Daily Development for Thursday, March 17, 2002
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
dirt@umkc.edu

CONSTITUTIONAL LAW; RELIGIOUS FREEDOM; STATE ACTION; COVENANT ENFORCEMENT: Although Shelley v. Kramer will apply to make enforcement of a private environmental covenant “state action,” the covenant may be applied to restrict activities that are religious in nature so long as the purpose and language of the covenant are “neutral” in character.

Voice of the Cornerstone Church Corp. v. Pizza Property Partners, 2005 Westlaw   548207, No.03-04-00173-CV  (Tex.App.  3/10/05)

Mobile Oil owned and operated an oil pipeline terminal that served as a bulk fuel storage and transfer station. Neighbors to the property complained about soil and groundwater contamination, resulting in litigation before the Texas Water Commission.. Ultimatley, all parties to that litigation reached a settlement, which the Commission memorialized in an agreed order by which Mobil Oil agreed to submit a pollution remediation plan with provisions for quarterly monitoring of the corrective measures.

Mobile Oil’s duties under the agreement necessitated that it impose a restrictive covenant to prohibit uses that could create environmental risks before selling or transferring the property. Thus, in 1997, Mobil Oil sold the property to Pizza Property Partners by special warranty deed with the following restrictive covenant:

As part of the consideration for this conveyance, the Grantee [Pizza Property Partners] for itself, its successors or permitted assigns, covenants and agrees that from the date of this Deed the property shall be used for commercial/light industrial purposes only and neither the property herein conveyed nor any part thereof shall at any time be used for (1) the storage and sale of motor fuels; (2) for residential purposes, healthcare facilities, daycare facilities, schools, playgrounds; (3) that irrigation and drinking water wells shall be prohibited; and (4) that subsurface structures, including without limitation basements and below ground parking but excluding building foundations are prohibited. This covenant shall survive delivery of the Deed and is to run with the land herein conveyed and a similar restrictive covenant shall be inserted in any deed or lease or instrument conveying or demising the property herein conveyed or any part thereof.

Mobil Oil agreed to continue remediation and monitoring of the property with respect to the petroleum contamination it caused "to the extent required and in a manner approved by the governmental authority exercising jurisdiction over the matter, whether federal, state or local, or its designee." Such corrective action would continue until the appropriate governmental authority would advise Mobil Oil that corrective action had been "completed to that authority's satisfaction" or until such time that Mobil Oil would determine that the environmental condition of the property satisfies regulatory requirements.  Pizza Property Partners also released Mobil Oil from any liability "related to the existence or migration of petroleum contamination which arose out of" Mobil Oil's use of the property.  The parties recorded several other documents memorializing Mobil Oil’s continuing involvement with the property, including an access easement.

Three years later, Pizza Properties conveyed a portion of the former Mobile Oil site to Cornerstone Church, a small independent church.  Apparently Pizza financed the sale through a vendor’s lien.  The deed indicated that title conveyed was subject to all restrictions, encumbrances, easements,  covenants,and conditions of record, but didn’t identify any of these  specifically.

Cornerstone remodelled on of the old industrial warehouses on the property into a sanctuary with a small kitchen, obtaining a building permit from the City of Austin.  It then decided that the sand filled hole that was the remains of one of the old oil storage tanks was the perfect site for its baptismal pool, so it took out the sand, mixed it with cement, and lined the bottom and sides of the pool with cement and covered it with tile.  Voila!!

The Cornerstone pastor operated a appliance repair business in another building on the property and the Church operated a small printing operation in another.  Church members sometimes stored “inoperable cars” on the property.  There is not indication of any relationship between the repairing of appliances or the storage of broken cars and the Church’s fundamental religious beliefs.

When Mobile Oil got wind of all of this, is sued for an injunction and also named Pizza Partners and the real estate agent who arranged the deal with Cornerstone as parties defendants in a damages action.

The trial court granted summary judgment to Mobil Oil (now ExxonMobil), including a  permanent injunction enjoining Cornerstone from using the property "for church services or activities related to the Church or anything else other than commercial or light industrial purposes," from using the baptismal pool, and from further violating the restrictive covenant, a recorded post-closing use agreement, and the recorded access agreement.  Finally, the district court disallowed “any type of construction activity without first allowing ExxonMobil  to review any such construction plans to ensure that any such plans accommodate and facilitate the Corrective Action.”

On appeal, Cornerstone argued:  (1) ExxonMobil lacked standing to seek enforcement of the restrictive covenant; (2) there was no evidence that Cornerstone violated the "commercial/light industrial" limitation or any other provision of the restrictive covenant; (3) the trial court abused its discretion in refusing to cancel or modify the restrictive covenant on the basis of changed circumstances, hardship, latent ambiguity, or equitable estoppel; and (4) enforcement of the covenant, as interpreted, violated Cornerstone's religious freedoms.

Cornerstone argued that Mobile lacked the ability to enforce the agreement because it was not the owner of benefitted property.  The court allowed that there was some authority in Texas providing that when a easement appurtenant was created, it could be enforced only by parties with interests in the appurtenant property.  But it noted that the interests created here were intended by the parties to run “in gross.”  Without expressly saying so, the Texas court apparently concluded that the “touch and concern” test in Texas does not required that the benefit of a covenant touch and concern lend in order for the burden to run with the burdened land.  This is consistent with the law of many jurisdictions, although it was not the rule under the Restatement of Property, 2nd.  Under the new Restatement of Servitudes, no “touch and concern” relationship at all is required - only a clear statement of the parties intent that a covenant run.  (The court does not cite or discuss the Rest!

 atemen
t.)

With respect to Cornerstone’s argument that it had not violated the restrictions, the court first noted that restrictive covenants  may be enforced by injunction n Texas where a distinct or substantial breach is shown, without regard to the amount of damages caused by the breach.. In such cases, it is not necessary to show the existence of any particular amount of damages or to show that the injury will be irreparable. At least when a covenant restricts the use of property to residential uses, additional uses may be permitted if they are reasonably incidental to prescribed uses and of such nominal or inconsequential breach of the covenants "as to be in substantial harmony with the purpose of the parties in the making of the covenants."

Cornerstone wisely did not contend that its worship services, baptisms, and similar activities are within the sphere of "commercial/light industrial purposes" permitted under the restrictive covenant.  Instead, apparently conceding that these activities violated the covenant, Cornerstone urged that church uses nonetheless did not constitute a "direct and substantial" breach because they constitute only a small percentage of the property's uses relative to its commercial enterprises.

The court, however,  concluded that the church uses were neither nominal nor inconsequential to the permitted "commercial/light industrial" uses. “

Cornerstone is organized primarily for religious purposes. All other activity on the property is conducted for the purposes of supporting the church's religious mission---the printing press functions to spread Cornerstone's religious message, and any money earned through the operation of the appliance repair shop is directed to cover Cornerstone's operating expenses. Church services may constitute only seventeen percent of the time the property is used for activities; however, they form the fundamental core of Cornerstone's use of the property. The issue we must address here is not, of course, whether these sorts of religious activities on property are generally permissible or desirable, but whether, on the record before us, Cornerstone's use of the property is a "distinct or substantial breach" of the restrictive covenant's requirement that the property be used solely for "commercial/light industrial" purposes. . . . .”

The baptismal fount in the old oil tank site came in for special attention.  The restrictive covenant prohibited: "subsurface structures, including without limitation basements and below ground parking but excluding building foundations."  Cornerstone argued that the font was not a structure because it was constructed in an existing hole in the ground.  The court noted that the broad definition of a structure is "any production or piece of work artificially built up, or composed of parts joined together in some definite manner; any construction." (Citation ommitted). In a restricted sense, "structure" means "a building of any kind, chiefly a building of some size or of magnificence; an edifice."  “Inclusion of a particular object within the term, or its exclusion therefrom, usually depends upon the context and the purpose sought to be accomplished by the provision of which the term is a part. “ Looking at the Brownfield remediation purpose of the covenant, the court had no t!

 rouble
 concluding that the baptismal fount was an “underground structure” prohibited by the covenant.

Cornerstone alleged that the “changed circumstances” doctrine warranted setting aside the covenant, apparently contending that it had relied in some way by representations of third parties that the property could be used for its purposes (there is nothing in the record about title insurance). The court didn’t detail the nature of Cornerstone’s contentions here - dismissing them on procedural grounds.

But the court did go into detail about perhaps the most interesting aspect of Cornerstone’s challenge - that enforcement of the covenant against it constituted an infringement of religious freedom. The court apparently accepted the notion that Cornerstone could contend that enforcement of the covenant could be viewed as governmental action sufficient to trigger freedom of religion issues. Some of the Cornerstone claim was based upon Texas Constitutional and statutory provisions, and not the U.S. Constitution, and the court didn’t indicate whether government action was seven required.

But the court went on to consider the claim that the enforcement of a restrictive covenant could involve government action under Shelley v. Kramer - which of course was based upon an interpretation of the U.S. Constitution.  Since Shelley was decided in 1948, few subsequent cases have agreed that the enforcement of covenants could be construed as governmental action - tending to limit Shelley to its special facts (racially restrictive covenants.)  But the Texas court suggests no such limitation.  At least here, the court accepts that Shelley would have applied if the covenant in fact applied directly and specifically to religious practices.  But, since the covenant was neutral on its face  and in its objectives, the enforcement of it by a court did not deprive Cornerstone of religious freedom.

Note: Texas apparently does have a Religious Freedom Act applying to direct governmental land use decisions and their impact on religious activities, but the court concluded that Cornerstone procedurally did not raise the question of the application of that statute to judicial enforcement of private covenants.

Comment 1: The opinion is loaded with procedural “dodges” coupled with ringing pronouncements of the court’s belief in religion in general and religious freedom in particular.  Clearly the court say this as a politically charged issue, although the editor confesses that he doesn’t see why this should be so.  Public health and safety were at stake.  Had Cornerstone continued to invite its parishioners to bring their families to worship and bathe in the baptismal fount, they may have aided these folks trip to Heaven somewhat faster than might have been appropriate.

Comment 2: If Shelley v. Kramer indeed is going to be universally applied to enforcement of private restrictive covenants, the editor thinks there is a Pandora’s Box lurking just around the corner that cannot be kept shut with deft distinctions about “facially neutral” restrictions.  Facially neutral land use restrictions that in fact impose a burden on religious practices have routinely been set aside by courts in the interests of religious freedom - from Pledge of Allegiance cases to employment on Sabbath issues and many others.  Religious freedom doesn’t always prevail, but it is somewhat too pat to assume that any neutrally focussed covenant will survive religious freedom scrutiny.

And this is just the beginning.  What about free speech?  What about equal protection?  And, most critically - what about the question of whether associations are bound to abide by procedural due process in carrying out such things as architectural review or, for that matter, association decision making.  Those who say that these associations are in fact modern equivalents of “small towns” that should meet these standards had better explain where the communities will get the resources to hire the attorneys, analysts, and other resources to meet these requirements when they lack the tax base that an normal public agency can command.

Comment 3: As to these Brownfield preservation covenants, this case brings into sharper focus the fact that frequently local activities, even building permit activities at the local level, will be carried out in defiance of the environmental concerns embodied in these covenants.  That’s why the Uniform  Environmental Covenants Act recently released by NCCUSL preempts all manner of traditional restrictions on ordinary covenants to insure that the public safety concerns involved in these covenants will be honored.  Four states have already adopted the year - old act and we can anticipate many more adoptions in the next few years.

Comment 4: For other disputes between religious freedom and “neutral” policies) see:  Grace United Methodist Church v. City of Cheyenne, 2002 U.S. Dist.LEXIS 24189 (D. Wyo. 2002) Where Church is denied day care license and brings claim under the Religious Land Use and Institutionalized Persons Act (RLUIPA), 42 U.S.C.  2000cc, et seq., Church must demonstrate that City's land use regulation imposes a substantial burden on its exercise of religion.; Millington Baptist Church v. The Planning Board of the Township of Bernards, SOM-L-1615-99 (N.J. Super. Law Div. 2001), Unpublished; January 19, 2001 ) (the DIRT DD for 4/25/02) The Religious Land Use Act strongly limits a governmental body from applying land use regulations in a way that imposes a substantial burden on a religious institution's use of its own property); Chicago Heights v. Living World Outreach, 707 N.E.2d 53 (Ill.App. 1 Dist. 1998)(the DIRT DD for 10/4/99)  (City's denial of special use permit to church in connect!

 ion wi
th property located in a commercial district which the City had designated for economic development did not violate church's free exercise rights under the First Amendment); McCready v. Hoffius, (the DIRT DD for 8/16/99) 593 N.W.2d 545, (Mich. 1999) vacating in part 586 N.W.2d 723 (Mich. 1998) (A landlord's refusal to rent apartments to unmarried couples discriminates against the couples based on marital status in violation of the State Civil Rights Act, but such finding of discrimination may violate the landlord's free exercise of religion. (Split decision on close vote.)). Compare: Smith v. Commission of Fair Employment and Housing , 30 Cal. Rptr. 2d 395 (Cal. App. 2d 1994) (The DIRT DD for 4/18/95) (Statute prohibiting housing discrimination on basis of marital status is unconstitutional as applied to landlord who has religious convictions forbidding rental to unmarried couples).(This DD report cites to many of the precedent cases going both ways.)

DIRTer Shelly Saxer has published quite a bit on this subject, and a search of her articles will disclose many more cases and more organized discussion than the little sampling here.

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