Deep Water Brewing, LLC v. Fairway Resources Limited
Not Reported in P.3d, 2009 WL 3464136 (Wash.App. Div. 3) (2009)
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Rule of Law:
A contractual promise to restrict building heights to protect a view, made in connection with the transfer of an interest in land, creates a covenant that runs with the land and is enforceable by subsequent owners of the benefited property.
Facts:
- Cindy Smith and Robert Ahlquist owned the Cosina del Lago Restaurant, which had a view of Lake Chelan over an adjacent apple orchard.
- Developer Jack Johnson, president of Key Development Corp., needed a right-of-way across Ahlquist's property to develop the orchard into single-family housing.
- In exchange for the right-of-way, Johnson signed an agreement on behalf of Key Development promising to establish building covenants ensuring no homes would interfere with the view of the lake from the restaurant or its lounge.
- Johnson then formed the Key Bay Homeowners Association, appointed himself president, and had covenants recorded that initially restricted building heights to 16 feet, consistent with the agreement.
- Johnson, as president of the Association, later recorded revised covenants, including an Exhibit A, which permitted building heights up to 26 feet.
- Robert and Roberta Kenagy subsequently purchased the restaurant from Ahlquist.
- Michael and Patricia Taylor purchased a lot in the development and, with approval from the Homeowners Association's architectural committee led by Johnson, built a two-story home that obstructed the view from the restaurant's lower-level lounge.
Procedural Posture:
- Deep Water Brewing, LLC (the Kenagys' business) sued Key Development Corp., the Key Bay Homeowners Association, and Jack Johnson in a Washington state trial court, seeking declaratory and injunctive relief.
- The complaint was amended to add the Kenagys as individual plaintiffs and to include claims for damages and attorney fees.
- After Michael and Patricia Taylor began constructing their home, the Kenagys filed a second amended complaint adding the Taylors as defendants.
- The trial court dismissed all contract claims against Jack Johnson in his personal capacity via summary judgment.
- The trial was bifurcated into liability and damages phases and was tried to the court sitting without a jury.
- At the conclusion of the liability phase, the trial court permitted the Kenagys to amend their complaint to add a cause of action for tortious interference with contract against the Homeowners Association and Jack Johnson personally.
- The trial court entered judgment finding Key Development breached its contract, and finding Jack Johnson and the Homeowners Association liable for tortious interference, but found the Taylors were not liable.
- Following the damages phase, the trial court awarded the Kenagys $245,000 in damages and later awarded attorney fees and costs, holding Key Development, Johnson, and the Homeowners Association jointly and severally liable.
- Key Development, Jack Johnson, and the Homeowners Association appealed the trial court's judgment on liability, damages, and attorney fees to the Court of Appeals of Washington.
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Issue:
Does a contractual promise to restrict building heights to protect a view, made in exchange for a right-of-way, create an enforceable covenant that runs with the land for the benefit of a subsequent purchaser of the dominant estate?
Opinions:
Majority - Sweeney, J.
Yes, the contractual promise creates an enforceable covenant that runs with the land. The court affirmed the trial court's judgment but on the legal theory of a running covenant rather than a third-party beneficiary contract. The court applied the five-part test for a running real covenant and found all elements satisfied: 1) the agreement was enforceable between the original parties (Ahlquist and Key Development); 2) the covenant 'touches and concerns' both the burdened land (the development lots) and the benefited land (the restaurant property, whose value is enhanced by the view); 3) the parties intended to bind their successors, which is inferred from the nature of the covenant and the creation of a homeowners association to enforce it; 4) vertical privity exists as the Kenagys are successors to Ahlquist; and 5) horizontal privity exists because the covenant was made in connection with the transfer of an interest in land (the right-of-way). Therefore, the Kenagys, as successors in interest, can enforce the original height restriction. The court also held that Jack Johnson was personally liable for tortious interference because his actions, while intended to benefit his corporation, were not in 'good faith' as he knowingly and deceptively breached the foundational agreement that made the development possible. The Homeowners Association was held vicariously liable as Johnson acted as its agent when committing the tort.
Analysis:
This case clarifies that a view protection agreement can be enforced by subsequent landowners as a 'running real covenant,' even without explicit 'successors and assigns' language, if the covenant's nature implies an intent to bind future owners. It demonstrates that the 'touch and concern' element is met when a restriction on one parcel enhances the value and enjoyment of another. Furthermore, the decision narrows the 'good faith' privilege for corporate officers in tortious interference claims, establishing that the privilege does not shield an officer who acts dishonestly or deceptively, even if the action is intended to benefit the corporation.
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