Pines of Greenwood, LLC and Arbor Homes, LLC v. The Village Pines at the Pines of Greenwood Homeowners' Association, Inc. (mem. dec.)

MEMORANDUM DECISION
Pursuant to Ind. Appellate Rule 65(D),
this Memorandum Decision shall not be FILED
regarded as precedent or cited before any Nov 10 2020, 8:44 am
court except for the purpose of establishing CLERK
Indiana Supreme Court
the defense of res judicata, collateral Court of Appeals
and Tax Court
estoppel, or the law of the case.
ATTORNEYS FOR APPELLANTS ATTORNEYS FOR APPELLEE
Thomas F. Bedsole Laura B. Conway
Jenai M. Brackett Steven C. Earnhart
Maggie L. Smith Indianapolis, Indiana
Darrian A. Smith
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Pines of Greenwood, LLC and November 10, 2020
Arbor Homes, LLC, Court of Appeals Case No.
Appellants-Defendants, 20A-PL-373
Appeal from the Johnson Superior
v. Court
The Honorable Marla K. Clark,
The Village Pines at the Pines of Judge
Greenwood Homeowners’ Trial Court Cause No.
Association, Inc., 41D04-1111-PL-86
Appellee-Plaintiff.
Altice, Judge.
Court of Appeals of Indiana | Memorandum Decision 20A-PL-373 | November 10, 2020 Page 1 of 26
Case Summary
[1] This is an appeal after remand, stemming from long-running litigation between
plaintiff The Village Pines at the Pines of Greenwood Homeowners’
Association, Inc. (the HOA), a not-for-profit corporation, and defendants Pines
of Greenwood, LLC (Developer) and Arbor Homes, LLC (Builder). In 2011,
the HOA sued Developer and Builder for, as is relevant here, breach of contract
involving a dispute over the neighborhood’s covenants. The trial court entered
judgment for Developer and Builder, and the HOA appealed.
[2] This court reversed, finding that Developer and Builder had breached the
neighborhood’s covenants, and remanded for a hearing on the HOA’s damages.
Village Pines at the Pines of Greenwood Homeowners’ Assoc., Inc. v. Pines of
Greenwood, LLC, 123 N.E.3d 145 (Ind. Ct. App. 2019) (Village Pines I). On
remand, the trial court determined that the HOA incurred damages in excess of
$1 million, comprised of the following amounts: $225,524.50 for assessments;
$148,275.00 for late fees; $626,110.00 for interest on unpaid assessments; and
attorney’s fees, expenses, and costs of $87,683.01. Developer and Builder
appeal and raise the following restated issues:
I. Did the HOA have standing to recover damages?
II. Was the trial court’s determination of unpaid HOA
assessments supported by the evidence?
III. Was the interest rate used by the trial court and the
imposition of late fees erroneous?
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[3] We affirm in part, reverse in part, and remand. 1
Facts & Procedural History 2
Provisions of the Neighborhood Covenants
[4] In 2000, Developer and Builder began development of the neighborhood of
Village Pines at Pines of Greenwood (the Neighborhood). Developer and/or
Builder drafted The Declaration of Covenants, Conditions and Restrictions and
Grant and Reservation of Easements for The Village Pines at the Pines of
Greenwood (the Covenants or the Declaration) and recorded the Covenants in
the Johnson County Recorder’s Office in January 2000.
[5] The Covenants define a number of relevant terms: “Declarant” was defined as
the Developer and provided that the Builder has “the same rights as Declarant
hereunder”; “Owner” means “the Person or Persons, including Declarant,
holding fee simple interest to a Lot”; “Development Period” means “the period
of time during which the Declarant owns at least one [L]ot”; “Annual
Assessment” means “a charge against a particular Owner and his Lot,
representing a portion of Common Expenses which are to be levied among all
Owners and their Lots . . . in the manner and proportions provided herein”;
“Common Expenses” means, in part, “those expenses for which the [HOA] is
responsible under this Declaration, including the actual and estimated costs of:
1
We deny Developer and Builder’s motion for oral argument by separate order.
2
We borrow in part from our colleagues’ opinion in Village Pines I.
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maintenance, management, operation, repair and replacement of the Common
Areas . . . and any Improvements thereon, or unpaid Special Assessments”;
“Member” means “any Person holding a Membership in the [HOA]”, and
“Person” means a “natural individual or any other entity with the legal right to
hold title to real property.” Prior Exhibits 3 at 15-18.
[6] Article V of the Covenants sets forth relevant provisions regarding Assessments
and includes the following:
5.1 Personal Obligation of Assessments. Declarant, on behalf of
itself and all future Owners, hereby covenants and agrees to pay, . . .
to the Association, Annual Assessments and other amounts as required or
provided for in this Declaration. Amounts payable for Annual
Assessments and Special Assessments (as generally defined in
Sections 5.5 and 5.7, respectively) are generally referred to herein
as “Assessments.” Other amounts payable by an Owner to the
Association, (or payable with respect to an Owner’s Lot), including
late charges, fines, penalties, interest, attorneys fees and other costs and
expenses incurred by the Association in collecting unpaid amounts shall
be added to the Annual or Special Assessments, charged to his
Lot and shall be enforceable and collectible as Annual or Special
Assessments....
***
5.5 Annual Assessments/Commencement-Collection. Annual
Assessments, and any monthly installment related thereto, shall
commence on the first day of the first calendar month following
3
On April 6, 2020, this court ordered that the Record of Proceedings from Village Pines I be included in the
record in this appeal.
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the Closing of the sale of the first Lot. Thereafter, the
Association is specifically authorized to enter into subsidy
contracts or contracts for “in kind” contribution of services,
materials, or a combination of services and materials with the
Declarant or other entities for payment of Common Expenses.
All Annual Assessments shall be assessed equally against the Members
and their Lots based upon the number of Lots owned by each Member.
Annual Assessments for fractions of any month involved shall be
prorated. Subject to the terms of any subsidy contract, Declarant
shall pay to the Association until the Applicable Date, an amount equal
to the difference, if any, between the expenditures of the Association made
pursuant to this Article V and the aggregate amount of the Annual
Assessments collected by the Association. . . .
***
5.8 Time for Payments. Each installment of the Annual Assessment
shall be due on the first day of the period covered by said installment.
The amount of any Assessment, late charge, fine, penalty or
other amount payable by an Owner or Resident with respect to
such Owner’s Lot shall become due and payable as specified
herein and if said payment is not received, then said Owner shall also be
responsible for any late charges, interest, fines, penalties or attorneys fees
related thereto.... Annual Assessments shall be paid and collected
on a quarterly basis or at such other frequency as may be adopted
by the Board.
Id. at 29, 31, 32-33 (emphases added).
[7] The Covenants also provide specific procedures for their amendment. Under
Section 12.2, notice of a proposed amendment must be provided to
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homeowners, and adoption of a resolution requires consent of 67% of the
Members. However, the Covenants provide an exception to that required vote:
12.3 By Declarant. Notwithstanding anything herein to the
contrary, Declarant hereby reserves the right until the expiration of the
Development Period to make such amendments to this Declaration as
may be deemed necessary or appropriate by Declarant, without
the approval of any other person or entity, in order to bring Declarant
into compliance with the requirements of any statute, ordinance,
regulation or order of any public agency having jurisdiction
thereof, or to correct clerical or typographical errors in this Declaration
or any amendment or supplement hereto; provided that Declarant
shall not be entitled to make any amendment which has a materially
adverse effect on the rights of any Mortgagee, nor substantially
impairs the benefits of this Declaration to any Owner or substantially
increases the obligations imposed by this Declaration on any Owner.
Each amendment to the Declaration shall be executed by
Declarant only in any case where Declarant has the right to
amend this Declaration without any further consent or approval,
and otherwise by the Association. All amendments shall be
recorded in the Office of the Recorder of Marion County,
Indiana, and no amendment shall become effective until so
recorded.
Id. at 47-48 (emphases added).
Background
[8] During the Development Period, from January 2000 to November 2009,
Developer and Builder controlled the HOA and, among other things, appointed
the HOA’s Board of Directors (the Board). On May 18, 2006, the HOA held a
meeting, the minutes of which reflected that a discussion occurred regarding
whether Developer and Builder were required to pay Assessments on unsold
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Lots. On July 2, 2008, Developer and Builder recorded a Second Amendment 4
to the Covenants (the Second Amendment) in the Recorder’s Office. It stated,
in part:
WHEREAS, Declarant’s intent at the time the Declaration was
prepared and recorded was to provide for Declarant to fund the
deficit of the Association’s Common Expenses, if any, prior to
the Applicable Date, and that Declarant would not otherwise be
responsible for payment of the Association’s Common Expenses; and
WHEREAS, the Declaration contains certain clerical and
typographical errors.
WHEREAS, such errors result in unintended ambiguities
regarding Declarant’s obligations to contribute toward the
Association’s Common Expenses;
WHEREAS, Declarant wishes to correct such errors in the
Declaration;
WHEREAS, pursuant to the terms of Section 12.3 of the
Declaration, Declarant has the right until the expiration of the
Development Period to make amendments to the Declaration as
may be deemed necessary or appropriate by Declarant, without
the approval of any other person or entity, to correct clerical
errors in the Declaration; and
4
In July 2007, Developer recorded a First Amendment to the Covenants, regarding parking, nuisances, and
trash containers, and followed Section 12.2’s required procedure for amendments.
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WHEREAS, Declarant represents that the Development Period
has not terminated.
NOW THEREFORE, Declarant is hereby entering into this
Second Amendment as follows:
***
3. The first sentence of Section 5.1, Personal Obligation of
Assessments, shall be deleted and replaced with the following:
Each Owner (other than Declarant), by accepting title to a Lot or
any interest therein, whether or not it shall be expressed in the
deed or other instrument conveying title, shall be deemed to
covenant and agree to pay to the Association, Annual
Assessments and other amounts as required or provided for in
this Declaration.
4. The first sentence of Section 5.5 Annual
Assessments/Commencement-Collection, shall be deleted and
replaced with the following:
Annual Assessments, and any monthly installment related
thereto, shall commence on the first day of the first calendar
month following the Closing of the first sale of a Lot to a person
other than Declarant.
Id. at 61-64 (emphases added).
[9] On November 5, 2009, control of the HOA was turned over to the homeowners
of the Neighborhood. On November 4, 2011, the HOA filed a complaint
against Developer and Builder (sometimes collectively Defendants) asserting, as
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is relevant here, breach of contract, 5 for purporting to amend the Covenants
without a vote of the Members and for failure to pay the Annual Assessments
on unsold Lots.
[10] A bench trial was held in May 2017. Board member Megan Judson testified
that Annual Assessments were calculated based on the annual budget. The
court admitted over objection Exhibit 10, a spreadsheet, which listed
addresses/Lot numbers, the transfer dates when the Lots were transferred from
Developer or Builder to third parties, and yearly Annual Assessment amounts
as follows: $32.50 per Lot per month for 2001-2001, $41.00 per Lot per month
for 2002-2004, and $45.00 per Lot per month for 2005-2009. Exhibit 10
reflected that Developer and Builder owed unpaid Assessments of $245,982.50
(a computation involving taking the number of months that listed Lots were
owned by Developer/Builder and multiplying by the appropriate monthly
Assessment amount) and late fees at $25.00 per month totaling $148,275.00.
Judson testified that the Second Amendment was never approved by the HOA.
[11] On October 2, 2017, the trial court entered judgment in favor of Developer and
Builder, finding that, while Developer and Builder did not pay Assessments to
the HOA as required by the Covenants from June 2000 to November 2009, they
did make Deficit Funding and in-kind contributions for the years 2000, 2001,
2002, 2003, and 2005. The trial court determined with regard to the HOA’s
5
The Village Pines I court noted that the complaint was not included in the record before it. We likewise do
not have the complaint and do not know the precise allegations.
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alleged damages: (1) the HOA “did not suffer any actual damages because its
budget was fully funded every year” given that “the deficit Funding system . . .
satisfied all actual expenditures of the [HOA] on an annual basis[,]” and (2) the
HOA also “seeks to recover [] damages to its members,” namely having to pay
higher assessments due to Developer/Builder’s failure to pay assessments, and
that “[t]he [HOA] has standing to sue on certain issues, but does not have
standing to recover monetary damages arguably incurred by individual
members.” Judgment Order at 18. The HOA appealed.
First Appeal
[12] This court in Village Pines I determined, as is relevant to this appeal, that the
Second Amendment – which removed Developer and Builder from the
definition of Owners for purposes of Article V and the Annual Assessment
obligations – did not merely clarify clerical or typographical errors, but rather,
increased the obligations on other Member homeowners, and thus, pursuant to
Section 12.2, a vote of 67% of Members of the HOA was required. Therefore,
Developer and Builder, in recording the Second Amendment, which was not
approved by Members of the HOA, breached the Covenants’ amendment
procedure.
[13] The Village Pines I court rejected Developer and Builder’s argument that the
HOA had not shown that it suffered any damages since the HOA’s annual
budgets were fully funded (i.e., there were no unpaid or outstanding amounts).
The court reasoned that the Covenants required Annual Assessments to be
assessed equally against the Members and their Lots and that Builder and
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Developer were Members or Owners under the Covenants. Therefore, the
court concluded
[a]fter due consideration of the stipulated exhibits, evidence, and
testimony presented at trial, and in light of the court’s finding
that [Developer] and [Builder] did not pay assessments to the
Association from June 2000 to November 2009, we are not
persuaded that the HOA did not suffer any damages.
Id. at 157 (citation to record omitted). The Village Pines I court reversed the trial
court’s breach of contract determination and remanded for a damages hearing.
[14] Developer and Builder filed a petition for rehearing, asserting that the court
remanded for a damages hearing “without addressing the trial court’s findings
and conclusions as to standing.” Pet. for Rehearing at 4. Developer and Builder
urged that damages “belong to individual Owners” who paid higher
Assessments than they otherwise would have, and such individualized proof of
damages by the Owners precluded the HOA from having associational
standing. Id. at 9.
[15] The HOA filed a response maintaining that, while its complaint had sought
damages on its own behalf and, alternatively, on behalf of its Members, it had
appealed only that portion of the trial court’s order finding that the HOA did not
suffer any damages and that the Village Pines I court agreed with the HOA that
it had been damaged by the breach of contract. The HOA argued that the
Village Pines I court did not need to address whether the HOA had associational
standing on behalf of its Members and, thus, rehearing was not needed. This
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court denied the petition for rehearing without opinion. 6 Transfer was not
sought.
Damages Determination on Remand
[16] On October 22, 2019, the trial court held a hearing on damages. The HOA
argued that Developer and Builder were required under the Covenants to pay
Annual Assessments to the HOA, the amount of which was “determined by the
Board [] years ago.” Transcript at 24. In support of the amount of damages, the
HOA offered Exhibit 10 that was admitted during the prior trial as evidence of
the total amount owed for unpaid Assessments and late fees.
[17] The HOA also presented the testimony of Judson, a member of the Board and
the property manager for the Neighborhood. Judson testified that she was
familiar with the Covenants and stated that, in the past, the Board charged an
interest rate of 18% on unpaid Assessments and that the current late fee charged
by the Board was $25.00 per month. She explained that the process followed to
collect unpaid Assessments from Member homeowners was to send a statement
reflecting the balance owed and the late fee being assessed. If the Member still
did not pay, then they would receive additional letters, and eventually be sent to
an attorney for legal proceedings. The HOA asked the trial court to enter
6
Developer and Builder requested oral argument on the petition for rehearing, which was denied as not
permitted under the Appellate Rules.
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judgment in the amount of $1,379,876.42, consisting of unpaid assessments,
late fees, and interest, plus attorney’s fees.
[18] Developer and Builder asserted that the HOA itself did not incur any damages
because the Assessments were based on the budget and the Common Expenses,
and all the Common Expenses for every year through 2009 were paid, since the
Developer and/or Builder paid any deficit. Rather, if anyone was damaged, it
was homeowners who overpaid Annual Assessments due to the fact that
Developer and Builder were not paying Assessments and any recovery “should
go back into the pockets of the people who overpaid,” not the HOA. Transcript
at 17. Counsel for Developer and Builder maintained that “any award here
would result in a windfall to the [HOA].” Id. at 18.
[19] In support of their position that the HOA did not suffer damages, Developer
and Builder offered several exhibits. One summarized the HOA’s actual
expenses for five years (2000, 2001, 2002, 2006, and 2008). Another was a table
that compared the amount charged to homeowners per Lot against “the
amounts that should have been charged to the homeowners had the [Developer
and Builder] … been paying monthly [] expenses[.]” Id. at 16. The HOA
objected to the exhibits, arguing that expenses incurred by the HOA were not
relevant to the damages hearing. The trial court admitted the exhibits over
objection.
[20] In response to Developer and Builder’s argument that the HOA suffered no
damages, the HOA argued that the court in Village Pines I already rejected that
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argument and “clearly stated that the Defendants’ failure to pay assessments
was the damages[.]” Id. at 24. The HOA maintained that it was “allowed to
collect its annual assessments” and “[t]he [] actual expenses are not to be
considered.” Id. at 30. In response to the suggestion that an award to the HOA
would result in a “windfall,” the HOA argued that Developer and Builder were
“attempting to shoehorn an equitable argument into this breach of contract
case.” Id. at 24.
[21] With regard to late fees being sought by the HOA, Developer and Builder
argued that “there were no collection efforts that might justify late fees[,]” no
statements were sent and no late fees were ever assessed. Id. at 26. Therefore,
they argued, the fees being sought “bear no relation” to collection efforts and
constitute a penalty. Id. at 27. Further, with regard to interest being sought by
the HOA, they argued that, while Indiana courts have found an interest award
to be justified where the party had to pay the cost of borrowing money to fund
the budget, here all the expenses were paid and thus no interest should be
awarded as damages.
[22] The HOA offered two exhibits concerning attorney’s fees, an affidavit and
billing statement, that were admitted over objection, evidencing that they had
incurred attorney’s fees in the amount of $87,683.01. Counsel noted that the
case was first filed in 2011 and had been through various motions, including a
motion for summary judgment, a request for interlocutory appeal, mediation,
and an appeal.
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[23] The parties submitted proposed orders and, on January 17, 2020, the court
issued an Order on Damages, finding, in part: (1) Under the Covenants, the
Board determines the amount of the Annual Assessments; (2) Exhibit 10
reflects Developer and Builder’s dates of Lot ownership; (3) and Builder and
Developer did not pay Assessments to the HOA from June 2000 through
November 2009 but, in lieu of per-Lot Assessments, they paid the HOA
$53,428.00 in Deficit Funding and in-kind contributions for the years 2000,
2002, 2003, and 2005. Giving Builder and Developer credit for the $53,428.00
contributions, the trial court determined that Builder and Developer owed
$225,524.50 in unpaid Assessments.
[24] The court also expressly stated:
11. The Court rejects Defendants’ argument that awarding
damages to the [HOA] represents a windfall because the amounts
they owed under the Declaration were collected from other
Owners. The Board determined the amount of the annual
assessment and the members of the Board were appointed by
Defendants. Defendants cannot escape their contractual liability
because the Board which they appointed set the annual
assessment based on Defendants’ own erroneous interpretation of
the Declaration as not requiring them to pay assessments.
12. Defendants also argue that now that the common expenses
for the past years are known, the actual common expenses is [sic]
the relevant figure. However, the Declaration provides that the
Board sets the amount of the annual assessment and this is the
amount that each Owner must pay.
Appellant’s Appendix Vol. 2 at 23.
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[25] The court found that the HOA charged delinquent Owners 18% annual interest
and $25.00 per month in late fees. Using those figures, the court determined
damages as follows:
a. $225,524.50 for assessments,
b. $148,275.00 for late fees as allowed by the Declaration,
c. $626,110.22 for interest at the rate of 18% per annum as
allowed by the Declaration through October 22, 2019, plus
d. interest at a rate of $111.22 per day from October 22, 2019 to
the date of judgment.
Id. at 22. The court found that the $87,683.01 in attorney’s fees incurred by the
HOA was reasonable given the hourly rate, time spent, and complexity of the
case. Developer and Builder now appeal. Additional facts will be provided
below as needed.
Discussion & Decision
[26] Our review of a damages award is limited. Crider & Crider, Inc. v. Downen, 873
N.E.2d 1115, 1118 (Ind. Ct. App. 2007). We do not reweigh the evidence or
judge the credibility of witnesses, and we will consider only the evidence
favorable to the award. Id. A damage award must be supported by probative
evidence and cannot be based upon mere speculation, conjecture, or surmise.
Id. We will reverse an award of damages only when it is not within the scope
of the evidence before the finder of fact. Id.Court of Appeals of Indiana | Memorandum Decision 20A-PL-373 | November 10, 2020 Page 16 of 26
I. HOA’s Standing to Recover Damages
[27] Developer and Builder assert that the HOA does not have standing to recover
damages and, consequently, the trial court’s damages order on remand was in
error. Their argument is this: Because all of the Neighborhood’s expenses were
funded during the years at issue, through deficit funding or otherwise, the HOA
did not suffer any of its own damages, and, rather, it is the homeowners, if anyone,
who suffered damages by having to pay higher assessments. Therefore, they
argue, the HOA can only recover if it has associational standing, which
Developer and Builder maintain the HOA does not have for various reasons but
primarily because individual homeowners would need to establish
particularized damages. We reject the premise on which the entire argument is
based, namely that the HOA did not suffer any damages because the
Neighborhood’s expenses were funded. Rather, we agree with the HOA that
this issue already has been raised and decided adversely to Developer and
Builder.
[28] Specifically, in Village Pines I the court stated:
To the extent that Pines and Arbor Homes . . . argue that
“because there were no unpaid, unbudgeted, or outstanding
amounts, the HOA had not shown that it could have suffered any
damages,” . . . we note that the articles of incorporation and
bylaws of a non-profit corporation constitute a contract between
the corporation and its members and among the members
themselves, . . . and that a party who fails to make payments as
required by a contract is guilty of a breach thereof. . . . [I]n light
of the court’s finding that [Developer] and [Builder] did not pay
assessments to the Association from June 2000 to November
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2009, we are not persuaded that the HOA did not suffer any
damages.
123 N.E.3d at 157 (internal citations omitted). Developer and Builder
requested rehearing, arguing that the Village Pines I court failed to address the
standing issue. The HOA’s response confirmed that it was not seeking recovery
on an associational standing basis (i.e., recovery on behalf of its members), and
this court denied the petition for rehearing. Builder and Developer did not seek
transfer.
[29] It is well settled that, on remand, the trial court was required to apply the law of
the case. Learman v. Auto-Owners Ins. Co., 769 N.E.2d 1171, 1175 (Ind. Ct. App.
2002) (“Upon remand following an appellate decision, the law of the case
doctrine requires a trial court to ‘apply the law as laid down by the appellate
court.’”), trans. denied. The doctrine precludes reexamination of issues on
remand and subsequent appeal which were either expressly or by necessary
implication settled as a matter of law on prior review. Guarantee Trust Life Ins.
Co. v. Palsce, 641 N.E.2d 1266, 1268 (Ind. Ct. App. 1994), trans. denied.
[30] The cause of action, here, belongs to the HOA. 7 The HOA’s claim is not
whether and to what extent each individual homeowner was damaged. The
7
Section 5.11 of the Covenants provides that it is the duty of the Board “to enforce the collection of any
amounts due under this Declaration[.]” Prior Exhibits at 33-34.
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dues are owed to the HOA, and the HOA is the party that has been damaged by
the Developer and Builder failing to pay Assessments on unsold Lots. 8
II. Damages Amount
[31] Developer and Builder argue that, if the HOA is permitted to recover damages,
the trial court’s calculation was not supported by the evidence and/or was
mathematically incorrect and remand is once again necessary.
[32] The HOA’s evidence of unpaid assessments at the damages hearing (and at
trial) was Exhibit 10, the spreadsheet that identified the Assessment amount for
the relevant years as determined by the Board (whose members were appointed
by Developer and Builder) and listed the Lots at issue and the number of
months that Developer and Builder should have but did not pay the
corresponding Assessment. All totaled, Exhibit 10 reflected an amount owing
of $245,982.50 in unpaid Assessments. 9
[33] The trial court’s order on damages, however, reflected that the amount due was
$278,952.50. It is not clear whether this was a mathematical error or whether
the trial court utilized the figures in Exhibit 10 to arrive at a different total
amount due. In either case, we find that remand is warranted to either clarify
8
Because we find that the HOA is not seeking damages on behalf of its members, we need not reach
Developer and Builder’s argument that the HOA does not have associational standing.
9
We note that the HOA’s Trial Exhibit 28, concerning an interest calculation, also utilizes $245,982.50 as
the amount owing in unpaid Assessments.
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how the court arrived at $278,952.50 from Exhibit 10 or correct the amount due
for unpaid Assessments to $245,982.50.
[34] We note that the trial court made an adjustment to the total amount due by
crediting Developer and Builder with $53,428.00 that they paid in Deficit
Funding and/or in-kind contributions during the relevant time period. We
agree that making this adjustment was appropriate but note that the trial court
credited the $53,428.00 against $278,982.50, for a net owing of $225,524.50. If
the court should revise the unpaid Assessments to $245,982.50, then the net
amount owing should be reduced to $192,554.50.
III. Interest and Late Fees
[35] Developer and Builder assert that, even if we affirm an award of damages for
unpaid Assessments, we should reverse the trial court’s determination of
$626,110.22 in interest and $148,275.00 in late fees.10 Section 5.8 of the
Covenants provides that Annual Assessments are “paid and collected on a
quarterly basis” and “are due on the first day of the period covered by said
installment” and that, if payment is not received, then the Owner “shall also be
responsible for any late charges, interest, fines, penalties or attorneys fees
related thereto.” Prior Exhibits at 32-33. The Section continues, “Unless paid,
when due, any such amount shall bear interest at a rate specified by the Board, but
10
While Developer and Builder assert generally that the “additional awards” of interest, late fees, and
attorney’s fees were in error, Appellant’s Brief at 33, they make no separate argument regarding attorney’s fees.
Accordingly, any claimed error as to the attorney’s fee award is waived. Ind. Appellate Rule 46(A)(8).
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in no event greater than eighteen percent (18%) per annum from its original due
date until date of payment.” Id. at 33 (emphasis added). Section 5.9 of the
Covenants provides for late fees of $25.00 per month.
a. Interest
[36] Ind. Code § 24-4.6-1-101 provides for “interest on judgments for money
whenever rendered.” Prejudgment interest is awarded to fully compensate an
injured party for the lost use of money. Song v. Iatarola, 76 N.E.3d 926, 939
(Ind. Ct. App. 2017), aff’d on reh’g, 83 N.E.3d 80, trans. denied. It is computed
from the time the principal amount was demanded or due and is allowable at
the permissible statutory rate when no contractual provision specifies the
interest rate. Id.; see also I.C. § 24-4.6-1-103(b). The current statutory interest
rate is 8% when there is no contract by the parties specifying a different interest
rate. Song, 76 N.E.3d at 939; see also I.C. § 24-4.6-1-101. Our court has stated:
It is well-settled that an award of prejudgment interest in a breach
of contract action is warranted if the amount of the claim rests
upon a simple calculation and the terms of the contract make
such a claim ascertainable. The test for determining whether an
award of prejudgment interest is appropriate is whether the
damages are complete and may be ascertained as of a particular
time. The award is considered proper when the trier of fact does
not have to exercise its judgment to assess the amount of
damages. Importantly for purposes of our review, an award of
prejudgment interest is generally not considered a matter of
discretion.
Song, 76 N.E.3d at 939 (internal citations omitted).
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[37] Here, the trial court on remand found that “[a]t turnover and for a time
thereafter,” the interest charged to delinquent Owners by the HOA was 18% per
annum. Appellant’s Appendix at 20. Applying that rate, the court calculated
interest that accrued each year from 2001 to October 22, 2019 (the date of the
damages hearing), ordering Developer and Builder to pay “$626,110.22 for
interest at the rate of 18% per annum as allowed by the Declaration through
October 22, 2019, plus interest at a rate of $111.22 per day from October 22,
2019 to the day of judgment[.]” Id. at 23. Developer and Builder assert that
this was erroneous, arguing that there was no evidence showing that, during the
years at issue, the Board of Directors ever “specified” or set an interest rate at
18% per annum as required by the Covenants. Prior Exhibits at 33. They
continue, “the HOA offered no proof that the Board of Directors ever set any
rate[,]” and “[w]ithout such proof, interest cannot be recovered under the plain
language of the Covenants.” Appellant’s Brief at 34.
[38] We agree with Developer and Builder to the extent that, while the Covenants
allow up to 18% interest, there was no evidence at the damages hearing that
18% was set or “specified” by the Board as outlined in Section 5.8 or that the
Board was charging 18% interest on unpaid Assessments in 2001, which is the
starting year of the trial court’s interest calculation. That said, we disagree with
Developer and Builder that interest cannot be recovered at all. Sections 5.1 and
5.8 of the Covenants expressly provide for recovery of interest on unpaid
Assessments. The relevant question is: starting when and at what rate?
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[39] Based on the record before us, we find that it is neither reasonable nor
appropriate to start the interest clock ticking in 2001. While the HOA suggests
that the Assessments were “due” starting in 2001, they were not “demanded”
until a later date, with discussions about it occurring in 2006 at a meeting and
the HOA’s complaint being filed in November 2011. Based on the record
before us, we find that prejudgment interest should begin no earlier than the
date the complaint was filed. While the Covenants allow for a rate up to 18%,
there is no evidence that the Board in fact “specified” that rate. Prior Exhibits at
33. As Developer and Builder observe, the only evidence presented regarding
the interest rate was Judson’s testimony that “in the past” – with no date or
years specified – the Board charged an interest rate of 18%. Transcript at 20.
Based on these facts and circumstances before us, and where the contract – here
the Covenants – did not specify a rate, we find that the statutory rate of 8%
should be used. I.C. § 24-4.6-1-101.
[40] We reverse the interest award and remand for the trial court to recalculate
interest and apply 8% interest rate starting in November 2011.
b. Late Fees
[41] As to late fees, Section 5.9 of the Covenants provides that “[a]ny installment of
an assessment provided for in this Declaration shall be delinquent if not paid
within fifteen (15) days of the due date as established by the Board[,]” and the
Board “shall assess” a $25.00 late charge for each thirty days “for any
delinquent payments[.]” Prior Exhibits at 33. Exhibit 10 calculated a monthly
$25.00 late fee per Lot on unpaid Assessments starting in 2000, totaling
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$148,275.00, which amount the trial court ordered Developer and Builder to
pay.
[42] Developer and Builder argue that, for the years in which they failed to pay
Annual Assessments, the HOA never considered any assessments to be “due”
from Developer and Builder, and without a “due” date, the HOA cannot meet
the conditions precedent under the plain language of the Covenants for
imposition of late fees. Furthermore, they contend that, even if the Covenants
permitted the HOA to impose late fees, the late fees under the circumstances of
this case were excessive and, further, constitute an impermissible penalty in
light of the fact that Developer and Builder, through their deficit funding
obligation, ensured that the HOA had sufficient operating funds.
[43] In Gaddis v. Stardust Hills Owners Ass’n, Inc., 804 N.E.2d 231 (Ind. Ct. App.
2004), a homeowners’ association brought a small claims action against a
homeowner to collect $100 of unpaid dues and a $2.00 per day late fee. The
trial court entered judgment for the HOA, and on appeal the homeowner
asserted that the late fee was an unenforceable penalty, noting the HOA’s actual
loss was disproportionate to the amount of the late fee. This court affirmed,
and in upholding the late fee award, quoted from a landlord/tenant case for the
proposition that “the late fee is intended to compensate Landlord for the
administrative expense and inconvenience associated with untimely rent,
including late payment notices and additional bookkeeping, and for the loss of
use of rental income[,]” which “may affect a Landlord’s ability to meet its
operating expense.” Id. at 235 (quoting Gershin v. Demming, 685 N.E.2d 1125,
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1131 (Ind. Ct. App. 1997)). The Gaddis court found such reasoning “equally
applicable” to the case at hand, where the late fee charged by the HOA for late
payment of annual dues helped pay “for the maintenance of common areas and
other community services.” Id. Here, Developer and Builder urge that none of
the factors that justified the imposition of the late fees in Gaddis are present in
this case. We agree.
[44] Judson testified at the damages hearing that when a homeowner did not pay,
extra work was required on her or the Board’s part to collect. For instance, a
notice was generated and sent, indicating the overdue Assessment along with a
$25.00 late fee, which late fee would be imposed again the next month if the
Owner still failed to pay, until eventually it was turned over to an attorney for
collection. Here, over the years, no notice was ever sent, and no corresponding
work or effort was expended by the HOA to collect the Developer and Builder’s
unpaid Assessments. Also, the HOA’s obligations and expenses were fully paid
during the relevant period such that Developer and Builder’s failure to pay did
not disrupt the HOA’s ability to pay for maintenance of common areas. Based
on the facts and circumstances, we find that charging a repeating monthly late
fee per Lot, starting on some Lots in 2000, on over three hundred Lots
constitutes an impermissible penalty. Accordingly, we vacate the award of
$148,275.00 in late fees.
[45] Judgment affirmed in part, reversed in part, and remanded for proceedings
consistent with this decision.
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Riley, J. and May, J., concur.
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