QRK, LLC v. Kenilworth Court Residents Association, Inc. ( 2017 )

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
QRK, LLC, :
: No. 592 C.D. 2016
Appellant : Argued: December 15, 2016
:
v. :
:
Kenilworth Court Residents :
Association, Inc. :
BEFORE: HONORABLE P. KEVIN BROBSON, Judge
HONORABLE MICHAEL H. WOJCIK, Judge
HONORABLE DAN PELLEGRINI, Senior Judge
OPINION NOT REPORTED
MEMORANDUM OPINION
BY JUDGE WOJCIK FILED: April 19, 2017
QRK, LLC appeals from an order of the Court of Common Pleas of
Lancaster County (trial court) granting summary judgment to the Kenilworth Court
Residents Association, Inc. (Association) and dismissing a declaratory judgment
action seeking to invalidate an amendment to the Association’s declaration of
covenants. QRK argues that the trial court erred by granting summary judgment
and dismissing the action based on foreclosure, misapplying standing and
mootness doctrines to this case, ignoring the law of case doctrine and coordinate
jurisdiction rule, and by treating QRK as an ordinary purchaser of the units rather
than a successor by foreclosure. Upon review, we reverse and remand.
I. Background
The Association is a registered non-profit corporation overseeing
Kenilworth Court, a planned community of 59 townhouses located in East
Petersburg, Lancaster County, Pennsylvania. This case arises out of the
Association’s attempt to limit the number of townhouses (units) any owner may
own in Kenilworth Court. The Association created the original homeowners'
Declaration of Covenants, Conditions and Restrictions (Declaration) for
Kenilworth Court in 1988. In 2007, the Association amended the Declaration by
adopting the Uniform Planned Community Act (Act).1 Then, in November 2011,
the Association amended the Declaration again (2011 Amendment). Of relevance
here, the 2011 Amendment modified two sections of the Declaration by: (1)
limiting the number of units any owner may own to two, and (2) authorizing the
Association to terminate an owner's ownership rights if the owner is in "egregious,
continuous and frequent" violation of the Declaration and to force a judicial sale of
the unit(s). Sections 5.1(c) and 8.7 of the 2011 Amendment; Reproduced Record
(R.R.) at 132a, 138a.
On June 27, 2013, Dana Glass Multi-Family (Dana Glass) initiated a
declaratory judgment action against the Association seeking to invalidate the 2011
Amendment. Margery S. Dana, Michael S. Glass and Dana Glass, collectively
owned and rented 18 units.2 As owners of the units, they were members of the
Association. The units were encumbered by an open-end mortgage held by Jersey
Shore State Bank that was recorded in 2004. Dana Glass asserted that the 2011
1
68 Pa. C.S. §§5101-5414.
2
When the suit was first initiated, Margery S. Dana, Michael S. Glass and Dana Glass
owned 20 units; but by March 2015, and for purposes of our discussion, they owned 18.
2
Amendment was invalid because the Association adopted the amendment without
its consent in violation of the Act.3
In response, the Association filed a motion for summary judgment
asserting Dana Glass’s complaint was time-barred by Section 5219(b) of the Act,
68 Pa. C.S. §5219(b), which sets forth a one-year statute of limitations for
challenging an amendment to a declaration. By interlocutory order dated April 10,
2015, the trial court, presided by Judge Donald R. Totaro, denied the motion,
explaining that, because Dana Glass did not consent to the 2011 Amendment, as
required by Section 5219(d) of the Act, 68 Pa. C.S. §5219(d),4 the amendment was
void ab initio as if it never existed. Therefore, the trial court held that the action is
not barred by the one-year statute of limitations, and Dana Glass is entitled to be
3
According to the Association, it suspended Dana Glass’ voting rights because Dana
Glass was in arrears on its monthly assessments at the time of the vote. Appellee’s Brief at 4-5.
4
Section 5219(d) provides:
(d) When unanimous consent or declarant joinder required.—
(1) Except to the extent expressly permitted or required by other
provisions of this subpart, without unanimous consent of all unit
owners affected, no amendment may create or increase special
declarant rights, alter the terms or provisions governing the
completion or conveyance or lease of common facilities or
increase the number of units or change the boundaries of any unit,
the common expense liability or voting strength in the association
allocated to a unit or the uses to which any unit is restricted. In
addition, no declaration provisions pursuant to which any special
declarant rights have been reserved to a declarant shall be amended
without the express written joinder of the declarant in such
amendment.
(2) As used in this subsection, the term “uses to which any unit is
restricted” shall not include leasing of units.
68 Pa. C.S. §5219(d).
3
heard on the merits of its action. However, the trial court noted that, because only
the Association moved for summary judgment, the holding of the opinion “is
limited to deciding whether [the Association] may properly claim the one-year
limitations period of Section 5219(b) as barring this action, and does not render
any decision as to the ultimate validity of the [2011 Amendment].” Trial Court
Opinion, 4/10/15, at 5 n.4; R.R. at 292a.
During the pendency of the declaratory judgment action, Dana Glass
defaulted on its mortgage obligations. Jersey Shore State Bank filed a foreclosure
complaint on July 30, 2014 to foreclose 18 units, and obtained a foreclosure
judgment. Thereafter, on March 24, 2015, Jersey Shore State Bank assigned its
interest in and to the open-end mortgage, security agreement and financing
statement to QRK, which was duly recorded. R.R. at 363a-364a, 368a-369a. The
next day, QRK purchased the 18 units offered at the sheriff’s sale. R.R. at 343a.
The deed was recorded in April 2015. R.R. at 337a-341a. Upon becoming the
owner of the units, QRK became a member of the Association. See R.R. at 256a.
Then, in November 2015, Dana Glass executed an assignment of claims purporting
to assign its rights to the declaratory judgment action to QRK. R.R. at 301a. QRK
currently owns 16 units.5
Pursuant to Rule 2004 of the Pennsylvania Rules of Civil Procedure,
QRK filed a petition to substitute party and amend caption with the trial court.
R.R. at 298a-299a. Specifically, QRK requested to substitute itself for Dana Glass
in the declaratory judgment action to pursue the claims against the Association
based on its purchase of the units and Dana Glass’s assignment of claims. R.R. at
5
QRK sold two of the 18 units to the Association.
4
298a-299a. The trial court granted the petition and ordered the substitution of
parties and amended the caption. R.R. at 312a.
The Association then moved for summary judgment a second time
claiming that the case was now moot and that QRK lacked standing. More
particularly, the Association asserted that, upon foreclosure of the properties, Dana
Glass lost standing to pursue its declaratory judgment action because it was no
longer aggrieved by the corporate action. Dana Glass had no interest to assign to
QRK in November 2015 -- seven months after the sale of the units and the
termination of its membership in the Association. Moreover, QRK was not
aggrieved by the corporate action because it was not a member at the time the
Association adopted the 2011 Amendment. QRK had constructive notice of the
2011 Amendment before acquiring the units at the sheriff’s sale and is thereby
bound by the amendment.
QRK countered that the assignment of interest is valid because QRK
is the successor owner of the units and assignee of Dana Glass’s claims in this
declaratory judgment action. QRK asserted it stands in the shoes of Dana Glass
and can challenge the impact of the 2011 Amendment on its units as the real party
in interest. QRK could not have undertaken to carry the lawsuit prior to its
ownership as this would constitute champerty.6
6
“[C]hamperty is a ‘bargain by a stranger with a party to a suit, by which such third
person undertakes to carry on the litigation at his own cost and risk, in consideration of
receiving, if successful, a part of the proceeds or subject to be recovered.’” Clark v. Cambria
County Board of Assessment Appeals, 747 A.2d 1242, 1245 (Pa. Cmwlth. 2000), appeal denied,
798 A.2d 1292 (2002) (quoting Belfonte v. Miller, 243 A.2d 150, 152 (Pa. Super. 1968)). Three
elements must be met for there to be champerty: (1) “the party involved must be one who has no
legitimate interest in the suit;” (2) “the party must expend his own money in prosecuting the
suit;” and, (3) “the party must be entitled by the bargain to a share in the proceeds of the suit.”
Id. (citing Belfonte). “The activity of champerty has long been considered repugnant to public
(Footnote continued on next page…)
5
The trial court, presided by Judge Leonard G. Brown, III, granted the
Association’s motion for summary judgment and dismissed the case. In its original
opinion and order (filed March 14, 2016) and Pa. R.A.P. 1925(a) opinion (filed
June 10, 2016), the trial court determined that Dana Glass could not assign its
interest to another party after foreclosure. Once QRK purchased the properties,
Dana Glass’s case against the Association became moot as there was no case or
controversy supporting the ongoing declaratory judgment action. Upon purchasing
the units at sheriff’s sale, QRK became a member of the Association. But, unlike
Dana Glass, before becoming an owner and member of the Association, QRK was
on notice of the Dana Glass lawsuit and the 2011 Amendment. QRK was not
aggrieved by any corporate action, which occurred before QRK became a member.
Thus, QRK lacks standing to proceed. From this decision, QRK now appeals.7
II. Issues
QRK contends that the trial court erred by granting the Association’s
motion for summary judgment and dismissing the case based on the foreclosure.
(continued…)
policy against profiteering and speculating in litigation and grounds for denying the aid of the
court.” Id. at 1245-1246. “A plaintiff who sues on what would be another's claim except for
such champertous agreement will not be permitted to maintain an action . . . as such a plaintiff is
not a ‘real party in interest’ as required by Pa. R.C.P. No. 2002 and would not have standing to
maintain the action.” Id. at 1246.
7
Our review of a trial court order granting summary judgment is limited to determining
whether the trial court erred as a matter of law or abused its discretion. Summers v. CertainTeed
Corp., 997 A.2d 1152, 1159 (Pa. 2010). “[S]ummary judgment is appropriate only in those cases
where the record clearly demonstrates that there is no genuine issue of material fact and that the
moving party is entitled to judgment as a matter of law.” Id.6
In so doing, the trial court misapplied standing and mootness doctrines. In
addition, QRK claims that the trial court ignored the law of the case doctrine and
the coordinate jurisdiction rule because Judge Totaro previously concluded the
2011 Amendment was void ab initio. Finally, QRK asserts the trial court erred by
treating QRK as an ordinary purchaser of the units and concluding that QRK was
bound by the 2011 Amendment.
III. Discussion
A. Foreclosure, Standing, & Mootness
1. Contentions
QRK contends the foreclosure of the units did not extinguish the
declaratory judgment action and that the trial court misapplied the concepts of
standing and mootness. Property and contract rights cannot be altered without
consent of the party whose interests are impacted. Pennsylvania courts permit
successors by foreclosure to continue cases initiated prior to foreclosure where the
issues run with the land, not with the landowner.
QRK is the successor by foreclosure and an assignee of Dana Glass’s
rights in the litigation. QRK, as both mortgagor and mortgagee, has an interest in
seeing that the 2011 Amendment does not impact the value of the units purchased
at sheriff’s sale. QRK is the only party with motivation to protect the property’s
value. An assignee’s rights are not inferior to those of the assignor. Thus, QRK
has standing to proceed as successor by foreclosure and an assignee of Dana Glass
to challenge the validity of the 2011 Amendment.
QRK further argues that the trial court erred by determining that Dana
Glass, once divested of the units, had nothing to assign, and the case against the
Association was moot. However, the foreclosure did not impact Dana Glass’s
ability to assign its interest in the suit because the litigation runs with the land.
7
There is a present or existing controversy concerning whether the units formerly
owned by Dana Glass and now owned by QRK are impacted by the 2011
Amendment. Even if the controversy is technically moot, exceptions to the
mootness doctrine must be applied because this case involves a question of public
importance, the question presented is capable of repetition and apt to elude review,
and QRK will suffer some detriment without a decision of the trial court.
Moreover, QRK contends Dana Glass could not have assigned any of
its rights prior to the foreclosure sale. If Dana Glass had assigned its rights to
QRK before QRK owned the properties, the assignment of the claim would have
been champertous. The trial court’s decision creates a “catch 22” situation that
results in manifest injustice.
QRK maintains that the trial court erred by relying on QRK’s ability
to maintain a claim in its own right as the basis for standing. The issue was
whether QRK could pursue Dana Glass’s claims as an assignee, not whether QRK
had standing to challenge the amendment in its own right. The trial court’s
reliance on QRK’s ability to independently maintain the suit without the
assignment from Dana Glass is erroneous.
The Association counters the trial court correctly applied concepts of
standing and mootness to dismiss the case. Dana Glass maintained standing in the
lawsuit up until March 25, 2015, when the units were sold at sheriff’s sale. Upon
foreclosure, Dana Glass was no longer an owner of any units or a member of the
Association. Consequently, Dana Glass was no longer affected or aggrieved by the
2011 Amendment. Thus, Dana Glass’s case against the Association challenging
corporate action became moot. In other words, Dana Glass’s interest in the lawsuit
was extinguished upon foreclosure and could not be transferred to another party.
8
The concept of mootness through an intervening loss of standing is
well settled. Although Dana Glass initially had standing, once it sold the units, it
no longer had standing to challenge the amendment and the case became moot.
The mootness doctrine requires an actual controversy at all stages of review, not
just when the complaint is filed. The trial court properly explained why none of
the exceptions to the mootness doctrine apply here. Even if an exception were
applicable, QRK never showed how it or any other party will suffer any detriment
by a subsequent sale of the properties.
Finally, the Association asserts that the trial court properly determined
that QRK cannot independently maintain this action based on lack of standing.
QRK had no membership or voting rights in November 2011 when the amendment
was adopted. Therefore, QRK was not aggrieved by the corporation action. Thus,
QRK cannot maintain this declaratory judgment action.
2. Analysis
We begin by examining the general principles of standing. A party
seeking judicial resolution of a controversy must establish as a threshold matter
that it has standing to maintain the action. Johnson v. American Standard, 8 A.3d
318, 329 (Pa. 2010). A party can show that it has been aggrieved if it “can
establish that [it] has a substantial, direct and immediate interest in the outcome of
the litigation.” Id. at 329; accord William Penn Parking Garage, Inc. v. City of
Pittsburgh, 346 A.2d 269, 280 (Pa. 1975).
Rule 2002 of the Pennsylvania Rules of Civil Procedure requires that
“all actions shall be prosecuted by and in the name of the real party in interest.”
Pa. R.C.P. No. 2002. Although Rule 2002 does not define “real party in interest,”
9
“the generally accepted definition of this term is that the real party in interest is the
person who has the power to discharge the claim upon which suit is brought and to
control the prosecution of the action brought to enforce rights arising under the
claims.” Clark v. Cambria County Board of Assessment Appeals, 747 A.2d 1242,
1246 (Pa. Cmwlth. 2000), appeal denied, 798 A.2d 1292 (Pa. 2002). Indeed, “[a]
person cannot invoke the jurisdiction of a court to enforce private rights, or to
maintain a civil action for the enforcement of such rights, unless that person has
some real interest in the cause of action, or a legal right, title, or interest in the
subject matter of the controversy.” Id. at 1246 n.10 (citing Sierra Club v.
Hartman, 605 A.2d 309 (Pa. 1992)).
Rule 2004 of the Pennsylvania Rules of Civil Procedure provides:
If a plaintiff has commenced an action in his or her own
name and thereafter transfers the interest therein, in
whole or in part, the action may continue in the name of
the original plaintiff, or upon petition of the original
plaintiff or of the transferee or of any other party in
interest in the action, the court may direct the transferee
to be substituted as plaintiff or joined with the original
plaintiff.
Pa. R.C.P. No. 2004. In addition, Rule 2352 provides a “successor may become a
party to a pending action by filing of record a statement of the material facts on
which the right to substitution is based.” Pa. R.C.P. No. 2352. Neither Rule 2004
nor Rule 2352 contains a provision for any time limit within which to make a
substitution.
“Under the law of assignment, the assignee succeeds to no greater
rights than those possessed by the assignor.” Horbal v. Moxham National Bank,
697 A.2d 577, 583 (Pa. 1997). “An assignment is a transfer of property or some
10
other right from one person to another, and unless in some way qualified, it
extinguishes the assignor's right to performance by the obligor and transfers that
right to the assignee.” Id. “Where an assignment is effective, the assignee stands
in the shoes of the assignor and assumes all of his rights.” CitiMortgage, Inc. v.
Barbezat, 131 A.3d 65, 69 (Pa. Super. 2016).
Dana Glass, as the owner of the units and member of the Association
at the time the 2011 Amendment passed, had standing to challenge the amendment
based on its claim that the amendment would deprive it of its property rights
without consent.8 Dana Glass was the real party in interest. The pertinent question
before us is whether Dana Glass could assign or transfer its interest in the pending
litigation to QRK or whether the foreclosure extinguished Dana Glass’s interest
and mooted the case entirely.
In support of its position that the foreclosure did not extinguish the
litigation or its right to proceed as assignee, QRK relies on Bily v. Board of
Property Assessment, Appeals and Review of Allegheny County, 44 A.2d 250 (Pa.
8
Section 5219 of the Act requires unanimous consent of all unit owners whose use of a
unit is affected or restricted by a proposed amendment. 68 Pa. C.S. §5219. In addition, in
Schaad v. Hotel Easton Company, 87 A.2d 227, 230 (Pa. 1952), our Supreme Court held, with
emphasis added:
a general reservation of the power to amend the by-laws of a
corporation cannot be construed as permitting the abrogation of
substantial rights of property of the shareholders or the alteration
of their contractual relations inter se, but only the changing of
regulations governing the administration and conduct of the
corporation’s internal affairs; provisions affecting property or
contractual rights cannot be repealed or altered without the
consent of the parties whose interests are thereby impaired. No
amendment of defendant’s by-laws, therefore, could legally change
the preferential rights accorded to the preferred stock unless the
holder of the stock assented thereto.
11
1945), and Broadway Penn Mutual Fee, L.P. v. Zoning Board of Adjustment of the
City of Philadelphia (Pa. Cmwlth., Nos. 2804 C.D. 2010, 2805 C.D. 2010, 2806
C.D. 2010, filed April 18, 2012) (unreported).9
In Bily, owners of a property appealed from a triennial assessment to
the board of property assessment. While the appeal was pending, the mortgagee of
the property instituted foreclosure proceedings and purchased the property at the
sheriff’s sale, at which time it was required to pay all taxes. The mortgagee
requested to be substituted as the owner of the property in the assessment appeal as
an intervenor or successor in interest to the prior owners. The property assessment
board denied substitution and allowed the prior owners to withdraw their appeal.
The trial court likewise denied mortgagee’s writ to allow her to intervene or be
substituted in the appeal proceedings. Bily, 44 A.2d at 250-251.
On appeal, the Supreme Court ruled such conclusions were “wrong”
explaining:
The right of intervention should be accorded to any one
[sic] having title to property which is the subject of
litigation, provided that his rights will be substantially
affected by the direct legal operation and effect of the
decision, and provided also that it is reasonably necessary
for him to safeguard an interest of his own which no
other party on the record is interested in protecting.
. . . The right of intervention or of substitution especially
arises when a beneficial interest in the cause of action is
acquired pendente lite, as by purchase of the property
during the course of the litigation.
9
Section 414 of this Court's Internal Operating Procedures authorizes the citation of
unreported panel decisions issued after January 15, 2008, for their persuasive value, but not as
binding precedent. 210 Pa. Code §69.414.
12
Bily, 44 A.2d at 251. The Supreme Court continued: “a change in the ownership
of the property while the proceedings are pending effects an automatic change in
the identity of the litigants and, although permission to intervene is ordinarily
within the discretion of the court, the right in such cases, in the absence of
qualifying circumstances, is such an absolute one that the refusal to recognize it
constitutes an abuse of judicial discretion.” Id.
The Supreme Court added that the board should have denied the prior
owners’ request to withdraw their appeal because it was prejudicial to the rights of
others. Indeed, “a plaintiff cannot discontinue if he has ceased, by reason of an
assignment of the cause of action, to be the real party in interest and if the
discontinuance is opposed by the person in whom the beneficial interest has
vested.” Id. (citing McCullum v. Coxe, 1 U.S. 139 (1785)).
More recently, in Broadway, this Court examined whether a party
lacked standing to pursue a variance where, during the course of proceedings, the
property was foreclosed upon and the original applicant no longer owned the
property. The foreclosing party/purchaser admittedly did not wish to develop the
property in a manner that required a variance. Notwithstanding, it requested
permission to intervene or substitute as the owner of the property to pursue the
variance, which the trial court granted.
On appeal, this Court applied the principles expressed in Bily and held
that the trial court did not err in allowing the purchaser to intervene to substitute
for the original applicant. The variance ran with the land. If granted, the variance
would increase the property’s value, thereby making the subsequent owner by
foreclosure an interested party and the only party with motivation to protect the
property’s value.
13
Although Bily and Broadway involved a tax assessment appeal and
zoning matter, respectively, we believe their analysis regarding right of succession
is applicable here. The critical element is whether the 2011 Amendment runs with
the land.
“Covenants, to run with the land, ordinarily must affect the land and
are intended to pass with it, and covenants which are merely personal do not so
run.” Logston v. Penndale, Inc., 576 A.2d 59, 61 (Pa. Super. 1990). “A personal
covenant binds only the person who made the covenant, and not future successors
in title.” Treasure Lake Property Owners Association, Inc. v. Meyer, 832 A.2d
477, 482 (Pa. Super. 2003). “Covenants that run with the land are personally
binding on the current holder, as well as any future successors in title.” Id.Here, the challenged provisions of the 2011 Amendment provide:
Notwithstanding anything to the contrary set forth in this
Declaration, or any amendment thereto, no owner shall
be permitted to own or have an interest in more than two
(2) non-owner occupied dwelling units. For purposes of
this restriction, an owner shall be considered an
individual, partnership, limited liability company,
corporation, trust or other entity in which an owner is,
but not limited to, a partner, member, shareholder, trustee
or principal.
***
Involuntary Sale. If any owner (either by his own
conduct or any other occupant of his Unit) shall violate
any of the covenants, restrictions or provisions of this
Declaration or the Rules and Regulations adopted by the
Board and such violation(s) is egregious, continuous or
frequent, the Board of Directors will notice the owner
and resident to cease and desist. Thereupon an action in
equity may be filed by the Association President, subject
to a unanimous Board vote, against the defaulting Owner
for a decree of mandatory injunction against the Owner
14
or Occupant or, in the alternative, a decree to evict the
tenant and/or to declare the termination of the defaulting
Owner's right to occupy, use or control the Unit owned
by him on account of the breach of Declaration or Rule
and ordering that the right, title and interest of the Owner
in the Property shall be sold (subject to the lien of an
existing mortgage) at a judicial sale upon such notice and
terms as the court shall establish, except that the court
shall enjoin and restrain the defaulting Owner from
reacquiring his interest in the Property at such judicial
sale. The proceeds of any such judicial sale shall first be
paid to discharge court costs, court reporter charges,
reasonable attorney's fees and all other expenses of the
proceeding and sale, and all such items shall be taxed
against the defaulting Owner in such decree. Any balance
of proceeds, after satisfaction of such charges and any
unpaid assessments hereunder or any liens, shall be paid
to the Owner. Upon the confirmation of such sale, the
purchaser thereof shall thereupon be entitled to a Resale
Certificate, to a deed to the Unit ownership and to
immediate possession. It shall be a condition of any such
sale, and the decree shall provide, that the purchaser shall
take the interest in the Property sold subject to this
Declaration.
Sections 5.1(c) and 8.7 of the 2011 Amendment; R.R. at 132a, 138a-139a.
Significantly, Section 9.4 of 2011 Amendment provides:
Covenants Running With Land. All covenants,
conditions, restrictions and agreements herein contained:
are made for the direct, mutual and reciprocal benefit of
each and every Lot of the Subject Property; shall create
mutual equitable servitudes upon each Lot in favor of
every other Lot; shall create reciprocal rights and
obligations between the respective Owners and
Occupants of all Lots and privity of contract and estate
between all grantees of said Lots, their heirs, successors
and assigns; and shall, as to the Owner and Occupant of
each Lot, his heirs, successors and assigns, operate as
covenants running with the land, for the benefit of all
other Lots, except as provided otherwise herein. This
section in no way restricts the proper amendment or
15
modification of the Declaration and the agreements as set
forth therein.
R.R. at 139a (emphasis added).
The 2011 Amendment clearly runs with the land and binds all future
successors in title. Contrary to the Association’s position, the Dana Glass
litigation is more than a mere contractual dispute challenging a corporate bylaw.
Rather, just like the use variance in Bily and the tax assessment in Broadway, the
2011 Amendment affects and adheres to the property, not just the property owner.
Therefore, the right of substitution must be accorded to the party having title to the
property subject to litigation to safeguard its interest. Bily. That party is QRK.
QRK, as the subsequent owner by foreclosure, is the real party in
interest and the only party with motivation to protect the property’s value and
challenge the validity of the 2011 Amendment. Although QRK was not a member
of the Association when it passed the amendment, QRK has standing to maintain
the declaratory judgment action against the Association because the challenged
2011 Amendment runs with the land. QRK has title to units affected by the 2011
Amendment. QRK’s rights will be substantially affected by the direct legal
operation and effect of any decision regarding the legality of the 2011 Amendment,
which, if unchallenged, would require QRK to sell off 14 of its 16 units.
Contrary to the Association’s position, QRK did not consent to the
restrictive covenant when it purchased the units. Rather, like the purchasers in Bily
and Broadway, QRK purchased the units subject to Dana Glass’s pending
litigation. By purchasing the property during the course of litigation affecting the
property, QRK acquired a beneficial interest in the cause of action. See Bily. It
later acquired the right to pursue that litigation by substitution. Thus, QRK now
16
stands in the shoes of Dana Glass. The trial court erred in determining that QRK
lacked standing to pursue the declaratory judgment action.10
We next examine whether the action is moot. “[T]he mootness
doctrine requires an actual case or controversy to be extant at all stages of a
proceeding.” Pichelsky v. Lackawanna County, 88 A.3d 954, 964 (Pa. 2014).
“[C]ourts will not decide moot questions.” Public Defender’s Office of Venango
10
In addition, we note that QRK also had a right to intervene as mortgagee to protect and
preserve its security interest in the units if Dana Glass had not assigned its rights. A mortgage is
both a conveyance in form as well as security interest. Pines v. Farrell, 848 A.2d 94, 100 (Pa.
2004). “[A] mortgage is in reality only a security for the payment of money, or performance of
other collateral contract.” Bulger v. Wilderman, 101 Pa. Super. 168, 171 (1930). “[I]t’s . . . a
pledge of the land as security.” Id. “The mortgagor remains the owner of the land mortgaged,
but the mortgagee, is entitled to its possession to be held as security until his debt is paid.” Id.Rule 2327(4) of the Pennsylvania Rules of Civil Procedure provides that “[a]t any time
during the pendency of an action, a person not a party thereto shall be permitted to intervene
therein . . . if . . . the determination of such action may affect any legally enforceable interest of
such person whether or not such person may be legally bound by a judgment in the action.”
Pa. R.C.P. No. 2327(4). In Keener v. Zoning Hearing Board of Millcreek Township, 714 A.2d
1120, 1123 (Pa. Cmwlth. 1998), this Court determined a mortgagee of a neighboring property
was a proper intervening party. There, a landowner sought review of decision of township
zoning hearing board denying its application for variance to operate a quarry. The neighboring
property owner (neighbor) intervened. During the dispute, the neighbor sold the adjoining
property and the property across street from the landowner's property, but retained a purchase-
money mortgage on the latter property. But, upon motion by the landowner, the trial court
dismissed the neighbor as an intervening party and approved a settlement stipulation between the
landowner and the township. The neighbor appealed. On appeal, we determined that the
neighbor’s status as a mortgagee of the property gave it sufficient interest to intervene pursuant
to Rule 2327(4). We opined that the neighbor “should have the opportunity to voice its concerns
about what would happen to the value of the property on which it holds the mortgage, in order to
protect its interests.” Keener, 714 A.2d at 1123. We concluded that the trial court abused its
discretion and erred as a matter of law when it dismissed the neighbor as an intervenor.
The same holds true here. QRK, as the mortgagee, could have intervened to protect its
equity and security interest in the units, which are impacted by the 2011 Amendment. QRK
acquired its interest in the mortgage prior to the foreclosure sale. As mortgagee, QRK, just as
Jersey Shore State Bank before it, had an interest in protecting the value of the units because they
served to secure the mortgage debt. The foreclosure sale did not sever or alter this interest.
17
County v. Venango County Court of Common Pleas, 893 A.2d 1275, 1279 (Pa.
2006). A matter may become moot through an intervening loss of standing, where
events “deprive the litigant of the necessary stake in the outcome.” Magnelli v.
State Civil Service Commission, 423 A.2d 802, 804 (Pa. Cmwlth. 1980). In this
regard, our Supreme Court explained:
The cases presenting mootness problems involve litigants
who clearly had standing to sue at the outset of the
litigation. The problems arise from events occurring after
the lawsuit has gotten under way—changes in the facts or
in the law—which allegedly deprive the litigant of the
necessary stake in the outcome. The mootness doctrine
requires that an actual controversy must be extant at all
stages of review, not merely at the time the complaint is
filed.
In re Gross, 382 A.2d 116, 119 (Pa. 1978) (internal quotation and citation
omitted); accord Public Defender’s Office, 893 A.2d at 1279.
Although an issue may become moot during the pendency of an
appeal, there are exceptions to the rule. Public Defender’s Office, 893 A.2d at
1279. “Exceptions to this principle are made [(1)] where the conduct complained
of is capable of repetition yet likely to evade review, [(2)] where the case involves
issues important to the public interest or [(3)] where a party will suffer some
detriment without the court's decision.” Id. at 1279-80 (quoting Sierra Club v.
Pennsylvania Public Utility Commission, 702 A.2d 1131, 1135 (Pa. Cmwlth.
1996), aff’d, 731 A.2d 133 (Pa. 1999)).
Upon review, the matter is not moot because the 2011 Amendment
runs with the land. Although Dana Glass may no longer be the real party in
interest, QRK, as the owner of the units has a necessary stake in the outcome of
18
this litigation. Thus, an actual case or controversy still exists regarding the
applicability of the 2011 Amendment to these units.
Even assuming that the matter is somehow moot, the detrimental
exception applies here. The 2011 Amendment threatens to impair QRK’s equity
and security interest by forcing the immediate sale of all but two units, without
regard to market conditions or the impact the sudden supply of 14 units will have
on market pricing, as well as the need to find at least seven qualified buyers as
opposed to just one. QRK will clearly suffer some detriment if the 2011
Amendment forces the sale of its units without the benefit of the court’s decision.
IV. Conclusion
For these reasons, we conclude that the trial court erred by granting
summary judgment to the Association dismissing the declaratory judgment action;
we reverse its order and remand for proceedings on the merits of the declaratory
judgment action regarding the validity of the 2011 Amendment.11
MICHAEL H. WOJCIK, Judge
11
In light of this determination, we need not address the remaining issues.
19
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
QRK, LLC, :
: No. 592 C.D. 2016
Appellant :
:
v. :
:
Kenilworth Court Residents :
Association, Inc. :
ORDER
AND NOW, this 19th day of April, 2017, the order of the Court of
Common Pleas of Lancaster County (trial court) is REVERSED, and this matter is
REMANDED to the trial court for proceedings consistent with the foregoing
opinion.
Jurisdiction relinquished.
__________________________________
MICHAEL H. WOJCIK, Judge