisomalos, 600 N.E.2d at 1367-68; Burnett, 456 N.E.2d at 1099; Cunningham, 395 N.E.2d at 855-56. These cases suggest that courts should be wary of invalidating restrictive covenants based solely on changes in the areas covered by the covenants and the surrounding areas.
In Hrisomalos, the plaintiffs wanted to operate a dentist's office within a subdivision restricted to residential uses and sought a declaration that the restrictive covenant was not enforceable. Id. at 1365. The trial court found two changes within the subdivision: (1) the erection of the church and (2) the opening of a chiropractic office. It also found that extensive commercialization had taken place in the area surrounding the subdivision. The trial court stated that the chiropractic office was a "dramatic and compelling" change, but found that the "residents within the [subdivision] have steadfastly maintained their residential way of life." Id. The trial court did not make a specific finding as to the effects of the church or the chiropractic office on the neighborhood's residential character. Nor did it find that the changes outside the area threatened the purpose of the covenant. The court of appeals, therefore, reversed. Id. at 1367-68.
The plaintiff in Burnett sought to have restrictive covenants pertaining to her property within a subdivision declared unenforceable. Burnett, 456 N.E.2d at 1095. The covenants prohibited, inter alia, use of the property for commercial purposes. No commercial structures had been erected in the subdivision, but the area surrounding the subdivision became "highly commercialized," id. at 1096, and a portion of nine lots on the edge of the subdivision was condemned by the state to facilitate the widening of a highway. Id. The appellate court reversed the trial court's decision which had modified the covenants, concluding that the changes were not so radical in nature as to defeat the purpose of the covenant-to maintain the residential character of the subdivision. Id. at 1099. In Cunningham, homeowners sought to enjoin defendants from constructing a music store in a subdivision based on a covenant restricting use of the land to residential purposes. Cunningham, 395 N.E.2d at 852. The trial court found that the restrictive covenant was unenforceable. The court of appeals reversed, finding that only two major changes had occurred in the subdivision and surrounding area: (1) construction of an office building that protruded into one corner of the subdivision and led to increased traffic within that corner; and (2) development in the surrounding area had resulted in a dramatic increase in the traffic bordering the subdivision. Cunningham, 395 N.E.2d at 854-55. The appellate court concluded that neither change was so radical in nature as to defeat the purpose of the covenant. Id. at 855-56.
Furthermore, in deciding whether restrictive covenants should not be enforced because of such changes, courts have enforced the restrictions because the benefits of the covenant could still be realized by other property owners in the area. See, e.g., Bob Layne Contractor, Inc. v. Buennagel, 301 N.E.2d 671, 678 (Ind.Ct.App. 1973); Sorrentino v. Cunningham, 39 N.E.2d 473 (Ind.Ct.App. 1942).
In an effort to show radical changes in Allison Pointe, Klefstad first asserts that "Allison Pointe has not been developed with buildings that gradually ascend in height from the office park's entrance." (Pl.'s Br. in Opp'n to Defs. Mot. for Summ. J. at 13.) In support, Klefstad cites to paragraph 13 of the Affidavit of Stephanie Walsh which states that "the construction that had taken place at Allison Pointe had not been entirely consistent with the concept of buildings that gradually increased in height." (Walsh Aff. ¶ 13.) (Emphasis in original.) This statement is conclusory and, therefore, does not create a genuine issue of material fact. No specific facts are provided to support Ms. Walsh's conclusion. Because this paragraph of Ms. Walsh's affidavit is the only evidence cited by Klefstad, Klefstad has not come forward with sufficient evidence to create a genuine issue of fact as to whether Allison Pointe has not been developed with buildings that gradually ascend in height from the park's entrance.
The deficiencies of this statement do not end there. If, as Ms. Walsh states, the construction is "not entirely consistent" with the original aesthetic concept, by necessary implication the construction would be somewhat consistent with that concept.
Klefstad also claims that because a large part of Allison Pointe has already been sold, the Office Tower is no longer needed to attract prospective tenants. Klefstad, however, wholly fails to provide any evidence to support its claim that the sale of much of the land in Allison Pointe eliminates the need or intent for the Office Tower to attract prospective tenants. Klefstad next asserts that many of the buildings and services which were contemplated have not been developed at Allison Pointe. Even assuming that development of these buildings and services was part of the purpose of the Covenant, Klefstad has produced no evidence to create a genuine issue of material fact as to whether development of these buildings and services could not still be developed at a future date. See Burnett v. Heckelman, 456 N.E.2d at 1099; Cunningham, 395 N.E.2d at 854 (asking whether the changes within the subdivision and surrounding area were so radical in nature that the purpose of the covenant was "no longer feasible"). Even assuming that development of these buildings and services was no longer feasible, their absence is not so radical in nature so as to defeat the overall purpose of the Covenant.
The court seriously doubts that these buildings and services were part of the purpose of the Covenant. As Article IV of Park Declarations provides, the hotel, helioport, health club, etc. were "possible uses." SMT's plan, as stated in the Park Declarations, was "to create a mixed use business park." However, because Klefstad is the nonmovant, the court liberally construes the purpose of the Covenant.
whether Klefstad has come forward with evidence to demonstrate that the degree of change in Allison Pointe and the surrounding area since 1987 are so great as clearly to neutralize the benefits of the Covenant to such an extent as to defeat the Covenant's purpose.
Finally, Klefstad asserts that SMT and Carlstedt abandoned their intention to personally develop Allison Pointe. But who owns or develops the property is beside the point with respect to whether the Covenant's purpose has been defeated. Klefstad has not come forward with sufficient evidence to create a genuine issue of fact as to whether SMT and Carlstedt intended to personally develop Allison Pointe and, if so, whether such intent was a purpose of the Covenant.
The development that has taken place to date at Allison Pointe may not be entirely consistent with the original development scheme envisioned by SMT. But Klefstad has not presented sufficient evidence to raise a genuine issue of material fact as to whether the deviations from that scheme have changed the essential character and nature of Allison Pointe. Allison Pointe has remained a mixed use business park, and the other property owners within Allison Pointe can still benefit from the restrictions in the Covenant. This is not a case where property intended for commercial or business use has been used for residential purposes or some other radically different purpose. It cannot be said that the deviations from the original development scheme cited by Klefstad are so radical in nature that the benefits of the Covenant have been neutralized and the Covenant's purpose defeated.
Klefstad also argues that changes in the Indianapolis real estate market have negated the Covenant's purpose. In support, it points to its expert's testimony that because of changes in the real estate market, construction of a twelve-story Office Tower with small floor plates would be "economic suicide." But diminution in value alone is not a sufficient reason for declaring a restrictive covenant unenforceable. See Burnett, 456 N.E.2d at 1099; Cunningham, 395 N.E.2d at 856. Rather, as Klefstad acknowledges, (see Pl.'s Br. in Opp'n to Defs.' Mot. for Summ. J. at 16 (stating that both Burnett and Cunningham found the purpose of the covenants had not been defeated by the changes in the surrounding community)), the diminution in value must somehow defeat the original purpose of the covenant. See id. Klefstad attempts to distinguish Burnett and Cunningham on the basis that it is not offering "unilateral" speculation of diminution in the value of its property. This effort fails. Even accepting that Klefstad can prove a diminution in value of its property, Klefstad still must come forward with evidence to suggest that the original purpose of the Covenant was defeated by that diminution in value. See id. It has not established that the changes in the Indianapolis real estate market since 1987 were so radical in nature that the purpose of the Covenant has been defeated. Klefstad has not come forward with sufficient evidence to create a genuine issue of fact as to whether the changes in Allison Pointe and the surrounding area since 1987 are so "radical in nature" that the purpose of the Covenant — to preserve the particular development scheme envisioned for Allison Pointe by Carlstedt and SMT-has been defeated.
Klefstad next argues that enforcing the Covenant would violate public policy because it would constitute an unreasonable restraint on competition. Klefstad candidly acknowledges that no Indiana court has considered whether the use of a restrictive covenant to gain a competitive advantage constitutes a sufficient reason for declaring the covenant unenforceable. It cites one case, Dean v. Monteil, 239 S.W.2d 337 (Mo. 1951), in which the court held that a restrictive covenant was against public policy because enforcing the restriction would "serve the sole purpose of restricting competition in business." Id. at 340 (emphasis added). In addition, the court concluded that the purpose of the restriction was to create a monopoly. Id. Even though Klefstad has produced evidence that New Boston owns other office space in the Indianapolis area and that its properties compete for tenants, it has not come forward with any evidence to suggest that enforcing the Covenant would serve the single purpose of restricting competition for business. Nor has it offered any evidence that the purpose of the Covenant was to create a monopoly. Thus, Dean — the only case upon which Klefstad relies-is inapposite.
Furthermore, Klefstad has not made a sufficient showing that enforcing the Covenant would create a restraint on competition. For these reasons, Klefstad's public policy argument based on an alleged unreasonable restraint on competition is rejected.
As a third reason why the court should not enforce the Covenant Klefstad raises the defense of acquiescence. Acquiescence in similar violations is an equitable defense to an action seeking to enforce a restrictive covenant. See, e.g., Stewart v. Jackson, 635 N.E.2d 186, 194 (Ind.Ct.App. 1994), trans. denied; Hrisomalos, 600 N.E.2d at 1367. As the Hrisomalos court noted, however, "[a]cquiesence by the complainant to violations of dissimilar restrictions cannot be a bar to enforcement where the restrictions are essentially different so that abandonment of one would not induce a reasonable person to assume that the other was also abandoned." Id. at 1368 n. 3 (quoting 2 AMERICAN LAW OF PROPERTY § 9.39).
The court concludes that Klefstad cannot avail itself of the defense of acquiescence. Klefstad has not come forward with any evidence of any similar violations of the Covenant.
In fact, it has produced no evidence of any other violation of the Covenant at all. Instead, Klefstad points to what it deems "substantial changes in the development of Allison Pointe." (Pl.'s Br. in Opp'n to Defs.' Mot. for Summ. J. at 18.) Klefstad claims that the Defendants have permitted other property owners in Allison Pointe to develop their parcels in a manner that deviates from and is not in conformity with the Original Plans, specifically referring to the construction of buildings whose heights do not gradually ascend from the park's entrance. The court also understands Klefstad as referring to the lack of a helioport, day care center, health club and branch bank at Allison Pointe. (See Statement of Additional Material Fact No. 125.)
Klefstad asserts as a material fact that SMT and Carlstedt set forth in writing the Original Plans for Allison Pointe in the Park Declaration. (Statement of Additional Material Facts ¶ 47.) As supporting evidentiary materials, Klefstad cites to paragraph 6 of Bruce Klefstad's Declaration and the Park Declarations. Paragraph 6 of Mr. Klefstad's Declaration does not provide support for this asserted material fact. Though Klefstad cites to no specific provisions of the Park Declaration to support this assertion, the court has reviewed the Park Declaration in its entirety. The provisions regarding construction of buildings state that buildings shall be constructed so as to minimize obstruction of highway exposure, scenic views and bodies of water, buildings in the area designated as the Woodlands shall be one to five stories in height, buildings in the area designated as the Peninsula shall be one to fifteen stories in height, and the minimum and maximum height of each building shall be determined by the DAB. (Park Decl., Art. VII, Building Requirements, Section 7.02, Def.'s Ex. 1 at 14-15.) No provision requires that the buildings be constructed in gradually ascending height from the park's entrance.
Furthermore, no provision in the Park Declaration requires the inclusion at Allison Pointe of a heliport, day care center, health club, branch bank or luxury hotel. The only provision which addresses these amenities is the one entitled, "Proposed Development."
That provision states that the proposed development is "a mixed use business park with the following possible uses: multiple office buildings, hotels, restaurants, health club, branch bank, heliport and other uses consistent with a mixed use business park." (Park Decl., Art. IV, Proposed Development, Def.'s Ex. 1 at 8.) (Emphasis added). Thus, no provision in the Park Declaration, which Klefstad asserts sets forth the Original Plans for Allison Pointe, mandates that the park's development include a health club, branch bank, heliport, luxury hotel or day care.
Even assuming that the development in Allison Pointe somehow violated the Park Declaration, (and the court does not find that it does: Allison Pointe is a mixed use business park), there is no basis for concluding that the changes in the development violate the Covenant which concerns the Klefstad Property. The Covenant subjects the Klefstad Property to the restrictions in the Park Declaration, but the Klefstad Property is the only property in Allison Pointe that is subject to the restrictions in the Covenant.
Klefstad therefore cannot produce evidence from which a trier of fact could find any similar violation of the Covenant.
In another effort to avoid enforcement of the Covenant, Klefstad contends that there are genuine issues of fact regarding New Boston's authority to enforce the restrictions in the Covenant. It argues that the Covenant is personal to SMT and, therefore, did not run with the land owned by SMT.
The Indiana court of appeals recently set forth a well-written and thorough discussion of covenants that run with the land in Columbia Club, Inc. v. American Fletcher Realty Corp., 720 N.E.2d 411 (Ind.Ct.App. 1999), trans. denied. If a covenant runs with the land, it can be enforced by a successor to the covenantee's property interest. See, e.g., Columbia Club, 720 N.E.2d at 418, 420; see also Adult Group Properties, Ltd. v. Imler, 505 N.E.2d 459, 464 (Ind.Ct.App. 1987) (stating that restrictive covenant creates a property right in subsequent grantees), trans. denied. A restrictive covenant runs with the land if: "(1) the covenantor and covenantee intend it to run; (2) the covenant touches and concerns the land; and (3) there is privity of estate between subsequent grantees of the original covenantor and covenantee." Columbia Club, 720 N.E.2d at 418.
Klefstad argues that the Covenant was intended only to be a personal benefit to SMT rather than to run with the land. It does not challenge whether the Covenant touches and concerns the land and, therefore, the court need not address this element in depth.
Suffice to say that the Covenant does touch and concern the land. See Columbia Club, 720 N.E.2d at 420 (citing as the "clearest example" of a covenant that touches and concerns the land as "one which calls for a party to do, or refrain from doing, a physical act on the land.") Nor does Klefstad challenge the privity of estate between New Boston and SMT. In any event, privity of estate has been shown because New Boston is a successor in title to SMT's property interest in Allison Pointe and Klefstad is the original covenantor and owner of the Klefstad Parcel. See Columbia Club, 720 N.E.2d at 421; Moseley v. Bishop, 470 N.E.2d 773, 777 (Ind.Ct.App. 1984).
As to intent, the Columbia Club court explained:
The covenanting parties' intent must be determined from the specific language used and from the situation of the parties when the covenant was made. Furthermore, specific words and phrases cannot be read exclusive of other contractual provisions. In addition, the parties' intentions must be determined from the contract read in its entirety. We attempt to construe contractual provisions so as to harmonize the agreement. Moreover, no particular language is required to demonstrate an intent to run with the land. Therefore, a real covenant may exist without the words "assigns" or "grantees" but when these or equivalent words are used, they become persuasive of the intent of the parties.
Id. at 419 (citations omitted); see also Moseley, 470 N.E.2d at 776-77 (stating that language that a covenant "is binding on the covenantor's heirs and assigns is `strong evidence' of intent that the covenant should run with the land").
Klefstad argues that the lack of any description or recitation demonstrating an intent that the benefit of the Covenant relate to any "particular parcel of land, or to future owners of identified and specific property" evidences that the parties did not intend the Covenant to run with the land. Upon reading the Covenant in its entirety, however, the court concludes that Klefstad has not raised a genuine issue of material fact as to whether Klefstad and SMT intended the Covenant to run with the land.
The Covenant by its express provisions reveal the parties' intent that it run with the land. The Covenant explicitly provides: "This Declaration and the covenants and restrictions set forth herein shall be binding upon and run with the Real Estate [the Klefstad Property] and shall inure to the benefit of and be binding upon SMT and Klefstad and their respective legal representatives, heirs, assigns and successors-in-interest. . . ." (Park Decl., ¶ 7.) (Emphasis added). In addition, the Covenant further provides that "the Real Estate [the Klefstad Property] is now held and shall be transferred, sold, leased, conveyed, mortgaged and occupied subject to the covenants and restrictions contained herein, which shall apply to and bind the immediate and remote successor owners of all or any portion of the Real Estate." (Id. ¶ 2.) (Emphasis added). These explicit provisions are persuasive evidence of the parties' intent that the Covenant run with the land. The Columbia Club court found a strikingly similar provision to clearly express the parties' intent that a covenant run with the land. See Columbia Club, 720 N.E.2d at 420.
It is noted that on page 21 of its brief, Klefstad misquotes this language by omitting the part that states the covenants and restrictions "shall be binding upon and run with the Real Estate". The court presumes this error was not intended to be misleading.
Klefstad's argument that the term "successors-in-interest" did not mean "all other successive owners of land" in Allison Pointe is specious and, in making this argument, Klefstad ignores the first part of the provision which states that the Covenant "shall be binding upon and run with the [land]. . . ." The express terms of the Covenant reflect an intent to create a covenant running with the land, and Klefstad has not produced any evidence to create a dispute as to that intent.
Though Klefstad invites the court to consider the circumstances surrounding the sale of the Klefstad Property as well as events subsequent to the purchase (see Pl.'s Br. in Opp'n to Defs.' Mot. for Summ. J. at 23-25), it does not seriously argue that the Covenant is ambiguous. The Covenant is not ambiguous and, therefore, the court need not consider the circumstances surrounding the sale of the property to ascertain the parties' intent.
Furthermore, in arguing that the Defendants' actions demonstrate that the Covenant was intended to be personal to SMT, Klefstad points to actions and events that occurred well after the Covenant was made, (see Pl.'s Br. Opp'n Defs.' Mot. Summ. J. at 24-25 (discussing events occurring in 1995 and thereafter), rather than actions or events that took place at the time the Covenant was entered into by SMT and Klefstad, which is contrary to the authorities upon which it relies. See, e.g., Metius v. Julio, 342 A.2d 348, 353 (Md.App. 1975) (stating that "[w]here the language used in the [restrictive covenant] is ambiguous, the court must also consider the circumstances and conditions affecting the parties and the property at the time the agreement was made.") (Emphasis added).
Klefstad contends that a covenant created to satisfy a developer's aesthetic sense is personal, citing Lookout Mountain Paradise Hills Homeowners Ass'n. v. Viewpoint Assocs., 867 P.2d 70 (Colo.Ct.App. 1993). The covenant at issue there provided that the original developer had the right of architectural control over lots in a subdivision. Id. at 72.
The Lookout Mountain court concluded that the covenant ran with the land and did not reach the defendant's argument, made in the alternative, that the right of architectural control was personal. Id. at 74. Furthermore, as determined, the Covenant by its express terms indicates that it was intended to run with the land. Thus, the Covenant was not intended to be personal. In addition, the benefits of the restrictions in the Covenant are not exclusive to SMT. The Covenant's restrictions benefit others such as the other property owners in Allison Pointe, lessees who lease office space in the office buildings, and even the guests at the restaurants in the park.
It is argued that the nature of the Covenant-being "so specific and so inflexible," (Pl.'s Br. in Opp'n to Defs.' Mot. for Summ. J. at 25) — indicates that it is personal. Chappell v. Winslow, 144 F.2d 160 (4th Cir. 1944), is cited in support. That case does not stand for as broad a proposition as Klefstad might lead the court to believe. The restrictive covenant was an agreement that should the grantee decide to sell the land, he would give Josiah Winslow, the grantor, the right of first refusal and that the grantee would not to erect any building other than a filling station without the personal permission of Josiah Winslow.
Id. at 161. The restrictive agreement contained no definite limitation upon building rights, but rather gave the grantor the right to control the character of buildings to be erected. Id. at 162. The court explained that it was "unreasonable to assume that the parties intended building rights to be restricted in accordance with the views, wishes or whims of unknown future successors to the title of Winslow or that they should be restricted by his views and wishes after he had ceased to own the property." Id. The court concluded that nothing in the language of the agreement restricting the use of the land reflected an intent that the restriction run with the land. Id. at 161-2.
In contrast, in the instant case, the Covenant puts well-defined limits on the building rights on the Klefstad Property-it limits construction to a twelve-story building with an approximate floor plate and in substantial conformity with the rendering and site plan.
Moreover, the Covenant's language reflects a clear intent that the Covenant run with the land and that the Covenant benefit SMT's heirs, assigns, and successors-in-interest.
Chappell therefore is distinguishable.
Klefstad argues that although Citimark purportedly assigned its interest in the Covenant to New Boston, Citimark had no interest to assign because the rights under the Covenant were extinguished when APR dissolved in April of 1996. This argument is a red herring. Klefstad does not dispute that APR conveyed all of its remaining property interest in Allison Pointe to Citimark and that Citimark then conveyed its property interest in Allison Point to New Boston. Because the Covenant runs with the land, New Boston, as a successor to SMT's property interest in Allison Pointe, can enforce the Covenant against Klefstad. See, e.g., Columbia Club, 720 N.E.2d at 418, 420.
The court concludes that the Covenant is enforceable. The Defendants' motion for summary judgment therefore should be GRANTED as to Count I.
C. Count II: Declaratory Judgment Claim Regarding DAB and Klefstad's Proposal
Though neither party has raised the matter, the court is obligated to consider whether it has jurisdiction over the claim for a declaratory judgment asserted in Count II.
The Declaratory Judgment Act (the "Act"), 28 U.S.C. § 2201, confers on the court the discretion to issue declaratory judgments in appropriate cases. See, e.g., NUCOR Corp. v. Aceros Y Maquilas de Occidente, S.A. de C.V., 28 F.3d 572, 577 (7th Cir. 1994). The purpose of the Act "is `to avoid accrual of avoidable damages to one not certain of his rights and to afford him an early adjudication, without waiting until his adversary should see fit to begin suit, after damage had accrued.'" NUCOR Corp., 28 F.3d at 577 (quoting Cunningham Bros., Inc. v. Bail, 407 F.2d 1165, 1167 (7th Cir. 1969)).
A district court should not issue a declaratory judgment unless there is an "actual controversy" between the parties. See, e.g., Matter of VMS Sec. Litig., 103 F.3d 1317, 1327 (7th Cir. 1996); see also Wisconsin Power Light Co. v. Century Indem. Co., 130 F.3d 787, 792 (7th Cir. 1997) (stating that a declaratory judgment action must satisfy the requirement of justiciability). A case presents a justiciable controversy if "`there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.'" Matter of VMS Secs. Litig., 103 F.3d at 1327 (quoting Maryland Cas. Co. v. Pacific Coal Oil Co., 312 U.S. 270, 273 (1941)); see also NUCOR Corp., 28 F.3d at 577. The controversy must be ripe in that the court's declaratory judgment will achieve some useful purpose. See Public Serv. Comm'n v. Wycoff, 344 U.S. 237, 244 (1952); VMS Secs., 103 F.3d at 1327; NUCOR, 28 F.3d at 579.
The court finds that the controversy alleged in Count II is not a justiciable one appropriate for a declaratory judgment. Count II seeks a Declaratory Judgment that Carlstedt, Dickman, Eiteljorg, McAvoy and Rappaport have no power as purported members of the DAB to act upon Klefstad's Proposal because no "Developer" with the power to appoint them to the DAB did so; that their rejection of that Proposal is of no force or effect, and that they are liable for damages proximately caused by their actions.
Klefstad does present good arguments and evidence to support its position that New Boston is not the "Developer" under the Park Declaration and therefore lacks the authority to appoint members of the DAB. But Klefstad has presented no evidence to create a genuine issue of material fact as to the right or authority of the DAB, even if properly constituted, to consider and approve Klefstad's request for relief from the Covenant, which is the relief Klefstad seeks with its Proposal. The Park Declaration grants the DAB the authority to approve the development and use of parcels within Allison Pointe generally, (see Park Declarations, Article V), but neither the Park Declaration nor the Covenant gives the DAB the authority or power to modify or void the Covenant.
Therefore, the declarations sought in Count II would be meaningless and have no practical effect on the parties' real dispute in this case. Further, the purpose of the Act would not be served by the requested declarations. The DAB's rejection of Klefstad's Proposal was an act which did not affect Klefstad's rights or obligations under the Covenant. Thus, Klefstad has not demonstrated that the requested declarations would assist it in avoiding any damages.
Even if the court were to find the controversy to be justiciable, the court would, in its discretion, decline to enter the requested declarations. The Act does not confer an absolute right upon a party seeking a declaratory judgment. See, e.g., Wilton v. Seven Falls Co., 515 U.S. 277, 287 (1995). "If a district court, in the sound exercise of its judgment, determines . . . that a declaratory judgment will serve no useful purpose, it cannot be incumbent upon that court to proceed to the merits before staying or dismissing the action." Wilton, 515 U.S. at 288. The requested declarations would serve no useful purpose. Therefore, the court in its discretion would decline to enter the requested declaratory judgment even if Count II alleged a justiciable controversy.
The court finds that Count II fails to allege a justiciable controversy and, therefore, should be DISMISSED.
D. Count III: Injunctive Claim Against Purported DAB Members
Similar considerations lead the court to find that the claim in Count III does not present a justiciable controversy. That count seeks injunctive relief, restraining the Individual Defendants, the purported DAB Members, from interfering with the proper appointment of the DAB and with the appropriate and fair consideration of the Klefstad's Proposal by a properly constituted DAB. "Injury is an indispensable element of a case or controversy. That means a palpable harm to a concrete interest." State of Ill. v. City of Chicago, 137 F.3d 474, 477 (7th Cir. 1998); see Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). Klefstad has not shown how it has been injured by the alleged wrongful appointment of the members to the DAB. Nor has it demonstrated that it will be injured in the absence of fair consideration of its Proposal by a properly appointed DAB.
Accordingly, the court concludes that Count III should be DISMISSED.
E. Count IV: Conspiracy Claim
Count IV purports to state a conspiracy claim against the Defendants. Indiana law does not recognize an independent cause of action for civil conspiracy. See Newman v. Deiter, 702 N.E.2d 1093, 1101 (Ind.Ct.App. 1998), trans. denied, 714 N.E.2d 173 (Ind. 1999) cert. denied 120 S.Ct. 329 (1999); Winkler v. V.G. Reed Sons, Inc., 638 N.E.2d 1228, 1234 (Ind. 1994) (addressing together one count alleging conspiracy to breach employment contract and another count alleging tortious interference with the employment contract "because civil conspiracy is not an independent cause of action"). "Allegations of a civil conspiracy are just another way of asserting concerted action in the commission of a tort." Boyle v. Anderson Fire Fighters Ass'n, 497 N.E.2d 1073, 1079 (Ind.Ct.App. 1986), trans. denied.
Klefstad argues in its brief that the Complaint, taken in its entirety, alleges a conspiracy for tortious interference with Klefstad's economic advantage. But even when the Complaint is construed liberally, Count IV cannot be understood to allege a conspiracy for tortious interference with an economic advantage. The Count clearly alleges a conspiracy "to accomplish the purpose of interfering with Klefstad's right to have a fair and appropriate consideration of its requests with respect to the Property by asserting purported rights of the Developer and the DAB without having any such authority." (Compl. ¶ 31.) Klefstad has pointed to no authority which recognizes such a tort under Indiana law, and the court is unaware of any. Therefore, the Defendants' motion for summary judgment should be GRANTED as to Count IV.
Klefstad is and throughout this litigation has been represented by very able counsel. Had Klefstad intended to assert a claim for conspiracy to tortiously interfere with a prospective economic advantage, Count IV surely could have and would have been drafted to allege that claim. It is noted that Count V does allege a claim for tortious interference with an economic advantage claim (but against Rappaport only). This supports the conclusion that where Klefstad intended to assert a claim based on tortious interference, it did so.
But even assuming that the Complaint taken in its entirety alleges a conspiracy to tortiously interfere with Klefstad's economic advantage, the conspiracy claim would fail for the same reasons the claim for tortious interference with a prospective economic advantage asserted in Count V fails, see infra.
F. Count V: Tortious Interference Claim
To prove a claim for tortious interference with a prospective economic advantage under Indiana law, a plaintiff must establish: (1) the existence of a business relationship, (2) the defendant's knowledge of the existence of that relationship, (3) the defendant's intentional interference in that relationship, (4) the absence of any justification, and (5) damages. See Wright v. Associated Ins. Cos. Inc., 29 F.3d 1244, 1252 (7th Cir. 1994); Butts v. Oce-USA, Inc., 9 F. Supp.2d 1007, 1012 (S.D.Ind. 1998); Furno v. Citizens Ins. Co., 590 N.E.2d 1137, 1140 (Ind.Ct.App. 1992). In addition, the plaintiff must prove that the "defendant acted illegally in achieving his end." See Great Escape, Inc. v. Union City Body Co., 791 F.2d 532, 542 (7th Cir. 1986); Butts, 9 F. Supp.2d at 1012-13; Watson Rural Water Co. v. Indiana Cities Water Corp., 540 N.E.2d 131, 139 (Ind.Ct.App. 1989); Johnson v. Hickman, 507 N.E.2d 1014, 1019 (Ind.Ct.App. 1987). The Defendants contend that Klefstad has not alleged and cannot show that Rappaport acted illegally.
They also contend that Rappaport was justified in rejecting Klefstad's Proposal. These two arguments are closely intertwined.
Klefstad alleges that Rappaport tortiously interfered with a relationship with Monroe Guaranty. In essence, this claim is premised upon Rappaport's rejection of Klefstad's Proposal and adherence to the restrictions in the Covenant. (See Compl. ¶ 22 (alleging that Monroe Guaranty was interested in leasing space in a building on Klefstad's Property if and only if Klefstad received permission for buildings of approximately four stories high with floor plates of approximately 26,000 square feet)). To prevail on this claim Klefstad must come forward with some evidence to create a genuine issue of fact as to whether Rappaport acted illegally, see, e.g., Butts, 9 F. Supp.2d at 1012-13; but it has not done so. The court is cognizant of the fact that Klefstad is not required to prove that Rappaport acted criminally. See Wright, 29 F.3d at 1252. Nevertheless, Klefstad has not produced any evidence to create a triable issue of fact as to whether the actions which allegedly interfered with its prospective business advantage were sufficiently "wrongful" as to satisfy the illegality requirement.
The case of Flintridge Station Assocs. v. American Fletcher Mortg. Co., 761 F.2d 434, 441 (7th Cir. 1985), is instructive. The plaintiff sued a mortgage company for, among other things, tortious interference with business and contractual relationships. The claim arose in connection with a loan to the plaintiff from the mortgage company. The mortgage company foreclosed on the loan following the plaintiff's default and required existing tenants to pay their rents directly to the mortgage company. Id. at 436-37. The Seventh Circuit found that the mortgage company acted in accordance with the loan documents and that its exercise of its rights under the loan documents was justified. Id. at 441. The court held, therefore, that the district court properly granted summary judgment for the mortgage company on the tortious interference claims. Id. at 442.
Klefstad seeks to hold Rappaport liable for tortious interference for rejecting the Klefstad Proposal. By rejecting the Klefstad Proposal, Rappaport on behalf of New Boston exercised New Boston's rights under the Covenant, which the court has held is enforceable. Thus, Rappaport's conduct cannot be said to be sufficiently wrongful so as to support a claim for tortious interference with a prospective economic advantage. This is so even if Rappaport had some personal motivation for rejecting the Proposal.
Regardless of Rappaport's motivation, New Boston has the right to enforce the Covenant.
Thus, the Defendants' motion for summary judgment should be GRANTED as to Count V.
IV. Motion for Sanctions
The Defendants have moved, pursuant to FED. R. CIV. P. 11, for sanctions against Klefstad and its counsel for the filing of Counts II through V of the Complaint. The Defendants, however, have given the court no reason to believe that they first complied with Rule 11's "safe harbor" provision, FED. R. CIV. P. 11(c)(1)(A), before filing their motion for sanctions. The failure to comply with the safe harbor provision is a sufficient reason to deny the motion for sanctions. See, e.g., Divane v. Krull Elec. Co., 200 F.3d 1020, 1025 (7th Cir. 1999) ("A court that imposes sanctions by motion without adhering to this twenty-one day safe harbor has abused its discretion.") Accordingly, the Defendants' motion for sanctions is DENIED.
V. Conclusion
For the foregoing reasons, the Defendant's motion to strike is DENIED, the Defendants' motion for summary judgment will be GRANTED, and the Defendants' motion for sanctions is DENIED. Final judgment will be entered accordingly.
ALL OF WHICH IS ORDERED this 29th day of September 2000.