Leppaluoto v. Warm Springs Hollow HomeOwners Ass'n

752 P.2d 605, 114 Idaho 3, 1988 Ida. LEXIS 30

• Court: Idaho Supreme Court
• Decided: March 15, 1988
• Docket: 16704
• Status: Published

Opinions

McFADDEN, Justice,

pro tern. (Ret.).

This is an appeal from the district court’s affirmation of summary judgment appealed from a magistrate court’s decision awarding defendant-respondent, Warm Springs Hollow Homeowners Association, Inc., (hereinafter Association) delinquent condominium fee assessments and attorney fees, and denying plaintiff-appellant Capt. A. Leppaluoto (hereinafter appellant) attorney fees. We affirm. The facts are as follows.

In 1977 Commercial Structures, Inc., negotiated four construction loans from Idaho First National Bank to develop a condominium project called Warm Springs Hollow. To secure the loans, four separate deeds of trust encumbering the entire project were recorded in December 1977 and February 1978. In April 1978, Commercial Structures Inc. recorded the Covenants, Conditions, Restrictions and Easements (hereinafter covenant agreement), with respect to the project. With the filing of this covenant agreement, the Association was created. Soon after, Commercial Structures, Inc. experienced financial difficulty, defaulted on the construction loan and filed a petition for declaration of bankruptcy. Subsequently, in 1980 the Bank foreclosed on the deeds of trust and obtained title of all unsold lots through a foreclosure sale. The Bank obtained title to twenty-six lots on which were partially completed townhouses, twenty-four undeveloped lots and all of the Association’s common areas. The Bank’s next course of action was to began negotiating with the officers and board of directors of the Association to make Warm Springs Hollow a viable project. It also took on the financial responsibility of maintaining the common areas.

In 1982, the Association requested the Bank to pay full assessments pursuant to the 1978 covenant agreement on the lots it owned. The Bank refused, contending, among other things, that the foreclosure against the project pursuant to the deeds of trust extinguished the covenant agreement on all fifty lots acquired by it, and in any event, it had expended substantial sums of money to repair and maintain the common area and was entitled to a full allowable offset against any alleged assessment claim.

Eventually, the Bank and the Association agreed to a compromise requiring the Bank to pay $17,000 in full settlement of any alleged assessments on the partially developed lots owned by the Bank. However, negotiations continued with respect to the assessments on the undeveloped lots.

In 1981, appellant purchased his undeveloped lot subsequent to both the recordation of the deeds of trust to the Bank and the covenant agreement. During September 1982, he, through his attorney, wrote the Association demanding it diligently attempt to collect the assessments from the Bank relating to the 24 undeveloped lots. In the event the Association refused he stated he would bring an action against the Bank on behalf of the Association to collect those assessments. The Association decided not to bring the action against the Bank but to continue negotiations. The reasons advanced by the Association for this course of action varied, but primarily revolved around two issues: i.e., first, there was uncertainty as to whether or not the Bank was liable for assessments because its title, springing from the original deeds of trust, was prior to and superior to the covenant agreement; second, even assuming the Bank was subject to the covenant agreement, there remained an issue of whether or not any offset asserted by the Bank for maintenance expenditures was greater than the claimed assessments due.

In January 1983, appellant, purportedly on behalf of the Association members brought an action against the Association seeking to require it to take reasonable steps to collect the assessments allegedly owed by the Bank. However, the Association, acting through the Board of Directors, decided to defend against that action. During February of 1983, the Association learned that the Bank was negotiating with a developer to sell the undeveloped lots. After obtaining this information, the Association decided to bring an action against the Bank on the claimed assessment. The Association’s attorney was unavailable to bring the action and the appellant’s attorney, Rudy Barchas, was requested to represent the Association. Appellant consented to this and Barchas initiated the action describing the Bank’s undeveloped lots. A copy of the complaint and lis pendens was delivered to the proposed purchaser. No further action was taken by Mr. Barchas on behalf of the Association.

This action led to additional negotiations between the Bank and the Association which, in July of 1983, resulted in a settlement agreement. The highlights of the settlement required the Bank to:

1. commence paying assessments on the undeveloped lots in the amount of $35.00 per month beginning August 1, 1985;

2. include the restrictions contained in the covenant agreement in all subsequent sales of the lots;

3. pay all costs for repair and upkeep on existing improvements in the common area;

4. pay $17,400 to the Association for prior assessments.

A joint meeting of the stockholders and directors of the Association was held to review and discuss the terms of the settlement agreement as well as to obtain the 90% approval of all lot owners as required by the covenant agreement. The settlement agreement received a unanimous vote of approval by the homeowners and directors who attended this special meeting. Appellant did not appear at the meeting nor did he file any written objections. However, he refused to pay any of his subsequent assessments on his lot.

Appellant fell in arrears on his assessments, and therefore, in July 1986, the Association filed an original claim in the small claims court to collect the delinquent assessments. Appellant thereafter filed a complaint in the magistrate division of the district court seeking a reduction in his current assessments. The appellant contends that because he purchased his lot after the adoption of the covenant agreement, which provided that all of the lot owners were to pay uniform assessments, that the Bank should not be allowed to pay less than the rest of the homeowners. The July 1983 settlement agreement allowed the Bank to pay less than the total amount that would have been paid if they had paid the regular assessment fee. The appellant alleges that the July 1983 settlement was in fact a retroactive amendment of the covenant agreement which, therefore, is invalid because it was not made with the unanimous consent of all property owners. It is the appellant’s position that he should not have to pay any more than the Bank had to pay for past due assessments. The appellant also alleges that the Association was unjustly enriched by the use of his attorney in that he had paid the attorney to prepare for the litigation and the Association got the benefit of the attorney’s preparation. These actions were consolidated for hearing in the magistrate court.

Each party moved for summary judgment in its favor relying on affidavits, and depositions with attached exhibits. The magistrate court granted the Association’s summary judgment motion rendering judgment for past due assessments, interest, cost and attorney fees. This summary judgment was appealed by appellant to the district court which affirmed the magistrate, and this appeal followed.

The case was before the trial court on cross-motions for summary judgment. Generally, summary judgment should only be granted when there is no issue of genuine fact. I.R.C.P. 56(c). Here, the parties moved for summary judgment based upon the same evidentiary facts and the same issues and theories, and thus, they have effectively stipulated that there is no genuine issue of material fact. Riverside Development Co. v. Ritchie, 103 Idaho 515, 650 P.2d 657 (1982); Kromrei v. AID Insurance Co., 110 Idaho 549, 716 P.2d 1321 (1986).

The appeal to this Court presents four issues: (1) Is the settlement agreement violative of the covenant agreement, and if so, is the appellant relieved from paying his assessments? (2) Is the appellant entitled to reimbursement from the Association for attorney fees under the theory of unjust enrichment? (3) Is the Association entitled to a reasonable award of costs and attorney fees below? (4) Is the Association entitled to reasonable attorney fees on appeal?

The appellant does not dispute the Association’s right to collect assessments. However he points to art. IV, § 6 of the Association’s Articles of Incorporation which states: “§ 6. Uniform Rate of Assessment. Both annual and special assessments must be fixed in a uniform rate for all lots____” He argues that the settlement agreement between the Association and the Bank allows the Bank to pay monthly assessments lower than all of the other lot owners, and therefore violates art. IV, § 6. We disagree.

Initially the Association demanded that the Bank pay the $35 monthly assessment fee on the lots it owned in the subdivision, and give the entire common area improvements to the Association without charge. The Bank refused asserting among other things: (1) the foreclosure under the deeds of trust resulted in a title superior to the covenant agreement on the lots it acquired; and (2) it was in the process of expending substantial sums to repair and maintain the common areas which was the financial obligation of the Association pursuant to the covenant agreement, and thus the Bank was entitled to a full equitable offset against any alleged assessments. The Association’s attorney advised the Association that a negotiated settlement was a better course of action than a long costly lawsuit. The Board of Directors took the advice and eventually reached the mutual agreement with the Bank. The issue is whether this agreement violates the uniform assessment section of the covenant agreement. The Association contends that even if the covenant agreement is violated, it is protected by the business judgment rule.

This rule immunizes management from liability in corporate transaction undertaken within both power of corporation and authority of management where there is reasonable basis to indicate that transaction was made in good faith.

Blacks Law Dictionary 181 (rev. 5th ed. 1979). Cf. [McLeod v. Lewis-Clark Hotel Co.] McCloud v. Lewis, 66 Idaho 584, 164 P.2d 195 (1945); Steelman v. Mallory, 110 Idaho 510, 716 P.2d 1282 (1986).

There is nothing in the record to indicate that the Association acted in anything other than a reasonable and prudent manner in trying to resolve the dispute with the Bank about the assessments of the lots. The Bank raised the issue of whether the covenants could be applied to it. The Association determined that the Bank had a legitimate claim and the best course of action was to negotiate. This resulted, among other things, in a cash payment in excess of $17,000 paid to the Association for the delinquent assessments on the undeveloped lots. The record reflects that the directors of the Association were acting within the powers of the corporation and exercised their honest business judgment in attempting to settle the dispute. Therefore, the appellant’s position that the settlement agreement was a retroactive assessment is without merit. The decision of the trial court requiring the appellant to pay delinquent assessments is upheld.

The appellant further contends he should be entitled to reimbursement of attorney fees based on the theory of unjust enrichment. He contends the Association, when learning of the Bank’s negotiation to sell the undeveloped lots, needed an attorney familiar with the specific facts and issues involved. Because its attorney was unavailable the Association contacted the appellant and requested the use of his attorney, Rudy Barchas, who was knowledgeable of the facts. The appellant agreed and the Association used Barchas to bring an action against the Bank. Barchas was compensated by the Association for his time spent in that action recording the lis pendens and delivering copies to the proposed purchaser.

However appellant asserts argues that he should be reimbursed for Barchas’ fees paid by him relating to his attorney’s time for familiarizing himself with the facts, issues and law surrounding the controversy. Otherwise, appellant argues, the Association received a benefit — an attorney with knowledge of the facts of applicable law— without paying for it. We disagree.

The essence of the quasi-contractual theory of unjust enrichment is that the defendant has received a benefit which would be inequitable to retain at least without compensating the plaintiff to the extent that retention is unjust. Hertz v. Fiscus, 98 Idaho 456, 567 P.2d 1 (1977). Here, the appellant incurred the legal expenses paid to Barchas on his own behalf without the approval, consent, or ratification of the Association.

If appellant’s theory were applied in all cases where a party retained an experienced attorney, the party who had previously retained the attorney would be entitled to some compensation from the second client. Here, the Association requested the appellant’s permission to hire Mr. Barchas which the appellant freely gave. The appellant did not at this time request any compensation from the Association for Mr. Barchas’ expertise. Mr. Barchas was paid by the Association for the services he performed. There is no basis for unjust enrichment simply because Mr. Barchas, formerly the appellant’s attorney, was hired to do work for the Association.

Finally, the Association is entitled to reasonable attorney fees. Art. IV, § 1 of the covenant agreement states “each such assessment together with interest, costs and reasonable attorney fees, shall be the personal obligation of the person who is the owner of such property at the time when the assessment fell due.” The appellant does not dispute this section of the covenant agreement, but he argues that it does not apply in this case. We disagree, and thus we affirm the ruling of the magistrate court and the district court that the Association is entitled to an award of reasonable attorney fees for collecting the delinquent assessments. Further, by reason of that provision the Association is entitled to reasonable attorney fees on appeal.

Costs to respondent.

Attorney fees to respondent.

SHEPARD, C.J., and BAKES and HUNTLEY, JJ., concur.