R. Douglas Hughes v. New Life Development Corporation
387 S.W.3d 453, 2012 Tenn. LEXIS 819, 2012 WL 5835102 (2012)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Amendments to a residential development's restrictive covenants that are adopted in accordance with the declaration's specified super-majority voting procedures are subject to judicial review under a deferential 'arbitrary and capricious' standard, not a more stringent 'reasonableness' test.
Facts:
- Raoul Land and Development Company (Raoul Land Development) began the Cooley’s Rift residential development, recording a plat and a Declaration of Covenants and Restrictions in 2002.
- The Declaration established a Homeowners' Association and described a 'Master Plan' that included wilderness preserves, but also stated the plan was subject to change and that the Declaration could be amended by a 75% vote of the Association members.
- Douglas and Lynne Hughes, along with Guy and Louise Hubbs (the Homeowners), purchased lots, allegedly relying on promotional materials indicating nearly 1,000 acres would be preserved in perpetuity.
- After the death of its president, Raoul Land Development sold its remaining 11 lots and approximately 1,400 acres of undeveloped land to New Life Development Corporation (New Life).
- New Life presented a new conceptual plan to the Homeowners' Association that replaced the wilderness preserves with an 18-hole golf course and approximately 650 homesites.
- Following initial litigation, the Homeowners' Association held a special meeting where members, including New Life with its majority voting power, voted 95% in favor of amending the Declaration.
- The amendments removed references to 'wilderness preserves,' eliminated the developer's obligation to adhere to the Master Plan's common areas, and granted the developer broader discretion to approve non-residential land uses.
Procedural Posture:
- The Homeowners filed suit (Case No. 18,444) against New Life in the Chancery Court for Franklin County (trial court), seeking to enforce restrictive covenants.
- The trial court granted a judgment on the pleadings in favor of New Life.
- The Homeowners (appellants) appealed to the Tennessee Court of Appeals (intermediate appellate court).
- The Court of Appeals affirmed in part but reversed and remanded on the issue of implied restrictive covenants, finding an ambiguity in the Declaration.
- While an appeal was pending, the Association amended its charter and the Declaration.
- The Homeowners filed a second suit (Case No. 18,956) challenging the validity of the amendments.
- The trial court consolidated the cases and granted summary judgment to New Life on all claims.
- The Homeowners (appellants) appealed a second time to the Court of Appeals.
- The Court of Appeals held the amendment process was valid but remanded for the trial court to determine if the amendments were substantively 'reasonable.'
- New Life (appellant) was granted permission to appeal to the Supreme Court of Tennessee.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Are amendments to a declaration of restrictive covenants, passed by the super-majority vote specified in the declaration, invalid if a court later deems them 'unreasonable'?
Opinions:
Majority - William C. Koch, Jr.
No. Amendments to restrictive covenants adopted in conformance with the declaration's super-majority procedures are valid unless they are arbitrary, capricious, or violate public policy. The court rejects a 'reasonableness' standard for judicial review. When purchasers buy into a community with such covenants, they agree not only to the existing restrictions but also to the specified mechanism for amending them. Tennessee law favors freedom of contract, and courts should not rewrite the parties' bargains or substitute their judgment for that of the majoritarian decision-making body that homeowners voluntarily joined. The amendments in this case were uniformly applicable, adopted through the proper procedure by a 75% super-majority, and represented a reasoned response to litigation over ambiguities in the original Declaration, thus they were not arbitrary or capricious.
Analysis:
This decision establishes the standard for judicial review of amendments to homeowners' association restrictive covenants in Tennessee. By explicitly rejecting a 'reasonableness' test in favor of the more deferential 'arbitrary and capricious' standard, the court significantly strengthens the power of HOA super-majorities. This precedent prioritizes the contractual agreement embodied in the governing documents, including amendment clauses, over the initial expectations of individual homeowners. The ruling provides clarity for developers and HOAs, confirming their authority to modify development plans, but also signals to potential buyers that original plans and marketing materials are not guaranteed if the declaration allows for their amendment.
