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Trustees of Clayton Terrace Subdivision v. 6 Clayton Terrace, LLC

Supreme Court of Missouri, En Banc

August 13, 2019

TRUSTEES OF CLAYTON TERRACE SUBDIVISION, Respondent/Cross-Appellant,
v.
6 CLAYTON TERRACE, LLC, and JEANNETTE R. HUEY, TRUSTEE OF THE JANE R. HUEY LIFETIME TRUST AGREEMENT DATED MAY 21, 1998, Appellants/Cross-Respondents.

          Appeal from the Circuit Court of St. Louis County The Honorable Dale Hood, Judge.

          Laura Denvir Stith, Judge.

         Jeannette R. Huey, 6 Clayton Terrace, LLC, and the Trustees of Clayton Terrace Subdivision ("trustees") appeal from portions of the circuit court's judgment not in their favor. This Court affirms the portion of the circuit court's judgment upholding Ms. Huey's sale of her home located in the Clayton Terrace subdivision despite allegations she failed to comply with the right of first refusal contained in the subdivision indentures. But this Court reverses the portion of the circuit court's judgment holding the trustees' attempt to have the sale set aside constituted an abuse of process and awarding attorney's fees to Ms. Huey on that claim. An abuse of process claim requires more than the proof Ms. Huey offered that the trustees' purpose was allegedly improper. She also failed to show the trustees made an improper use of process.

         This Court affirms the circuit court's refusal to reject the amended indenture provision prohibiting the building of more than one residence per lot. That provision could not be avoided by attempting to divide the lot into two sub-lots. But the circuit court erred in awarding attorney's fees to the trustees against 6 Clayton Terrace on the basis the latter's failure to reveal its subdivision plan constituted "special circumstances" justifying the award of attorney's fees for intentional misconduct. Assuming attorney's fees could be awarded where, as here, the trustees did not seek declaratory relief against 6 Clayton Terrace, the trustees fail to identify any basis on which 6 Clayton Terrace, as an arms' length purchaser, had a duty to reveal its planned use of the property. Further, the fact 6 Clayton Terrace ultimately lost its claim does not create "special circumstances" for purposes of attorney's fees, as one party loses every claim.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         Jane Huey lived in a home on a 2.3-acre piece of property referred to as Lot 6 in a subdivision called Clayton Terrace in Frontenac, Missouri. Clayton Terrace was established by plat in 1923, at which time it had 23 recorded lots.[1] The subdivision is subject to the original indentures, which are handwritten and recorded on the same document that contains the plat. The original indentures provide the restrictions will be "in force and binding upon the owners of this Subdivision for a period of 25 years from date of this instrument, unless amended or extended by two-thirds of the lot owners in this Subdivision and publicly recorded."

         The original indentures have been amended or extended approximately five times. There are two relevant indenture amendments and extensions. One was approved in 1928, providing that "only one residence shall be erected on each lot." In 1972, a "right of first refusal" provision was approved under which any lot owner selling a lot was required to provide "15 days' written notice to the owners of all other lots in the subdivision … such notice to contain the selling price and other terms of the proposed sale and to whom it is made." The 1972 provision grants the other lot owners "the right to elect in writing to purchase said lot on the same terms (including the closing date) as offered to the third party buyer …." Both the "one residence per lot" provision and "right of first refusal" provision were restated in the most recent amendment and extension, which was recorded in 1998 and approved by two-thirds of the lot owners. The indentures also provide for the election of subdivision trustees. The indentures impose a fiduciary duty on the trustees to the lot owners and provide "the Trustees shall have the power to enforce the restrictions spread upon the plat of Clayton Terrace subdivision."

         Jane Huey died October 15, 2011. Her daughter, Jeannette Huey, as trustee of her mother's trust, became responsible for Lot 6. Ms. Huey listed Lot 6 with a real estate agent in September 2012. A career real estate developer, Kevin McGowan, testified at trial that, "as soon as I saw it, when I noticed it was almost three acres, my very first thought was that this might be able to be split." Before making an offer, he confirmed with Frontenac that its municipal ordinances would not prohibit subdivision of the property. To purchase the property, he secured an investor, Century Renovations, LLC, and both he and the investor reviewed the Clayton Terrace indentures. In January 2013, Ms. Huey and Century Renovations agreed to terms for the sale of Lot 6 and set the closing for February 2013.

         As the sale was pending, Insight Title Company, LLC, on behalf of Ms. Huey, reached out to the trustees concerning the sale. The trustees advised Insight Title of the "right of first refusal" provision. Insight Title prepared a notice of sale for the property and the real estate agent hand-delivered notice to Clayton Terrace lot owners of the proposed sale 15 days before the closing date. Whether all lot owners were given this notice later became the subject of dispute. The notice of sale did not contain the identity of the proposed purchaser.

         Only one homeowner returned her notice of sale indicating she might be interested in acquiring the property. Her request to walk through the property was denied. Ultimately, that homeowner delivered a written document expressly waiving her right of first refusal and later confirmed she did not want to buy the property. The day before closing, and after the notices had gone out, Century Renovations assigned the sale contract to an entirely new entity, 6 Clayton Terrace. 6 Clayton Terrace is a limited liability company owned by Century Renovations.

         On February 15, 2013, Ms. Huey sold Lot 6 to 6 Clayton Terrace. The proceeds from the sale of Lot 6 went into Jane Huey's trust. Believing the sale of the property to be final, Ms. Huey disbursed its proceeds to the trust beneficiaries in April 2014. As part of the sale, Insight Title tendered the outstanding homeowners' association fees to the trustees of Clayton Terrace. The trustees deposited these funds in the subdivision account. Following the sale of the lot to 6 Clayton Terrace, Mr. McGowan leased the home and moved in with his children. He began substantial renovations that would have been evident to those passing or living near the home, including renovating the pool and deck, removing multiple trees and significant brush, knocking out walls within the residence, and cutting holes in the exterior walls to add more doors.

         In the meantime, 6 Clayton Terrace began attempting to obtain approval from the Frontenac planning and zoning commission to split the 2.3 acres into two lots. No formal notice of this plan was given to the Clayton Terrace trustees, although 6 Clayton Terrace presented evidence Mr. McGowan's nine-year-old son informally told a Clayton Terrace resident about the plan shortly after closing, and that resident informed one or more trustees. The trustees were concerned about the idea of having the lot subdivided but had received no direct notice of an intent to subdivide and they did not approach the owners or those living in the home about the rumor the lot would be subdivided.

         The following spring, in April 2014, 6 Clayton Terrace filed an application with Frontenac to subdivide Lot 6 into two lots, to be known as Lots 6A and 6B. The trustees and several of the Clayton Terrace residents strongly opposed 6 Clayton Terrace's proposal and appeared at public meetings to voice their opposition. Frontenac advised the trustees it was bound only by its own municipal ordinances, which simply required that each lot be greater than one acre in size, and it had no authority to enforce private indentures. In June 2014, Frontenac approved 6 Clayton Terrace's application as it did not violate city ordinances.

         Two months later, in August 2014, the trustees sued both Ms. Huey and 6 Clayton Terrace. Count I sought a declaratory judgment against Ms. Huey, claiming she violated the amended indentures by failing to provide sufficient written notice to all the subdivision lot owners and failing to accept one lot owner's offer to purchase Lot 6. In support, the trustees asserted the hand-delivered notice did not show the property was being purchased by a developer rather than a family, gave an incorrect closing date, and one or more Clayton Terrace owners were not given the notice.

         In count II the trustees sought injunctive relief against 6 Clayton Terrace to prohibit it from subdividing the lot and constructing an additional home on Lot 6, claiming division of Lot 6 into two sub-lots would violate the restrictions in the amended indentures. The trustees also sought attorney's fees. Both 6 Clayton Terrace and Ms. Huey denied these claims and asserted affirmative defenses, including that the trustees had waived and ratified the purchase by waiting more than one year to challenge the sale and alleging the amendments to the original indentures were invalid because they were adopted without the unanimous consent of all lot owners. Ms. Huey also filed a counterclaim against the trustees for abuse of process, based on her contention the trustees filed count I against her for the sole and allegedly improper purpose of preventing 6 Clayton Terrace from constructing another residence on Lot 6.

         Prior to trial, the parties submitted stipulated facts and exhibits. In December 2016, the circuit court entered judgment in favor of Ms. Huey and against the Clayton Terrace trustees on count I, holding the "right of first refusal" provision was invalid and unenforceable, and in any event equitable considerations and the doctrines of waiver and ratification militated against enforcement of the indentures because the trustees: (1) did not raise any failure to comply for a year and a half after the sale despite their awareness of substantial modifications being made to the property by the new owners; and (2) ratified the sale by accepting funds out of the proceeds of the closing for homeowner association fees.

         The circuit court also found in Ms. Huey's favor on her abuse of process counterclaim, finding the trustees' attempts to set aside the sale of the property were done with what it said was the improper purpose of coercing 6 Clayton Terrace into withdrawing its request to subdivide the property by placing its title at risk. The circuit court awarded Ms. Huey attorney's fees.[2]

         On count II, the circuit court found in the trustees' favor. Noting the text of the indentures neither expressly prohibited nor expressly allowed for the subdivision of lots, the circuit court looked to the various provisions of the indentures and concluded the limitation of one house per lot was intended to preclude subdivision of the lots. It enjoined 6 Clayton Terrace from subdividing Lot 6 or constructing an additional residence on Lot 6 and awarded the trustees' their costs. Finding that 6 Clayton Terrace had acted in bad faith in failing to reveal its plan to subdivide the property and that this constituted "special circumstances," it included substantial attorney's fees in its judgment against 6 Clayton Terrace.[3] All parties appealed. After an opinion by the court of appeals, this Court granted transfer. Mo. Const. art. V, sec. 10.

         II. STANDARD OF REVIEW

         "The trial court's judgment will be affirmed unless there is no substantial evidence to support it, it is against the weight of the evidence, or it erroneously declares or applies the law." Robinson v. Title Lenders, Inc., 364 S.W.3d 505, 510 (Mo. banc 2012). "The circuit court's determinations of questions of law are subject to de novo review." Hill v. Mo. Dep't of Conservation, 550 S.W.3d 463, 467 (Mo. banc 2018).

         III. THE CIRCUIT COURT'S FINDING THAT THE SALE OF LOT 6 WAS VALID IS NOT AGAINST THE WEIGHT OF THE EVIDENCE

         The trustees contend the circuit court's ruling that Ms. Huey's sale of Lot 6 was valid because she complied with the "right of first refusal" provision was against the weight of the evidence.[4] That provision required she provide at least 15 days' notice to each lot owner, and that such notice contain the selling price and "other terms." Because the circuit court reasonably could have found from the record that she complied with the "right of first refusal" provision, that finding was not against the weight of the evidence.

         "Appellate courts act with caution in exercising the power to set aside a decree or judgment on the ground that it is against the weight of the evidence." Ivie v. Smith, 439 S.W.3d 189, 205 (Mo. banc 2014). "When reviewing the record in an against-the-weight-of-the-evidence challenge, this Court defers to the circuit court's findings of fact when the factual issues are contested and when the facts as found by the circuit court depend on credibility determinations." Id. at 206. "A circuit court's judgment is against the weight of the evidence only if the circuit court could not have reasonably found, from the record at trial, the existence of a fact that is necessary to sustain the judgment." Id.

         The circuit court found notice of the sale for Lot 6 was prepared by Insight Title and that the real estate agent hand delivered the notices to each home in Clayton Terrace. After delivering the notices, Insight Title postponed the closing date of the sale for 15 days to accommodate the 15-day requirement contained in the "right of first refusal" provision. The circuit court found the majority of homeowners filled out and returned these written waivers, which said the homeowner was not interested in purchasing Lot 6. Further, none of the witnesses called by the trustees testified they did not receive notice of the sale or currently desired to purchase Lot 6. The only homeowner who had indicated an interest in buying Lot 6 did receive notice and later delivered a written document expressly waiving her right of first refusal. Based on this evidence, the circuit court found that Insight Title complied with the indenture.

         While the trustees note they presented substantial evidence certain lot owners did not receive the notice, Ms. Huey presented evidence she had delivered the notice to all homes. The circuit court clearly found that more credible. The circuit court "is free to believe all, some, or none of the evidence offered to prove a contested fact, and the appellate court will not re-find facts based on credibility determinations through its own perspective." Id. As the circuit court could reasonably have found Ms. Huey complied with the "right of first refusal" provision from facts in the record, this Court rejects the trustees' argument that the circuit court's ruling was against the weight of the evidence.

         IV. CLAYTON TERRACE TRUSTEES DID NOT ABUSE PROCESS IN SUING TO INVALIDATE THE SALE OF LOT 6

         While Ms. Huey's sale of Lot 6 is affirmed, this Court reverses the circuit court's finding that there was an abuse of process by the trustees in seeking to have the sale invalidated. "The general rule is that no right of action exists for damages resulting from the initiation of a civil action, unless the action was prosecuted maliciously and without probable cause or there was an abuse of process." Dillard Dep't Stores, Inc., v. Muegler, 775 S.W.2d 179, 183 (Mo. App. 1989). To prevail on her abuse of process claim, Ms. Huey was required to show three elements: "(1) the present defendant made an illegal, improper, perverted use of process, a use neither warranted nor authorized by the process; (2) the defendant had an improper purpose in exercising such illegal, perverted or improper use of process; and (3) damage resulted." Ritterbusch v. Holt, 789 S.W.2d 491, 493 (Mo. banc 1990), citing Stafford v. Muster, 582 S.W.2d 670, 678 (Mo. banc 1979).

         Ms. Huey's abuse of process counterclaim asserted the trustees' purpose in seeking to set aside the sale was wholly pretextual and was brought solely for the allegedly improper collateral purpose of coercing 6 Clayton Terrace into abandoning or withdrawing its request to subdivide the property. The circuit court discussed the evidence in detail and concluded Ms. Huey had proved the second element by showing the trustees' purpose was an improper one in that they did not actually care about the alleged improprieties in the notice given by Ms. Huey nor did they identify an owner who wanted to utilize the right of first refusal. The circuit court further found the third element - damage resulted.

         Ms. Huey, however, also was required to adduce evidence of the first element, "an illegal, improper, perverted use of process, a use neither warranted nor authorized by the process." Id. To support this element, she and the circuit court relied on the same evidence used to support the second element - improper motive. That was error. The test for liability in an abuse of process claim is "whether the process has been used to accomplish some unlawful end, or to compel the defendant to do some collateral thing which he could not legally be compelled to do." Moffett v. Commerce Trust Co., 283 S.W.2d 591, 600 (Mo. 1955) (quotations omitted). "The ulterior motive may be inferred from the wrongful use made of the process, but the use itself may not be inferred from the motive." Id. at 599 (quotations omitted). It is improper to conflate these two separate elements by inferring an improper use of process from bad motive. Id.

         The test employed to see whether there has been a misuse of process "is whether process had been used to accomplish some unlawful end or to compel the opposite party to do some collateral thing which he [or she] could not be compelled to do legally." Ritterbusch, 789 S.W.2d at 493 n.1, citing, Owen v. Owen, 642 S.W.2d 410, 414 (Mo. App. 1982). Courts have found misuse of legal process when a party "employs legal process in a manner technically correct, but for a wrongful and malicious purpose to attain an unjustifiable end or an object" that the particular process is not meant to effectuate. Montgomery GMC Trucks, Inc. v. Nunn, 657 S.W.2d 334, 336 (Mo. App. 1983) (quotations omitted).

         But "[n]o liability attaches where a party has done nothing more than pursue the lawsuit to its authorized conclusion regardless of how evil a motive he possessed at the time." Pipefitters Health & Welfare Trust v. Waldo R., Inc.,760 S.W.2d 196, 198-99 (Mo. App. 1988). To the contrary, in the rare cases in which a valid abuse of process claim will lie, there has been evidence the complained-about action was brought "to obtain a result which the process was not intended ...


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