Lost Lake Resort Condo Assn, V. Lost Lake Resort ( 2021 )

Filed
Washington State
Court of Appeals
Division Two
July 7, 2021
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION II
LOST LAKE RESORT CONDOMINIUM No. 54365-6-II
ASSOCIATION, a Washington nonprofit
corporation,
Appellant,
v.
LOST LAKE RESORT, LLC, a Washington UNPUBLISHED OPINION
limited liability corporation; LOST LAKE
DEVELOPMENT, LLC, a Washington limited
liability corporation; BRENT McCAUSLAND
and JANE DOE McCAUSLAND, and the
marital community comprised thereof; and
DAVID BLOCK and JANE DOE BLOCK, and
the marital community comprised thereof,
Respondents.
VELJACIC, J. — Lost Lake Resort Condominium Association (Association) appeals the
summary judgment dismissal of its suit against Lost Lake Development, LLC (LLD), Lost Lake
Resort, LLC (LLR), David Block, and Brent McCausland for breach of contract. The trial court
determined that the Association did not have authority under the condominium’s governing
declaration to maintain the suit and dismissed it with prejudice. The Association argues that the
declaration grants it authority to institute legal proceedings for the purpose of tolling the statute of
limitations and that any limitation on this authority is unenforceable. It further argues that the
court erred in dismissing the case with prejudice. We conclude that the Association did not have
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authority under the declaration to maintain its suit, but the court erred in dismissing with prejudice.
We vacate and remand for the court to enter an order dismissing without prejudice.
FACTS
Lost Lake Resort (Resort) is a recreational vehicle (RV) park condominium development
located in Thurston County. It is governed by a declaration and covenants, conditions, restrictions
and reservations (declaration) and managed by a board of directors (board). The underlying
dispute surrounds a contract1 to make improvements and repairs to the Resort in exchange for the
forgiveness of dues, liens, or assessments owed on two lots that are within the Resort. Block and
McCausland are involved because the subject lots are owned by LLD and LLR, which are owned
by LLRIG TWO, LLC, which in turn is owned by Block and McCausland.
The Association filed suit on March 6, 2019, alleging that Block and McCausland failed to
perform their obligations under the contract. The Association proceeded with discovery and
engaged in motions practice. In September 2019, Block and McCausland filed a motion for
summary judgment, arguing that the board failed to comply with procedures outlined in section
10.12.3 of the declaration for maintaining legal proceedings. Because it lacked unit owner
approval, Block and McCausland asserted that the board did not have authority to continue to
litigate on behalf of the Association.
Section 10.12 of the declaration sets limitations on the Association’s authority to litigate
on behalf of itself; section 10.12 describes exemptions to the limitations. It states in relevant part:
10.12.1 The term “Legal Proceedings” as used herein shall include
litigation, Administrative mediation, arbitration or other proceedings in the name
of the Association on behalf of itself or two or more Unit Owners on matters
affecting the Condominium.
1
The merits of the formation, existence, or enforceability of the contract are not before us. Any
reference to the contract in this opinion is limited to providing context for the legal issues addressed
herein and does not suggest that we have concluded that a “contract,” as a legal term of art, exists.
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10.12.2 The provisions of this Section 10.12 shall not apply to Legal
Proceedings, as a result of which the Association could not be held responsible for
costs of suit (including fees for attorneys, experts, witnesses, investigations and
other costs of suit) in a [sic] aggregate amount of not more than $5,000 (including
without limitation fees contingent on a result), and which involve:
....
(e) the filing of a complaint, answer or other pleading for the limited
purpose satisfying [sic] a statute of limitation deadline, avoiding entry of a default
order or judgement, or preventing personal injury or serious harm to the
Condominium (if such purpose is certified in good faith by the Association’s
attorney), but except for this limited purpose the other conditions of Section 10.12
must be satisfied.
10.12.3 In order for the Association (or the Board acting on behalf of the
Association) to institute, defend, or intervene in Legal Proceedings, and in order
for the Association to become obligated in the aggregate sum in excess of $5,000,
to professionals, consultants or other experts in connection with Legal Proceedings,
the following conditions must first be satisfied:
(a) the Board has received a detailed, written summary ("Litigation
Summary") concerning the substance of the proceeding.
....
(c) A copy of the Litigation Summary Shall be transmitted to all Owners. .
..
(d) The Owners holding eighty percent (80%) of the total Association voting
power must grant approval for the Association . . . to institute, defend, or intervene
in legal proceedings.
Clerk’s Papers (CP) at 78-79.
In support of the motion for summary judgment, Block and McCausland filed a declaration
from Block stating that he, in his capacity as a member of the Association, had not received a
litigation summary, and no owner approval was requested by the board.
In response, the Association argued that section 10.12.2(e) of the declaration created an
exception to the procedures outlined in 10.12.3 for actions filed for the purpose of preserving the
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statute of limitations. The Association asserted that it filed the suit for the purpose of preservation
of its position, so it did not need to comply with the provisions of 10.12.3.
The court entered an order granting Block and McCausland’s motion for summary
judgment, dismissing the suit with prejudice. The Association appeals.
ANALYSIS
I. LEGAL PRINCIPLES
We review a trial court’s decision to grant summary judgment de novo. Mohr v. Grantham,
172 Wn.2d 844, 859, 262 P.3d 490 (2011). In doing so, we perform the same inquiry as the trial
court and will affirm the trial court’s decision if “‘there is no genuine issue of material fact and the
moving party is entitled to judgment as a matter of law.’” Lakey v. Puget Sound Energy, Inc., 176
Wn.2d 909, 922, 296 P.3d 860 (2013) (quoting Qwest Corp. v. City of Bellevue, 161 Wn.2d 353,
358, 166 P.3d 667 (2007)).
As a general matter, an argument not pleaded or argued to the trial court cannot be raised
for the first time on appeal. RAP 2.5(a); Wash. Fed. Sav. v. Klein, 177 Wn. App. 22, 29, 311 P.3d
53 (2013). The purpose underlying the rules of issue preservation is to encourage the efficient use
of judicial resources by ensuring that the trial court has the opportunity to correct any errors,
thereby avoiding unnecessary appeals. State v. Robinson, 171 Wn.2d 292, 304-05, 253 P.3d 84(2011).
II. AUTHORITY UNDER THE DECLARATION
The Association argues that the court erred in granting Block and McCausland’s motion
for summary judgment on the basis that the Association had no authority to bring the suit. It asserts
that the declaration authorizes the Association to, as it did here, file a suit to satisfy a statute of
limitations deadline without complying with the procedures in section 10.12.3.
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Block and McCausland argue that the exception outlined in section 10.12.3 applies only to
filing a complaint for the limited purpose of avoiding the statute of limitations. They contend that
this limited purpose does not include participating in discovery or filing responses to motions.
They further argue that because the board did not complete the required procedures after filing for
that limited purpose, it did not have the authority to maintain the action on behalf of the
Association. We agree with Block and McCausland.
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). However, an association’s powers
are “subject to . . . the [condominium] declaration.” RCW 64.34.304(1).
A condominium declaration is like a deed, the review of which is a mixed question of law
and fact. Lake v. Woodcreek Homeowners Ass’n, 169 Wn.2d 516, 526, 243 P.3d 1283 (2010).
“The factual issue is the declarant’s intent, which we discern from the face of the declaration. The
declaration’s legal consequences are questions of law, which we review de novo.” Id. (internal
citation omitted). “[W]e determine the intent of the parties from the language of the [declaration]
as a whole.” Newport Yacht Basin Ass’n of Condo. Owners v. Supreme Nw., Inc., 168 Wn. App.
56, 64, 277 P.3d 18 (2012).
The Association’s arguments depend on the interpretation of section 10.12.2(e) and what
actions are exempted from the requirement that the Association obtain owner approval. The parties
present different interpretations of when sections 10.12.2 and 10.12.3 apply. Therefore, we must
construe the declaration. To do so, we first look to the plain language of the provision to determine
what actions it exempts and then look to whether the Association’s actions fit within that
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exemption. Pritchett v. Picnic Point Homeowners Ass’n, 2 Wn. App. 2d 872, 881, 413 P.3d 604(2018).
The Association maintains that the limitations on authority in section 10.12 only apply to
lawsuits that would result in the Association being obligated for legal costs over $5,000. It further
maintains that regardless of costs, the exemptions listed in 10.12.2 allow litigation without
fulfilling the conditions in 10.12.3 (e.g. approval by the owners).
A close reading of section 10.12.2 reveals that the limitations in the rest of 10.12 do not
apply to proceedings for which the Association would have to pay costs totaling less than $5,000
so long as the actions taken amount only to those listed in the remainder of 10.12.2. 2
Section 10.12.2(e) lists specific actions the Association is allowed to take without
performing the procedures in 10.12.3 to obtain owner approval. Simply put, to avoid the
requirements of obtaining owner approval, the legal proceeding must be one where (1) the
Association will incur costs of suit less than $5,000 and (2) which involves only “the filing of a
complaint, answer or other pleading for the limited purpose [of] satisfying a statute of limitation
deadline.” CP at 78. Both conditions must be met to allow the Association to proceed without
owner approval. This is the plain meaning of section 10.12.2.
2
The meaning of 10.12.2 becomes clear when reading it within the context of the entirety of
section 10.12. Viking Bank v. Firgrove Commons 3, LLC, 183 Wn. App. 706, 713, 334 P.3d 116(2014) (we view contracts as a whole by interpreting particular language in the context of other
provisions). In particular, section 10.12.2, which refers to proceedings bearing costs of “not more
than $5,000” stands in contrast with section 10.12.3’s “sum in excess of $5,000.” The first section
applies to legal proceedings costing less than $5,000 and the second to proceedings costing more
than $5,000.
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But the costs of suit are immaterial here because the Association engaged in more litigation
activity than allowed by section 10.12.2(e). As previously discussed, the exemption for low cost
(i.e. less than $5,000) litigation activities only applied if both the total costs were low and the
Association engaged in only limited activities. The Association engaged in more than the limited
activities allowed in section 10.12.2(e). The exemption from seeking owner approval did not
apply. We already know that if costs exceeded $5,000, section 10.12.3 would apply, and thereby
owner approval would be required.
Curiously, the Association argues that section 10.12.2(e) does not limit it to only filing a
complaint. It asserts that the dictionary defines “involve” as “includes as a part.” Appellant’s
Reply Br. at 7. And because there is no explicit prohibition otherwise, it argues that it can
commence a legal proceeding which “includes as a part” filing a complaint for the purpose of
avoiding a statute of limitations deadline and taking other action such as serving the complaint and
summons, defending a motion for summary judgment, and complying with court rules and orders.
It argues that Block and McCausland’s reading of 10.12.2(e) would produce an “absurd” result
where the Association would automatically have to accept dismissal because it could not do
anything beyond filing a complaint. Reply Br. of Appellant at 7.
The Association’s reading is contrary to a plain reading of section 10.12.2(e), which lists
three specific actions than may be taken without obtaining authority: filing a complaint, answer,
or pleading. 10.12.2(e) reiterates: “but except for this limited purpose,” i.e., filing a complaint to
satisfy the statute of limitations deadline, “the other conditions of Section 10.12 must be satisfied.”
CP at 78. Under the Association’s reading, section 10.12.2(e) would be a nullity because every
lawsuit “includes as a part” the filing of a pleading—the exception would swallow the rule.
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Additionally, we discern the declarant’s intent from the face of the declaration. Woodcreek
Homeowners Ass’n, 169 Wn.2d at 526. The face of the declaration at issue here expresses a clear
intent: to require the Association to obtain approval from unit owners before it has the authority to
engage in a legal proceeding that may obligate it to pay more than $5,000. The Association must
obtain approval because unit owners will be obligated should the litigation result in a judgment
against the Association. RCW 64.34.368(1) (“A judgment for money against the association . . .
is a lien in favor of the judgment lienholder against all of the units in the condominium and their
interest in the common elements”). And, the Association has the authority to levy “[a]ssessments
to pay a judgment against the association pursuant to RCW 64.34.368(1).” RCW 64.34.360(4).
Because the Association’s litigation is funded by assessments paid by owners, the declaration gives
owners a say in whether or not the Association can file suit on their behalf.
The Association argues that our reading of 10.12 will lead to the absurd result of dismissal
because it cannot respond to a motion. But the intent of the declarant is to allow the Association
to act quickly to ensure it does not lose the opportunity to institute legal proceedings due to the
running of the statute of limitations. Expanded litigation beyond this limited purpose, even
motions practice, requires owner approval. Requiring owners to approve litigation that will result
in outlay of additional funds is not absurd. Moreover, the Association has an alternative to
accepting dismissal: obtaining owner approval at an early juncture.
While the Association was permitted to file a complaint for the purpose of tolling the statute
of limitations, it had to obtain owner approval to preserve its authority to maintain the suit.
Because it did not, we conclude that the trial court properly granted the motion for summary
judgment.
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III. PROVISION UNENFORCEABLE
The Association argues that the limitation on its power to commence litigation is
unenforceable. It contends that the Condominium Association Act, chapter 64.34 RCW, provides
a general cause of action or claim for relief for failure to comply with the Act (or the declaration
or bylaws) to any person. It further contends that any right or obligation declared by the Act is
enforceable by judicial proceeding, and that the right to bring a proceeding to enforce the Act
cannot be waived. Because this argument is raised for the first time on appeal, we decline to
consider it. RAP 2.5(a); Klein, 177 Wn. App. at 29.
IV. DISMISSAL WITH PREJUDICE
The Association argues that the trial court erred by entering a dismissal with prejudice
because it did not consider the merits of the Association’s claims. It argues that the court’s
dismissal was based on the fact that the Association lacked authority to bring suit, and dismissal
with prejudice precludes it from filing again if it obtains the authority to do so. We agree.
A dismissal with prejudice appropriately follows an adjudication on the merits, while a
dismissal without prejudice means that the existing rights of the parties are not affected by the
dismissal but are as open to legal controversy as if no judgment or dismissal had been entered.
Hisle v. Todd Pac. Shipyards Corp., 151 Wn.2d 853, 866 n.10, 93 P.3d 108 (2004); Maib v.
Maryland Cas. Co., 17 Wn.2d 47, 52, 135 P.2d 71 (1943).
By comparison, under the court rule governing involuntary dismissals, a dismissal for lack
of jurisdiction, improper venue, or failure to join a party is without prejudice. CR 41(b)(3). There
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are other instances where dismissal without prejudice is appropriate: “For example, a dismissal on
the ground that the action was premature or was brought by the wrong plaintiff should not, on
principle, be considered as a dismissal operating as an adjudication on the merits.” 14A KARL B.
TEGLAND, WASHINGTON PRACTICE: CIVIL PROCEDURE § 23:16, at 55 n.12 (2d ed. 2009).
The court did not reach the merits of the underlying breach of contract claim. It dismissed
the case because the Association did not have authority to maintain the suit. The dismissal should
have been without prejudice because it was not on the merits. Therefore, we conclude that the
court erred and vacate and remand for proceedings consistent with this decision.
ATTORNEY FEES
Block and McCausland request an award of attorney fees on appeal under RAP 18.1 and
RCW 64.34.455 because it is the prevailing party.
Under RAP 18.1 we may award reasonable attorney fees to the prevailing party on appeal
if allowed under applicable law. RCW 64.34.455 states “If a declarant or any other person subject
to this chapter fails to comply with any provision hereof or any provision of the declaration or
bylaws, any person or class of persons adversely affected by the failure to comply has a claim for
appropriate relief. The court, in an appropriate case, may award reasonable attorney’s fees to the
prevailing party.” (Emphasis added.)
Because the board failed to comply with the provision of the declaration governing legal
proceedings, under RCW 64.34.455 Block and McCausland are entitled to reasonable attorney’s
fees.
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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.
Veljacic, J.
We concur:
Maxa, P.J.
Cruser, J.
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