April 10, 2015
The Riverbend Association, Inc.
Riverbend, LLC, and River Bend Marina, LLC
Appeal from Marshall Circuit Court (CV-12-900071)
In 1974, Anne Homes, Inc., constructed a condominium development. As part of its development of the project, Anne Homes constructed a sewage-treatment plant on land adjacent to the condominium development. The sewage-treatment plant was intended to serve the condominium development.
In November 1974, Anne Homes entered into what was entitled a lease ("the 1974 agreement") with The Riverbend Association, Inc. ("RAI"), and Riverbend Marina Company, Inc. ("the marina"). The 1974 agreement was for a five-year term, with nine automatic-renewal terms of five years each; however, RAI and the marina could elect not to renew the 1974 agreement. The 1974 agreement granted possession of the sewage-treatment plant to RAI and the marina. RAI and the marina were required to perform all maintenance on the sewage-treatment plant. RAI and the marina were each responsible for one-half of the monthly rental payment under the 1974 agreement, and, initially, they were to divide the expenses of the operation of the sewage-treatment plant on a percentage basis, with the marina being responsible for 10% of the expenses of operating the sewage-treatment plant and RAI being responsible for the remaining 90%.
In 1981, Anne Homes defaulted on the mortgage secured by the property upon which the sewage-treatment plant was located. The Peoples National Bank of Huntsville ("the bank") foreclosed on the mortgage and purchased the property at the foreclosure sale. When the bank took possession of the property, the sewage-treatment plant was in need of significant repairs, which the bank made. After the foreclosure, the marina was no longer an extant entity, and the bank and RAI entered into what was labeled as an amendment to the 1974 agreement ("the 1981 amendment"). The 1981 amendment, however, specified that the 1974 agreement had not actually been a lease but had instead been a license agreement permitting RAI and the marina to use the sewage-treatment plant. The 1981 amendment clarified that the bank and RAI were entering into a license agreement, and it deleted or modified certain provisions of the 1974 agreement, including deleting the provision requiring rent payments and replacing the provision governing the division of the expenses of operating the sewage-treatment plant. The 1981 amendment required that the bank pay 10% of the expenses of operating the sewage-treatment plant and that RAI pay 90%. The provision governing the division of the expenses further stated:
"If, at any time in the future additional sewer line taps are made into the [sewage-treatment plant], the parties agree that thereafter all expenses of the operation of the [sewage-treatment plant] shall be apportioned on a pro rata basis among the users based on the number of units using the treatment facility system. The Bank, its successors and assigns, shall remain in full control and possession of the [sewage-treatment plant] at all times and shall have the right, at any time, and from time to time, to allow additional sewage taps into the [sewage-treatment plant], provided, however, that in no event shall the Bank, its successors or assigns, allow any taps which would result in exceeding the [sewage-treatment plant's] capacity."
Also in 1981, the bank sold the sewage-treatment plant to River Bend, Ltd. The deed from the bank to River Bend, Ltd., specifically references the 1974 agreement and the 1981 amendment. In addition, the bank and River Bend, Ltd., executed a document entitled "Assignment of Interests and Assumptions of Obligations Agreement" ("the assignment agreement"). Under the assignment agreement, among other things, River Bend, Ltd., assumed the obligations of the bank under the 1974 agreement and the 1981 amendment. River Bend, Ltd., operated the sewage-treatment plant from mid-1981 to October 2010. During that time, River Bend, Ltd., billed RAI for, and RAI paid, 90% of the expenses associated with the operation of the sewage-treatment plant.
In October 2010, River Bend, Ltd., conveyed the sewage-treatment plant to Riverbend, LLC. The deed from River Bend, Ltd., to Riverbend, LLC, did not contain any reference to the 1974 agreement, the 1981 amendment, or the assignment agreement. Riverbend, LLC, or River Bend Marina, LLC, (hereinafter referred to collectively as "Riverbend"), continued the billing practices instituted by River Bend, Ltd., and billed RAI for 90% of the expenses associated with the operation of the sewage-treatment plant. In 2011, however, RAI determined that, because additional sewer taps had been added, RAI was no longer responsible for 90% of the expenses associated with the operation of the sewage-treatment plant. Based on the increased number of users, RAI calculated its pro rata share of the expenses associated with the operation of the sewage-treatment plant to be approximately 72%, and RAI began paying Riverbend that reduced amount in June 2011. Riverbend objected to RAI's unilateral reduction of the payments, and Riverbend threatened to terminate sewer service to the condominium development.
In March 2012, RAI sued Riverbend and fictitiously named parties, seeking a judgment declaring that Riverbend was bound by the terms and conditions of the 1974 agreement and the 1981 amendment. RAI also sought an accounting, an injunction to prevent Riverbend from terminating sewer service to the condominium development, and damages for breach of contract, which damages it claimed had resulted from Riverbend's billing RAI more than the amount required by the 1981 amendment.Riverbend filed an answer, which it later amended to add counterclaims seeking a judgment declaring that Riverbend was not bound by the terms of the 1974 agreement and the 1981 amendment, that Riverbend was entitled to change the billing plan for its services to a per-user billing plan based on consumption, and that Riverbend was entitled to include in its billing a profit margin. Riverbend also sought damages for breach of contract or unjust enrichment based on RAI's failure to pay in full the amount Riverbend had billed RAI.
RAI moved for a partial summary judgment. In its motion, RAI requested that the trial court determine that it had an irrevocable license to use the sewage-treatment plant and that Riverbend was bound by the terms of the 1974 agreement and the 1981 amendment. Riverbend opposed RAI's motion and filed a cross-motion for a summary judgment, in which it argued that it was not bound by either the 1974 agreement or the 1981 amendment and that Riverbend was entitled to charge RAI reasonable fees for the sewer service Riverbend provided. Riverbend specifically sought a judgment in its favor determining that Riverbend had acquired title to the sewage-treatment plant free from the obligations imposed by the 1974 agreement and the 1981 amendment, that Riverbend could include a profit margin in its billing for sewer services, that Riverbend could change its billing practice to bill users individually, and that RAI owed Riverbend the remaining balance between the amount RAI paid and the amount it had been billed for the sewer services provided between June 2011 and the date of the judgment.
The trial court entered a summary-judgment order deciding the issues in favor of Riverbend on November 13, 2013. In its November 2013 order, the trial court did not determine the character of the 1974 agreement or the 1981 amendment. The trial court further determined that Riverbend was not bound by the 1974 agreement or the 1981 amendment, but, the trial court concluded, if Riverbend were bound by those agreements, the agreements had not been breached. The trial court further concluded that neither the 1974 agreement nor the 1981 amendment prohibited Riverbend from charging reasonable rates for sewer service, from including within its charges an amount sufficient to create a reasonable profit, or from changing its billing system to a per-user, metered billing system. Based on its conclusions, the trial court ordered that RAI pay $24, 404.41 in past-due sewer-service charges and permitted Riverbend to submit a supplemental affidavit of additional past-due sewer-service charges within 30 days.
Riverbend submitted a supplemental affidavit indicating that RAI owed an additional $4, 873.63 in past-due sewer-service charges. RAI filed a postjudgment motion on December 13, 2013. The trial court amended its judgment on January 21, 2014, to require RAI to pay the additional post-due sewer-service charges. RAI's postjudgment motion had been held in abeyance until the judgment was made final by the trial court's January 21, 2014, judgment including the additional amount owed by RAI. See Rule 4(a)(4), Ala. R. App. P. The motion was then denied by operation of law on April 21, 2014. RAI timely filed its notice of appeal to this court on April 16, 2014. We held RAI's appeal in abeyance until the denial of RAI's postjudgment motion by operation of law pursuant to Rule 4(a)(5), Ala. R. App. P.
We review a summary judgment de novo; we apply the same standard as was applied in the trial court. A motion for a summary judgment is to be granted when no genuine issue of material fact exists and the moving party is entitled to a judgment as a matter of law. Rule 56(c)(3), Ala. R. Civ. P. A party moving for a summary judgment must make a prima facie showing "that there is no genuine issue as to any material fact and that [it] is entitled to a judgment as a matter of law." Rule 56(c)(3); see Lee v. City of Gadsden, 592 So.2d 1036, 1038 (Ala. 1992). If the movant meets this burden, "the burden then shifts to the nonmovant to rebut the movant's prima facie showing by 'substantial evidence.'" Lee, 592 So.2d at 1038. "[S]ubstantial evidence is evidence of such weight and quality that fair-minded persons in the exercise of impartial judgment can reasonably infer the existence of the fact sought to be proved." West v. Founders Life Assurance Co. of Florida, 547 So.2d 870, 871 (Ala. 1989); see Ala. Code 1975, § 12-21-12(d). The material facts of this case are undisputed.
On appeal, RAI argues that it has an irrevocable license to use the sewage-treatment plant and that, because Riverbend had notice of that license, the license is enforceable against Riverbend. Riverbend appears to concede that the 1981 amendment created a license in favor of RAI. However, Riverbend contends that the license is not enforceable against Riverbend because neither the 1974 agreement nor the 1981 amendment were referenced in the deed conveying the sewage-treatment plant to Riverbend.
We agree with RAI that the right created by the 1981 amendment was a license in RAI to use the sewage-treatment plant. "'A license is an authority to do some act or series of acts on the land of another, for the benefit of the licensee, without passing any estate in the land.'" Holt v. City of Montgomery, 212 Ala. 235, 237, 102 So. 49, 50 (1924) (quoting Stinson v. Hardy, 27 Or. 584, 589, 41 P. 116, 118 (1895)). The language of the 1981 amendment was clearly designed to clarify the nature of RAI's interest, and, as noted above, the 1981 amendment states that the bank would retain possession of and the right to use the property upon which the sewage-treatment plant sits and that RAI would have merely the right to enter the sewage-treatment plant for purposes of inspection and repair.
The determination that RAI possesses a license to use the sewage-treatment plant does not end our inquiry. Typically, because a license creates a personal right, the licensor may revoke a license at will. Camp v. Milam, 291 Ala. 12, 17, 277 So.2d 95, 99 (1973). However, that rule is not without its exception, which our supreme court set out in Camp:
"To prevent possible injustice the law began to recognize that the giving of one's permission to another for the doing of certain acts with respect to the property of the former did not necessarily carry with it the unlimited right to withdraw the consent. The concept was broadened to look upon the license not merely as the giving of consent, but, in certain instances, the conferring of a legal right –- a license coupled with an interest.1 From this broadened concept of a license came the ingrafting of the recognized exception to the general rule which may be stated thusly:
"'A license has been generally defined as a mere personal privilege ... revocable at the will of the ... (licensor) unless ... in the meantime expenditures contemplated by the licensor when the license was given have been made ...'2
"Thus, when expenditures contemplated by the licensor have been made by the licensee, the license, having been acted upon so as to greatly benefit the licensor, is said to have been executed. An executed license, for reasons founded upon the equitable principle of estoppel, becomes irrevocable and confers upon the licensee a substantive equitable right in the property.3
"1See Clark, Covenants and Interest Running with Land, (1947 ed.), pp. 13-64.
"2City of Owensboro v. Cumberland Telephone & Telegraph Co., 230 U.S. 58, 64, 33 S.Ct. 988, 990, 57 L.Ed. 1389, 1393 [(1913)].
"3Megarry and Baker, Snell's Principles of Equity, (1966 ed.), pp. 629-633."
Camp, 291 Ala. at 17-18, 277 So.2d at 99.
RAI contends that its license is irrevocable because it expended substantial sums of money to fund the operation of the sewage-treatment plant, as required under both the 1974 agreement and the 1981 amendment. Indeed, our court has considered payments due under an agreement creating a license when determining whether a license has become irrevocable. See Blackburn v. Lefebvre, 976 So.2d 482, 493 (Ala. Civ. App. 2007) (indicating that, among other things, the licensor had benefited from the receipt of a payment due under the agreement creating a license for the use of a boat slip). The 1974 agreement required RAI to assume 90% of the operating expenses of the sewage-treatment plant. RAI continued to pay that percentage of the operating expenses of the sewage-treatment plant even under the 1981 amendment. Thus, at the time the trial court considered the summary-judgment motions, RAI had funded the majority of the operational expenses of the sewage-treatment plant for nearly 40 years. RAI's members, the owners of the condominiums serviced by the sewage-treatment plant, had relied on the service provided by that plant for the same length of time.
As our supreme court explained in Rhodes v. Otis, 33 Ala. 578, 600-01 (1859):
"It would be against all conscience to permit the defendant to revoke his license, after the plaintiff had acted upon it so far that great damage must necessarily result from the revocation. Every reason upon which the doctrine of estoppels in pais rests, applies. It is a plain case, where one party has, by his conduct, induced another to act in such a manner, that he cannot be allowed to retract without serious injury to that other person. We think a denial of the right of revocation, under such circumstances, is consistent with justice and right, supported by the analogies of the law, and many respectable decisions."
Likewise, we conclude that the license conveyed to RAI in the 1981 amendment is irrevocable. That is, RAI's right to use the sewage-treatment plant as specified in the 1981 amendment may not be revoked; RAI holds that right, at its election, for the remainder of the 50-year term set out in the 1974 agreement.
We must next consider whether Riverbend, as successor to River Bend, Ltd., and the bank, is bound by RAI's irrevocable license. We have had occasion to determine whether a successor is bound by an irrevocable license once before in Blackburn. After considering law from other jurisdictions and secondary sources, we concluded that a purchaser who takes property with notice of an irrevocable license is bound by that license: "'A license which, because of its being executed, is irrevocable against the licensor, is also irrevocable as against a purchaser from the licensor with notice ....'" Blackburn, 976 So.2d at 495 (quoting 53 C.J.S. Licenses § 144 (2005)). The purchasers in Blackburn were determined to have had notice of the license at issue in that case partly because the license agreement had been recorded in the probate office and also partly because the seller had provided an affidavit to the purchaser indicating that she had granted a license to the licensee. Id. Both the 1974 agreement and the 1981 amendment at issue in the present case were recorded in the probate office. In addition, the title opinion that Riverbend received in conjunction with its purchase of the sewage-treatment plant listed both the 1974 agreement and the 1981 amendment in its exceptions to coverage. Thus, based on Blackburn, we conclude that Riverbend had notice of the 1974 agreement and the 1981 amendment and that Riverbend is therefore bound by the irrevocable license granted to RAI.
Thus, we conclude that trial court erred in determining that Riverbend was not bound by the 1974 agreement and the 1981 amendment. The trial court further concluded in its judgment that, even if Riverbend were bound by the 1974 agreement and the 1981 amendment, no breach had occurred and nothing in the language of either document prevented Riverbend from changing the way it billed for its services or from charging enough for its services to make a profit. In making those determinations, the trial court further erred.
The irrevocable license in favor of RAI requires that it be allowed to use the sewage-treatment plant and that it pay a pro rata share of the expenses for the operation of the sewage-treatment plant. Thus, Riverbend is not free to change the way it bills RAI or RAI's members for sewer service during the term of the irrevocable license. As RAI contends on appeal, the provisions in the 1974 agreement and the 1981 amendment governing the payment of the expenses of operating the sewage-treatment plant do not appear to allow for a for-profit operation of the sewage-treatment plant. The 1981 amendment specifically provides that
"[t]he expenses of operation shall include, but not be limited to the following: service for electricity, water; necessary chemicals; maintenance; upkeep; monthly or periodic inspection fees charged by a registered engineer to examine the [sewage-treatment plant] and to make reports of findings to the applicable authorities; repair and replacement of all the equipment in the sewage treatment [plant] including all pipes into and out of said [plant] including all outfall lines; and all other expenses for any other repairs or replacements necessary for the continuing operation of the [sewage-treatment plant]."
Those expenses were, according to the terms of the 1981 amendment, originally to be divided between the owner of the sewage-treatment plant and RAI, with RAI being responsible for the payment of 90% of those expenses.
The trial court indicated that "the categories of expenses enumerated in the [1981 amendment] are sufficiently broad enough to encompass a profit margin as well as costs designed to provide for the 'repair' and 'replacements necessary for the continuing operation of the plant.'" However, as RAI points out, the term "profit" is defined as "the excess of returns over expenditure in a transaction or series of transactions, " Merriam–Webster's Collegiate Dictionary 992 (11th ed. 2003), or "[t]he excess of revenues over expenditures in a business transaction." Black's Law Dictionary 1404 (10th ed. 2014). "Expense" is defined as "financial burden or outlay: cost, " Merriam–Webster's Collegiate Dictionary 440 (11th ed. 2003), or "a business expenditure chargeable against revenue for a specific period." Black's Law Dictionary 698 (10th ed. 2014). The language in the 1981 amendment does not allow for any additional amount to be added to the expenses relating to the operation of the sewage-treatment plant. RAI is required to pay a percentage of the expenses necessary to operate the sewage-treatment plant; the language in the 1981 amendment does not contemplate creating a profit for the owner of the sewage-treatment plant. From all that appears in the language of the 1981 amendment, the sewage-treatment plant appears to have been intended to operate as a not-for-profit entity.
Furthermore, the 1981 amendment clearly states that, once additional taps were added to the sewer line, RAI was no longer required to pay 90% of the expenses related to the operation of the sewage-treatment plant. The percentage RAI is required to pay depends on the number of other users of the sewage-treatment plant. RAI did not present evidence indicating that, in fact, it had properly determined that it is required to pay only 72% of the expenses associated with the operation of the sewage-treatment plant. Riverbend did not argue that RAI's calculation was in error; instead, Riverbend argued that the 1981 amendment, under which Riverbend had continued to bill RAI 90% of the expenses associated with the operation of the sewage-treatment plant, was not enforceable against it. In light of our reversal of the summary judgment in favor of Riverbend, we note that the question of the appropriate amount owed by RAI, if it is not 72%, remains to be litigated by the parties.
In conclusion, the 1981 amendment created a license in favor of RAI. That license became irrevocable based on RAI's expenditures in reliance on the license. Riverbend had notice of the license created by the 1981 amendment when it purchased the sewage-treatment plant, and, as a result, Riverbend is bound by the irrevocable license. Because it is bound by the license created by the 1981 amendment, Riverbend is not free during the length of the license to change its billing practices to create a reasonable profit or to change to a peruser, metered billing system. That is, Riverbend is required to apportion "all expenses of the operation of the [sewage-treatment] plant ... on a pro rata basis among the users based on the number of units using the treatment facility system" for the duration of the license. The summary judgment in favor of Riverbend is reversed, and the cause is remanded for the entry of a partial summary judgment in favor of RAI on its claim seeking a judgment declaring that Riverbend is bound by the terms of the 1974 agreement and the 1981 amendment and for further proceedings consistent with this opinion.
REVERSED AND REMANDED WITH INSTRUCTIONS.
Thompson, P.J., and Pittman, Moore, and Donaldson, concur.