Opinion
No. 37512-5-II.
October 20, 2009.
Appeal from the Superior Court, Pierce County, No. 06-2-13623-9, Linda CJ Lee, J., entered February 29, 2008.
Affirmed by unpublished opinion per Kulik, J., concurred in by Houghton and Hunt, JJ.
Wollochet Harbor Club (WHC), a homeowners' association, brought suit against lot owners of one of four additions after the lot owners amended their restrictive covenants to eliminate view protections, design requirements, density limitations, and prohibitions on home-based businesses. The lot owners counterclaimed, alleging that WHC had no standing to challenge the amendments and no authority to assess members to fund this lawsuit.
We agree that the trial court properly dismissed WHC's action because WHC lacked standing. We also conclude that WHC acted ultra vires by commencing this lawsuit and assessing its members the costs of litigation because WHC did not obtain membership approval as its articles of incorporation required. We affirm the trial court's dismissal of WHC's claims on summary judgment.
I. FACTS
The Wollochet Yacht Harbor subdivisions consist of four additions created over 13 years. All four additions have restrictive covenants that run with the land and that include the power to enforce the covenants against other lot owners within that plat. WHC, a nonprofit corporation, was incorporated after the first three additions but before the fourth addition were recorded. WHC includes all lot owners of the Second, Third, and Fourth Additions, but only four lot owners in the First Addition.
A. History
1. Wollochet Yacht Harbor — 1951. In 1951, property owners DeWitt Rowland, an attorney; Anne Rowland; Radnor Pratsch; and Martin Stockwell recorded the plat for the Wollochet Yacht Harbor Addition (WYHA). WYHA consists of 11 residential lots in Pierce County. One lot was reserved for a common beach for the upland lots.
This development's covenants included protected access to Wollochet Bay and building restrictions limiting development to single-family dwellings, subject to design approval by an architectural control committee elected by lot owners. The owners control the mutual beach for the upland lots. A view covenant covered specific lots in the development.
The WYHA covenants granted lot owners the power to change and to enforce covenants. The covenants provided that they would run with the land and be binding until 1972, when the covenants would be automatically extended for successive periods of 10 years unless a majority agreed to change the covenants. Violations of the WYHA covenants could be prosecuted by "other person or persons owning any real property included in this agreement." Clerk's Papers (CP) at 69.
The WYHA covenants do not mention a nonprofit corporation, or WHC, which had not yet been incorporated. There is also no mention of any anticipated development. The plat and the covenants do not refer to this development as the "First Addition."
2. Wollochet Yacht Harbor — Second Addition — 1953. A year and one-half later, the Rowlands platted a new development called Wollochet Yacht Harbor, Second Addition. This development contained 15 lots and was located adjacent to and north of WYHA.
The Second Addition covenants, established in June 1953, provided for protected access to Wollochet Bay and established view and building restrictions limiting development to single-family dwellings, subject to design approval and certain height restrictions. A new mutual use area was created for Second Addition lot owners. The Second Addition also had its own separate architectural design committee elected by Second Addition lot owners.
The Second Addition covenants mention a future nonprofit corporation in connection with the roads and the mutual use area.
As in WYHA covenants, the Rowlands granted power to change and to enforce the Second Addition covenants to the Second Addition lot owners. The covenant uses the same language found in the WYHA covenants:
These covenants are to run with the land and shall be binding on all parties
hereto and all persons claiming under them until January 1, 1972, at which time said covenants shall be automatically extended for successive periods of 10 years unless by vote of a majority of the then owners of the lots it is agreed to change said covenants in whole or in part.
CP at 252 (emphasis added).
The power to enforce the covenants was also granted to Second Addition lot owners. This grant is identical to that used in the WYHA covenants:
If the parties hereto, or any of them or their heirs or assigns shall violate or attempt to violate any of the covenants herein it shall be lawful for any other person or persons owning any real estate included in this agreement to prosecute any proceedings at law or equity against the person or persons violating or attempting to violate any such covenant.
CP at 252 (emphasis added).
3. Second Addition Amendments. After platting the Second Addition, the Rowlands amended the Second Addition covenants to substitute three new paragraphs for three paragraphs that they deleted. Importantly, the Rowlands did not change the paragraphs that granted the power to change and to enforce the Second Addition covenants. The amendment made no mention of any future corporation. The amendment replaced the view covenant with the following:
"(26) It is essential that the view from any lot of this Addition, or from houses which may hereafter be built on land westerly of this Addition, be maintained and safeguarded so far as it is possible so to do without restricting the use of other lots as allowed by the provisions herein. Therefore, no hedge shall be permitted over seven (7) feet in height unless it be certain that such hedge in no way interferes with the view from any other lot or the land westerly of this Addition; and no trees will be permitted of such height or character that they restrict the view of any part of Wollochet Bay from houses built or to be built on other lots of this Addition, or on land westerly thereof. Trees now standing shall be permitted to remain on the lots if the owner of lots upon which they are located desire, but such trees will be required to be trimmed at the expense of the owner of the lot on which they are located when requested by the owner or purchaser of any house whose view is restricted by them so that such trees shall not restrict the view to any greater degree than they do as of the date of the signing of this instrument."
CP at 392-93 (emphasis added).
In 1991, a majority of Second Addition lot owners amended the Second Addition covenants to delete paragraph 26, concerning view restrictions. WHC, incorporated in 1957, acknowledged the amendment and recorded it. In 2001, the majority of Second Addition lot owners recorded a signed petition changing their covenants to reinstate the original view covenant language from June 1953. The reinstated view covenant stated:
It is essential that the view from any lot of this addition be maintained and safeguarded so far as it is possible so to do without restricting the use of other lots as allowed by the provisions herein. Therefore no hedge [] shall be permitted over 7 feet in height and no trees will be permitted of such height or character that they restrict the view of any part of Wollochet Bay from houses, built or to be built, on other lots of this addition. This provision shall be strictly enforced. Was amended 9/25/53, was deleted 4/01/91 and to be reinstated immediately 09/ /2001. In addition, all homeowners shall keep and maintain the easements and grounds around their property.
CP at 149.
The petition recorded with the amendment stated that:
[I]t was time to correct the bylaws, Paragraph 26, as amended in April 1991. We feel deleting this paragraph in its entirety was unlawful. We are looking to reinstate the bylaws of the original covenants so that all 4 additions, once again, are entitled to the same view protection.
CP at 151.
4. Second Addition's Standard Supplemental Agreement — 1956. In 1956, more than three years after the Second Addition was platted, the Rowlands, as sellers, and two defendants here, Carl and Beverly Peterson, as buyers, signed a contract entitled "Standard Supplemental Agreement Wollochet Yacht Harbor Second Addition, with Reference to Mutual-Use Area, Water System and Roads." CP at 157-67 (Supplemental Agreement). WHC contends that all Second Addition lot owners signed the agreement. The record contains no evidence to support this contention. WHC also maintains that the Supplemental Agreement "contemplated the future addition of other lots and other additions as well as the creation of a non-profit corporation to govern WHC." Appellant's Br. at 9.
Nevertheless, the Supplemental Agreement did not change the paragraphs that granted the Second Addition lot owners the power to change and to enforce their covenants. Moreover, the agreement, as a whole, concerned the mutual use system, the water system, and the roads.
WHC argues that one portion of the Supplemental Agreement provides that if a nonprofit corporation was formed, it would incorporate each addition's covenants into its governing structure. The provision WHC relies on states:
If said corporation so organized shall then contract with the sellers [the Rowlands] to be bound by the provisions herein required of it, thereupon subject to the terms of this agreement and those of the plat of this addition and the covenants and restrictions thereof, upon a majority vote of the owners and purchasers . . . of the lots of said addition and those of other land or additions at that date designated to share with them in the use of Lot 10, said corporation shall (without further expense to it) own said Lot 10 and Lot A and said water system and have the right to operate, maintain, develop and/or improve said Lot 10, and said water system, and govern, maintain and/or improve the roads.
CP at 161-62 (emphasis added). Significantly, there is no evidence that the agreements or the voting took place.
5. Third Addition — 1957. In 1957, the Rowlands recorded the plat and the restrictive covenants for the Third Addition. The restrictive covenants for the Third Addition contain similar restrictions to the First and Second Additions.
While many Third Addition covenants were similar to those in WYHA and Second Addition covenants, some were different. Importantly, the view covenant for the Third Addition provided for "the non-profit corporation herein referred to" as additional means to enforce view restrictions. CP at 267. Hence, the view covenants in the Third Addition could be enforced by the lot owners or a corporation to which the covenants referred, but which was not yet incorporated.
WHC was incorporated in 1957, four years after the plat for the Second Addition was recorded.
6. Formation of WHC — 1957. WHC is a nonprofit homeowners' association incorporated as a nonprofit corporation. WHC did not exist when the Second Addition was platted. WHC is composed of lot owners from the four additions.
Neither the articles of incorporation nor the bylaws mention a power to extinguish, amend, or change covenants. Article XVII of the bylaws states:
The covenants and restrictions of Wollochet Yacht Harbor, First Addition Lots 7, 8, and 9, and Second, Third, and Fourth Additions as well as the Standard supplemental agreements for each addition are made a part of these By-laws for the purpose of clarifying the rights and obligations of the corporation and its members.
CP at 132.
Article (q) of WHC's articles of incorporation addresses WHC's power to assess its members for expenses. Article (q) provides that although the corporation might assess its members for any of the 19 express corporate purposes enumerated in the articles, "no member shall be assessed for items other than for the water system, roads and sewage (or septic tank effluent system) unless two-thirds of the members of this corporation . . . shall approve such assessment." CP at 97.
7. Fourth Addition — 1964. In 1964, the Rowlands and others platted the Fourth Addition. Only 16 covenants and restrictions were recorded against the Fourth Addition as compared to 28 each for the Second and Third Additions.
The Fourth Addition covenants allow only one single-family dwelling per lot, subject to design approval. However, design approval for buildings and garages must be obtained from WHC's architecture committee. The manner in which construction is carried out is strictly supervised by the WHC architecture committee. Each lot has access to lot 10 and has a membership in the nonprofit corporation. Unlike the Second Addition, the Fourth Addition covenants contain no view covenant. The Fourth Addition covenants do contain the language identical to the other additions granting the lot owners the power to change the covenants in whole or in part. The covenants run with the land for 25 years and then renew every 10 years.
8. 2006 Amendments. Under the Second Addition covenants, the majority of the owners in that addition had the power to change the covenants, in part or in whole. In October 2006, some lot owners in the Second Addition sent ballots to all of the Second Addition lot owners, proposing several amendments to the Second Addition covenants. Twelve of the fifteen lot owners voted. The proposed amendments that the majority of the Second Addition lot owners approved were recorded. Among other things, these amendments eliminated the view covenant because Second Addition lot owners were frustrated by requests from upland owners to remove or top trees.
B. Procedural Background
1. Complaint and Motion for Summary Judgment. In 2006, WHC filed a complaint against the members of the Second Addition seeking (1) a declaration that the 2006 amendments were invalid, and (2) an injunction against implementation of the amendments.
Certain Defendants filed an answer, counterclaim, and a third party complaint. Later, Certain Defendants filed a motion for summary judgment, arguing that WHC lacked standing. WHC also filed a cross-motion for summary judgment.
Dean Dennis and Kathy Dennis, Tim Potter and Jorja Potter, Steve Keller and Deanna Keller, and Dan Wolfrom.
Certain Defendants filed a motion to bifurcate the issue of standing from the issue of the existence of a general scheme or plan. The trial court agreed to bifurcate the issues. It granted Certain Defendants' motion for summary judgment based on standing and dismissed WHC's complaint.
2. Third Party Plaintiffs' Motion for Partial Summary Judgment. Certain Defendants also asked the trial court to find that WHC acted ultra vires by incurring litigation costs without WHC members' approval. The trial court concluded that article (q) in WHC's articles of incorporation required two-thirds approval for WHC to hire counsel to pursue this case. It found that WHC failed to show that two-thirds of its members approved the expenditure of funds to pursue this case.
3. Appeal. WHC appeals the trial court's decisions that WHC lacked standing and that article (q) required WHC to obtain approval of two-thirds of its members to fund this litigation.
II. ANALYSIS
A. Standing
When reviewing an order of summary judgment, we engage in the same inquiry as the trial court. Wilson v. Steinbach, 98 Wn.2d 434, 437, 656 P.2d 1030 (1982). We consider all facts and inferences in the light most favorable to the nonmoving party. Yakima Fruit Cold Storage Co. v. Cent. Heating Plumbing Co., 81 Wn.2d 528, 530, 503 P.2d 108 (1972). We grant summary judgment only when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. CR 56(c); Wilson, 98 Wn.2d at 437.
The trial court viewed the issue here as whether the governing documents granted WHC standing to bring this lawsuit. It bifurcated this issue from the issue of general scheme or plan. WHC contends the trial court erred by making its decision denying standing based only on the governing documents. WHC also contends the trial court erred by ruling that WHC could not "change, amend, or challenge the protective covenants and restrictions of the four additions or the Second Addition in particular." RP (Apr. 10, 2007) at 45.
The decision to bifurcate is within the trial court's discretion. Myers v. Boeing Co., 115 Wn.2d 123, 140, 794 P.2d 1272 (1990). An abuse of discretion occurs when a court's decision is unreasonable or based on untenable grounds. In re Marriage of Littlefield, 133 Wn.2d 39, 47, 940 P.2d 1362 (1997).
Standing is a matter of jurisdiction. Lane v. City of Seattle, 164 Wn.2d 875, 885, 194 P.3d 977 (2008). Generally, the doctrine of standing precludes a party from asserting the legal right of another person. Timberlane Homeowners Ass'n v. Brame, 79 Wn. App. 303, 307-08, 901 P.2d 1074 (1995). A party has standing to litigate an issue if he or she can demonstrate "`a real interest in the subject matter of the lawsuit, that is, a present, substantial interest, as distinguished from a mere expectancy, or future, contingent interest, and the party must show that a benefit will accrue to it by the relief granted.'" Id. (quoting Primark, Inc. v. Burien Gardens Assocs., 63 Wn. App. 900, 907, 823 P.2d 1116 (1992)). Under Washington law, standing may be personal or representational. Vovos v. Grant, 87 Wn.2d 697, 700, 555 P.2d 1343 (1976).
Lane points out that Branson v. Port of Seattle, 152 Wn.2d 862, 879-80 n. 10, 101 P.3d 67 (2004) (Chambers, J. concurring) concluded that a case may be heard even if the party lacks standing if the issue is one of great public interest and is well briefed. Lane, 164 Wn.2d at 885 n. 1.
In Timberlane, the court concluded that a homeowners' association lacked standing to enforce members' easement rights because the declaration of covenants, conditions, and restrictions stated that the association had the authority only to "maintain" the members' easement rights, not to enforce these rights. Timberlane, 79 Wn. App. at 308. The court concluded that the association's fee interest in the common areas alone was not sufficient to confer standing because the association failed to show a "present, substantial interest" in the easement rights and that "a benefit will accrue it by the relief granted." Id. at 307-08.
Similarly here, we examine the relevant documents and the doctrine of general scheme or plan to determine whether the trial court's decision to bifurcate was proper and whether WHC has personal standing. WHC also asserts that it has standing based on zone of interest and its duty to represent its members.
1. Zone of Interest. WHC asks us to apply the zone of interest test to determine standing. We apply this test when a party challenges a statute. In Lane, the court explained that: "To have standing, a party must be in a law's zone of interest and must suffer some harm." Lane, 164 Wn.2d at 885. In Lane, the court concluded that a taxpayer was within the interest zone to challenge a tax that was directly passed onto him. Id. at 886. Here, WHC does not challenge a statute. WHC's argument that it has personal standing under the zone of interest test is unpersuasive.
2. Duty to Represent. WHC next contends that it has representational standing because of its duty to represent its members. Washington courts apply representational standing only where the person whose standing is challenged is the only plaintiff and representational standing is necessary to ensure that the important public issues raised do not escape review. Grant County Fire Prot. Dist. No. 5 v. City of Moses Lake, 150 Wn.2d 791, 803, 83 P.3d 419 (2004). Under this standard, WHC does not have representational standing.
3. Governing Documents. WHC further argues that the trial court erred by limiting the issue of standing to an examination of WHC's governing documents. In WHC's view, these documents require WHC's board to enforce the general scheme or plan established by the Rowlands. For this reason, WHC believes that the question of whether there was a general scheme or plan is critical to a determination on standing.
We first examine the documents governing the Second Addition. "The interpretation of language in a restrictive covenant is a question of law." Meresse v. Stelma, 100 Wn. App. 857, 864, 999 P.2d 1267 (2000) (footnote omitted). The court's primary goal when interpreting a restrictive covenant is to determine the parties' intent. Metzner v. Wojdyla, 125 Wn.2d 445, 450, 886 P.2d 154 (1994) (quoting Lakes at Mercer Island Homeowners Ass'n v. Witrak, 61 Wn. App. 177, 179, 810 P.2d 27 (1991)). We construe the document in its entirety, giving language its ordinary and common meaning. Mountain Park Homeowners Ass'n v. Tydings, 125 Wn.2d 337, 344, 883 P.2d 1383 (1994).
But when a covenant's construction arises in a dispute involving subdivision homeowners and does not include the covenant's maker, the court must give effect to the purposes the covenant intended. Any ambiguity as to the intent of those establishing the covenants may be resolved by considering evidence of the surrounding circumstances. Riss v. Angel, 131 Wn.2d 612, 623, 934 P.2d 669 (1997). The court will place "special emphasis on arriving at an interpretation that protects homeowners' collective interests." Lakes at Mercer Island Homeowners Ass'n, 61 Wn. App. at 181.
When the Second Addition was platted in 1953, Second Addition lot owners were granted the power to change and to enforce the Second Addition covenants. Specifically, the covenants provided:
(1) These covenants are to run with the land and shall be binding on all parties hereto and all persons claiming under them until January 1, 1972, at which time said covenants shall be automatically extended for successive periods of 10 years unless by vote of a majority of the then owners of the lots it is agreed to change said covenants in whole or in part.
CP at 252.
There are no references in the Second Addition covenants to another addition or any other addition's covenants. Importantly, the power to change Second Addition covenants was not reserved for a corporation to be formed in the future. In contrast, the Third Addition covenants granted lot owners the power to change the covenants and granted a nonprofit corporation the right to enforce the view covenant.
WHC contends that the 1953 amendment to the Second Addition covenants put the lot owners on notice that the grantor intended to create a subdivision of single-family dwellings subject to view restrictions. WHC points out that the 1953 amendments to the Second Addition covenants granted view restrictions not only for the lots of the Second Addition but also for "houses which may hereafter be built on land westerly of this Addition." CP at 392.
WHC's argument is unsupported by the record and a plain reading of the covenants. In 1953, Second Addition lot owners replaced the original view covenant with language referencing "land westerly." CP at 392. In 1991, a majority of lot owners in the Second Addition voted to eliminate the 1953 view covenant. From 1991 to 2001, lot owners in the Second Addition had no view covenant. In 2001, a majority of the Second Addition lot owners voted to reinstate the original language, not the 1953 amendment that references "land westerly." CP at 392. Significantly, any purchaser of a lot in the Second Addition after 1991 had no notice of a covenant benefitting property to the west.
Certain Defendants maintain that most of the lots in the Third Addition are located to the north of the Second Addition while most of the westerly lots are in the Fourth Addition which does not have a view covenant. Moreover, Certain Defendants point out that the phrase "the land immediately to the west" was found insufficient to burden property in Dickson v. Kates, 132 Wn. App. 724, 734, 133 P.3d 498 (2006).
WHC relies on Ebel v. Fairwood Park II Homeowners' Association, 136 Wn. App. 787, 150 P.3d 1163 (2007) to support its argument that WHC has the power to enforce a general scheme or plan under WHC's governing documents. Ebel is distinguishable. In Ebel, the association was created by amendment to the covenants. Id. at 792-93. Here, the Second Addition covenants reference a nonprofit corporation only in connection with the roads and the mutual use area. Second Addition covenants do not give the nonprofit corporation power to change the covenants.
WHC also argues that the Supplemental Agreement gave WHC authority to govern the Second Addition lot owners. According to WHC, lot owners who participated in the nonprofit corporation referred to in this agreement would have full knowledge of the view protections and WHC's enforcement provisions, and would, therefore, have agreed to WHC's articles of incorporation and bylaws. WHC points out that the Supplemental Agreement required all Second Addition lot owners to sign or else forfeit their rights to connect to the water system.
Only a few of the lot owners in the Second Addition signed the "Standard Supplemental Agreement Wollochet Yacht Harbor Second Addition, With Reference to Mutual-Use Area, Water System and Roads." CP at 157. Significantly, this agreement created a corporation whose purpose was to handle power, garbage, road, water, sewer problems, and the maintenance of the mutual use beach on lot 10. This agreement does not refer to any power to change covenants.
WHC also argues that the Second Addition covenants are "correlating documents" that must be read with the articles of incorporation and the bylaws. According to WHC, the amendment of the Second Addition covenants in 1953 put all lot owners on notice that the Rowlands intended to create a subdivision, subject to view restrictions, including protections for the lot owners in the Second Addition and those lots to the west. WHC contends that when Second Addition homeowners signed the Supplemental Agreement, they became members of a nonprofit corporation once formed.
These documents do not grant WHC authority to change the Second Addition covenants. The covenants do not reserve this authority for WHC and no subsequent amendments or agreements did so either. The proper procedure to change the covenants was through a majority vote of the Second Addition lot owners. Hence, WHC has no standing based on the documents.
4. General Scheme or Plan. When considering the standing issue, the trial court did not consider whether WHC had standing to seek declaratory relief to protect and to enforce the general scheme or plan of Wollochet Yacht Harbor for the benefit of lot owners in all additions. WHC maintains there is a general scheme or plan and that the WHC board has the power to protect it.
Covenants amended or adopted by less than 100 percent of the affected property owners that affect the use of all land within a community must be done in a reasonable manner so as not to destroy the general scheme or plan of development. Shafer v. Bd. of Trustees of Sandy Hook Yacht Club Estates, Inc., 76 Wn. App. 267, 273-74, 883 P.2d 1387 (1994). But a general scheme or plan does not exist where lot owners are granted an express right to enforce the covenants within their own plat. Save Sea Lawn Acres Ass'n v. Mercer, 140 Wn. App. 411, 416-17, 116 P.3d 770 (2007), review denied, 163 Wn.2d 1047 (2008) ( SSLAA).
SSLAA is similar to the case here. In SSLAA, plat 1 and plat 2 were created and recorded one month apart. Plat 1 and plat 2 had separate but identical covenants. Each set of covenants reserved the right to enforcement and to revocation to lot owners within each plat. After a majority of the lot owners in plat 2 voted to revoke the restrictive covenants of their plat, SSLAA was formed to contest the revocation of the covenants of plat 2. As here, SSLAA argued that a general scheme or plan prevented plat 2 lot owners from voting to revoke their restrictive covenants without the plat 1 lot owners' participation. See id. at 414-18.
In SSLAA, the court granted summary judgment, dismissing SSLAA's action. The court noted that there was no cross-referencing between the plats and that the plat 2 lot owners had validly revoked the restrictions according to the terms of the covenants. The court also noted that the separate filing of the plats indicated separate covenants. Reading the restrictions, the court concluded that the lot owners of plat 1 had authority to enforce the restrictions in their plat but did not have the authority to enforce restrictions in plat 2. Id. at 419. The court also concluded that no notice was given to the plat 2 lot owners that plat 1 lot owners had an interest in plat 2. Id. at 422.
Here, the covenants for each addition were filed separately. The Second Addition covenants granted lot owners in that addition the power to amend, in whole or in part, and to enforce the Second Addition covenants. The Second Addition covenants did not reserve to WHC a power to change these covenants. The Second Addition lot owners followed the proper procedure when revoking Second Addition covenants. No notice was given to purchasers in the Second Addition that lot owners in other additions had an interest in the Second Addition. WHC's articles of incorporation and bylaws do not grant WHC the power to change the Second Addition covenants. In short, WHC lacks standing to challenge the amendments made to the Second Addition covenants by the Second Addition lot owners.
In its reply brief, WHC argues that the power to change said covenants in whole or in part does not include the power to vacate or eliminate the covenants. We need not address an issue first raised in a reply brief. Cowiche Canyon Conservancy v. Bosley, 118 Wn.2d 801, 809, 828 P.2d 549 (1992).
WHC attempts to distinguish SSLAA. WHC argues that SSLAA, and the cases it relies on, are difficult to reconcile with Riss and Washington's policy of favoring collective rights over individual rights. WHC quotes language in Riss, stating that "[t]he court will place `special emphasis on arriving at an interpretation that protects the homeowners' collective interests.'" Riss, 131 Wn.2d at 623-24 (quoting Lakes at Mercer Island Homeowners Ass'n, 61 Wn. App. at 181). In WHC's view, the Second Addition covenants must be read in a way that protects all four additions.
The Risses brought suit when the homeowners' association rejected their building plans based on a consent to construction clause in the subdivision's restrictive covenants. Riss, 131 Wn.2d at 615. The court concluded that consent to construction covenants must be reasonable and reasonably exercised to be valid. Id. at 624. The court also held that
where construction of restrictive covenants is necessitated by a dispute not involving the maker of the covenants, but rather among homeowners in a subdivision governed by restrictive covenants, rules of strict construction against the grantor or in favor of the free use of land are inapplicable. The court's goal is to ascertain and give effect to those purposes intended by the covenants.
Id. at 623.
In contrast to the facts here, Riss dealt with a construction covenant that applied to the entire subdivision, necessitating an interpretation protecting the homeowners' collective interests. Riss gave effect to the purposes intended by the covenants and noted that Washington courts "have refused to apply principles of strict construction so as to defeat the plain and obvious meaning of restrictive covenants." Id. Here, the Second Addition covenants grant Second Addition lot owners, not WHC, the right to amend the covenants.
WHC also argues that SSLAA is not applicable because most of the cases it relies on do not involve homeowners' associations governing separate, but united, subdivisions. This argument is unpersuasive. The identity of the parties is not dispositive. What is dispositive is the language of the covenants. Here, the covenants clearly grant the power to amend exclusively to the Second Addition lot owners without referencing any other addition or WHC.
Given that the doctrine of general scheme or plan is inapplicable here, the trial court did not abuse its discretion by refusing to consider this doctrine when resolving the standing issue.
B. Assessment Of Litigation Costs To WHC Members
1. Articles of Incorporation. In response to WHC's complaint, Certain Defendants filed a counterclaim and third party complaint, alleging that WHC's decision to bring this litigation was unreasonable and arbitrary, and in violation of RCW 64.38.035 and .045 and the governing documents of the corporation. The trial court granted partial summary judgment on the third party counterclaims. The trial court's decision rested on its reading of article (q). WHC contends the trial court erred by concluding that a two-thirds vote of the membership was required to approve assessments to finance this litigation.
Article (q) of the articles of incorporation provides:
To assess the members of this corporation for the maintenance and operation of the water system and development and improvement thereof necessary to provide water to all homes of members, and for the maintenance, repair and operation of the above referred to septic tank effluent system, in the manner and to the degree as shall be set forth in the by-laws, and to assess the members for improvements in the mutual use areas, and for other corporate purposes, provided, however, that no member shall be assessed for items other than for the water system, roads and sewage (or septic tank effluent system) unless two-thirds of the members of this corporation . . . shall approve such assessment.
CP at 97 (emphasis added).
The trial court found that no evidence was produced showing that two-thirds of the membership had approved the expenditure of assessed funds to finance this litigation. We treat unchallenged findings of fact as verities on appeal. Cowiche, 118 Wn.2d at 808.
As a contract, articles of incorporation must be interpreted according to the rules of contract construction. Walden Inv. Group v. Pier 67, Inc., 29 Wn. App. 28, 31, 627 P.2d 129 (1981). The goal when interpreting a contract is to determine the parties' intent. Burton v. Douglas County, 65 Wn.2d 619, 621-22, 399 P.2d 68 (1965). Unambiguous language will be given its plain meaning. Id. at 622. A provision is not ambiguous merely because the parties suggest opposing meanings. Shafer, 76 Wn. App. at 275.
The plain language of article (q) provides that a two-thirds vote of the members is not required for WHC to assess members for the water system, roads, and sewage. In contrast, article (q) requires a two-thirds approval for assessments for "other corporate purposes." CP at 97. Based on the unambiguous language of article (q), the trial court did not err by concluding that WHC lacked authority to finance this litigation without approval of two-thirds of its members.
The WHC board decided to file this lawsuit one day after a meeting of the full membership but it did not put its decision before the membership.
WHC asserts that article (q) identifies the following specific items for which it may spend money for development, operation, and maintenance: (1) the water system, (2) the sewage or septic tank effluent system, (3) roads, and (4) mutual areas. WHC maintains these items are capital expenditures, so the phrase "other corporate purposes" must relate to these more specific items. But the language of article (q) does not support the reading urged by WHC.
According to WHC, Certain Defendants' reading of "other corporate purposes" results in a blanket prohibition on general administrative expenses such as accounting and legal costs. But this argument is unpersuasive. We will not read ambiguity into a contract that is otherwise clear. See McDonald v. State Farm Fire Cas. Co., 119 Wn.2d 724, 733, 837 P.2d 1000 (1992). Given the language here, the phrase "other corporate purposes" is not ambiguous.
We agree with WHC that article (q) must be read in light of the entire document. Article (k) deals with the calculation of costs while article (q) is the only provision dealing with assessments to members. Article (q) and article (k) are not contradictory.
2. RCW 24.03.035 and RCW 64.38.020. WHC next asserts that RCW 24.03.035 (governing nonprofit corporations) and RCW 64.38.020 (governing homeowners' associations) support its view that a two-thirds vote was not required to finance this litigation. RCW 24.03.035 states:
Each corporation shall have power:
. . . .
(20) To have and exercise all powers necessary or convenient to effect any and all of the purposes for which the corporation is organized.
RCW 64.38.020 states:
Unless otherwise provided in the governing documents, an association may:
. . . .
(4) Institute, defend, or intervene in litigation or administrative proceedings in its own name on behalf of itself or two or more owners on matters affecting the homeowners' association, but not on behalf of owners involved in disputes that are not the responsibility of the association.
RCW 64.38.020(4) clearly states that an association may not institute litigation when the dispute is not the association's responsibility. RCW 24.03.035(20) is less specific but only empowers nonprofits to exercise the purposes for which the corporation was organized. WHC lacks authority to expend litigation costs without two-thirds approval by its members. No vote was taken to allow assessments to fund this litigation.
The trial court did not err by concluding that WHC was required to obtain a two-thirds vote of its members to approve assessments to finance this litigation.
III. ATTORNEY FEES
WHC and Certain Defendants both request attorney fees. The trial court granted reasonable attorney fees to Certain Defendants, pursuant to article XVIII of the bylaws, which read, in part:
[S]hould the Board of Trustees retain legal counsel for purposes of resolving any dispute with a property owner based on a decision or resolution of the Board of Trustees, the prevailing party in that dispute (whether resolved through arbitration or by a court of law) shall be entitled to all costs incurred in such dispute resolution, including reasonable attorney's fee, and those incurred on appeal.
CP at 113.
Certain Defendants are entitled to an award of attorney fees on appeal.
IV. CONCLUSION
In summary, we affirm the trial court's order granting summary judgment dismissing plaintiffs' complaint, the order granting partial summary judgment on third party plaintiffs' counterclaims, and the order denying third party plaintiffs' motion for reconsideration.
A majority of the panel has determined this opinion will not be printed in the Washington Appellate Reports, but it will be filed for public record pursuant to RCW 2.06.040.
HOUGHTON, J. and HUNT, J., concur.