The Village Pines at the Pines of Greenwood Homeowners' Association, Inc. v. Pines of Greenwood, LLC, and Arbor Homes, LLC , 123 N.E.3d 145 ( 2019 )

FILED
Apr 11 2019, 10:18 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEES
Laura B. Conway Thomas F. Bedsole
Steven C. Earnhart Maggie L. Smith
Thrasher Buschmann & Voelkel, P.C. Jenai M. Brackett
Indianapolis, Indiana Frost Brown Todd LLC
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
The Village Pines at the Pines of April 11, 2019
Greenwood Homeowners’ Court of Appeals Case No.
Association, Inc., 18A-PL-135
Appellant-Plaintiff, Appeal from the Johnson Superior
Court
v. The Honorable Marla Clark, Judge
Trial Court Cause No.
Pines of Greenwood, LLC, and 41D04-1111-PL-86
Arbor Homes, LLC,
Appellees-Defendants.
Brown, Judge.
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[1] The Village Pines at the Pines of Greenwood Homeowners’ Association, Inc.,
(the “HOA”) appeals the trial court’s entry of judgment on its claims for breach
of fiduciary duty and breach of contract in favor of Pines of Greenwood, LLC
(“Pines”) and Arbor Homes, LLC (“Arbor Homes”). Reviewing the trial
court’s findings and judgment under the clear error standard, we conclude that
Pines and Arbor Homes violated the stated procedure for amending relevant
covenants, conditions, and restrictions affecting the parties, and remand for a
hearing on damages on the breach of contract claim. We affirm in part, reverse
in part, and remand.
Facts and Procedural History
[2] The HOA is a not-for-profit corporation organized under the laws of the State
of Indiana with a principal place of business in Greenwood, Indiana, its
primary purpose being to manage the residential community commonly known
as Village Pines at the Pines of Greenwood (the “Neighborhood”). Pines
developed and constructed the Neighborhood, and Arbor Homes was the
exclusive builder of all of its single-family homes.
[3] On January 24, 2000, The Declaration of Covenants, Conditions and
Restrictions and Grant and Reservation of Easements for The Village Pines at
the Pines of Greenwood (the “Declaration”) was recorded as Instrument No.
2000-001680 in the Office of the Recorder of Johnson County by Pines and
Arbor Homes. The Declaration provided that “Association shall mean The
Village Pines at The Pines of Greenwood Home Owners Association,” – that is,
the HOA; that “Declarant shall mean [Pines]” and “[a]s long as [Arbor Homes]
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is the exclusive builder of single family homes on the Lots, [Arbor Homes] shall
have the same rights as the Declarant hereunder”; and that “Owner shall mean
the Person or Persons, including Declarant, holding fee simple interest to a Lot,
excluding those having such interest merely as security for the performance of
an obligation.” Exhibits Volume III at 15-16, 18. It provided that
“Development Period shall mean the period of time during which the Declarant
owns at least one (1) lot,” that “Lot shall mean and refer to any and each plot of
land included in the Property[ 1] designed and intended for use as a building site
for a single family residence,” and that “Annual Assessment shall mean a
charge against a particular Owner and his Lot, representing a portion of the
Common Expenses[ 2] which are to be levied among all Owners and their Lots in
the Property in the manner and proportions provided herein.” Id. at 15-17.
[4] Beginning in 2000, Pines was in charge of the HOA and had the sole power to
elect officers and the HOA’s Board of Directors (the “Board”). Article II of the
Declaration set forth provisions for the HOA and provided in part that the
Board would manage the HOA’s affairs. Section 2.3 provided in part that
“[e]very Owner of a Lot, except as herein provided to the contrary, shall be
1
Section 1.33 of the Declaration defines “Property” to mean “the real estate described in the attached
Exhibit ‘A’.” Exhibits Volume III at 18. Stipulated Exhibit 1 contains a survey document titled “Exhibit ‘A’
The Village Pines of Greenwood.” Id. at 55.
2
Section 1.14 of the Declaration defines “Common Expenses” to mean in part “those expenses for which the
Association is responsible under this Declaration, including the actual and estimated costs of: maintenance,
management, operation, repair and replacement of the Common Areas . . . , and any Improvements thereon,
or unpaid Special Assessments.” Exhibits Volume III at 16.
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entitled and required to be a member[ 3] of the Association” and that “[e]xcept as
herein otherwise expressly provided, no person or entity other than an Owner
or Declarant may be a member of the Association, and a membership in the
Association may not be transferred except in connection with the transfer of
title to a Lot.” Id. at 19.
[5] Article V of the Declaration set forth the HOA’s “Maintenance Funds and
Assessments” and provided in part:
5.1 Personal Obligation of Assessments. Declarant, on behalf of
itself and all future Owners, hereby covenants and agrees to pay,
and each Owner 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.
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. . . .
Subject to the provisions hereof, the Board shall have the power
and authority to determine all matters in connection with Annual
3
Section 1.26 of the Declaration defines “Member” to mean “any Person holding a Membership in the
Association,” and section 1.31 of the Declaration defines “Person” to mean a “natural individual or any
other entity with the legal right to hold title to real property.” Exhibits Volume III at 17-18.
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or Special Assessments, including, without limitation, power and
authority to determine where, when and how Assessments shall
be paid to the Association, and each Owner shall comply with all
such determinations.
5.2 Maintenance Funds of Association. The Board shall
establish no fewer than two (2) separate Association
Maintenance Funds, into which shall be deposited all monies
paid to the Association, and from which disbursements shall be
made, as provided herein, in the performance of functions by the
Association under this Declaration. The Association
Maintenance Funds may be established as trust accounts at a
banking or savings institution, in federally insured accounts, and
shall include: (1) an Operating Fund for current Common
Expenses of the Association, (2) an adequate Reserve Fund for
capital Improvements, replacements, painting and repairs of the
Common Areas (which cannot normally be expected to occur on
an annual or more frequent basis) . . . . The Board shall establish
a Capitalization Account which shall consist of at least fifty
percent (50%) of the capital contributions made by Owners
pursuant to Section 5.12 hereof.
*****
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
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
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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. From time to time the
Board may determine that all excess funds in the Operating Fund
be retained by the Association and used to reduce the following
year’s Annual Assessments.
*****
5.6 First Annual Assessment and Maximum Annual Increases.
[] First Annual Assessment. The initial Annual
Assessment for the fiscal year in which Assessments first
commence shall be calculated as determined from the Budget.
The Board shall estimate and prepare a Budget for the costs and
expenses to be incurred by the Association during the first Fiscal
Year . . . . All costs and expenses incurred (i) in fulfilling the
financial obligations of the Association prior to the first Fiscal
Year or (ii) ordinarily and necessarily by the Association in
excess of Assessment installments to be paid during that first
partial fiscal year shall be the responsibility of Declarant, and
Declarant hereby covenants to bear and to pay or otherwise
satisfy such financial obligations.
5.7 Special Assessments. In addition to Annual Assessments,
the Association may levy Special Assessments, at such frequency
and in such amounts as established by the Board, payable over
the period of an Association Fiscal Year (i) for the purpose of
defraying, in whole or in part, the costs of any acquisition,
construction, reconstruction, maintenance, repair or replacement
provided for or required pursuant to Article II; (ii) for the
purpose of defraying any other expense incurred or to be incurred
by the Association as provided in this Declaration; or (iii) to
cover any deficiency in the event that, for whatever reasons, the
amount received by the Association from Annual Assessments is
less than the amount determined to be necessary and assessed by
the Board. Special Assessments for these purposes may not be
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levied unless approved by Members holding a majority of the
votes held by all Members.
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.
*****
5.12 Initial Capital Contributions to the Association. At the
closing of the purchase of a Lot from Declarant, each Owner of a
Lot shall contribute to the capital of the Association, an amount
equal to One Hundred Dollars ($100.00). This amount shall be
disbursed at the closing to the Association or to the Declarant if
Declarant has previously advanced such funds to the
Association. For purposes of this Declaration, Declarant, its
assignees or assigns, and Arbor shall not be considered an
Owner.
Id. at 29-32, 34.
[6] The Declaration provided mechanisms for amendment, which stated in part:
12.2 Termination and Amendment.
(a) Notice of the subject matter of a proposed amendment to this
Declaration in reasonably detailed form shall be included in the
notice of any meeting or election of the Association at which a
proposed amendment is to be considered. The resolution shall be
adopted by the vote, in person or by proxy, or written consent of
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Members representing not less than sixty-seven percent (67%) of
the voting power of the Association . . . .
*****
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.
[7] At some point, the Reserve Fund was established as required by Section 5.2 of
the Declaration. On May 18, 2006, the HOA held a meeting, which produced
in part the following meeting minutes:
III. PROPOSED AMENDMENTS
A. The Board is making a recommendation to amend [the
Declaration] to address the following items:
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1. Parking 8.2 – Parking and Vehicular Restrictions
...
2. Commercial Vehicle Parking 8.2 – Parking and
Vehicular Restrictions . . .
3. Temporary Play Equipment 8.3 – Nuisances . . .
4. Trash 8.8 – Trash Containers . . .
5. A vote by proxy is anticipated the mail [sic] by
June 2006.
a. The Board promised to include in the voting
packet.
1. A copy of the 2006 Budget.
2. A copy of the financial statement.
3. A response to any of their questions the
Board left this meeting with.
*****
5. A legal opinion for Arbor on the dues
issue.
*****
This issue has taken on a life of its own. It
will be addressed in a separate mailing.
*****
V. DEVELOPER CONTRIBUTIONS
A. Please refer to [1.] 5.1 Personal Obligation of
Assessments. . . . [2.] 5.1 Annual
Assessments/Commencement-Collection.[ 4] . . . [and
3.] 5.12 Initial Capital Contributions to the
4
The meeting minutes’ statement “5.1 Annual Assessments/Commencement-Collection” appears to be a
scrivener’s error, Exhibits Volume III at 168, as the text which follows quotes Section 5.5 of the Declaration.
See id. at 18.
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Association. . . .[ 5] For purposes of this Declaration,
Declarant, its assignees or assigns, and Arbor shall not
be considered an Owner.
*****
As stated above, this issue has taken on a life of its own
and will be answered in a future mailing.
VI. RESERVE CAPITAL
[A.] 5.12 Initial Capital Contributions to the Association.
...
[B.] 5.2 Maintenance Funds of Association. . . .
*****
C. Reserve Analysis – Quotes have been requested to
complete a Reserve Analysis to determine the future
needs of the neighborhood. (desire completion date is
90 to 120 days)
1. This will create a plan for long term future
maintenance.
a. Driveways
b. Fences . . .
c. Common Areas . . .
There was some discussion about what information
would be given to the Reserve Analysis Group to
allow them to make create [sic] their report.
Id. at 166-170.
[8] On November 6, 2006, Reserve Advisors, Inc. (“Reserve Advisors”) issued a
reserve study obtained for the HOA based on Reserve Advisors’ September 20,
5
In the meeting minutes, an ellipsis follows “5.12 Initial Capital Contributions to the Association.” Exhibits
Volume III at 168.
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2006 inspection of the Neighborhood. The study, as a “budget planning tool,”
identified “the current status of the reserve fund and a stable and equitable
Reserve Funding Plan to offset the anticipated future major common area
expenditures,” found that the “unaudited cash status of the reserve fund, as of
July 31, 2006, as reported by Management is $31,800,” and “[i]f the
Association were to continue to fund reserves at its 2006 budgeted amount . . . ,
the reserve fund would incur a potential shortage by 2010,” and recommended
that “the Association adopt annual Reserve Contributions of $21,000 in 2007,
$40,200 in 2008 and $59,400 in 2009.” Id. at 81-83.
[9] On July 23, 2007, Pines recorded the First Amendment to the Declaration (the
“First Amendment”) as Instrument No. 2007-017873 in the Office of the
Recorder of Johnson County, and in doing so followed the procedure outlined in
Section 12.2(a) of the Declaration. The First Amendment amended Section 8.2,
titled Parking and Vehicle Restrictions; Section 8.3, titled Nuisances; and Section
8.8, titled Trash Containers. Id. at 58-59.
[10] On July 2, 2008, Pines and Arbor Homes recorded the Second Amendment to
Declaration (the “Second Amendment”) as Instrument No. 2008-014227 in the
Office of the Recorder of Johnson County, 6 which states:
6
The parties stipulated that the Second Amendment was recorded by Pines and Arbor Homes. See
Appellant’s Appendix Volume 2 at 37. The Second Amendment states it was “entered into as of this 26th
day of June, 2008, by PINES,” and indicates that it was signed by Donald M. Chesney, “V.P. of Field
Operations” for Arbor Investments, LLC. Id. at 61, 64.
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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
WHEREAS, Declarant represents that the Development Period
has not terminated.
NOW THEREFORE, Declarant is hereby entering into this
Second Amendment as follows;
1. The first sentence of Section 1.24, Lot, shall be deleted and
replaced with the following:
Lot shall mean and refer to any and each plot of land included
in the Property identified as a lot on any recorded plat of the
Property and designed and intended for use as a building site
for a single family residence.
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2. Section 1.30, Owner, shall be deleted and replaced with the
following:
Except as otherwise provided in Article V, Owner shall mean
the Person or Persons, including Declarant, holding fee
simple interest to a Lot, excluding those having such interest
merely as security for the performance of an obligation. The
term “Owner” shall include a seller under an executory
contract of sale but shall exclude Mortgagees.[]
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.
[11] On November 5, 2009, the HOA was turned over to the homeowners of the
Neighborhood.
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[12] On November 4, 2011, the HOA filed a complaint against Pines, Arbor Homes,
and Arbor Investments, LLC, 7 asserting claims for breach of fiduciary duty and
breach of contract. 8 On April 28, 2017, the HOA, Pines, and Arbor Homes
jointly stipulated to certain facts and exhibits. On May 9, 2017, a bench trial
was held at which Megan Judson, an owner of a property management
company and current property manager for the Neighborhood, testified that she
built a home in the Neighborhood, closed on it in January 2008, and became a
member of the Board “a few years after living there,” and indicated that the
Second Amendment was not approved “by the members of the [HOA].”
Transcript Volume II at 18, 27.
[13] Judson testified that the Assessments were calculated “based on the Budget”
and indicated that the Board would approve a Budget based upon the expected
expenses for the Neighborhood “that includes operating and the reserve and,
then, we’ll divide that up amongst the number of homeowners.” Id. at 22. She
indicated that the assessments for the HOA had changed over time, answered
affirmatively when asked “[w]ould the Assessments have been started around
thirty-two dollars,” and testified “[m]aybe like in 2000 when it was, it was very
first building.” Id. at 30. She was shown Stipulated Exhibit 10, a spreadsheet
7
An October 19, 2015 entry in the chronological case summary states, “Motion for Judgment on the
Pleadings Filed Pursuant to TR 5(F)(3) ‘Defendant Arbor Investments, LLC’s Motion for Judgment on the
Pleadings’,” and a February 3, 2016 entry states, “Order Granting Motion for Judgment on the Pleadings.”
Appellant’s Appendix Volume II at 7-8.
8
The record does not contain a copy of the complaint. The HOA, Pines, and Arbor Homes agree that the
complaint alleged breach of contract and breach of fiduciary duty.
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which “relates to the Lot numbers within [the Neighborhood], and the transfer
dates for when the lots were transferred by Declarant to Third Parties,”
Appellant’s Appendix Volume II at 40. She testified that it represented the Lots
owned by Pines or Arbor Homes, that it included the date “that Assessments
should have begun on . . . each property,” the date “that they should have
ended because the property sold from the builder to a homeowner,” and the
amount for each Lot. Transcript Volume II at 30. She testified that the
principal balance due for Assessments on these Lots was $245,982.50, the
amount due for late fees was $148,275.00, and the total amount due for
Assessments and late fees was $394,257.50. Counsel for the HOA moved to
admit the portions of Stipulated Exhibit 10 “that have not been stipulated to,”
and the court admitted it over objection. 9
[14] On October 2, 2017, the trial court entered judgment in favor of Pines and
Arbor Homes and against the HOA on all claims in its Judgment Order. The
Order found in part that Pines recorded the Second Amendment and that the
Second Amendment was not approved by Members of the HOA and no
meeting was held to vote on it. It also found that Pines and Arbor Homes did
not pay assessments to the HOA from June 2000 to November 2009; that
9
Before the court admitted Stipulated Exhibit 10, counsel for Arbor Homes and Pines argued in part that the
HOA had “simply taken the amounts that were charged to homeowners at the time and spread that out over
all of the Lots which is improper,” and counsel for the HOA responded that “the Declarations clearly state
that the Assessments have to be assessed equally across all Lots and this is the calculation showing the dates
that Arbor, the Defendant, owned the Lot and, therefore, these are the dates that the Assessments would be
owed.” Transcript Volume II at 35.
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Sections 5.5 and 5.6 set up a “‘Deficit Funding’ obligation” for Pines; that the
“Board of Directors for the Village Pines” established and funded the Reserve
Fund, which was funded during the Development Period; that Pines and Arbor
Homes made contributions to the HOA in 2000, 2001, 2002, 2003, and 2005;
and that, upon turnover of the HOA to the homeowners, as of November 30,
2009, the total amount in the Reserve Fund was $37,934.32. Appellant’s
Appendix Volume II at 21-22. The Order states in part:
55. On three occasions during the Defendants’ control of the
Association, money was removed from the Reserve Fund
accounts.
56. On October 12, 2001, $3000.00 was taken from the Union
Planters Reserve Fund account and deposited in the Operating
Account.
57. On January 17, 2003, $12,534.64 was removed from the
Union Planters Reserve Fund and deposited in the Operating
Account to pay the lawn care provider.
58. On April 10, 2008, $14,661.05 was removed from a
Community Association Banc Reserve Fund and deposited in the
Operating Account to pay for neighborhood plants.
59. On July 24, 2009, $5,082.00 was removed from a
Community Association Banc Operating Account and deposited
in a Reserve Fund account.
60. There was no evidence describing the use of these Funds
from the Reserve Fund, why the transfers were made or who
authorized or requested the transfers.
Id. at 24. The Order found that the HOA’s “expenditures were paid,” “the
deficit Funding system set forth under the Declaration satisfied all actual
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expenditures of the [HOA] on an annual basis” and that the HOA “did not
suffer any actual damages because its budget was fully funded every year.” Id.
at 34.
[15] Further, the Order found “no evidence of any impediment that would have
prevented a member of the [HOA] from filing a derivative action on behalf of
the [HOA] against the [Board] in 2006” based on the allegations contained in
the lawsuit, as referenced in the minutes of the May 18, 2006 meeting. Id. at
28. With regard to the HOA’s fiduciary duty claim, the order found that
“Funds were transferred between the Reserve Fund and the operating account
and vice versa as needed. At no time was the Reserve Fund not funded. These
transactions do not amount to recklessness or willful misconduct. Further,
there is no evidence that the Defendants had any part in these transactions.” Id.
at 32-33. The HOA filed a motion to correct error, which the court denied.
Discussion
[16] When, as here, the trial court enters findings of fact and conclusions, our
standard of review is well-settled:
We may not set aside the findings or judgment unless they are
clearly erroneous. In our review, we first consider whether the
evidence supports the factual findings. Second, we consider
whether the findings support the judgment. Findings are clearly
erroneous only when the record contains no facts to support
them either directly or by inference. A judgment is clearly
erroneous if it relies on an incorrect legal standard. We give due
regard to the trial court’s ability to assess the credibility of the
witnesses. While we defer substantially to findings of fact, we do
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not defer to conclusions of law. We do not reweigh the evidence;
rather we consider the evidence most favorable to the judgment
with all reasonable inferences drawn in favor of the judgment.
State v. IBM, 51 N.E.3d 150, 158 (Ind. 2016) (internal quotations and citations
omitted). In order to determine that a finding or conclusion is clearly
erroneous, an appellate court’s review of the evidence must leave it with the
firm conviction that a mistake has been made. Yanoff v. Muncy, 688 N.E.2d
1259, 1262 (Ind. 1997).
[17] Here, the HOA appeals from a negative judgment and will prevail only if it
establishes that the judgment is contrary to law. See Woodsmall v. Lost Creek Tp.
Conservation Club, Inc., 933 N.E.2d 899, 902 (Ind. Ct. App. 2010) (citing Fowler
v. Perry, 830 N.E.2d 97, 102 (Ind. Ct. App. 2005)), trans. denied. A judgment is
contrary to law when the evidence is without conflict and all reasonable
inferences to be drawn from the evidence lead to only one conclusion, but the
trial court reached a different conclusion. Id.[18] We note initially that, to the extent the HOA argues that Pines and Arbor
Homes owed it a fiduciary duty, a breach of fiduciary duty is a tort claim for
injury to personal property and the applicable statute of limitation is two years.
See City of E. Chicago, Ind. v. E. Chicago Second Century, Inc., 908 N.E.2d 611, 618
(Ind. 2009) (citing Del Vecchio v. Conseco, Inc., 788 N.E.2d 446, 451 (Ind. Ct.
App. 2003); Ind. Code § 34-11-2-4), reh’g denied. The Indiana Supreme Court in
dealing with a breach of fiduciary duty claim has declared that “a cause of
action for a personal injury claim accrues and the statute of limitation begins to
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run when the plaintiff knew, or in the exercise of ordinary diligence could have
discovered, that an injury had been sustained as a result of the tortious act of
another.” Id. (citing Malachowski v. Bank One, Indianapolis, 590 N.E.2d 559 (Ind.
1992)). For a cause of action to accrue, it is not necessary that the full extent of
damage be known or even ascertainable, but only that some ascertainable
damage has occurred. Myers v. Maxson, 51 N.E.3d 1267, 1276 (Ind. Ct. App.
2016), trans. denied.
[19] The record reveals that the HOA held a meeting on May 18, 2006, at which
representatives of the Board and Homeowners from forty-eight addresses were
present. At the meeting a discussion on an anticipated June 2006 vote by proxy
was held and the Board promised to include in the voting packet copies of the
2006 Budget, financial statement, and legal opinions for Arbor Homes and for
the HOA on “the dues issue,” which the meeting minutes figuratively described
as having “taken on a life of its own.” Exhibits Volume III at 167. Arbor
Homes’s legal position regarding Arbor Homes paying dues for each lot was
explained, and several property owners expressed that the Declaration states
that Arbor Homes should be paying dues. On appeal, the HOA claims that
Pines and Arbor Homes breached their “fiduciary duty to [it] by failing to
properly fund the reserve account.” Appellant’s Brief at 19. We observe that
the capital reserve fund was discussed at the meeting, as were quotes that had
been requested “to complete a Reserve Analysis to determine the future needs
of the neighborhood,” and we note that one homeowner commented “it was
imperative that the property owners make sure that the reserve capital is
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adequate before Arbor is finished” and wanted “to make the point that these
things needed to be determined while the property owners could make Arbor
financially responsible.” Exhibits Volume III at 168-170. The reserve study
obtained for the HOA was issued on November 6, 2006, identified “the current
status of the reserve fund and a stable and equitable Reserve Funding Plan to
offset the anticipated future major common area expenditures,” found that
funding reserves at the 2006 budgeted amount “would incur a potential
shortage by 2010” in the reserve fund, and recommended that the HOA adopt
annual Reserve Contributions of $21,000 in 2007, $40,200 in 2008 and $59,400
in 2009. Id. at 81-82. Further, the trial court found that no evidence of any
impediment would have prevented a member of the HOA from filing a
derivative action on behalf of the HOA against the Board in 2006. The HOA
filed its complaint against Pines and Arbor Homes on November 4, 2011.
Based on our review of the record, we conclude that some ascertainable damage
had occurred that, in the exercise of ordinary diligence, could have been
discovered prior to the expiration of the applicable statute of limitation period.
[20] We next turn to the HOA’s breach of contract claim. Covenants, like the
Declaration, are promises relating to real property that are created in
conveyances or other instruments. See Land Innovators Co., L.P. v. Bogan, 15
N.E.3d 23, 31 (Ind. Ct. App. 2014) (citing Columbia Club, Inc. v. American
Fletcher Realty Corp., 720 N.E.2d 411, 417 (Ind. Ct. App. 1999), trans. denied),
trans. denied. Covenants may be express or implied and are a species of express
contract. Id. Thus, real covenants, when written, are generally construed in the
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same manner as other written contracts. Id. (citing Keene v. Elkhart Cnty. Park &
Recreation Bd., 740 N.E.2d 893, 896-897 (Ind. Ct. App. 2000)).
[21] To the extent we must interpret the Declaration, “construction of the terms of a
written contract is a pure question of law for the court, reviewed de novo.”
Harrison v. Thomas, 761 N.E.2d 816, 818 (Ind. 2002). “The goal of contract
interpretation is to determine the intent of the parties when they made the
agreement.” Citimortgage, Inc. v. Barabas, 975 N.E.2d 805, 813 (Ind. 2012), reh’g
denied. We determine the intent of the contracting parties by analyzing the
contractual language within the four corners of the document. Beazer Homes
Ind., LLP v. Carriage Courts Homeowners Ass’n, Inc., 905 N.E.2d 20, 23 (Ind. Ct.
App. 2009) (citing Collins v. McKinney, 871 N.E.2d 363, 372 (Ind. Ct. App.
2007)), reh’g denied, trans. denied. If that language is unambiguous, we may not
look to extrinsic evidence to expand, vary, or explain the instrument. Id. (citing
Ethyl Corp. v. Forcum-Lannom Assocs., Inc., 433 N.E.2d 1214, 1217 (Ind. Ct. App.
1982)). “If the language is unambiguous, we give it its plain and ordinary
meaning in view of the whole contract, without substitution or addition.” Care
Group Heart Hosp., LLC v. Sawyer, 93 N.E.3d 745, 752 (Ind. 2018) (citing Ryan v.
TCI Architects/Eng’rs/Contractors, Inc., 72 N.E.3d 908, 914 (Ind. 2017); State v.
Int’l Bus. Machs. Corp., 51 N.E.3d 150, 160 (Ind. 2016)).
[22] The HOA maintains that the trial court, having found that Pines and Arbor
Homes recorded the Second Amendment, erred in not making any finding that
Pines and Arbor Homes breached the Declaration’s amendment process. Pines
and Arbor Homes argue in response that, in amending the Declaration and
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recording the Second Amendment, they were correcting “unintended
ambiguities” caused by prior scrivener’s errors and effectuating “the intent
already found in Section 5.12, which provides, ‘For purposes of this
Declaration, Declarant, its assignees or assigns, and Arbor shall not be
considered an Owner.’” Appellees’ Brief at 16-17. Characterizing the Second
Amendment as a “clean-up” amendment, Pines and Arbor Homes contend
without specific citation to the record that, “when preparing to turn over
control and funding of the HOA to the homeowners,” they “still believed their
funding obligations in Section 5.5 and 5.6 – as well as their actual deficit
funding practices over the years – made it clear that they would not also be
considered ‘Owners’ for purposes of paying additional ‘per lot’ Annual
Assessments that homeowners paid pursuant to Section 5.1.” Id. at 15. Citing
to the stipulated exhibit consisting of the May 18, 2006 HOA Meeting minutes,
they assert that the meeting participants were “informed that Management
Company had hired an attorney for the HOA separate from Developer’s
attorney to examine [the Declaration] and provide a determination regarding
the Board of Directors’ prior conclusion that [the Declaration] did not
contemplate collecting Annual Assessments on a per lot basis from
Developer/Builder.” Id. at 13.
[23] To the extent that Pines and Arbor Homes argue that they recorded the Second
Amendment in accordance with Section 12.3 of the Declaration, Section 12.3
provides in part that “Declarant hereby reserves the right” to make such
amendments to the Declaration without the approval of any other person or
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entity to correct “clerical or typographical errors in this Declaration.” Exhibits
Volume III at 48. A “clerical error” is “an error resulting from a minor mistake
or inadvertence . . . ; esp., a drafter’s or typist’s technical error that can be
rectified without serious doubt about the correct reading.” See BLACK’S LAW
DICTIONARY (10th ed. 2014). We further note that Section 12.3 goes on to
qualify the above-mentioned right and states that Pines “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.” Exhibits Volume III at 48.
[24] On January 24, 2000, when it was adopted, the Declaration expressly stated
that Pines “on behalf of itself and all future Owners, hereby covenants and
agrees to pay, and each Owner 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.” Id. at 29. It additionally contemplated that “[a]ll
Annual Assessments shall be assessed equally against the Members and their
Lots based upon the number of Lots owned by each Member.” Id. at 31. We
cannot agree that the Second Amendment, which removed Pines and Arbor
Homes from the definition of Owners for purposes of Article V and the Annual
Assessment obligations in that article, merely corrected clerical or typographical
errors.
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[25] To the extent that Pines and Arbor Homes contend that the Second Amendment
did not increase any burden on any homeowner or substantively change any
homeowner’s rights or obligations “as the HOA’s annual budgets were fully
funded every year through at least December 31, 2008,” and argue that “because
there were no unpaid, unbudgeted, or outstanding amounts, the HOA had not
shown that it could have suffered any damages,” Appellees’ Brief at 17, 35, 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, Lynn v. Windridge Co-Owners Ass’n, Inc., 743 N.E.2d 305,
313 (Ind. Ct. App. 2001), reh’g denied, trans. denied, and that a party who fails to
make payments as required by a contract is guilty of a breach thereof. Henthorne
v. Legacy Healthcare, Inc., 764 N.E.2d 751, 758 (Ind. Ct. App. 2002). The
Declaration specifies that Pines, “on behalf of itself and all future Owners,”
covenanted and agreed to pay Annual Assessments and “other amounts as
required or provided for in this Declaration.” Exhibits Volume III at 29. Under
a plain reading, the Declaration requires all Annual Assessments to “be assessed
equally against the Members and their Lots,” contemplates that the assessments
would be “based upon the number of Lots owned by each Member,” and defines
“Member” to mean “any Person” – i.e. “any . . . entity with the legal right to
hold title to real property” – “holding a Membership in the Association” and
“Owner” to mean the “Person or Persons, including Declarant, holding fee simple
interest to a Lot.” Id. at 17-18, 31 (emphasis added). After due consideration of
the stipulated exhibits, evidence, and testimony presented at trial, and in light of
the court’s finding that Pines and Arbor Homes did not pay assessments to the
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Association from June 2000 to November 2009, we are not persuaded that the
HOA did not suffer any damages.
[26] The record reveals that Section 12.2 of the Declaration requires that a resolution
of an amendment to the Declaration “shall be adopted by the vote, in person or
by proxy, or written consent of Members representing not less than sixty-seven
percent (67%) of the voting power of the Association.” Id. at 34. In their April
28, 2017 submission, the Parties jointly stipulated that Pines and Arbor Homes
recorded the Second Amendment. In its order, the court found that the Second
Amendment was not approved by Members of the HOA and that no meeting
was held to vote on it. Pines and Arbor Homes violated Section 12.2 of the
Declaration in recording the Second Amendment.
Conclusion
[27] For these reasons, we affirm the court’s judgment on the breach of fiduciary
claim, and because we find that Pines and Arbor Homes did not properly
record the Second Amendment, we reverse and remand for a hearing on
damages on the breach of contract claim.
Affirmed in part, reversed in part, and remanded.
Altice, J., and Tavitas, J., concur.
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