Deep Water Brewing v. Fairway Resources Ltd.
215 P.3d 990 (2009)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A covenant to restrict building heights to protect a view, made in exchange for a property right, runs with the land and is enforceable by a successor in interest. A corporate officer who intentionally causes the breach of that covenant using improper means and without good faith may be held personally liable for tortious interference, and the homeowners association they lead may be held vicariously liable.
Facts:
- Cindy Smith and Robert Ahlquist owned the Cosina del Lago Restaurant, which had a view of Lake Chelan over an adjacent orchard.
- Developer Jack Johnson, president of Key Development, needed a right-of-way across Ahlquist's property for a housing development in the orchard.
- After negotiations, Ahlquist granted the right-of-way in exchange for Johnson's agreement to place restrictive covenants on the new development to protect the view from both the restaurant's main floor and its downstairs lounge.
- The agreement required Key Development to establish a Homeowners Association (HOA) responsible for enforcing the height restrictions. Johnson formed the Key Bay HOA and appointed himself president.
- In 1996, covenants were recorded limiting buildings to a single story and a 16-foot height, which complied with the agreement.
- Robert and Roberta Kenagy purchased the restaurant from Ahlquist in 1998, with the sale agreement including all rights 'running with the land' regarding the adjacent development.
- In 2000, Johnson, acting as HOA president, recorded new covenants including a previously unrecorded 'exhibit A' which allowed for roof elevations up to 26 feet.
- In 2004, the HOA's architectural committee, headed by Johnson, approved plans for Michael and Patricia Taylor to build a two-story house, which subsequently obstructed the view from the Kenagys' downstairs lounge.
Procedural Posture:
- Deep Water Brewing, LLC and the Kenagys sued Fairway Resources, Key Development, the Key Bay Homeowners Association, and Jack Johnson in state trial court, seeking declaratory judgment and injunctive relief.
- The complaint was amended multiple times, adding claims for damages and naming Michael and Patricia Taylor as defendants.
- On summary judgment, the trial court dismissed the contract-based claims against Jack Johnson personally.
- The case was bifurcated and tried before a judge, who, at the close of the liability phase, allowed the Kenagys to add a claim for tortious interference with contract against Johnson and the Homeowners Association.
- The trial court found Key Development liable for breach of contract and Johnson and the Homeowners Association liable for tortious interference. It found the Taylors were not liable as bona fide purchasers.
- Following a damages phase, the trial court awarded the Kenagys $245,000 in damages plus attorney fees and costs.
- Key Development, Jack Johnson, and the Key Bay Homeowners Association (appellants) appealed the judgment to the Court of Appeals of Washington.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a developer's 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 successor landowner, making the developer's president and homeowners association liable for tortious interference for causing its breach?
Opinions:
Majority - Sweeney, J.
Yes. A developer's promise to restrict building heights to protect a view creates an enforceable covenant that runs with the land, and the developer’s president and homeowners association can be held liable for tortious interference if they intentionally cause the covenant's breach without acting in good faith. The court found that the agreement to protect the view met all five requirements to be a covenant running with the land, allowing the Kenagys, as successors to Ahlquist, to enforce it. The covenant 'touches and concerns' the land by enhancing the value of the restaurant property while burdening the development lots, and the parties' intent for it to bind successors was clear from the circumstances, including the requirement to form an HOA for enforcement. Furthermore, Jack Johnson was personally liable for tortious interference. Although a corporate officer acting to benefit their corporation is typically privileged, that privilege is lost if they do not act in good faith. Johnson's repeated attempts to undermine the lounge view protection and his deceptive recording of new covenants constituted a lack of good faith. Because Johnson was acting as an agent of the Homeowners Association when he committed these tortious acts, the Association is vicariously liable for his conduct.
Analysis:
This decision reinforces the durability of restrictive covenants that 'run with the land,' particularly those protecting valuable intangible assets like views. It clarifies that the intent to bind successors can be inferred from the nature of the covenant and surrounding actions, even without explicit language like 'heirs and assigns.' The case also provides an important limitation on the 'good faith' privilege for corporate officers in tortious interference claims, establishing that conduct which is deceptive or dishonest does not qualify for protection, even if it is intended to benefit the corporation. This holding makes it more difficult for corporate officers to use the corporate form to shield themselves from liability for bad faith actions that harm third parties with whom the corporation has contracted.
