Colonial Penniman, LLC v. Williams et al

Filing 16

OPINION & ORDER. The Court REMANDS this matter to the Bankruptcy Court for further proceedings regarding the management of the bankruptcy estate, but otherwise AFFIRMS the remainder of the opinion. Signed by District Judge Henry C. Morgan, Jr., on 2/22/18. (bpet)

FILED
FEB Z 2 2018

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA

Newport News Division

clerk,

JOHN WILLIAMS, et al.,

Appellants/Cross-Appellees,
V.

Civil Action No. 4:17cvl09

COLONIAL PENNIMAN, LLC,

Appellee/Cross-Appellant.

OPINION i& ORDER

This matter comes before the Court on appeal from the United States Bankruptcy Court

for the Eastern District of Virginia (the "Bankruptcy Court"). Appellants/Cross-Appellees John
and Maxine Williams ("Appellants" or the "Williamses") and Appellee/Cross-Appellant
Colonial Penniman, LLC ("Appellee" or "Colonial Penniman") both appeal certain decisions of

the Bankruptcy Court. Docs. 1, 3. For the reasons stated herein, the Court REMANDS this
matter to the Bankruptcy Court for further proceedings regarding the management of the
bankruptcy estate but otherwise AFFIRMS the remainder of the opinion in two (2) particular
respects: (1) FINDING that the Deed of Easement permits all uses "for the benefit of Appellee
and (2) FINDING that Appellee's successors in interest will have the same rights in the Deed of
Easement as Appellee has. The Court's rulings on these issues are independent of and do not
alter the zoning requirements of James City County as they apply to the Appellee's property, nor

do they invade the jurisdiction of the bankruptcy court to manage this pending bankruptcy
proceeding including the requirements in contracts for sale in the bankruptcy estate.

I.
A.

BACKGROUND

Facts

Appellee acquired an 8.42 acre parcel of land on the James River (the "Property") from
Appellants on January 15, 2007. Adversary Proceeding R. (Doc. 5-2, hereinafter "R") at 15,
23-25 (the "Deed of Easement"), 45. As part of that transfer. Appellee and Appellants entered
into a deed of easement with the Property as the dominant estate and Appellants' remaining
property as the subservient estate.

id.

The easement "is twenty-five [25] feet wide and two hundred fifty [250] feet long, and
runs to the Property from the end of a cul-de-sac 'located on the eastern end of Manion Drive' in

Williamsburg, Virginia." R. at 422 (quoting Deed of Easement).^ It conveys the easement to
"the Grantee, its successors and assigns, and to the owners" of lots subdivided from the Property,
collectively called the "Grantees." Deed of Easement. It also contemplates that the owner may
subdivide the Property into "no more than three [3] riverfront lots and one [1] interior lot

"

The Deed of Easement grants several rights. First, it grants "right of ingress and egress to
and from the Dominant Parcel across the Subservient Parcel, in areas described above, to Manion

Drive." Id, Second, it grants "the right to install, construct, maintain, and repair all underground
utilities

" Id, Third, it grants the right to "improve the current gravel driveway within the

area of easement without destruction or mutilation of the trees currently lining the driveway."

Id. Fourth and finally, it grants the right to "establish and erect an entry way gate or decorative
wall at the northwest entrance to the driveway from Manion Drive." Id

' Neither Party disputes that this property is in James City County despite having a Williamsburg address.
6 at 8; Doc. 10 at 3.
2

Doc.

The Deed of Easement also contains two (2) other provisions relevant to this proceeding.
First, the Grantees must maintain the existing tree line: "a row of seven (7) magnolia trees

spaced approximately twenty-five feet (25') apart on the southwest boundary of the driveway;
and a row of twenty-two (22) Layland cypress trees spaced approximately twelve feet (12') apart

along the northeast boundary of the driveway." Id. Second, "[t]he right of way shall only be for
the benefit of the Grantors, or either, and Grantees." Id

After Appellee subdivided the Property for development, the Parties began disputing the
scope of the easement, and Appellants used barriers to restrict access. R at 15,45; Plaintiffs Ex.
10, 11

At first, Appellants placed a rope barrier with hanging chains fastened to wooden posts

in front of the easement. Plaintiffs Ex. 10, 11. Subsequently, they placed an unlocked metal

gate in front of the easement in lieu of the ropebarrier. Plaintiffs Ex. 12; Defendants' Ex. F.
Appellee sought injunctive and declaratory relief to clarify the scope of the easement. R.
at 18-20.

B.

Procedural History

Appellants submitted a statement of the case summarizing the relevant procedural
history, both in chapter 11 proceedings and in the underlying adversary proceeding, which
Appellee adopts for purposes of this appeal. Doc. 6 at 5-8; Doc. 10 at vii. Thus, here is the
agreed statement of the case:
Statement of the Case - - Chapter 11 Proceedings

Colonial Penniman filed a voluntary petition for relief under chapter 11 of the
United States Bankruptcy Code, 11 U.S.C. §§ 1101, et seq.. on March 24, 2016,
and continues to operate its business of holding and developing real estate as
'debtor in possession' pursuant to 11 U.S.C. § 1107(a). The following motions,
responses, hearings and orders pertinent to this appeal have been filed on the main
case docket:

The BankruptcyCourt incorporatedthese exhibits from March 24 hearings into the trial exhibits. See R. at 97.
3

On May 18, 2016 [ch. 11 docket no. 22]. Mr. and Mrs. Williams filed a
Motion for Relief from Automatic Stay (the "Williams Relief Motion"), as

a protective response to several Debtor allegations (both oral and written)
of alleged stay violations. At a preliminary hearing conducted on June 24,
2016, this Court denied the Williams Relief Motion based upon its
determination that 'no case or controversy presently exists that is

appropriate for adjudication.' This ruling is memorialized in an Order
Denying Relief Motion entered on June 27, 2016 [ch. 11 docket no. 35].
The Debtor nevertheless resumed this dispute by filing a Motion for
Contempt and for Sanctions for Violation of the Automatic Stay (the

'Contempt Motion') on July 15, 2016 [ch. 11 docket no. 41], in response
to which Mr. and Mrs. Williams filed their Response to Debtor's Motion
for Contempt and for Sanctions for Violation of the Automatic Stay on

July 27, 2016 [ch. 11 docket no. 47].
Mr. and Mrs. Williams also filed on July 27, 2016 [ch. 11 docket no. 48] a
Motion for Permissive Abstention of State-Law Issues Relating to Private-

Easement Dispute. Pursuant to 28 U.S.C. § 1334rcyn (the "Original

Abstention Motion"). The Debtor filed a Response to the Original
Abstention Motion on September 15, 2016 [ch. 11 docket no. 67], as did
the Debtor's designated representative Mr. C. Lewis Waltrip, II ("Mr.
Waltrip") on September 16, 2016 [ch. 11 docket no. 68].
The Bankruptcy Court conducted hearings on the Contempt Motion and
on the Original Abstention Motion (and on the various responses) on
September 23, 2016, at which it: (i) dismissed the Contempt Motion on
procedural grounds; and (ii) accordingly denied the Abstention Motion as
moot. Such rulings are memorialized in Orders entered respectively on
November 21, 2016 [ch. 11 docket no. 85] and October 13, 2016 [ch. 11
docket no. 79].

On November 15, 2016 [ch. 11 docket no. 83], Eastern Virginia Bank,

successor by merger to Virginia Company Bank ("EVB"),^ filed a Motion
for Relief fi-om Automatic Stay (the "EVB Relief Motion"), seeking
permission for EVB to exercise its state-law rights of foreclosure against

the Remaining Property. Colonial Penniman opposed EVB's request by its
filing of a Response on November 29, 2016 [ch. 11 docket no. 90].
Hearings on the EVB Relief Motion were repeatedly continued [ch. 11
docket nos. 91, 107, 112, 119 & 129], until EVB's successor by merger
voluntarily withdraw the EVB Relief Motion on August 31, 2017 [ch. 11
docket no. 131].
On December 21, 2016 [ch. 11 docket no. 95] the local Office of the
United States Trustee (the "U.S. Trustee") filed a renewed Motion to
Convert or Dismiss Case (the "U.S. Trustee Conversion/Dismissal
Motion"), seeking the conversion to chapter 7 or dismissal of the Debtor's
chapter 11 case, which was a reiteration of a prior U.S. Trustee
^The agreed statement of the case also observes that Sonabank acquired EVB and sold its interest in the property at
issue to Cadle Rock, LLC, who has not substituted itself for EVB in this case. Doc. 6 at 5 n. 2.

conversion/dismissal motion filed on August 16, 2016 [ch. 11 docket no.

55] and voluntarily withdrawn on September 2, 2016 [ch. 11 docket nos.
65, 66]. Hearings on the U.S. Trustee Conversion/Dismissal Motion were
repeatedly continued [ch. 11 docket nos. 103, 108, 113, 120 & 130], until
it was voluntarily withdrawn [ch. 11 docket no. 141].
Statement of the Case - - Adversary Proceeding

Colonial Penniman commenced the underlying adversary proceeding, pursuant to

Fed. R. Bank. P. 7001(7) & (9), on January 25, 2017 [ch. 11 docket no. 104; adv.
proc. docket no. 1] by its filing of a Complaint for Temporary and Permanent

Injunction, and Declaratory Relief (the 'Complaint'), from which ensued the
following motions, responses, hearings and orders pertinent to this appeal:
•

A Motion for Injunction and for Consolidation of Hearing with Trial on

the Merits (the "Injunction Motion"), also filed by the Debtor on January
25, 2017 [adv. proc. docket no. 2].

•

On February 13, 2017 [adv. proc. docket no. 8], EVB (on behalf of itself
and its named trustees) filed an Answer of the EVB Defendants (the "EVB
Answer").

•

•

Mr. and Mrs. Williams filed on February 15, 2017 their Answer and
Affirmative Defenses to the Complaint (the 'Williams Answer') [adv.
proc. docket no.9] and their Response to the Injunction Motion (the
"Injunction Response") [adv. proc. docket no. 10].
Mr. and Mrs. Williams also filed on February 15, 2017 [adv. proc. docket
no. 11] a Renewed Motion for Permissive Abstention of State-Law Issues
Relating to Private- Easement Dispute. Pursuant to 28 U.S.C. 1334(c)(1)

(the "Renewed Abstention Motion"). The Debtor filed its Response to the
Renewal Abstention Motion on February 27, 2017 [adv. proc. docket no.
19].

•

Also on February 15, 2017 [adv. proc. docket no. 13], Mr. and Mrs.
Williams filed their Protective Demand for Jury Trial (the "Jury Demand")
relative to the "noncore" issued raised in the Complaint and Injunction
Motion.

•

In each of their Williams Answer, Injunction Response, Renewed
Abstention Motion and Jury Demand, Mr. and Mrs. Williams offered
guarded statements concerning the "core" or "non-core" nature of this

adversary proceeding, based primarily upon the indefinite nature of
remedial relief being requested by the Debtor in its Complaint and
accompanying Injunction Motion. At the direction of the Bankruptcy
Court [adv. proc. docket no. 24], Mr. and Mrs. Williams filed on March 2,
2017 [adv. proc. docket no. 25] a Supplemental Statement Regarding Core
V. Non-Core Jurisdiction (the "Supplemental Jurisdictional Statement"), to
which the Debtor filed a Response on March 21, 2017 [adv. proc. docket
no. 36].

On March 24, 2017 [adv. proc. docket nos. 41-43], the Bankruptcy Court
conducted combined hearings (collectively, the "March 24 Hearings") on

each of (i) Injunction Motion and Injunction Response, (ii) the Renewed
Abstention Motion and associated Debtor response, and (iii) the points

raised in the Supplemental Jurisdictional Statement and associated Debtor
response. At the conclusion of March 24 Hearings, the Bankruptcy Court:
o
accepted into evidence the testimony of multiple witnesses and the
introduction of several exhibits offered separately by the Debtor
and by Mr. and Mrs. Williams;

o

heard arguments from counsel for each of Colonial Penniman and
Mr. and Mrs. Williams;

o

denied the Debtor's request for preliminary injunction, as
memorialized in an Order entered on April 13, 2017 [adv. proc.
docket no. 45]

o

denied Mr. and Mrs. Williams' request for permissive abstention,
as memorialized in an Order entered May 5, 2017 [adv. proc.
docket no. 51];

o

o

determined that the issues and requests for remedial relief properly
raised in this adversary proceeding are "core" in nature; and
scheduled for further adjudication the unresolved matters raised in

Complaint, the EVB Answer and the Williams Answer for trial on
June 28, 2017 (the 'June 28 Trial').

The Official Transcript of the March 24 Hearings [adv. proc. docket no.
49] (abbreviated hereinafter as Inj. Hrg. Tr.) reflects the admission into
evidence of the following numbered Debtor exhibits (hereinafter
'Plaintiffs Exhibits'): 1, 2, 3, 7, 8, 9, 10, 11, 12 and 13 and the following
lettered exhibits offered by Mr. and Mrs. Williams (hereinafter
'Defendants' Exhibits'): A, B, C, D, E, F, G, H and K, which is confirmed
by the Pretrial Scheduling Order entered on March 31, 2017 [adv. proc.
docket no. 41] and by the Supplemental Pretrial Orderentered on April 18,
2017 [adv. proc. docket no. 47].
At the June 28 Trial, the Bankruptcy Court heard further testimony from

Mr. Waltrip and Mr. Williams, and also accepted into evidence Plaintiffs
Exhibit 16 and Defendants' Exhibits L, M and N [adv. proc. docket no.

67]. An Official Transcript of the June 28 Trial (abbreviated hereafter as
"Trial Tr.") was filed on June 29, 2017 [adv. proc. docket no. 63].
The Bankruptcy Court entered the Appealed Order on August 18, 2017
[adv. proc. docket nos. 70 & 71], from which this appeal and the Debtor's
cross-appeal are taken.
Doc. 6 at 5-8.

II.

STANDARD OF REVIEW

A district court reviews a bankruptcy court's factual findings for clear error and its legal

findings de novo. In re Merrv-Go-Round Enters.. Inc.. 400 F.3d 219, 224 (4th Cir. 2005). It
reviews mixed questions of fact and law de novo. In re Gordon Properties. LLC. 516 B.R. 323,
327 (E.D. Va. 2014) (citing Canal Corp. v. Finnman. 960 F.2d 396, 399 (4th Cir. 1992)). The
court "mayaffirm, modify, or reverse a bankruptcy judge's judgment, order or decree or remand
with instructions for fiirther proceedings." Fed. R. Bankr. P. 8013.
III.

ANALYSIS

Although there are technically seven (7) issues on appeal, this entire case primarily relies
on one (1) legal determination: what is the scope of the easement that Appellants granted
Appellee?

A.

First Issue on Appeal: Whether the Bankruptcy Court erred in its determination of

the scope of rights conferred under the governing Deed of Easement instrument, and the
extent to which unnamed parties are entitled to exercise such rights.

This issue is a question of law, and this Court determines the legal effect of the Deed of
Easement de novo. See, e.g.. Seabulk Offshore. Ltd v. American Home Assurance Co., 377 F.3d

408, 418 (4th Cir. 2004) ("The interpretation of a written contract is a question of law

")

Both Parties apply Virginia law and cite the portions that they believe favor their interpretations.
Virginia law states as follows:

Unless otherwise provided for in the terms of an easement, the owner of a
dominant estate shall not use an easement in a way that is not reasonably
consistent with the uses contemplated by the grant of the easement, and the owner
of the servient estate shall not engage in an activity or cause to be present £iny
objects either upon the burdened land or immediately adjacent thereto which
unreasonably interferes with the enjoyment of the easement by the owner of the
dominant estate.

Va. Code Ann. § 55-50.1 (2018).'' Thus, the dispute between the Parties concerns whether the
terms of the easement specifically restrict uses and, if not, whether the uses contemplated by

Appellee are "reasonably consistent with the uses contemplated by the grant of the easement."
The underlying Bankruptcy Court decision states as follows:

Looking first at the four comers of the Deed of Easement, the Court finds
that the document is silent as to whether the Debtor's reasonable invitees may use

the Easement. Specifically, the Deed of Easement grants the right of ingress and
egress to the Grantees, which the document defines to include the Debtor, its
successors and assigns, and any subsequent purchaser of up to "three riverfront
lots and one interior lot," but makes no reference to invitees. Debtor Ex. 2 at 1.
Further, the document fails to indicate that this right to ingress and egress shall be
for the exclusive use of the Grantees. The document is therefore silent with

regards to whether anyone other than the Grantees may use the Easement.
Accordingly, faced with a document that fails to specifically grant or deny use by
the Debtor's reasonable invitees, use of the Easement shall be determined by the
reasonable uses contemplated by the Deed of Easement.

Given that the Deed of Easement clearly contemplates the subdivision,

development, and sale of the Property by the Debtor, use of the Easement by the
Debtor and its reasonable invitees consistent with this purpose shall be permitted.

Indeed, the document expressly permits use of the Easement to develop the
Property, including "laying, construct[ing] and maintaining underground
utilities," id at 1, and improving the gravel driveway, id at 2. The intended
development and sale of the Property is further evidenced by the language in the
Deed of Easement referencing the subdivision of the Property into up to four lots.
Id at 1. Importantly, the Deed of Easement contemplates uses that maintain the
Easement's current landscape conditions, prohibiting "destruction or mutilation of
the trees currently lining the driveway." Id at 2. While the Debtor may use the
Easement for subdivision, sale, and development, uses for these purposes must be
limited to those that do not disrupt the tranquility of the Easement's tree line, as
doing so violates the terms of the Deed of Easement, and, further, could represent
an overburdening of the servient estate, in violation of Virginia law.
Haves v.
Aauia Marina. Inc.. 414 S.E.2d 820, 822 (Va. 1992).

Accordingly, the Court concludes that use of the Easement extends to the
Debtor and its reasonable invitees as is necessary for the sale and development of
the Property, which is consistent with the uses contemplated by the Deed of
Easement.

^ Although the current version of this statute was enacted in 2007 and may have post-dated the easement, it is
intended to be a restatement of Virginia law, and both Parties agree that it is controlling. See Doc. 6 at 21; Doc. 10
at 12.

8

R. at 436-437. The Bankruptcy Court also limited its findings to Appellee alone, concluding
that Appellee lacked standing to pursue relieffor subsequent owners not before the Court. Id. at
433.

The scope of the easement depends on how the Court reads the disputed phrase: "[t]he
right of way shall only be for the benefit of the Grantors, or either, and Grantees." Deed of
Easement at 2. The Court reads the plain text of this phrase as conveying all uses that are "for
the benefit of the Grantees. Such uses include building homes, travelling to and from home,

inviting repairmen to the home, inviting guests to the home, or any other beneficial use
reasonably anticipated by the owner of a private residence. The Deed of Easement contemplates
developers using the easement, as it allows improving the driveway and installing and
maintaining underground utilities. Id at 2. Reading the disputed language to restrict anyone but
Grantors or Grantees from using the easement, as Appellants argue, would lead to the conclusion
that the Grantees must personally install underground utilities. The Court agrees with Appellee

that reasonable interpretation of the phrase is the conveyance of beneficial uses consistent with
the uses contemplated by the grant. Accordingly, the Court FINDS that the Deed of Easement
permits all beneficial uses by Appellee.

The Court's ruling does not affect the zoning

requirements of James City County as they apply to the further subdivision of Appellee's
property, or whether additional means of ingress or egress should be required now or later.

B.

Second Issue on Appeal: Whether the Bankruptcy Court's ultimate finding of extra-

textual rights under the Deed of Easement nullified its preceding jurisdictional decisions
regarding (i) the "core" nature of the dispute, (ii) denial of abstention to the state court and
(iii) denial of Mr. and Mrs. Williams' right to a jury trial.

The Court's ruling upon the scope of the easement is not"extra-textual," and this issue is
MOOT.

C.

Third Issue on Appeal; Whether the Bankruptcy Court erred by disregarding the

secondary nature of Colonial Penniman's easement rights over Mr. and Mrs. Williams

property, and by disregarding fixed specifications for primary access elsewhere per the
terms of a pre-existing plat and subsequent subdivision approval.

The Court's ruling upon the easement MOOTS this issue in this proceeding, as the
decision upon additional means of ingress and egress is best determined by James City County or

by the Bankruptcy Court to the extent that such determination may affect the management of the
bankruptcy estate.

D.

Fourth Issue on Appeal: Whether the Bankruptcy Court erred by ignoring the

effect of Colonial Penniman's affiliate's subsequent sale of development rights, which

prevents alternate access to the Debtor's property across adjacent "Farm Property
Routes".

The Court's ruling upon the easement MOOTS this issue in this proceeding, as the
decision upon additional means of ingress and egress is best determined by James City County or

by the Bankruptcy Court to the extent that such determination may affect the management of the
bankruptcy estate.

10

E.

Fifth Issue on Appeal: Whether the Bankruptcy Court erred in finding Mr. and

Mrs. Williams violated the automatic stay by placing an unlocked farm gate at the entrance
of the subject easement, as permitted under Virginia law.

At the hearing on this matter, the Parties represented that there is an ongoing dispute

about whether Appellee failed to comply with the Bankruptcy Court's order to install a gate after
Appellants removed their gate, or whether Appellee is at least being intentionally dilatory in the
matter. The Court REMANDS all issues regarding the gates to the Bankruptcy Court.
F.

First Issue on Cross-Appeal: Whether the Bankruptcy Court erred in declining to

address subsequent dominant-estate owners' property rights in the easement on the
grounds that such subsequent owners were not before the Court.

The Parties agree that the rights in the Deed of Easement are transferable. See Doc. 10 at
9-11; Doc. 13 at 4-5. It conveys the easement to "the Grantee, its successors and assigns, and to
the owners" of lots subdivided from the Property, collectively called the "Grantees." Deed of

Easement. The Court FINDS that Appellee's successors in interest will have the same rights in
the Deed of Easement as Appellee has. This ruling does not affect the ability of the Bankruptcy

Court to manage the bankruptcy estate or to decide any issue not decided by this ruling,
including imposing economic requirements in contracts for sale upon Appellees.
G.

Second Issue on Cross-Appeal: Whether the Bankruptcy Court erred in its

determination of the scope of rights conferred under the governing Deed of Easement
instrument, and the extent to which unnamed parties are entitled to exercise such rights.

The Parties agree that the rights in the Deed of Easement are transferable. See Doc. 10 at

9-11; Doc. 13 at 4-5. It conveys the easement to "the Grantee, its successors and assigns, and to
the owners" of lots subdivided from the Property, collectively called the "Grantees." Deed of

11

Easement. The Court FINDS that Appellee's successors in interest will have the same rights in

the Deed of Easement as Appellee has. This ruling does not affect the ability of the Bankruptcy
Court to manage the bankruptcy estate or to decide any issue not decided by this ruling,
including imposing economic requirements in contracts for sale upon Appellees.
IV.

CONCLUSION

The Court FINDS: (1) that the Deed of Easement permits all uses "for the benefit of
Appellee and (2) that Appellee's successors in interest will have the same rights in the Deed of
Easement as Appellee has. For the reasons stated herein, the Court REMANDS this matter to

the Bankruptcy Court for further proceedings regarding the management of the bankruptcy
estate. The Court's rulings on these issues do not alter the zoning requirements of James City
County as they apply to the Appellee's property, nor do they affect the ability of the bankruptcy

court to decide any issue not decided in this ruling. The bankruptcy estate will proceed under the
direction of the bankruptcy court.

The Clerk is REQUESTED to send a copy of this Opinion & Order to all counsel of
record.
It is so ORDERED.

fsf

Henry Coke Morgan, Jr.
Senior United States District

Norfolk, Virginia
February
2018

HENRY COKE MORGAN, JR.
SENIOR UNITED STATES DISTRICT JUDGE

12