Facts

Plaintiff Palos Verdes Unified School District (the "District") sought to eliminate use restrictions on two lots that Palos Verdes Homes Association ("PVHA") had granted the District for school use so that the District could sell them to residential developers for an estimated sum of $2 million. The two lots (known as Lots C and D) are located in the City of Palos Verdes Estates and were among 13 lots that PVHA had granted to the District in 1938 when development of what would later become the City of Palos Verdes Estates had stalled and PVHA sought to avoid further property tax obligations. PVHA's grant deed imposed specific use restrictions on those lots, which restrictions require that the lots be used for school sites or, alternatively, for recreation or park purposes.

The District sought to quiet title to Lots C and D, arguing that the use restrictions imposed by PVHA's grant deed were not enforceable; and, the District sought declaratory relief that it, as a school district, was not subject to certain rezoning and subdividing requirements. The District's arguments had broad implications, because the use restrictions governing Lots C and D were the same use restrictions that governed other school sites owned by the District, and, accordingly, if those use restrictions were found to be unenforceable, then the District would not be impeded from selling off additional school sites that PVHA had specifically intended to preserve in the community through the inclusion of use restrictions in its grant deed. The District had also included the City of Palos Verdes Estates in its declaratory relief claim, but dismissed the City shortly after the filing of the complaint.

The action involved complex real estate issues, including whether the use restrictions in the grant deed constituted equitable servitudes; whether the use restrictions had been eliminated based on the merger doctrine applicable to property interests; whether the use restrictions were no longer enforceable due to the application of the Marketable Record Title Act (Civil Code sections 885.010-885.070); whether the use restrictions were trumped by public policy related to the ability of school districts to raise funds through the disposition of school owned real property; and whether use restrictions were unenforceable due to changed circumstances.

Result

Following a four-day bench trial and two subsequent days of closing and supplemental arguments, the Court ruled in favor of PVHA. The Court found that the use restrictions were enforceable over the District's various arguments. The Court concluded that those use restrictions continued to bind the lots that PVHA had granted to the District, such that those lots would remain restricted to school use, or, alternatively, park or recreation use. The Court rendered its Statement of Decision and Judgment on Sept. 22, 2011. The District appealed and PVHA cross-appealed.

Other Information

On appeal, the district and PVHA entered into a settlement agreement involving the City and a private party that, among other things, dismissed the appeal and cross-appeal and let the judgment stand in favor of PVHA. The settlement was completed on Sept. 12, 2012. As part of the settlement, the District reaffirmed application of the use restrictions to the lots granted it by PVHA. The District also transferred Lots C and D to PVHA, which PVHA then transferred to the City for park purposes. PVHA netted $400,000 from the transfer of another piece of property, from, but contingent upon, resolution of the lawsuit, the District received a $1.5 million payment from a private party. FILING DATE: Feb. 1, 2010.