North Oakes Manor, App/cross/resp v. 2nd Half Llc, Res/cross-app ( 2019 )

Filed
Washington State
Court of Appeals
Division Two
November 5, 2019
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION II
NORTH OAKES MANOR CONDOMINIUM No. 51616-1-II
ASSOCIATION,
Appellant, UNPUBLISHED OPINION
v.
2nd HALF LLC; JEFFREY ALAN GRAHAM;
STEPHEN ROY DAWSON; JOHN
STAFFORD MILLS AND JULIE M. MILLS,
Respondents.
GLASGOW, J. — North Oakes Manor Condominium consisted of eight units in Tacoma.
The owners collectively agreed to terminate their condominium and sell the property. All of the
owners signed and recorded a written condominium termination agreement as required by the
statute governing condominium terminations. Both that statute and the termination agreement
provided that after closing, proceeds of the sale together with all other assets of the North Oakes
Manor Condominium Association would be held by the association “as trustee” for the
association’s creditors and unit owners. Pursuant to the association’s articles of incorporation, the
termination agreement also provided that any “payment and disbursement” of the post-closing
proceeds and assets were subject to a vote of the owners “to which at least [80] percent of the votes
in [the] Association are allocated.”
The association sued 2nd Half LLC, an owner of two of the condominium units and a
member of the association, thus bringing claims and incurring litigation expenses without the
agreement of 80 percent of the unit owners. The superior court found that 80 percent of the owners
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had not voted to authorize any cause of action and dismissed the association’s lawsuit. The
association appeals. We affirm.
FACTS
The association’s articles of incorporation and bylaws specified that a board of directors
comprised of three members would govern the association. The association’s articles of
incorporation provided that the association could be dissolved “with the assent given in writing
and signed by unit owners of units to which at least [80] percent of the votes in the Association
are allocated.” Clerk’s Papers (CP) at 183; see also CP at 256 (condominium declaration).1 The
articles of incorporation also provided that in the event of an approved dissolution, “unless
otherwise authorized by law and by a vote of members . . . having at least [80] percent of the total
votes in the Association,” the association’s assets “shall be owned by all members of the
Association as tenants in common according to their percentages of undivided interest.” CP at 183
(emphasis added). Thus, if the assets were to be distributed, rather than held as tenants in common,
the articles of incorporation provided that 80 percent of the total votes in the association had to
approve the plan.
There has been a contentious history between North Oakes’s unit owners and varying
configurations of the condominium association board of directors. 2nd Half owned two units, or
25 percent. Geraldine Ward owned 2nd Half, and it was managed by her son, Jeff Graham. Ward
borrowed money from Stephen Dawson and another lender in order to purchase the two North
Oakes units, which were encumbered by deeds of trust. In March 2014, Graham became the
1
“Declaration” means “the document, however denominated, that creates a condominium by
setting forth the information required by RCW 64.34.216 and any amendments to that document.”
RCW 64.34.020(17).
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president of the North Oakes Manor Condominium Association board, and John Mills provided
legal representation.
After a series of disputes, the association removed Graham and the other members from
the board in late 2014. The association accused Graham of using approximately $14,050 in
association funds for personal use. The association then elected George and Heather Rankos, who
owned three units, and Heather Webster, who owned one unit, to the board. The association’s new
board hired Douglas Schafer to provide legal representation for the association. Schafer alleged
to the board that Mills had inappropriately taken $7,267 in association funds as attorney fees.
Starting in 2015, 2nd Half stopped paying association dues and other assessments for repairs
to the building foundation. The unpaid assessments resulted in a statutory lien on 2nd Half’s units.
See RCW 64.34.364. In February 2017, the association filed a complaint to collect condominium
assessments and foreclose liens against 2nd Half and Dawson. At the time, the association alleged
2nd Half owed it $23,475.48 for delinquent assessments on one of the units and $21,144.60 for
delinquent assessments on the other unit. The association asked the court to appoint a receiver to
collect rents and filed a corresponding motion. Graham filed a declaration opposing the
appointment of a receiver. The court denied the motion for appointment of a receiver without
prejudice.
After ongoing controversy between Graham and Mills on one side and the board members
and Schafer on the other, all of the owners decided to terminate the condominium association and
sell each of their respective units.
RCW 64.34.268 required that the owners execute and record a termination agreement. The
owners negotiated the precise language of the agreement. The first draft did not provide that the
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sale would occur free of all of the association’s liens, nor did it provide that the condominium
owners had to approve payments and disbursements from the proceeds. Mills and Graham
objected to an agreement without these clauses. No unit owner agreed to sign the contract as first
drafted.
After negotiations, all of the owners agreed to dissolve the association and all signed the
termination agreement, which provided, in part:
2. Procedure. RCW 64.34.268 prescribes the procedure for terminating a
condominium and selling the former units and common elements of the
condominium. Consistent with that statute, effective upon the recording of this
Termination Agreement, title to the NOM Real Property will vest in North Oakes
Manor Condominium Association, a Washington nonprofit corporation (hereafter
“NOM Association”), as trustee for the holders of all interests in the units.
Thereafter, NOM Association will have all powers necessary and appropriate to
effect the sale of the NOM Real Property upon the minimum terms described
herein, and shall do so free of any liens claimed by it. The escrow agent closing
the sale shall pay from the proceeds the amounts due to the holders of mortgages,
deeds of trust, and real estate contracts on individual units, judgments and property
taxes that constitute liens, and customary closing costs. The remaining proceeds of
the sale and all other assets of NOM Association will be held by it as trustee for its
creditors and the unit owners. Pursuant to a payment and disbursement plan that
is agreed to by the unit owners to which at least eighty percent of the votes in NOM
Association are allocated, NOM Association shall pay its creditors and disburse its
remaining assets to the unit owners as their interests may appear, after which it
shall dissolve.
CP at 119 (emphasis added). The termination agreement also set forth the minimum terms of sale.
The termination agreement was recorded with the county auditor in July 2017.
In September 2017, the North Oakes condominium building was sold for $1.35 million.
The escrow agent paid from the proceeds the amounts due to the holders of mortgages, deeds of
trust, and real estate contracts on individual units, judgments and property taxes that constituted
liens, and customary closing costs. In particular, the escrow agent made a payoff to Dawson—
who held deeds of trust on 2nd Half’s two units—in the amount of $244,869.55. The association’s
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attorney, Schaefer, became aware of this claimed payoff amount just before the sale was finalized,
but neither Schaefer nor the other condominium unit owners halted the sale. After the escrow
agent fulfilled his duties, $773,768.13 in proceeds remained, which were transferred to the
association. Schafer received these funds and put them in his IOLTA account.
With regard to the large escrow payout to Dawson, Schaefer suspected that 2nd Half, Mills,
and Dawson had colluded to inflate Dawson’s lender payoff amount. Schafer decided that by
doing so they had “repudiated” the negotiated termination agreement. CP at 311. A day later,
Schafer made a plan for payment and disbursement. Schafer claimed that he received e-mail
approval from six of the unit owners (or 75 percent of the association’s allocated votes). The plan
was not agreed to by the unit owners to which at least 80 percent of the votes in the association
were allocated because 2nd Half, which owned 25 percent of the units, did not approve the plan.
Nevertheless, Schafer first disbursed to himself his accumulated legal fees in the amount
of $121,770.25. It appears he then made payments and disbursements to all of the unit owners
except for 2nd Half.2 The ledger indicates that the association was claiming as assets three pending
legal claims: (1) a claim for assessments against 2nd Half in the amount of $51,978.49; (2) a claim
against Graham in the amount of $14,050; and (3) a claim against Mills in the amount of $7,267.
After all of the payments had been made and disbursed, it appears the balance was $30,687.68;
Schafer reserved $5,000 from each of the six unit owners (not including 2nd Half) for litigation
expenses.
2
This proceeding does not include any legal challenge to Schaefer’s disbursement to himself of
the accumulated legal fees or his further disbursement to all of the unit owners except 2nd Half.
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The association then amended its preexisting complaint against 2nd Half and Dawson,
adding Graham and John and Julie Mills as defendants in October 2017. It amended its complaint
a second time in January 2018. Relevant here, the association’s second amended complaint
maintained its claims that 2nd Half wrongfully failed to pay dues and assessments that were due to
the association and sought recovery of the amount due plus interest. It also added allegations that
John Mills breached his fiduciary and ethical duties to the association, including the duty of
loyalty; Graham breached his fiduciary duties to the association by misappropriating funds; and
Dawson’s deeds of trust were junior to the association’s assessment lien. The second amended
complaint sought recovery from Mills and Graham for the money they allegedly misappropriated,
as well as recovery from Dawson of “any unwarranted amount he received as his asserted payoff.”
CP at 425. The association also requested attorney fees and costs authorized by the condominium
declaration, RCW 64.34.364(14), and equitable principles.
2nd Half moved for an order directing deposit of the remaining funds in Shafer’s IOLTA
account into the court registry. The motion alleged that Schafer wrongfully disbursed almost all
of the association’s post-escrow proceeds and assets from his IOLTA account without approval of
a payment and disbursement plan agreed to by 80 percent of the association’s owners. In response,
the association asserted that the board of directors had approved the payment and disbursement of
the remaining proceeds of the sale and all other assets, including the cause of action against 2nd
Half and others. The trial court entered an order denying the motion to deposit the funds into the
court registry, but the court directed Schafer to make no further withdrawals of the remaining
approximately $30,000 in association funds from his IOLTA account without court approval.
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2nd Half next moved under CR 12(b)(6) to dismiss the lawsuit without prejudice, asserting
that the association, as trustee, lacked authority to pursue the lawsuit against 2nd Half under RCW
64.34.268 and the termination agreement. 2nd Half argued, based on RCW 64.34.268 and the
termination agreement, that all assets of the association were to be held in trust by the association,
subject to distribution only with approval of 80 percent of the former owners.
With regard to the claims against 2nd Half, 2nd Half further argued that the termination
agreement “specifically limit[ed] the authority of the Trustee’s power over the assets, and
expressly reserve[d] to the owners the exclusive right to authorize a ‘payment and disbursement
plan’ respecting all assets of the trust.” CP at 341. 2nd Half asserted: “That include[d] the decision
on whether to litigate or settle the claims which are supposed to be held in trust. . . . Absent
agreement of the owners to prosecute this claim as part of the owner’s ‘payment and disbursement
plan,’ the Association ha[d] no authority under the trust agreement to prosecute this claim.” CP at
341. 2nd Half explained that the owners had not yet had “a fair opportunity to meet and resolve
the question of whether to settle or litigate the claims as they are entitled to do under the
Termination Agreement.” CP at 338.
2nd Half also contended that the trust agreement did not permit the payment of fees and
costs to pursue the litigation absent agreement from the owners as required in the termination
agreement. 2nd Half argued: “The Trust agreement requires that the trustee await a ‘payment and
distribution plan’ and until such a plan authorizes the prosecution of this case, the Trustee is
without any authority to put the claims at risk, to run up Mr. Schafer’s fees and costs prosecuting
this claim, to unilaterally appropriate beneficiaries’ assets to fund litigation, or to usurp the
owners’ rights to settle the claims by negotiation.” CP at 342 (emphasis added). “In short, the
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former owners of units collectively own the claims being prosecuted here, and have not yet
authorized anyone to proceed with resolution of various claims by filing of a lawsuit. Until
properly authorized by the owners, this lawsuit should be dismissed without prejudice to refiling
if refiling is even authorized by the former unit owners in their payment and distribution plan.”
CP at 342. 2nd Half also asked the court to stay the proceedings until the former owners authorized
“the prosecution of these claims as part of a payment and disbursal plan” under the termination
agreement. CP at 338. In sum, 2nd Half argued both that the claims made in the lawsuit were
assets of the association, the resolution of which was subject to the approval required in the
termination agreement, and that the fees and costs of pursuing the claims could not be paid from
the sale proceeds without the owner approval required under the termination agreement.
The court stayed its decision pending an owner vote about whether to authorize the action.
The association moved to lift the stay. The association conceded it had only 75 percent of the
votes needed to authorize a payment and disbursement plan under the termination agreement. The
association also requested, if the trial court decided not to lift the stay, that the court dismiss the
case so the association could appeal the matter. In response, 2nd Half argued again that dismissal
of the case was proper because the association did not have 80 percent of the votes required to
pursue a cause of action under the termination agreement.
The trial court noted that the owners of 100 percent of the condominium units agreed to
terminate their condominium and sell the entire project as an apartment complex. The owners
memorialized their agreement in a written termination agreement that contained the notarized
signatures of all owners and was recorded at the county auditor’s office, as required by RCW
64.34.268. The termination agreement provided that the proceeds of the sale together with all
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other assets of the association be placed in trust. And it provided that any disposition of assets
was subject to a vote of the owners “to whom 80% of the votes of NOM Association are allocated.”
CP at 470. The court concluded that “to date, the owners have not authorized any action by a vote
of the owners ‘to whom 80% of the votes of NOM Association are allocated,’” and dismissed the
complaint. CP at 470.
The association appeals. We affirm.
ANALYSIS
DISMISSAL UNDER CR 12(B)(6)
The association argues the trial court erred when it dismissed its complaint. We disagree.
A. Standard of Review
We review CR 12(b)(6) dismissals de novo. Trujillo v. Nw. Tr. Servs., Inc., 183 Wn.2d
820, 830, 355 P.3d 1100 (2015). However, “[i]f, on a motion for judgment on the pleadings,
matters outside the pleadings are presented to and not excluded by the court, the motion shall be
treated as one for summary judgment and disposed of as provided in rule 56.” CR 12(c); see also
Sea-Pac Co. v. United Food & Commercial Workers Local Union 44, 103 Wn.2d 800, 802, 699
P.2d 217 (1985). In support of an opposition to the motion to dismiss, the parties relied on
declarations and attached documentary evidence. In its order granting 2nd Half’s motion to dismiss,
the superior court noted that it had “considered the files and records of the case” and relied on
evidence, such as the termination agreement, to support its dismissal order. CP at 469-70.
Accordingly, 2nd Half’s CR 12(b)(6) motion should be treated as a motion for summary judgment.
“‘We review a trial court’s grant of summary judgment de novo.’” Cornwell v. Microsoft
Corp., 192 Wn.2d 403, 410, 430 P.3d 229 (2018) (quoting Scrivener v. Clark Coll., 181 Wn.2d
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439, 444, 334 P.3d 541 (2014)). Summary judgment is proper “if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits, if any, show that
there is no genuine issue as to any material fact and that the moving party is entitled to a judgment
as a matter of law.” CR 56(c). “We must also ‘consider all facts and make all reasonable factual
inferences in the light most favorable to the nonmoving party.’” Cornwell, 192 Wn.2d at 410
(quoting Scrivener, 181 Wn.2d at 444).
We review standing and statutory interpretation de novo. Knight v. City of Yelm, 173
Wn.2d 325, 336, 267 P.3d 973 (2011); Beal Bank, SSB v. Sarich, 161 Wn.2d 544, 547, 167 P.3d
555 (2007). When a contract presents no ambiguity and no extrinsic evidence is required to make
sense of the contract terms, contract interpretation and determination of the legal effect of a
contract are questions of law that we review de novo. Viking Bank v. Firgrove Commons 3, LLC,
183 Wn. App. 706, 711-12, 334 P.3d 116 (2014); Salvo v. Thatcher, 128 Wn. App. 579, 584, 116
P.3d 1019 (2005).
B. Standing and Real Party in Interest
As an initial matter, 2nd Half argues the association lacks standing to rescind or reform the
contract because it was not a party to the termination agreement and has no beneficial interest in
the outcome. 2nd Half also seems to assert the association is not a real party in interest. We
disagree.
“‘To have standing, one must have some protectable interest that has been invaded.’”
Satomi Owners Ass’n v. Satomi, LLC, 167 Wn.2d 781, 812, 225 P.3d 213 (2009) (quoting Orion
Corp. v. State, 103 Wn.2d 441, 455, 693 P.2d 1369 (1985)). This court applies “a two-part test
for determining whether a party has standing to bring a particular action.” Branson v. Port of
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Seattle, 152 Wn.2d 862, 875, 101 P.3d 67 (2004). “First, we ask whether the interest asserted is
arguably within the zone of interests to be protected by the statute or constitutional guaranty in
question.” Id. Second, we ask “whether the party seeking standing has suffered from an injury in
fact, economic or otherwise.” Id. Both prongs must be met. Id. at 876. In addition, an
organization “‘has standing to bring suit on behalf of its members when: (a) its members would
otherwise have standing to sue in their own right; (b) the interests it seeks to protect are germane
to the organization’s purpose; and (c) neither the claim asserted nor the relief requested requires
the participation of individual members in the lawsuit.’” Am. Legion Post #149 v. Dep’t of Health,
164 Wn.2d 570, 595, 192 P.3d 306 (2008) (quoting Hunt v. Apple Advert. Commc’n, 432 U.S. 333,
343, 97 S. Ct. 2434, 53 L. Ed. 2d 383 (1977)).
The statute governing the powers of a condominium unit owners’ association includes the
association within its zone of interests by addressing the scope of the association’s authority. RCW
64.34.268(4), .304(1)(d). Although the association was not a party to the termination agreement,
the association’s powers and duties, including its ability to file a lawsuit after execution of the
termination agreement, are at issue. Therefore, we hold that the association’s claims are within
the zone of interests to be protected by the act and the agreement. See Branson, 152 Wn.2d at 875.
In addition, the association has alleged specific economic injuries on behalf of some of the
unit owners. The economic injuries are redressable because, if the association prevails, it could
obtain a money judgment. And the association’s members would otherwise have standing to sue
in their own right; the interests the association seeks to protect are germane to the organization’s
purpose as trustee of the remaining proceeds and all other assets; and the individual participation
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of each injured party is not indispensable to the proper resolution of the case. See Hunt, 432 U.S.
at 343; Am. Legion, 164 Wn.2d at 595. Accordingly, we conclude the association has standing.
2nd Half also cites to authorities regarding real parties in interest. See State ex rel. Hays v.
Wilson, 17 Wn.2d 670, 672, 137 P.2d 105 (1943). To maintain a cause of action, a person must
show that they have a real interest in the cause of action. Kim v. Moffett, 156 Wn. App. 689, 698,
234 P.3d 279 (2010). The interest “‘must be a present, substantial interest, as distinguished from
a mere expectancy, or future, contingent interest, and [the party] must show that [they] will be
benefited by the relief granted.’” Id. (quoting Hays, 17 Wn.2d at 672). The association is a real
party in interest because it has a present and substantial interest in having the scope of its authority
resolved. The powers and duties of the association are directly addressed in RCW 64.34.268 and
the termination agreement. Accordingly, we hold that to the extent that 2nd Half also argues the
association is not a real party in interest, that argument fails.
C. The Termination Agreement, Including Its Requirement for 80 Percent Approval for
The Distribution of Assets, Is Consistent with Chapter 64.34 RCW and the Association’s
Governing Documents
The parties generally dispute the proper interpretation of chapter 64.34 RCW and the
termination agreement. They also dispute whether the association, including its board of directors,
continued to have all powers it had before termination or whether the association’s powers were
limited under chapter 64.34 RCW, the condominium’s governing documents, or the termination
agreement.
For the reasons discussed below, we conclude that the association’s powers during
termination of the condominium were limited by RCW 64.34.268, the association’s governing
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documents, and the termination agreement. The association did not have authority to proceed with
this lawsuit without approval of at least 80 percent of the votes of the former owners.
When interpreting a statute, “[t]he court’s fundamental objective is to ascertain and carry
out the Legislature’s intent, and if the statute’s meaning is plain on its face, then the court must
give effect to that plain meaning as an expression of legislative intent.” Dep’t of Ecology v.
Campbell & Gwinn, L.L.C., 146 Wn.2d 1, 9-10, 43 P.3d 4 (2002). “Plain meaning is discerned
from the ordinary meaning of the language at issue, the context of the statute in which that
provision is found, related provisions, and the statutory scheme as a whole.” Christensen v.
Ellsworth, 162 Wn.2d 365, 373, 173 P.3d 228 (2007). “However, when the statute is ambiguous
or there are conflicting provisions, ‘we may arrive at the legislature’s intent by applying recognized
principles of statutory construction.’” O.S.T. ex rel. G.T. v. BlueShield, 181 Wn.2d 691, 696-97,
335 P.3d 416 (2014) (quoting State v. J.P., 149 Wn.2d 444, 450, 69 P.3d 318 (2003)).
1. Powers of the Association Under Chapter 64.34 RCW, the Condominium Bylaws,
and the Condominium Articles of Incorporation
Generally, the association and its board of directors have certain powers and duties under
the Condominium Act. RCW 64.34.304 establishes various powers of the association, “subject to
the . . . [condominium] declaration.” The declaration, in turn, provides that “[t]he Unit Owners
covenant and agree that the administration of the Association shall be in accordance with the
provisions of the Association Management Documents, which consist of this Declaration, the
Articles of Incorporation, the Bylaws, and the Rules and Regulations, if any.” CP at 228. The
statute also gives the association the authority to adopt bylaws, as does the condominium
declaration. RCW 64.34.304(1)(a).
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RCW 64.34.3083 defines the power of the association’s board of directors. RCW
64.34.308 explains that “[e]xcept as provided in the declaration, the bylaws, subsection (2) of this
section, or other provisions of this chapter, the board of directors shall act in all instances on behalf
of the association.” (Emphasis added.) Under subsection (2), the statute makes clear that board
does not have termination powers and the condominium can only be terminated pursuant to RCW
64.34.268. The association’s bylaws further provide that the board of directors has the authority
to exercise the association’s powers “not reserved to the membership by other provisions of [the]
Bylaws, the Articles of Incorporation, or the Declaration or as set forth in Ch[apter] 64.32 [RCW],
as currently enacted or hereafter amended.” CP at 196. Thus, the powers of the association and
its board of directors are governed by the statute, but subject to the association’s governing
documents.
Under the bylaws, certain actions cannot be taken by the board of directors. The board
“shall not act on behalf of the Association to . . . take any action that requires the vote or approval
of the [Unit] Owners [or] . . . terminate the Condominium.” CP at 196. And although one of the
enumerated powers in the statute is the power to institute, defend, or intervene in litigation for the
benefit of the association or two or more of its members, RCW 64.34.304(1)(d), this power is
subject to the condominium declaration, which incorporates restrictions in the association’s other
governing documents. RCW 64.34.304.
3
The legislature amended RCW 64.34.308 in 2018. Because the relevant language has not
changed, we cite to the current version of this statute.
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2. Specific Termination Powers and Procedures Under RCW 64.34.268, the Bylaws, and
the Articles of Incorporation
The association argues that nothing in the Condominium Act permits a group of non-
director members/owners, even 80 percent of them, to limit the authority and responsibility of a
board of directors to manage the corporation’s assets and liabilities, even during the termination
process. We disagree.
RCW 64.34.268 specifically governs condominium terminations. Under that statute, “a
condominium may be terminated only by agreement of unit owners of units to which at least eighty
percent of the votes in the association are allocated.” RCW 64.34.268(1). “An agreement to
terminate must be evidenced by the execution of a termination agreement or ratifications thereof,
in the same manner as a deed, by the requisite number of unit owners.” RCW 64.34.268(2).
“If any real property in the condominium is to be sold following termination, title to that
real property, upon termination, vests in the association as trustee for the holders of all interests in
the units. Thereafter, the association has all powers necessary and appropriate to effect the sale.”
RCW 64.34.268(4). “Until the sale has been concluded and the proceeds thereof distributed, the
association continues in existence with all powers it had before termination. Proceeds of the sale
must be distributed to unit owners and lienholders as their interests may appear, in proportion to
the respective interests of unit owners as provided in subsection (7) of this section.” RCW
64.34.268(4).
“Following termination of the condominium, the membership of the association shall
consist of all of the unit owners at the time of termination entitled to distributions of proceeds
under RCW 64.34.268 or their heirs, successors, or assigns.” RCW 64.34.300. And “the proceeds
of any sale of real property, together with the assets of the association, are held by the association
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as trustee for unit owners and holders of liens on the units and creditors of the association as their
interests may appear.” RCW 64.34.268(6) (emphasis added). “No such proceeds or assets may
be disbursed to the owners until all of the creditors of the association have been paid or provided
for.” RCW 64.34.268(6). Notably, RCW 64.34.268 addresses what the association can do during
the termination process. It does not grant or extend and powers to the association’s board of
directors. “Following termination, creditors of the association holding liens on the units, which
were recorded or perfected under RCW 4.64.020 before termination, may enforce those liens in
the same manner as any lienholder.” RCW 64.34.268(6).
RCW 64.34.376 protects the rights of third persons dealing with the association in its
capacity as trustee. Third persons are “fully protected in dealing with the association as if it
possessed and properly exercised the powers it purports to exercise.” RCW 64.34.376. This
provision addresses only the rights of a third person dealing with the association in the
association’s capacity as a trustee and it does not otherwise affect the rights of owners or
association members. See RCW 64.34.376.
The legislature did not define “trustee” in the Condominium Act. The dictionary defines
“trustee” as “a person whether real or juristic to whom property is legally committed in trust: one
holding legal title to property which he must administer for the benefit of a beneficiary.”
WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 2457 (1966). Similarly, Black’s Law
Dictionary 1553 (8th ed. 2004), defines “trustee” as “one who, having legal title to property, holds
it in trust for the benefit of another and owes a fiduciary duty to that beneficiary.” At the very
least, a trustee is a fiduciary of the trust’s beneficiaries and owes them the “highest degree of good
faith, care, loyalty, and integrity.” Esmieu v. Schrag, 88 Wn.2d 490, 498, 563 P.2d 203 (1977).
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“‘It is the duty of a trustee to administer the trust in the interest of the beneficiaries.’” In re Wash.
Builders’ Benefit Tr., 173 Wn. App. 34, 63, 293 P.3d 1206 (2013) (quoting Tucker v. Brown, 20
Wn.2d 740, 768, 150 P.2d 604 (1944)). By providing that the association acts as the trustee of the
association’s assets (including the proceeds of the sale of the condominium property) during the
termination process, the legislature imposed additional burdens on the association to act for the
benefit of the former owners, which here included 2nd Half.
The association’s governing documents also establish restrictions related to termination.
As explained above, the association’s statutory powers are expressly “subject to . . . the
declaration.” RCW 64.34.304. The declaration provides that the condominium can be terminated
only with approval of 80 percent of the owners in compliance with the procedures established by
statute. The declaration establishes that the president of the board of directors shall have the
authority to file papers and take other actions necessary to effect the termination.
The declaration also provides that the association must act in accordance with the articles
of incorporation and bylaws. The articles of incorporation in turn reiterate that the association
may be dissolved with the written assent of the condominium owners “to which at least eighty
percent of the votes in the association are allocated.” CP at 183. “In the event of such dissolution,
then, unless otherwise authorized by law and by a vote of the members of the Association having
at least eighty percent (80%) of the total votes in the Association, the assets of the Association
shall be owned by all members of the Association as tenants in common.” CP at 183 (emphasis
added). Thus, where the termination plan departs from tenancy in common, under the articles of
incorporation, at least 80 percent of the total votes of the association must authorize the alternative
plan. That is what occurred here, and the termination agreement provided for such approval.
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In sum, RCW 64.34.268 deals specifically with termination of a condominium and says
that following termination, the association may act on behalf of the owners only as trustee. See
RCW 64.34.268(6). The association had a fiduciary duty to administer the sale of the property for
the benefit of the former owners. The association held the assets of the association, including
potential legal claims, as trustee for the owners. Further, the association’s governing documents
establish that both the termination and the post-termination resolution of assets that departs from
tenancy in common must be approved by 80 percent of the votes of the association.
3. The Termination Agreement Was Consistent with the Condominium Act and the
Condominium’s Governing Documents
2nd Half argues the termination agreement created an express trust with the association as
trustee. The association argues that the termination agreement created an implied, resulting, or
constructive trust, but not an express trust. We conclude that regardless of what type of trust was
created, the condominium statute and the association’s governing documents support the
termination agreement. Under the statute and the governing documents, the owners were entitled
to require in their termination agreement that 80 percent of the votes of the association approve
distribution of the association’s assets.
Consistent with RCW 64.34.268, the termination agreement provided that “[t]he remaining
proceeds of the sale and all other assets of [the] Association will be held by it as trustee for its
creditors and the unit owners.” CP at 119 (emphasis added). The language is plain on its face—
the association clearly held the remaining proceeds of the sale and all other assets as trustee. But
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given the requirements of the effect of the association’s declaration and other governing
documents, we need not determine specifically what type of trust was created.4
The association’s powers were “subject to . . . the [condominium] declaration” under RCW
64.34.304, and the declaration requires compliance with the bylaws and articles of incorporation.
CP at 228. The articles of incorporation established that the resolution of any termination that did
not result in tenancy in common had to be approved by 80 percent of the votes of the association.
Thus, the owners were entitled to restrict the association and its board of directors from distributing
or otherwise disposing of its assets without that approval.
D. The Termination Agreement Required 80 Percent Agreement for Any Disbursement of
Trust Assets
The association argues that the trial court erred when it initially stayed the proceedings5
and then dismissed its complaint based on the 80 percent approval requirement in the termination
4
Generally, there are three basic categories of trusts. “‘An express trust is one created by the act
of the parties; and, where a person has, or accepts, possession of money, promissory notes, or other
personal property with the express or implied understanding that he is not to hold it as his own
absolute property, but to hold and apply it for certain specified purposes, an express trust exists.’”
Wash. Builders, 173 Wn. App. at 58 (quoting Westview Invs., Ltd. v. U.S. Bank Nat’l Ass’n, 133
Wn. App. 835, 845-46, 138 P.3d 638 (2006)). A resulting trust is one implied by law, and courts
will presume a resulting trust exists by looking to the intention of the parties and the character of
the transaction. See Farrell v. Mentzer, 102 Wash. 629, 633, 174 P. 482 (1918). A constructive
trust is one that arises purely by equity in order to remedy, for example, fraud or concealment and
is “‘entirely independent of any actual or presumed intention of the parties.’” Id.Express trusts are governed by chapter 11.98 RCW, but this chapter does not apply to
resulting trusts or constructive trusts. RCW 11.98.009. An express trust is created only if the
trustor has capacity to create a trust, indicates an intention to create the trust, and the trust has a
definite beneficiary. RCW 11.98.011(1)(a)-(c).
5
The association assigned error to the trial court’s stay of proceedings, but provided no argument
or authority as to why the trial court abused its discretion in staying the proceedings. We will not
consider assignments of error unsupported by argument or authority. RAP 10.3(a)(6); Olympic
Stewardship Found. v. State Envtl. & Land Use Hr’gs Office, 199 Wn. App. 668, 687, 399 P.3d
19No. 51616-1-II
agreement. We conclude that the trial court appropriately relied on and interpreted the termination
agreement to require 80 percent approval of the association members for the association to bring
the claims in this complaint.
Generally, a condominium association may “[i]nstitute, defend, or intervene in litigation
or administrative proceedings in its own name on behalf of itself or two or more unit owners on
matters affecting the condominium.” RCW 64.34.304(1)(d). And RCW 64.34.268(4) provides
that “[u]ntil the sale has been concluded and the proceeds thereof distributed, the association
continues in existence with all powers it had before termination.” But as described above, the
association’s powers were “subject to . . . the [condominium] declaration,” which in turn requires
compliance with the association’s other governing documents. RCW 34.24.304; CP at 228.
Here, the relevant contract term is consistent with the articles of incorporation’s
requirement of 80 percent approval, and it states:
Pursuant to a payment and disbursement plan that is agreed to by the unit owners
to which at least eighty percent of the votes in NOM Association are allocated,
NOM Association shall pay its creditors and disburse its remaining assets to the
unit owners as their interests may appear, after which it shall dissolve.
CP at 119 (emphasis added).
Under the plain language of RCW 34.64.268 and the termination agreement, the
association held the remaining proceeds of the sale and all other assets as trustee. Both parties
seem to agree that we should construe any remaining post-termination legal claims as assets
562 (2017). Therefore, we decline to consider the association’s assignment of error to the stay of
proceedings.
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No. 51616-1-II
subject to this obligation.6 More importantly, proceeding with the lawsuit would ultimately require
expenditures for litigation costs.
The termination agreement required 80 percent of unit owners to agree on any plan for
“payment and disbursement” of the remaining proceeds or assets. CP at 119. Disbursement is
“[t]he act of paying out money, commonly from a fund or in settlement of a debt or account
payable. . 2. The money so paid; an amount of money given for a
particular purpose.” BLACK’S LAW DICTIONARY 495 (8th ed. 2004). Thus, the agreement plainly
precluded payment and disbursement of any remaining proceeds or assets until agreed to by the
unit owners to which at least 80 percent of the votes were allocated. This would necessarily include
payment and disbursement for the costs of litigation, which involves risk to trust assets. Simply
put, hiring an attorney and proceeding with litigation costs money, which the association could not
spend without the required level of owner approval.
The association notes that the termination agreement did not explicitly prohibit the
association’s board of directors from prosecuting an action, claim, or judicial proceeding in order
to protect trust property. The association argues that other language in the termination agreement
contemplated that the association would retain its existing authority to govern assets, including the
claim against 2nd Half, until all disbursements had been completed. However, read as a whole, the
termination agreement ultimately required owner approval of all “payments.” Owner approval
was required to commit resources that the association held as trustee. The association proceeded
6
See also Robert J. Rhee, The Effect of Risk on Legal Valuation, 78 U. COLO. L. REV. 193, 254
(2007) (arguing that a lawsuit is fundamentally an asset).
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No. 51616-1-II
with the lawsuit (and as a result it ultimately paid its attorney over $100,000 in trust assets as
attorney fees)7 without authority under the termination agreement.
We hold the trial court did not err when it stayed the proceedings and then dismissed its
complaint—80 percent of the association’s voting members had not agreed to a plan of payment
and disbursement that involved litigating the claims alleged in the association’s complaint.
E. Principles of Equity
The association argues that the trial court erred when it ignored principles of equity by
disallowing the association’s action against 2nd Half and its associates unless authorized by 80
percent of the association’s voting members. We disagree.
RCW 64.34.070 provides that the “principles of law and equity” apply, including
“estoppel, fraud, misrepresentation, duress, coercion, mistake, receivership, substantial
performance, . . . to the extent they are not inconsistent” with the Condominium Act. In addition,
every contract or duty governed by the Condominium Act imposes an obligation of good faith in
its performance or enforcement. RCW 64.34.090. The remedies provided must be liberally
administered to the end that the aggrieved party is put in as good a position as if the other party
had fully performed. RCW 64.34.100.
The association claims that under equitable principles, it should not be deprived of its
opportunity to pursue meritorious claims. It argues that giving 2nd Half veto power over such
claims is inconsistent with the good faith requirement of RCW 64.34.090. This argument ignores
that the termination agreement was negotiated to impose the restrictions that the association now
7
We note again that 2nd Half does not, on appeal, discuss any remedy for disbursements made in
violation of the termination agreement because, it says, the trial court has not addressed that issue.
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No. 51616-1-II
complains about. The owners agreed to the addition of a clause providing that the sale would
occur “free of any liens claimed by [the association],” eliminating the association’s right to enforce
its existing liens against 2nd Half for nonpayment of association dues and assessments upon the
sale. CP at 119. And the owners agreed to the clause requiring 80 percent owner approval of any
payment from the proceeds of the sale, a rate that would obviously require 2nd Half approval. “As
a matter of law, there cannot be a breach of the duty of good faith when a party simply stands on
its rights to require performance of a contract according to its terms.” Badgett v. Sec. State Bank,
116 Wn.2d 563, 570, 807 P.2d 356 (1991).
The association next argues that Dawson collusively obtained an inflated payoff from
escrow. It claims this amounted to bad faith. But the termination agreement provided that the
escrow agent would pay from the proceeds of the sale amounts due to holders of deeds of trust.
The association cites to no law establishing that the payoff amount was illegal and it agreed to
proceed with the sale even after the board understood the payoff amount. On this record, there is
no evidence that the amount Dawson claimed under his deed of trust amounted to bad faith.
The association further argues the contract is not enforceable if it is based on a unilateral
or mutual mistake or if it is shown to be unconscionable or inequitable. Specifically, the
association argues it did not intend for the 80 percent approval requirement to limit the pursuit of
its claims against 2nd Half, and it would be unfair for us to enforce that term against it.
“A mistake is a belief not in accord with the facts.” Simonson v. Fendell, 101 Wn.2d 88,
91, 675 P.2d 1218 (1984). “Unilateral mistake entitles a party to reform a contract only if the other
party engaged in fraud or inequitable conduct.” Associated Petroleum Prods. Inc. v. Nw. Cascade,
Inc., 149 Wn. App. 429, 437, 203 P.3d 1077 (2009). “A party has engaged in fraud or inequitable
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No. 51616-1-II
conduct if it conceals a material fact that it has a duty to disclose to the other party.” Id. at 438.
Here, 2nd Half did not conceal any of the contract terms, which all appeared on the face of the
written termination agreement. The association has argued that Dawson improperly concealed,
until the last minute, the amount owed under his deed of trust. But the association cites to no law
that makes disclosure of that amount required before a property can be listed. The owners and the
association were aware of the amount pre-sale, and they allowed the sale to proceed with an
understanding of what that payoff amount would be. The court did not err when it concluded that
even assuming all of the association’s alleged facts are true, the association had not established
that 2nd Half and others committed fraud.
“A party seeking to rescind an agreement on the basis of mutual mistake must show by
clear, cogent and convincing evidence that the mistake was independently made by both parties.”
Simonson, 101 Wn.2d at 91. Here, 2nd Half argues it clearly intended to include the 80 percent
owner approval language in the contract. Br. of Resp’t at 32-34 (“Without the provision vesting
the owners directly with control over the plan of payment and disbursement of assets, 2nd Half
would not [have] agreed to the termination and sale”). Therefore, there is no clear, cogent and
convincing evidence that the mistake was independently made by both parties, and this argument
fails.
The association also argues that the termination agreement is unconscionable.
“[S]ubstantive unconscionability involves cases ‘where a clause or term in the contract is . . . one-
sided or overly harsh.’” Torgerson v. One Lincoln Tower, LLC, 166 Wn.2d 510, 519, 210 P.3d
318 (2009) (alteration in original) (quoting Adler v. Fred Lind Manor, 153 Wn.2d 331, 344, 103
P.3d 773 (2004)). But such unfairness must be truly apparent: “‘[s]hocking to the conscience,’
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No. 51616-1-II
‘monstrously harsh,’ and ‘exceedingly calloused’ are terms sometimes used to define substantive
unconscionability.’” Torgerson, 166 Wn.2d at 519 (quoting Adler, 153 Wn.2d at 344-35). The
80 percent term is contemplated in the statute governing condominium termination. See RCW
64.34.268. It was also contained in the association’s articles of incorporation and bylaws.
Parroting the term requiring 80 percent of the votes of the unit owners to agree to a plan of payment
and disbursement hardly shocks the conscience. Although the termination agreement essentially
gives 2nd Half veto power over any plan of payment and disbursement, this was an openly
negotiated term that was not unconscionable. Moreover, this contract term similarly gave the
Rankoses, who owned three units, veto power.
In sum, “[t]he ‘touchstone of contract interpretation is the parties’ intent.’” GMAC v.
Everett Chevrolet, Inc., 179 Wn. App. 126, 134, 317 P.3d 1074 (2014) (quoting Realm, Inc. v. City
of Olympia, 168 Wn. App. 1, 4-5, 277 P.3d 679 (2012)). This contract was negotiated and signed
by all of the unit owners, and its language is plain. The 80 percent term was not included in the
first draft of the termination agreement, which no unit owner signed, but later included in the final
draft of the agreement, which all of the unit owners signed. Therefore, the association’s arguments
about mistake, unconscionability, and inequity fail.
We hold that the trial court did not ignore principles of equity when it dismissed the
association’s complaint.
ATTORNEY FEES
Both parties request attorney fees and costs on appeal under the Condominium Act, the
bylaws, and articles of incorporation. We decline to grant either party attorney fees and costs.
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No. 51616-1-II
We affirm and decline to award attorney fees and costs to either party.
A majority of the panel having determined that this opinion will not be printed in the
Washington Appellate Reports, but will be filed for public record in accordance with RCW 2.06.040,
it is so ordered.
Glasgow, J.
We concur:
Melnick, P.J.
Sutton, J.
26