Charles Ortego v. Lisecc

FILED
NOT FOR PUBLICATION
JUN 20 2018
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
CHARLES E. ORTEGO; et al., Nos. 17-35030
17-35372
Plaintiffs-Appellants,
D.C. No. 2:14-cv-01840-RSL
v.
LUMMI ISLAND SCENIC ESTATES MEMORANDUM*
COMMUNITY CLUB, INC., a
Washington non-profit corporation; et al.,
Defendants-Appellees.
CHARLES E. ORTEGO; et al., No. 17-35337
Plaintiffs-Appellees, D.C. No. 2:14-cv-01840-RSL
v.
LUMMI ISLAND SCENIC ESTATES
COMMUNITY CLUB, INC., a
Washington non-profit corporation; et al.,
Defendants-Appellants.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
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Appeal from the United States District Court
for the Western District of Washington
Robert S. Lasnik, District Judge, Presiding
Argued and Submitted June 12, 2018
Seattle, Washington
Before: D.W. NELSON and WATFORD, Circuit Judges, and PREGERSON,**
District Judge.
1. The district court properly determined that the Lummi Island Scenic
Estates Community Club, Inc. (LISECC) has continuing authority to govern all of
the properties comprising Lummi Island Scenic Estates (LISE). Under
Washington law, “the clear intent of a restrictive covenant is determined by the
purposes sought to be accomplished by the covenant,” Lakes at Mercer Island
Homeowners Ass’n v. Witrak, 810 P.2d 27, 29 (Wash. App. 1991), and courts may
consider “extrinsic evidence” relevant “to the entire circumstances under which the
contract was made, as an aid in ascertaining the parties’ intent,” Berg v. Hudesman,
801 P.2d 222, 229 (Wash. 1990) (en banc); see also Hollis v. Garwall, Inc., 974
P.2d 836 (Wash. 1999) (en banc). Although the plats establishing Divisions 1–5
identify a non-existent corporation rather than LISECC as the governing collective
membership entity, it is clear from LISE’s history and LISECC’s articles of
**
The Honorable Dean D. Pregerson, United States District Judge for
the Central District of California, sitting by designation.
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incorporation that the intention of the plats’ drafters was for all of the plats to be
governed by LISECC. The Supreme Court of Washington has also explained that
“[i]n discerning the parties’ intent, subsequent conduct of the contracting parties
may be of aid, and the reasonableness of the parties’ respective interpretations may
also be a factor in interpreting a written contract.” Berg, 801 P.2d at 229. Thus,
the fact that no lot owners challenged LISECC’s authority over Divisions 1–5 until
at least fifty years after LISECC’s founding supports the interpretation that
LISECC governs all LISE properties.
The district court properly concluded that the sunset clause contained in the
plats establishing Divisions 3–10 does not apply to the provision conveying
common areas to LISECC, mandating membership in LISECC, and requiring
adherence to LISECC’s articles of incorporation and bylaws. Again, this
interpretation is supported by the intent of the developers: As the district court
observed, LISECC’s governing documents included no provisions for a lot owner’s
withdrawal of membership, or for the overall drop in membership that would result
if the sunset clause were applicable to LISECC membership. Additionally, the
conduct of the lot owners at and subsequent to the time when the sunset clause
would have taken effect indicates that the community assumed that all lot owners
were perpetual members of LISECC. Moreover, we “place special emphasis on
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arriving at an interpretation that protects the homeowners’ collective interests.”
Riss v. Angel, 934 P.2d 669, 676 (Wash. 1997) (en banc) (internal quotation marks
omitted); see also Jensen v. Lake Jane Estates, 267 P.3d 435, 438 (Wash. App.
2011). Because enforcing the sunset clause would jeopardize the homeowners’
collective interests by sundering the homeowners’ association, the best
interpretation of the covenant is that the sunset clause does not apply to
membership in LISECC.
2. The district court properly granted summary judgment in favor of the
Defendants on the breach of fiduciary duty claim. Plaintiffs may disagree with the
LISECC directors’ strategies for maintaining the community’s water system, but it
is not the place of this court to “substitute its judgment for that of the Board.” Riss,
934 P.2d at 679. Plaintiffs supplied no evidence to suggest that the directors failed
to act “reasonably and in good faith” in their stewardship of the water system. Id.
To the contrary, the record reflects that the Board hired two full-time water
treatment specialists, publicly posted reports by its water system manager, and
made incremental repairs as recommended by outside experts. To the extent
Plaintiffs’ fiduciary duty claim is based on the Board’s failure to undertake a major
overhaul of the water system, it fails because there is no evidence that such an
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overhaul is the only reasonable course of action in light of LISECC’s available
resources and the system’s repair needs.
With respect to Plaintiffs’ allegations concerning the Board’s financing of
water system repairs, there is no evidence that the Board’s use of funds violated
either the terms of its loan from the state water board or Washington law. Finally,
Plaintiffs’ claim must fail to the extent that it is premised on the directors’ alleged
violation of LISECC’s bylaws by shifting the cost of improvements to the water
system to all members, including non-users. The Board’s interpretation of its
bylaws as not requiring a vote on the issue because the water system is a capital
asset held in common by the community is entitled to “great deference” and cannot
be deemed “arbitrary and unreasonable.” Parker Estates Homeowners Ass’n v.
Pattison, 391 P.3d 481, 487 (Wash. App. 2016).
3. The district court did not abuse its discretion in denying Plaintiffs’
motion for sanctions. Plaintiffs provided neither the authority to support sanctions
nor a meaningful explanation of why sanctions were warranted, both of which are
required by Federal Rule of Civil Procedure 11. And although Plaintiffs claim that
they incorporated by reference the arguments they made in another pleading, Rule
11 requires that parties move for sanctions “separately from any other motion.”
Fed. R. Civ. P. 11(c)(2). Given these deficiencies, the record does not compel a
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“definite and firm conviction that the court below committed a clear error of
judgment” in denying the motion for sanctions. Moore v. Local Union 569 of Int’l
Bhd. of Elec. Workers, 989 F.2d 1534, 1537 (9th Cir. 1993) (internal quotation
marks omitted).
4. The district court properly denied Defendants’ motion for attorneys’ fees,
which Defendants sought pursuant to a provision in LISECC’s bylaws providing
that members shall pay to LISECC “attorney fees and costs reasonably incurred in
enforcing” the payment of “dues, assessments, charges, interest, fines or penalties.”
This lawsuit was grounded in determining the scope of LISECC’s governing
authority over LISE properties. It cannot fairly be characterized as a collection or
enforcement action that could trigger the imposition of attorneys’ fees under
LISECC’s bylaws.
AFFIRMED.