Charles Ortego v. Lisecc

• Court: Court of Appeals for the Ninth Circuit
• Decided: June 20, 2018
• Docket: 17-35030
• Status: Unpublished

Opinion

FILED NOT FOR PUBLICATION JUN 20 2018 UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS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. Page 2 of 6 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. Page 3 of 6 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 Page 4 of 6 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 Page 5 of 6 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 Page 6 of 6 “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.