Mable Cleary Trust v. Edward-Marlah Muzyl Trust

686 N.W.2d 770

262 Mich.App. 485

THE MABLE CLEARY TRUST, Plaintiff-Appellant, v. THE EDWARD-MARLAH MUZYL TRUST, William L. Muzyl, Dale J. Smith Broker, Inc., Thomas Tomkow, Susan Tomkow, and Paxton Resources, LLC, Defendants-Appellees.

No. 244744.

Court of Appeals of Michigan.

Submitted May 27, 2004, at Lansing.

Decided June 17, 2004, at 9:00 a.m.

Released for Publication September 1, 2004.

Susan Hlywa Topp, PLC (by Susan Hlywa Topp), Gaylord, for the Marble Cleary Trust.

Matthew D. Vermetten and Troy W. Stewart, Traverse City, for the Edward-Marlah Muzyl Trust, William J. Muzyl, and Dale J. Smith Broker, Inc.

Mika, Meyers, Beckett & Jones, PLC (by John M. DeVries and Jennifer A. Puplava), Grand Rapids, for Paxton Resources, LLC, and Thomas Tomkow.

Before: MARK J. CAVANAGH, P.J., and MURPHY and SMOLENSKI, JJ.

SMOLENSKI, J.

At issue in this case is the right to develop certain mineral interests; specifically, the right to gas exploration and development in a residential subdivision. Plaintiff, the Mable Cleary Trust, owns three lots in the subdivision and brought suit against defendants Dale Smith, William Muzyl, the Edward-Marlah Muzyl Trust, Thomas and Susan Tomkow, and Paxton Resources alleging that the mineral development violated the subdivision's restrictive covenants. The trial court granted defendants' motions for summary disposition and plaintiff appeals as of right. We affirm in part, reverse in part, and remand.

I. Background

On October 14, 1996, defendants Dale Smith, William Muzyl, and the Edward-Marlah Muzyl Trust (collectively referred to as the "Developers"), purchased the property now known as the Sturgeon River Estates from the Otsego Ski Club-Hidden Valley, Inc (Otsego). As part of this purchase agreement, Otsego retained an undivided fifty percent interest in the mineral rights.

Developers developed the property into a residential housing area, the Sturgeon River Estates Subdivision. As part of the development, Developers adopted and recorded certain restrictive covenants, which were initially recorded on September 25, 1997. On November 25, 1997, Developers terminated the previously recorded restrictive covenants and recorded a replacement set, which, as far as this case is concerned, are materially identical. Plaintiff purchased by warranty deed its first parcel within the subdivision in the fall of 1997. On July 22, 1998, plaintiff purchased from Developers two additional parcels in the subdivision.

In early 1999, Otsego and defendant Paxton Resources (Paxton) entered into a mineral lease. On August 27, 2001, an amendment to this previously recorded mineral lease was recorded, which assigned Otsego's undivided fifty percent mineral interest to Paxton. After the last parcel in the subdivision was sold, Developers leased their undivided fifty percent mineral interest to Paxton on June 21, 2001. After obtaining the mineral leases, Paxton approached plaintiff regarding the placement of an Antrim field gas well on one of plaintiff's parcels. Discussions ensued. Despite their disagreement regarding why the negotiations with plaintiff ended, the parties agree that Paxton then approached defendant Thomas Tomkow, a different property owner in the subdivision, seeking to locate the well on his property. Tomkow agreed, and Paxton obtained a permit from the MDEQ¹ to drill the Tomkow C-14 Antrim gas well on Tomkow's property. Tomkow's property lies between and adjacent to two parcels owned by plaintiff.

Litigation began in this case in November 2001 when plaintiff, other subdivision property owners, and the property owners' association filed a complaint against Developers contending that the proposed gas well on Tomkow's property violated the subdivision's restrictive covenants. As a result of a settlement agreement, most of the plaintiffs withdrew from the litigation.² Plaintiff, alone, then filed its first amended complaint against Developers in December 2001 alleging fraudulent misrepresentation, breach of contract, trespass, and negligent misrepresentation. Plaintiff also sought injunctive and declaratory relief. On January 16, 2002, the trial court entered an order for a preliminary injunction until a full hearing on the matter could be held.

In February 2002, Developers filed a motion for summary disposition pursuant to MCR 2.116(C)(8) and (10). Developers argued that because Otsego had severed its mineral rights before the restrictive covenants were in place, Otsego's interest was not burdened by the covenants. Therefore, Otsego was free to develop its interest in a reasonable manner through Paxton. Defendants also argued that the restrictive covenants contemplated mineral development and plaintiff had notice of this possibility. The trial court agreed and stated that plaintiff's claims were mainly anticipatory because exploration had not yet begun. Nevertheless, the court found that the proposed well head placement specifically, and the exploration and development in general, did not violate the covenants. The court also held that Michigan's majority in interest statute, MCL 319.101, did not bar Otsego from developing its interest, contrary to plaintiff's contention. But it dismissed plaintiff's claims without prejudice, because it did not want to preclude plaintiff from refiling a complaint once development had begun, stating that plaintiff may have a cause of action for damages at that time. As a result of its ruling, the trial court dissolved the preliminary injunction. Plaintiff's subsequent motion for reconsideration was denied.³

Paxton began work on the well in April 2002 when the trial court lifted the injunction. The well is located 186 feet west of the east border of the subdivision. Placement on the border was prohibited by the existence of a thirty-five-foot wide public utility easement that is located there. On July 3, 2002, plaintiff filed its second amended complaint, which contained the same counts as in its first amended complaint, and added defendants the Tomkows and Paxton and new counts of nuisance, breach of warranty of title, misrepresentation or fraud by real estate broker, and conspiracy.

Defendants filed motions for summary disposition, which the trial court granted. With regard to the claims against Paxton and the Tomkows, the court again held that Otsego was free to develop its interest irrespective of the restrictive covenants and that the majority in interest statute did not prevent its unilateral development. Thus, no claim against these defendants could stand and the court granted their motion for summary disposition. Regarding the Developers, the court noted that the claims and arguments plaintiff presented were the same as those in plaintiff's first amended complaint. Therefore, the court relied on its earlier ruling and granted Developers' motion for summary disposition.

II. Standards of Review

The trial court granted defendants' motions for summary disposition pursuant to MCR 2.116(C)(8) and (10). Such a ruling is reviewed de novo by this Court. A motion under MCR 2.116(C)(8) tests the legal sufficiency of a claim, while a motion under MCR 2.116(C)(10) tests the factual support for a claim. Granting a motion pursuant to MCR 2.116(C)(8) is proper when the opposing party has failed to state a claim on which relief can be granted, the claim is clearly unenforceable as a matter of law, and no factual development could support recovery. When reviewing such a motion, only the pleadings are considered; no documentary evidence may be examined. In contrast, when considering a motion under MCR 2.116(C)(10), we must consider the pleadings and all the documentary evidence, including affidavits and depositions, in the light most favorable to the nonmoving party in order to determine if the moving party is entitled to a judgment as a matter of law. Rorke v. Savoy Energy, LP, 260 Mich.App. 251, 253, 677 N.W.2d 45 (2003), MCR 2.116(G)(5).

III. Application of the Restrictive Covenants

Plaintiff argues that because Developers' mineral interest was severed after the restrictive covenants were filed, their interest is subject to the restrictive covenants. Negative covenants restricting land use are grounded in contract. Stuart v. Chawney, 454 Mich. 200, 210, 560 N.W.2d 336 (1997). A covenant is a contract created with the intention of enhancing the value of property and is a valuable property right. Terrien v. Zwit, 467 Mich. 56, 71-72, 648 N.W.2d 602 (2002).

The two restrictive covenants at issue read as follows:

C. LAND USE

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4a. The seller hereby reserves unto itself its successors and assigns, an easement over each site for public utilities and private road. An easement sufficient in size, for a well head private gas line, and or oil well shall be reserved by the Developer on the East border of the Sites including access, ingress and egress sufficient in size to meet developers needs. No compressor facilities are permitted in Sturgeon River Estates. A well head, if located, shall be screened from view with vegetation. Within these easements, no structure, planting or other material shall be placed or permitted which may damage or interfere with the installation and maintenance of utilities, or which may change the direction or flow of water through drainage channels in the easements. The easements area of each site and all improvements in it shall be maintained continuously by the owner of each site except for those improvements for which a public authority, utility company or developer is responsible.

E. GENERAL PROVISIONS

* * *

5. These covenants, conditions and restrictions are to run with the land and shall be binding upon all parties and all persons claiming under them, provided, however, that the covenants, conditions and restrictions may be amended, changed or eliminated entirely, excepting gas and/or oil line and well head easements which shall run in perpetuity, by agreement signed by the owners of ten of the sites in this development,

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