The flag: Home association restrictions, arbitration agreements, and more

W. Dudley McCarter, a former president of The Missouri Bar, is a partner in the St. Louis law firm of Behr, McCarter, Neely & Gabris.

RESTRICTIVE COVENANTS ON REALTY ARE STRICTLY CONSTRUED  
Willow Farm Pool and Home Assoc., Inc. v. Zorn, 676 S.W.3d 49 (Mo. App. W.D. 2023). 

The trial court found that Scott and Rachel Zorn breached their homeowner association’s Declaration of Restrictions by providing childcare services from their single family residential home. The Zorns appealed the judgment, and the Missouri Court of Appeals-Western District reversed the decision in Willow Farm Pool and Home Association, Inc. v. Zorn.¹ 

“Residential purposes” has been defined by Missouri courts as “one in which people reside or dwell, or in which they make their homes, as distinguished from one which is used for commercial or business purposes.”² Restrictive covenants on realty are strictly construed as the law favors untrammeled use of real estate.³ It is the burden of the party attempting to enforce restrictions to prove that how a real estate is being used violates the restrictions.⁴ “Restrictive covenants will not be extended by implication to include anything not clearly expressed in them, and if there is substantial doubt of their meaning, such doubt should be resolved in favor of the free use of the property.”⁵ 

“It seems that no Missouri court has addressed whether a home day care violates a restrictive covenant requiring a property to be used for residential purposes,” the court of appeals stated. “Other jurisdictions have considered whether a home day care violates applicable restrictive covenants pertaining to residential purpose. There is no clear consensus.”⁶ 

The Zorns own property that is bound by an amendment to the “Use of Land” section of the Willow Farm Pool and Homes Association’s Declaration and Declaration of Restrictions (“Homes Association Restrictions”).⁷ The section states that “none of the lots … shall be used or occupied for other than single family residence purposes.”⁸ The Willow Farm Pool and Homes Association argued any and all business or commercial activity is prohibited by the Homes Association Restrictions, adding the Homes Association Restrictions “create a bright line between residential and business and that the prohibition against business activity is complete and absolute.”⁹ 

“The Homes Association interpretation is extreme in today’s modern world,” the court stated. “Under the Homes Association’s bright line argument, an employee would be prohibited from checking their work email, making a work phone call, completing a work project, or engaging in any work activity in their home. We reject this interpretation.”¹⁰ 

“We agree with the cases … discussing the difference between a restriction requiring residential use and a restriction prohibiting businesses or commercial use. We are also persuaded by this court’s analysis in Country Club Dist. Home Ass’n discussing how residential purposes is a broad term that does not necessarily mean only residential purposes and is a term that can be narrowed with additional language. It is undisputed that the Zorns and their children live at the Property full time. It is their residence, and they use it for residential purposes. The trial court erred in finding that a licensed family childcare home is prohibited … under the Homes Association Restriction.”¹¹

THIRD-PARTY BENEFICIARY NOT BOUND BY ARBITRATION AGREEMENT 
Rister v. NHC Healthcare – Osage Beach, LLC, 674 S.W.3d 794 (Mo. App. S.D. 2023). 

The NHC Healthcare-Osage Beach, LLC (NHC) appealed an order denying NHC’s motion to compel arbitration with Joan Rister, a resident at NHC’s skilled nursing facility. Joan did not sign the arbitration agreement. Instead, it was signed by her husband, Fred Rister. The Missouri Court of Appeals-Southern District affirmed the judgment in Rister v. NHC Healthcare – Osage Beach, LLC.¹² 

“When there are factual disputes regarding the existence of an agreement to arbitrate, the trial court must determine ‘whether an arbitration agreement exists.’”¹³ “The party asserting the existence of a valid and enforceable contract to arbitrate bears the burden of proving that proposition.”¹⁴ The court notes a party can only be compelled to arbitrate if they have agreed to do so.¹⁵ In this case, the court found there was “no evidence that Fred had any legal authority to sign on Joan’s behalf.”¹⁶ Absent any evidence that Fred had any legal authority to sign on Joan’s behalf, “there was no agreement to arbitrate binding Joan.”¹⁷ 

“NHC’s second point contends the trial court ‘erred in denying [NHC’s] motion to compel arbitration’ because Joan ‘was a third-party beneficiary to the agreement’ in that she ‘accepted a benefit under the Preadmission and Arbitration Agreement’ and is ‘therefore estopped from denying its effect[.]’ We disagree,” the court stated.¹⁸ 

“Assuming, arguendo, that Joan could be considered a third-party beneficiary of the Arbitration Agreement, [m]ere status as a third-party beneficiary, alone, is not sufficient to support binding an unwilling nonsignatory to an arbitration agreement. 'Even if a party is a third-party beneficiary of an agreement containing an arbitration provision, the third-party must still manifest some agreement to arbitrate or otherwise be bound[.]' Here, there is nothing in the record that indicated Joan’s willingness to arbitrate.”¹⁹

TRIAL COURT DID NOT ERR IN ORDERING NEW TRIAL BASED ON CHANGE IN TESTIMONY BY EXPERT WITNESS 
Z.R. v. Kansas City Pediatrics LLC, 2023 WL 7136352 (Mo. App. W.D. 2023). 

Scott Dattel, M.D., and Kansas City Pediatrics, LLC, (“Defendants”) appealed the circuit court’s judgment granting Z.R.’s motion for a new trial. The trial court granted Z.R.’s motion after a jury found in favor of Defendants on Z.R.’s claim for medical malpractice. “The trial court determined that Z.R. was entitled to a new trial because a defense expert witness provided trial testimony that ‘directly contradicted’ his earlier deposition testimony, this change in testimony was not disclosed to Z.R. prior to trial, and the ‘undisclosed testimony unfairly resulted in substantial prejudice’ to Z.R.”²⁰ The Missouri Court of Appeals-Western District affirmed the trial court order.²¹

"Discovery rules and case law establish the principle that when an expert witness has been deposed and later changes his opinion before trial or bases that opinion on new or different facts from those disclosed in the deposition, it is the duty of the party intending to use the expert witness to disclose that new information to his adversary, thereby updating the responses made in the deposition … If an expert provides different testimony from that disclosed in discovery, then the trial court is vested with discretion to determine how to remedy the situation."²²

The court of appeals found the trial court “was within its discretion to grant Z.R. relief by ordering a new trial” and “to conclude that Z.R.’s ability to cross-examine or impeach defense expert on his new opinion at trial was insufficient to mitigate the prejudice suffered by Z.R. from the surprise trial testimony.”²³ 

MECHANIC’S LIENS HAD PRIORTY OVER DEEDS OF TRUST THAT SECURED FINANCING FOR CONSTRUCTION 
Custom Construction Solutions LLC v. B & P Construction, 2023 WL 8192918 (Mo. App. E.D. 2023). 

Following a bench trial, the trial court found the mechanic’s liens filed by Custom Construction Solutions, LLC; Cannon Design, Inc.; and Concrete Strategies, LLC (collectively, “lien claimants”) “had priority over the deed of trust” filed by Gamma Real Estate Capital, LLC for a project involving the Railway Exchange Building and parking garage in downtown St. Louis.²⁴ The Missouri Court of Appeals-Eastern District affirmed the judgment.²⁵

“A mortgagee holding a deed of trust can waive its priority interest to a mechanic’s lien if the mortgagee induces 'the furnishing of labor and material.' Generally, the priority of a superior deed of trust over an equitable lien can be waived where there is evidence that the holder of a superior deed of trust is aware that its loan will be used for construction on the property and will be secured by the property where the construction activity will be undertaken.”²⁶

The court of appeals stated: “[T] he trial court found that Gamma was 'clearly aware that its loan would be used for construction on the property and that the loan would be secured by the property where the construction activity would be undertaken' … [S]ubstantial evidence supported the trial court’s findings that Gamma was aware its loan proceeds would be used for construction and the property would be subject to liens, and Gamma waived the priority of its deed of trust for the Railway Exchange Building and garage.”²⁷ 

Endnotes

1 676 S.W.3d 49 (Mo. App. W.D. 2023).

2 County Club Dist. Homes Ass’n v. Country Club Christian Church, 118 S.W.3d 185, 189 (Mo. App. W.D. 2003).

3 Golf Club of Wentzville Community Homeowners Assn. v. Real Homes, Inc., 616 S.W.3d 339, 342 (Mo. App. E.D. 2020).

4 Id.

5 Id.

6 676 S.W.3d at 55.

7 Id.

8 Id. at 51.

9 Id. at 59.

10 Id.

11 Id. at 59-60.

12 674 S.W.3d 794 (Mo. App. S.D. 2023).

13 Id. (quoting Theroff v. Dollar Tree Stores, Inc., 591 S.W.3d 432, 436 (Mo. banc 2020)).

14 Id. (quoting Duncan v. TitleMax of Mo., Inc., 607 S.W.3d 243, 249 (Mo. App. 2020)).

15 Finney v. Nat’l Healthcare Corp., 193 S.W.3d 393, 395 (Mo. App. 2006).

16 674 S.W.3d at 799. 

17 Id. 

18 Id. 

19 Id. (quoting Cent. Tr. Bank v. Graves, 495 S.W.3d 797, 803 (Mo. App. 2016)). 

20 Z.R. v. Kansas City Pediatrics LLC, 2023 WL 7136352 (Mo. App. W.D. 2023). 

21 Id. 

22 Beverly v. Hudak, 545 S.W.3d 864, 869–70 (Mo. App. W.D. 2018). 

23 2023 WL 7136352 at 5. See also Whitted v. Healthline Mgmt. Inc., 90 S.W.3d at 474 (Mo. App. E.D. 2002) (trial court did not abuse its discretion in awarding the plaintiffs a new trial on basis of “inconsistent testimony” where the defense expert’s deposition testimony as to the cause of death differed from his trial testimony); see also Pasalich v. Swanson, 89 S.W.3d 555, 561–63 (Mo. App. W.D. 2002) (trial court did not abuse its discretion in granting the plaintiff a new trial where the defense expert offered a new opinion at trial as to what caused the plaintiff’s injuries and did not disclose the change in opinion prior to trial. The trial court also did not abuse its discretion in finding the plaintiff was sufficiently prejudiced by surprise expert testimony to warrant a new trial, even though the plaintiff cross-examined the expert at trial “on variances of his opinion and attack[ed] his credibility”). 

24 Custom Construction Solutions LLC v. B & P Construction, 2023 WL 8192918, 1 (Mo. App. E.D. 2023). 

25 Id. 

26 Id. at 4 (quoting H.B. Deal Const. Co. v. Labor Disc. Ctr., Inc., 418 S.W.2d 940, 952 (Mo. Div 1 1967) overruled on other grounds by R.L. Sweet Lumber Co. v. E.L. Lane, Inc., 513 S.W.2d 365 (Mo. banc 1974); and First Banc Real Est., Inc. v. Johnson, 321 S.W.3d 322, 335 (Mo. App. W.D. 2010)). 

27 2023 WL 8192918 at 4-5.