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EWB-I, LLC v. Plazamericas Mall Texas, LLC

Court of Appeals of Texas, First District

June 6, 2017

EWB-I, LLC, Appellant

         On Appeal from the 215th District Court Harris County, Texas Trial Court Case No. 2010-71771

          Panel consists of Justices Massengale, Brown, and Huddle.


          Harvey Brown Justice

         This appeal arises out of a dispute over the continuing enforceability of restrictive covenants governing the Houston shopping center formerly known as Sharpstown Mall.

         EWB-I LLC owns five overflow parking areas along the southern and eastern edge of the mall property that are alleged to be underutilized. EWB ("Overflow Owner") wishes to develop these overflow parking areas for commercial use, including possibly constructing a free-standing bank on one of the lots, but there are long-standing restrictive covenants that limit the use of these areas to only parking for the mall structure. Overflow Owner filed suit against all other entities to which the mall complex's restrictive covenants apply, seeking a declaratory judgment that various covenants are no longer enforceable, as well as injunctive relief and damages.

         There are seven defendants in the suit: PlazAmericas Mall Texas, LLC ("PlazAmericas Texas"); Sharpstown Mall Texas, LLC ("Sharpstown Texas"); Burlington Coat Factory Realty of Bellaire, Inc.; Mai & Matthew, R.E.I., Inc.; CCW, LLC; Smith, FLP, Ltd.; and LG Sharpstown Bellaire, LLC. Each holds an ownership interest in one of the structures within the mall complex. These defendants (referred to collectively as "Structure Owners") own the three anchor-tenant buildings, the main mall building where smaller retail tenants sell their goods, an adjacent office building, and an on-site parking garage. The party that owns the main mall building also owns the parking surface lots closest to the mall. That party is PlazAmericas Texas, which acquired its interest from Sharpstown Texas.

         Structure Owners moved for summary judgment and for dismissal of Overflow Owner's suit. The trial court granted Structure Owners summary judgment on Overflow Owner's declaratory judgment claims and dismissed the injunctive relief claims for lack of jurisdiction. Ultimately, the trial court entered a take-nothing judgment in favor of Structure Owners on all Overflow Owner's claims and awarded attorney's fees.

         Overflow Owner appeals, arguing in seven issues that the trial court erred by granting summary judgment, dismissing its claims for injunctive relief, awarding attorney's fees, entering a final judgment without finally disposing of all claims, and striking certain summary-judgment evidence. We reverse the judgment and remand for further proceedings consistent with this opinion.


         Sharpstown Mall was developed more than 40 years ago as the first enclosed, air-conditioned shopping mall in Houston. It was a premiere retail facility with three anchor tenants: Montgomery Ward, J.C. Penney, and Foley's. The three anchor tenants were connected by a large main mall structure that housed additional, smaller retailers. Between the main mall structure and the primary surface parking lots was a multi-floor office building.

          To accommodate the traffic to this regional mall, the developer constructed a three-story parking garage near the Foley's store as well as surface-level parking at each end of the property and along the perimeter of two sides of the property as shown below:

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         No single entity owned all the realty for this project. Each anchor-tenant location had a separate owner. The office building had a separate owner. And the original mall developer owned what was left: the main mall structure and all of the parking areas, including the parking garage, the surface parking areas surrounding the mall structure, and the five overflow parking areas. Thus, as originally configured, every owner held an ownership interest in at least one building; no party owned only parking lots. And the success of the entire mall complex required the owners to work together.

         To ensure a cohesive approach to the development of the mall, all the various owners, in 1979, entered into or consented to a contract-a Restated Operating Agreement ("ROA")-that contained various restrictive covenants. The ROA stated that it would be binding on all parties and their successors and assignees until termination of the agreement in 2035 or earlier by agreement. The ROA was part of a "major overhaul" of the mall that added a second story, a food court, the J.C. Penney store, and a parking garage. It governs all aspects of the operation of the mall and the mall complex, including security, maintenance, ingress, egress, and parking. Adequate parking was vital to the success of the entire mall complex.

         One of the ROA restrictions was that the parking area (which was defined to include the parking garage and all surface parking lots) had to contain no less than five parking spaces for each 1, 000 square feet of floor area in the mall. "Floor area" was defined to include all the floor space in the mall, regardless of whether it was actively being used for retail sales. It prohibited parties from diminishing the area on each party's parcel reserved for parking or from placing obstructions or permanent improvements of any kind in the parking area or parking garage.

         Over the years, individual portions of the mall were sold to various successors.[1] In 2004, for the first time, ownership of some of the parking areas was transferred to a party that did not also own one of the mall structures. Ownership of the five overflow parking lots was transferred by one of the Structure Owners to a related entity, NBC-Bellaire Parcel Development, LLC. The newly formed entity then used the five overflow parking lot as collateral for a nearly $6 million loan. Appellant EWB is the current successor to the lender. In 2008, NBC-Bellaire defaulted, and the following year, in May 2009, EWB (referred to throughout as Overflow Owner) foreclosed on the five tracts and became the owner of the overflow parking area. Both before and after Overflow Owner obtained its ownership interest, Sharpstown Mall was changing. More specifically, it was declining.

         A. The mall's decline

         Sharpstown Mall was developed as a "first class regional shopping center." But the mall went through a period of transition and decline in the 1990s and 2000s. All three anchor tenants closed within a ten-year period: J.C. Penney closed in the late 1990s; Montgomery Ward closed next; and Foley's, which was the largest and considered the main anchor of the mall, closed last, in 2007.[2]

         In 2010, the J.C. Penney location reopened as "Clarewood Mercado, " which is a collection of small, individual vendors. The Montgomery Ward store was replaced by a retailer with a smaller national presence, Burlington Coat Factory. And the Foley's site was padlocked and has remained empty.[3]

         Without anchors to draw traffic to the mall, the character of the retailers filling the main mall structure also changed. The mall retail space was set up as a "flea-market"-style shopping area. Photographs depict caged, micro-retail stores surrounded by vast areas of unused space. There is evidence that the flea-market shopping area did not draw the level of traffic that Sharpstown Mall once enjoyed. There is also evidence that the parking lots would no longer fill, even during the height of Christmas shopping season.

         Seeing its parking areas go unused, Overflow Owner sporadically allowed traveling carnivals to operate on its parking lots. These carnivals have popped up for many years, though the parties dispute the frequency and whether any parties to the litigation have ever objected to their operation.

         In 2011, PlazAmericas Texas, which owned the main mall structure, the primary surface parking areas, and the parking garage, closed the parking garage to the public. The parking garage was closed despite the ROA requirements that parking areas may not be diminished or obstructed and that a minimum of five parking spaces remain available for every 1, 000 square feet of mall floor area.

         B. Overflow Owner sues to modify the ROA

         In 2010, Overflow Owner sued Structure Owners. Overflow Owner sought, among other claims, a declaratory judgment that the ROA's parking restrictions were unenforceable and that the ROA be modified to allow reasonable retail development of its overflow parking lots under the changed-conditions and waiver doctrines or, alternatively, it sought a permanent injunction requiring all Structure Owners to fully comply with the ROA.[4]

         Structure Owners and Overflow Owner filed competing motions for summary judgment on Overflow Owner's claims for declaratory judgment. Structure Owners also moved to strike portions of Overflow Owner's summary-judgment evidence. The trial court struck certain exhibits relied on by Overflow Owner's expert witness, Joe Webb. It then granted partial summary judgment to Structure Owners and denied Overflow Owner's motion. The trial court also sustained Sharpstown Texas and PlazAmericas Texas's plea to the jurisdiction, in which they argued that Overflow Owner lacked standing to enforce ROA covenants because Overflow Owner was not an intended beneficiary of the covenants and suffered no injury from their alleged violations. The trial court dismissed Overflow Owner's injunctive claims without prejudice.

         Through these interlocutory orders, all Overflow Owner's causes of action were dismissed or adjudicated, leaving the award of attorney's fees as the sole remaining issue. Overflow Owner opposed any fee award, arguing that its request for declaratory relief was an action to remove a cloud on title, for which fees cannot be recovered. The trial court granted Structure Owners' motion for attorney's fees and entered a final judgment incorporating all of its interlocutory summary judgments, dismissals, and fee orders.

         Overflow Owner now appeals, arguing that the trial court erred in granting summary judgment on its declaratory-judgment claims, dismissing its claims for injunctive relief, striking portions of its summary-judgment evidence, and awarding attorney's fees to Structure Owners.

         Summary Judgment on Declaratory-Judgment Claims

         Overflow Owner sought a declaratory judgment that the ROA's requirement of maintaining five available parking spaces for every 1, 000 square feet of mall floor area-a restriction that arguably prevents the use of the overflow lots for other commercial purposes-is unenforceable and subject to judicial reformation on two independent theories: changed conditions and waiver. Several Structure Owners filed motions for summary judgment or joined in others' motions for summary judgment on the theories of changed conditions and waiver. First, Smith moved for summary judgment on the changed conditions theory. Burlington joined Smith's motion. Second, Sharpstown Texas moved for partial summary judgment on the declaratory judgment claims generally, arguing that there had not been sufficient change in conditions and that it had not waived any restrictions through a course of action within the overflow lots. Three co-defendant Structure Owners joined Sharpstown Texas's motion: PlazAmericas Texas, Burlington, and CCW. The trial court granted both motions and dismissed Overflow Owner's declaratory-judgment claims as to all Structure Owners, meaning that the trial court rejected the changed conditions and waiver theories as a matter of law and concluded that Overflow Owner could not prevail on either theory against any Structure Owner.

         In its first issue, Overflow Owner challenges summary judgment against it on the changed-conditions and waiver arguments. If the trial court erred on either of the two theories, the summary judgment against Overflow Owner on its declaratory-judgment claims must be reversed.

         A. Standard of review

         Structure Owners, defendants in the trial court action, sought summary judgment on both traditional and no-evidence grounds. See Tex. R. Civ. P. 166a(c), 166a(i). A defendant that files a traditional motion for summary judgment has the burden to show that no genuine issue of material fact exists and that the trial court should grant judgment as a matter of law. Tex.R.Civ.P. 166a(c); KPMG Peat Marwick v. Harrison Cty. Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999). A defendant moving for traditional summary judgment must conclusively negate at least one essential element of each of the plaintiff's causes of action or conclusively establish each element of an affirmative defense. Sci. Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex. 1997). For a defendant to prevail on a no-evidence motion for summary judgment, the defendant must establish that there is no evidence to support an essential element of the plaintiff's claim on which the plaintiff would have the burden of proof at trial. See Tex. R. Civ. P. 166a(i); Hahn v. Love, 321 S.W.3d 517, 523-24 (Tex. App.-Houston [1st Dist.] 2009, pet. denied). The burden then shifts to the plaintiff to present evidence raising a genuine issue of material fact as to each of the elements specified in the defendant's motion. Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572, 582 (Tex. 2006); Hahn, 321 S.W.3d at 524.

         We review a trial court's grant of summary judgment de novo. Travelers Ins. Co. v. Joachim, 315 S.W.3d 860, 862 (Tex. 2010). When reviewing a summary judgment, we must (1) take as true all evidence favorable to the nonmovant, and (2) indulge every reasonable inference and resolve any doubts in the nonmovant's favor. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005); Provident Life Accid. Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003).

         In construing a contract, we must ascertain and give effect to the parties' intentions as expressed in the writing itself. Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 333 (Tex. 2011). To discern intent, "we must examine and consider the entire writing in an effort to harmonize and give effect to all the provisions of the contract so that none will be rendered meaningless." J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003). We begin with the contract's express language. El Paso Field Servs., L.P. v. MasTec N. Am., Inc., 389 S.W.3d 802, 805-06 (Tex. 2012). "If we determine that the contract's language can be given a certain or definite legal meaning or interpretation, then the contract is not ambiguous and we will construe it as a matter of law." Id. at 806. But, "if the contract is subject to two or more reasonable interpretations after applying the pertinent rules of construction, the contract is ambiguous, creating a fact issue on the parties' intent." J.M. Davidson, 128 S.W.3d at 229. "When a contract contains an ambiguity, the granting of a motion for summary judgment is improper because the interpretation of the instrument becomes a fact issue." Coker v. Coker, 650 S.W.2d 391, 394 (Tex. 1983).

         B. Summary judgment against Overflow Owner on claim of "changed conditions"

         Overflow Owner sought a declaratory judgment that the ROA restrictive covenants were unenforceable due to changed conditions at the mall that left the restrictions incapable of achieving their purpose.

         1. The changed-conditions doctrine

         A court may refuse to enforce a deed restriction when "there has been such a change of conditions in the restricted area or surrounding it that it is no longer possible to secure in a substantial degree the benefits sought to be realized through the [restriction]." Cowling v. Colligan, 312 S.W.2d 943, 945 (Tex. 1958); see Restatement (Third) of Property: Servitudes § 7.10 (2000) ("When a change has taken place since the creation of a servitude that makes it impossible as a practical matter to accomplish the purpose for which the servitude was created, a court may modify the servitude to permit the purpose to be accomplished. If modification is not practicable, a court may terminate the servitude."). If the reason for enforcing a restrictive covenant has ceased, equity will no longer enforce the covenant. La Rocca v. Howard-Reed Oil Co., 277 S.W.2d 769, 772 (Tex. Civ. App.-Beaumont 1955, no writ). The doctrine is based on the "implied intent of the parties and public policy." Restatement: Servitudes § 7.10 cmt. a.

         To qualify as a "changed condition, " the change cannot be minor; it must be "radical."E.g., Simon v. Henrichson, 394 S.W.2d 249, 254 (Tex. Civ. App.-Corpus Christi 1965, writ ref'd n.r.e.); see Lebo v. Johnson, 349 S.W.2d 744, 749-50 (Tex. Civ. App.-San Antonio 1961, writ ref'd n.r.e.); Hemphill v. Cayce, 197 S.W.2d 137, 141 (Tex. Civ. App.-Fort Worth 1946, no writ). It is not enough that a change reduces the value of the benefit sought to be realized through the restriction. But neither is it required that a change fully eliminate all benefits created by the restriction. Instead, to qualify as a radical change, it must eliminate a substantial part of the benefit sought to be achieved by the restriction. Moseley v. Arnold, 486 S.W.3d 656, 666 (Tex. App.-Texarkana 2016, no pet.); see Restatement: Servitudes § 7.10 cmt. c (stating that "the test is not whether the servitude retains value, but whether it can continue to serve the purposes for which it was created. . . . The test is a stringent one . . . .").

         There are at least six factors that have been identified as relevant to determining whether changed conditions are extensive enough to warrant lifting restrictions: (1) the size of the restricted area, (2) its location with respect to where the change has occurred, (3) "the type of change that has taken place, " (4) "the character and conduct of the parties or their predecessors in title, " (5) "the purpose for which the restrictions were imposed, " and (6) "to some extent the unexpired term of the restrictions." Simon, 394 S.W.2d at 254. Evaluating whether changes qualify as "radical" to warrant setting aside the parties' agreed restrictions is a fact-intensive analysis. See Lebo, 349 S.W.2d at 749. These factors are not viewed simply in terms of the effects the changes have had on the lots currently burdened by the deed restriction. Cowling, 312 S.W.2d at 946. Instead, the proper analysis requires that we balance the equities. Id.; Gunnels v. N. Woodland Hills Cmty. Ass'n, 563 S.W.2d 334, 338 (Tex. Civ. App.-Houston [1st Dist.] 1978, no writ).

         Because a changed-conditions analysis is focused on the extent to which the changes eliminate a substantial part of the benefit sought to be achieved through the restriction, we first examine the underlying purpose of the agreed-upon restriction. See Moseley, 486 S.W.3d at 666. To determine purpose, we look initially to the terms of the restrictive covenant. Id. at 662. If the agreement is unambiguous, we determine the parties' intent from the language used in the document. Id. at 662-63. If the restrictive covenant is susceptible to more than one reasonable interpretation as to its purpose, it is ambiguous and creates a fact issue as to its purpose. Id. at 668; see Indep. Am. Real Estate, Inc. v. Davis, 735 S.W.2d 256, 258 (Tex. App.-Dallas 1987, no writ).

         2. The ROA is ambiguous as to purpose, preventing summary judgment

         Section 5.1 of the ROA mandates that a ratio be maintained of "no less than five automobile parking spaces . . . for each 1, 000 square feet of floor area." It further provides that no party shall take any action that would "diminish the area on [its] parcel reserved for automobile parking." And it places restrictions on the size of the mall floor area, while stating that those restrictions are "to assure that the parking ratio established in Section 5.1 shall be maintained." However, the ROA never states the purpose of the mandated parking ratio. Nor does it expressly address what occurs if parts of the mall floor area are left unoccupied for years, as has occurred.

         The parties read into the document various intentions. According to Overflow Owner, the benefit that the parties intended to secure through the parking ratio requirement was adequate parking for the mall. Overflow Owner argues that, while "[e]xpansive parking lots were at one time necessary to support the large volume of shoppers national anchor tenants attracted, " the overflow lots no longer serve that purpose because the mall never requires overflow parking. It concludes that the mall no longer needs, and is not reasonably likely in the future to need, the parking ratio specified in the ROA. According to Overflow Owner, because there is adequate parking close to the mall entrances, the restriction on the outer-most lots-the overflow parking lots it owns-no longer serves the restriction's purpose.

         Structure Owners deny that the parties intended a quantitative analysis of parking need. They argue that the purpose of the restrictions was not necessarily to provide adequate parking but, more generally, to make the area available for parking. According to Structure Owners, the overflow lots "are still available for parking . . . and . . . Mall customers still use [them] for parking." Thus, they argue, the benefit sought to be secured is still fully capable of being realized: parking in this area of the property. They further argue that, between the time of this suit and the expiration of the ROA in 2035, it is possible that the Mall will acquire tenants with parking needs that would increase the use of the overflow lots for parking.

         Looking to the terms of the agreement itself, there are some indications that the benefit sought to be realized by the restrictions was to ensure adequate parking for Mall visitors. As examples, the ROA mandates that the parties maintain a ratio of five available parking spaces for every 1, 000 square feet of mall floor area, and it prohibits any party from ...

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