Shamim Mohandessi And Joseph Grace, Apps/cross-res. v. Urban Venture, Llc, Res/cross-apps. ( 2020 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
SHAMIM MOHANDESSI; JOSEPH, ) No. 77017-9-I consolidated with
GRACE, individually as residential ) No. 77581-2-I
owners and derivatively on behalf of )
2200 RESIDENTIAL ASSOCIATION, )
a Washington non-profit corporation, )
and derivatively on behalf of 2200 ) DIVISION ONE
CONDOMINIUM ASSOCIATION, a )
Washington non-profit corporation, )
Appellants, )
v.
)
URBAN VENTURE LLC, a Washington )
limited liability company; VULCAN, INC.,)
a Washington corporation; 2200 )
CONDOMINIUM ASSOCIATION, a )
Washington non-profit corporation; )
2200 RESIDENTIAL ASSOCIATION, a )
Washington non-profit corporation; )
GARY ZAK, an individual, BRIAN )
CROWE, an individual; BRANDON )
MORGAN, an individual; and JOHN )
DOES 1-15, individuals or entities, ) PUBLISHED OPINION
Respondents. ) FILED: March 9, 2020
__________________________________________________________________________________)
MANN, A.C.J.—This case concerns condominium assessments. Shamim
Mohandessi and Joseph Grace (collectively plaintiffs) appeal the trial court’s dismissal
No. 77017-9-1/2
of their claims against the 2200 Residential Association (RA), the 2200 Condominium
Association, Gary Zak, Brian Crowe, and Brandon Morgan (collectively MA), Urban
Venture LLC, and Vulcan, Inc., (all collectively defendants). The plaintiffs brought direct
and derivative claims alleging that the defendants violated the Washington
Condominium Act (Condominium Act), chapter 64.34 RCW, the Washington Consumer
Protection Act (CPA), chapter 19.86 RCW, breached statutory and fiduciary duties, and
tortiously interfered with the MA Board’s duties.
The plaintiffs contend that the trial court erred in (1) concluding that the statute of
limitations barred their claims, (2) concluding that they could not bring claims
derivatively on behalf of the RA and MA, (3) concluding that they lacked standing to
bring claims against the MA for violations of the Condominium Act, (4) dismissing their
breach of contract claims against the RA, (5) sua sponte dismissing their claim that a
prior 2012 settlement agreement was void as the product of fraud and collusion, (6)
awarding fees under the 2012 settlement agreement and costs under the Uniform
Declaratory Judgment Act, RCW 7.24.100. The defendants cross appeal and argue
that the trial court erred: (1) in concluding that the common expense liability allocation in
the master declaration violates the Condominium Act, RCW 64.34.224(1) and (2) in not
awarding their full attorney fees under the 2012 settlement agreement, or alternatively,
under the Condominium Act.
We affirm the trial court’s dismissal of all claims against the RA, Urban Venture,
and Vulcan. We affirm the trial court’s conclusion that the master declaration violated
the Condominium Act because the allocation of common expenses violates RCW
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64.34.224(1). We reverse the trial courts dismissal of the plaintiffs’ claims against the
MA for violations of the Condominium Act.
We affirm the trial court’s award of attorney fees under the 2012 settlement
agreement in favor of the RA, Urban Venture, and Vulcan. We vacate the award of
attorney fees in favor of the MA.
Affirmed in part, reversed in part.
2200 Westlake
This appeal concerns a mixed-use development located at 2200 Westlake
Avenue in downtown Seattle (2200 Westlake) comprising of over 500,000 gross square
feet, excluding underground parking. Milliken Urban Limited Partnership (Milliken)
began the development of 2200 Westlake. Urban Venture LLC, a subsidiary of Vulcan
Inc., invested in the project and developed it jointly with Milliken. Urban Venture bought
out Milliken’s interest midway through construction in 2005.
The development was completed in 2006. That same year Urban Venture
executed and recorded a “master declaration” under the Condominium Act, creating a
four-unit condominium called “2200, a condominium.” The four units are comprised of:
(1) the commercial unit, which leases 90,000 square feet of commercial retail shops; (2)
the hotel unit, housing the 153-room Pan Pacific Hotel; (3) the food unit, leased to
Whole Foods grocery store; and (4) the residential unit, comprised of 259 residential
units, which has a separate sub-condominium association.
2200 Westlake is governed by, and acts through, the 2200 Condominium
Association, a nonprofit corporation, which the parties refer to as the Master Association
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(MA).1 The owner of each unit of 2200 Westlake is a member of the MA. The MA is
administered by a four-person board, with each owner electing one representative to
hold the single vote allocated to each owner.
In 2006, Urban Venture also recorded a separate declaration for the 259-unit
residential unit of 2200 Westlake. The “residential declaration” covers the 2200
Residential Association (RA). The RA is also organized as a nonprofit corporation. The
RA board is elected by a majority of the residential unit owners. The RA board chooses
a single member to represent it on the MA Board.
Urban Venture owned the commercial, hotel, and food store units from
completion of the project, until selling the units to third parties: the commercial unit in
March 2016, the food store unit in September 2016, and the hotel unit in February 2017.
During Urban Venture’s ownership, the MA board members were Vulcan employees,
appointed by Urban Venture. The initial board members were Gary Zak, Hamilton
Hazlehurst, and Brian Crowe.
Central to this litigation is the common expenses associated with the common
elements of 2200 Westlake and the division of the common expenses between the four
condominium units in the MA. The master declaration defines the “Common Elements”
as “all portions of the Property and the Project which are outside the boundaries of a
Unit, and improvements within the boundaries of a Unit which are designated as
Common Elements or Limited Common Elements under the provisions of Article 3.”
“Common Expenses” are defined as:
expenditures made by, or financial liabilities of the Association, together
with any allocations to reserves. Common Expenses are funded by each
1 The parties do not dispute that the 2200 Condominium Association is not actually a “master
association” as that term is defined in the Condominium Act, RCW 64.34.020(28), .276.
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Owner in accordance with its Allocated Interest, except that certain
Common Expenses are specifically allocated to fewer than all Units or are
specially allocated among Units based on usage or benefit, as more
specifically set forth in Section 10.4.
Common Expense Liability
The common expense liability, and interest in the common elements, are
determined by the units’ declared value, which results in the “Allocated Interest
Percentage.” Exhibit B to the MA declaration shows the unit data and allocated
interests for each unit.
. Unit Floor Parking
Unit Name Declared Value CEL/ICE Votes
~______________ Area (Sq. Ft.) Spaces
UnitC 24,352 $11,340,000 6.3 1 90covered
(Commercial 36 uncovered
Un it)
Unit R 259,447 $138,960,000 77.2 1 318 covered
(Residential Unit)
Unit H (Hotel 120,309 $18,000,000 10.0 1 55 covered
Unit) 2 uncovered
Unit F (Food 43,616 $11,700,000 6.5 1 272 covered
Store Unit) 12 uncovered
Total $180,000,000 100% 4
“Declared value” is defined as “the value of each Unit as stated in Schedule B,
which does not necessarily reflect market value and will not be affected by sales price.”
In contrast, the preamble to the MA declaration indicates that concerns about fair
governance for all units culminated in “the decision to allocate many of the costs by
square footage (for the sake of simplicity) or, if feasible, by separate metered usage.”
The common element liability, however, does not correspond to square footage. The
RA declaration includes Schedule B, which allocates Unit R’s common element liability
to each condominium unit based on “relative area of Units.”
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Prior Litigation
Plaintiff Grace bought a residential unit at 2200 Residential in 2006. Grace
considers himself an experienced real estate purchaser. Grace purchased a second
unit at 2200 Residential in 2015, after this litigation began. Plaintiff Mohandessi, an
attorney, purchased a residential unit at 2200 Residential in 2010.
Grace has been in conflict with the RA since April 2007. In protest to the RA
Board’s actions and assessments, Grace stopped paying his full dues in 2008. The RA
sued Grace in 2011 and 2013 to collect unpaid dues and late charges.2 Grace asserted
defenses and counterclaims, alleging that the RA breached its fiduciary duty, committed
fraud, trespass, and conversion, and held an invalid election. The trial court dismissed
Grace’s counterclaims and defenses, finding in favor of the RA.
From 2009 until 2012, the RA and MA pursued claims against Urban Venture
and Vulcan under the WCA and CPA for construction defects. In November 2012, the
RA, MA, Vulcan, and Urban Venture entered a settlement agreement. Urban Venture
agreed to pay the RA $26,000,000 in exchange for release of the RA’s claims against
Urban Venture. The RA received $3,120,000 to use as it deemed appropriate, with the
remaining $22,800,000 set aside for remediation. The validity and fairness of the
common expense liability and allocation in the master declaration was raised during
settlement discussions but did not become part of the 2012 settlement agreement.
Current Litigation
The plaintiffs filed this lawsuit against the various defendants in October 2015.
The original complaint sought declaratory judgment that the MA violated the
2 2200 Residential Association v. Grace, No. 7265 1-0 (Wash. Ct. App. July 25, 2016)
(unpublished).
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No. 77017-9-117
Condominium Act and the MA declaration by “improperly and disproportionately
shift{ing] costs of 2200 Westlake onto plaintiffs and other residential owners.” The
plaintiffs alleged that: (1) the MA and RA declarations were contracts, and that the MA
and RA breached those contracts and the implied covenant of good faith and fair
dealing, (2) the MA and RA boards breached their fiduciary duties, and (3) Urban
Venture breached its fiduciary duties, and tortuously interfered with the MA and RA’s
performance of their contractual obligations under their respective declarations. The
plaintiffs made the claims on behalf of themselves, as well as derivatively on behalf of
the RA and double derivatively on behalf of the MA.
The defendants moved for judgment on the pleadings under CR 12(c). On
February 12, 2016, the trial court dismissed the plaintiffs’ direct claims against the MA
for lack of standing, and the breach of contract claims against the RA under res
judicata, to the extent that the events occurred before December 2014 (the date of
Grace’s settlement in his prior litigation). The court also dismissed the breach of an
implied covenant of good faith and fair dealing, finding that there was no legal authority
for an implied covenant under a condominium declaration. The trial court limited the
plaintiffs’ remaining claims based on the statute of limitations, RCW 4.16.080, to the
extent they were based on events occurring more than three years before the plaintiffs
filed suit in October 2015.
The defendants then moved for summary judgment. On September 29, 2016,
the trial court granted in part and denied in part the defendants’ motions. The court
dismissed all claims asserted by the plaintiffs derivatively on behalf of the RA and MA.
No claims remained against Urban Venture and the MA after the September 29, 2019,
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order. The trial court granted the plaintiffs’ request for a CR 56(f) continuance to
perform additional discovery on the remaining direct claims against the RA. During
discovery, Urban Venture indicated that it could not identify a specific formula for the
declared value or the common expense liability, but that the declared value was likely
the product of completed construction costs.
In December 2016, the plaintiffs amended their complaint, adding new claims
challenging the common expense liability and adding Vulcan as a party. The plaintiffs
amended their claims against the RA to include a claim for breach of the residential
declaration arising from the RA’s entry into the November 2012 settlement agreement.
On December 20, 2016, the plaintiffs voluntarily dismissed their claims against the RA.
The plaintiffs were granted leave to amend their complaint twice more, in March
2017 and May 2017. The plaintiffs’ flew claims alleged that: (1) Urban Venture and the
MA violated the Condominium Act, (2) Urban Venture, Vulcan, and certain MA board
members, breached duties under the Condominium Act, (3) Urban Venture and Vulcan
aided and abetted the MA’s alleged breach of duties, (4) Urban Venture violated the
CPA, and (5) Vulcan tortuously interfered with the plaintiffs’ expectancy that the MA and
RA, and respective boards, would comply with all applicable laws and duties. The
plaintiffs also sought a declaratory judgment that the 2012 settlement agreement was
“void and unenforceable as collusive, fraudulent, and against public policy” (referred to
as the “twenty first claim”). The plaintiffs named the RA as a “nominal” defendant.
Prior to the plaintiffs’ third amended complaint, the defendants moved for
summary judgment dismissal of the plaintiffs’ remaining claims in March 2017. The
plaintiffs also moved for partial summary judgment.
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In May 2017, the trial court dismissed all remaining claims on summary judgment
including the plaintiffs’ newest claims added in their third amended complaint. The court
dismissed the twenty-first claim because “there [was] no evidence of fraud, collusion or
undue influence” to create an issue of fact regarding the settlement agreement’s
validity. The trial court dismissed all other claims, finding the statute of limitations
barred the plaintiffs’ claims because all challenges related to the master declaration,
which was recorded in 2006.~
As part of its ruling, the trial court determined that the common expense liability
allocation in the MA declaration “does not comply with RCW 64.34.224(1) because the
[MA] Declaration did not state the formula or method used to establish the allocation of
common expenses due to the fact that the Declarant did not use a formula or method to
establish the allocation of common expenses.” The court rejected the defendants’
argument that the table in exhibit B is the formula or method used to establish the
percentage allocation.
The trial court found that the defendants were prevailing parties since the
plaintiffs’ claims were dismissed with prejudice. The defendants separately sought their
attorney fees as the prevailing party under the Condominium Act, the master
declaration, or the 2012 settlement agreement. The defendants also sought their
litigation costs under the master declaration, the 2012 settlement agreement, and the
Declaratory Judgment Act, RCW 7.24.100. The trial court awarded limited fees under
the 2012 settlement agreement alone, and awarded costs under RCW 7.24.1 00.~
~ Urban Venture and Vulcan, joined by the MA, argued that an alternative ground for dismissal
was that the plaintiffs’ claims were barred by the settlement agreement.
“The trial court’s attorney fee award is more thoroughly explained in Section VIII below.
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No. 77017-9-1/10
The plaintiffs appealed and the defendants cross appealed.
The validity of the common expense liability allocation is central to the plaintiffs’
grievances, thus we first address whether the declared value violates ROW
64.34.224(1). The trial court found that the declared value violated ROW 64.34.224(1).
The defendants’ cross appeals request that, if this court remands for further litigation,
we review the trial court’s conclusion. We agree with the trial court that the declared
value used to determine the common expense liability violates ROW 64.34.224(1)
because it does not state a method or formula for its basis.
We review questions of statutory interpretation de novo. Jametsky v. Olsen, 179
Wash. 2d 756, 761-62, 317 P.3d 1003 (2014). The goal of statutory interpretation is to
“ascertain and carry out the legislature’s intent.” Jametsky, 179 Wash. 2d at 762. We give
effect to the plain meaning of the statute, “derived from the context of the entire act as
well as any related statutes which disclose legislative intent about the provision in
question.” Jametsky, 179 Wash. 2d at 762 (internal quotations omitted). If the statute’s
language is unambiguous, then the inquiry ends. Jametsky, 179 Wash. 2d at 762. If,
however, the language is subject to more than one reasonable interpretation, we “may
resort to statutory construction, legislative history, and relevant case law for assistance
in discerning legislative intent.” Jametsky, 179 Wash. 2d at 762.
A.
The plain language of the Oondominium Act provides that a condominium
declaration must allocate the division of undivided interests in the common elements
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and state the formula or methods used to establish those allocations. Under RCW
64.34.224(1):
The declaration shall allocate a fraction or percentage of undivided
interests in the common elements and in the common expenses of the
association, and a portion of the votes in the association, to each unit and
state the formulas or methods used to establish those allocations. Those
allocations may not discriminate in favor of units owned by the declarant
or affiliate of the declarant.
The defendants contend that exhibit B meets the requirements of RCW
64.34.224(1). First, the defendants contend that the “statute permits the declarant to
allocate . . . by size, value, and numbers of units or other appropriate basis.”
Accordingly, the defendants contend that “[b]ased on a plain-meaning analysis, the
statute requires disclosure of two facts: (1) the ‘fraction or percentage’ allocated to each
unit, and (2) the ‘formula or method’ that is the basis of that allocation.” The defendants
contend that exhibit B allocates common element expenses to each unit and that the
common expense liability is the method that represents the basis of the allocation.
The defendants’ argument ignores the last sentence of RCW 64.34.224(1), which
states ‘{tjhose allocations may not discriminate in favor of units owned by the declarant
or affiliate of the declarant.” To support their argument, the defendants contend that
“[a]ttaching an appraisal to the declaration or otherwise disclosing how declared values
were chosen would add nothing in terms of disclosing how common expenses are
allocated in a condominium.” We disagree that disclosing the method would add
nothing because the statute requires that the method not discriminate in favor of the
Declarant. Exhibit B does not provide this court with any basis to evaluate whether the
declared value discriminates in favor of the Declarant, thus it fails to meet the
requirements of RCW 64.34.224(1).
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The second sentence of RCW 64.34.224(1) informs our interpretation of the first
sentence because it directly references the allocations discussed in the first sentence.
We interpret each word of a statute and accord it meaning. State v. Roggenkamp, 153
Wash. 2d 614, 624, 106 P.3d 196 (2005). Disclosing the formula or method underlying the
declared values ensures that the allocations do not discriminate in favor of units owned
by the declarant or an affiliate of the declarant. A declarant cannot defend that their
allocations do not discriminate in their favor without reference to the formula or method
underlying the division of common expenses. Here, Urban Venture indicated that the
declared value
was not produced by a set formula, but rather was a product of the
reasonable value and the cost of completed construction. The hotel, food,
and commercial spaces were substantially completed for the condominium
purposes prior to final tenant improvements that were part of various
leases. The residential units included completed interior fixtures, finished,
and appliances.
Urban Venture was unable, however, to produce evidence supporting the calculation for
the declared valued in exhibit B. Further, Urban Venture’s explanation was not included
in the MA declaration accompanying exhibit B.
The defendants also contend that Lake v. Woodcreek Homeowners Ass’n., 169
Wash. 2d 516, 243 P.3d 1283 (2010), supports their interpretation that the allocation can
be set arbitrarily, so long as the declarant discloses the values in the declaration.
(2010). The defendants cite Lake for the proposition that there, the court found that
“value” in the Horizontal Property Regimes Act (HPRA) “need not relate to an
apartment’s fair market value or any other criteria” and that under the HPRA, “the
values may be set arbitrarily, as long as they are stated in the declaration.” 169 Wash. 2d
at 534.
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We disagree that Lake is relevant to our plain-meaning analysis. In Lake, our
Supreme Court was interpreting ROW 64.32.050(1) which states, “[e]ach apartment
owner shall be entitled to an undivided interest in the common areas and facilities in the
percentage expressed in the declaration. Such percentage shall be computed by taking
as a basis the value of the apartment in relation to the value of the property.” ROW
64.32.050(1); see Lake, 169 Wash. 2d at 529. The HPRA statutory language discussed in
Lake is substantially different from the Condominium Act. The HPRA does not address
discriminatory practices. In contrast, the Condominium Act states that the methods or
formulas shall be stated and that allocations may not discriminate in favor of units
owned by the declarant. Further, the HPRA does not reference methods or formulas.
Thus, Urban Venture’s argument that the declared value, without more, is itself a
method or formula and compliant with the Condominium Act is without merit.
B.
Legislative history also supports our interpretation of the plain-meaning of ROW
64.34.224(1). On the issue of allocating costs for common expenses, the comments in
the Senate Journal establish that the legislature wanted declarants to explain the
formula or method underlying those allocations. The comments state that ROW
64.34.224(1) “does not require that the formulas used by the declarant be justified, but it
does require that the formulas be explained.” 2 SENATE JOURNAL, 51st Leg., Reg. Sess.,
App. at 2061 (Wash. 1990).
If size is chosen as a basis of allocation, the declarant must choose
between reliance on area or volume, and the choice must be indicated in
the declaration. The declarant might further refine the formula by, for
example, excluding unheated areas from the calculation or by partially
discounting such areas by means of a ratio. Again, the declarant must
indicate the choices he made and explain the formulas he has chosen.
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2 SENATE JOURNAL, App. at 2061 (emphasis added). The legislature intended that the
declarant include the formula or method underlying the common expense element cost
allocations in the declaration.
The trial court did not err when it concluded that the declared valued in the MA
declaration violates RCW 64.34.224(1).
Ill.
The plaintiffs contend that the trial court erred in its May 27, 2017, summary
judgment order by dismissing claims against the MA based on the statute of limitations.
While the plaintiffs agree the relevant statute of limitations is three years under ROW
4.16.080(2), they argue that a new cause accrues every year when the MA allocates the
common expenses between the units, using the invalid declared value in exhibit B. We
agree.
We review summary judgment decisions de novo. Int’l Marine Underwriters v.
ABCD Marine, LLC, 179 Wash. 2d 274, 281, 313 P.3d 395 (2013). “Summary judgment is
proper only where there is no genuine issue of material fact and the moving party is
entitled to judgment as a matter of law.” Int’l Marine Underwriters, 179 Wash. 2d at 281;
CR56 (c).
ROW 4.16.080(2) states that “an action for taking, detaining, or injuring personal
property, including an action for the specific recovery thereof, or for any other injury to
the person or rights of another not hereinafter enumerated” shall be commenced within
three years. The determination of whether the statute of limitations bars a plaintiff’s
claim depends on when the plaintiff’s cause of action accrued. Haslund v. City of
Seattle, 86 Wash. 2d 607, 619, 547 P.2d 1221 (1976). The general rule is “that a cause of
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action accrues and the statute of limitations begins to run when a party has the right to
apply to a court for relief.” Haslund, 86 Wash. 2d at 619. The issue of how the statute of
limitations applies to condominium association assessments that accrue on a yearly
basis is an issue of first impression.
Generally, the right to apply to a court for relief requires each element of the
action be susceptible to proof, this includes actual loss or damage. Haslund, 86 Wash. 2d
at 619. “The determination of the time at which a plaintiff suffered actual and
appreciable damage is a question of fact.” Haslund, 86 Wash. 2d at 620. “In some
circumstances, of course, a court may be able to conclude as a matter of law that no
triable issue of fact exists as to when plaintiff suffered actual and appreciable damage
giving rise to a practical legal remedy.” Haslund, 86 Wash. 2d at 621.
Here, the plaintiffs suffer actual and appreciable damage when they pay an
assessment that violates RCW 64.34.224(1). Under RCW 64.34.090, ‘[e]very contract
or duty governed by this chapter imposes an obligation of good faith in its performance
or enforcement.” The MA declaration was amended in 2010 to allow the MA board the
discretion to use another method or formula to allocate the common expenses between
the four units.5 Each time the MA board chose to use the allocations in exhibit B, it
violated its duty of good faith to the RA members by allocating in a manner that violates
RCW 64.34.224(1). Thus, each time the MA board passes a budget, the RA members
suffer actual and appreciable damage and a new cause of action accrues for violations
of RCW 64.34.224(1) and RCW 64.34.090.
~ The MA declaration amendment states “Any Common Expense, or portion thereof, benefitting
fewer than all of the Units may be assessed by the Board exclusively against the Units benefitted.”
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Therefore, the trial court erred when it concluded that the plaintiffs’ cause of
action accrued in 2006. As members of the RA, the plaintiffs’ causes of action accrue
each time the MA board passes a budget. The plaintiffs may bring claims for their
individual damages accruing between 2013 and 2016—three years before filing the
corn p Ia i nt.
IV.
The plaintiffs next argue that the trial court erred in its September 29, 2015, order
on summary judgment, when it dismissed their derivative claims brought on behalf of
the RA and MA. The plaintiffs contend that the trial court erred as a matter of law in
concluding that individual condominium association members do not have derivative
standing. We disagree.
The parties do not dispute that both the MA and RA were incorporated under the
Washington Nonprofit Corporation Act (WNCA), chapter 24.03 RCW. The WNCA was
enacted in 1967. See Laws of 1967, ch. 235. The WNCA governs all aspects of
nonprofit corporations, including incorporation, permissible purposes and dissolution.
See, ~.g.., RCW 24.03.015, .020, .025, .220-276. Nonprofit corporations are managed
by an elected or appointed board of directors according to the corporation’s articles of
incorporation or bylaws. RCW 24.03.095 .100. In contrast to for-profit corporations,
-
which are organized under the Washington Business Corporation Act (WBCA), chapter
23B.01 RCW, nonprofit corporations do not have shareholders, but instead may “have
one or more classes of members or may have no members.” RCW 24.03.065(1);
compare RCW 23B.01 .400(34).
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The WBCA expressly authorizes shareholders of for-profit corporations to bring
derivative actions on behalf of the corporation. ROW 23B.07.400. “In a derivative suit,
a stockholder asserts rights or remedies belonging to the corporation for the
corporation’s benefit.” Haberman v. Washington Pub. Power Supply Sys., 109 Wash. 2d
107, 147, 744 P.2d 1032 (1987). The WNCA, in contrast, does not authorize members
to bring derivative actions on behalf of the nonprofit corporation against third parties.
Instead, the WNCA provides only two circumstances where a member may seek judicial
relief on behalf of the nonprofit corporation: (1) a “representative suit” against an officer
or director exceeding their authority, or (2) in order to seek dissolution of the nonprofit
where the directors have acted “in a manner that is illegal, oppressive, or fraudulent” or
“where assets are being misapplied or wasted.” ROW 24.03.040, .266(1).
Relying on the “plain and unambiguous” language of the WNCA, as well as its
legislative history, the court rejected the plaintiffs’ argument that nonprofit members
have an equitable common law right to bring derivative actions in Lundberg ex rel.
Orient Found. v. Coleman, 115 Wash. App. 172, 176, 60 P.3d 595 (2002). In Lundberg, a
director attempted to bring a derivative action on behalf of a nonprofit corporation
against other directors, alleging that they had breached their fiduciary duties. 115 Wn.
App. at 176. This court held that the legislature intended to limit derivative lawsuits to
the narrow circumstances addressed in the statute, reasoning it “carefully delineates
when actions may be brought on behalf of the corporation.” Lundberg, 115 Wash. App. at
177 (citing ROW 24.03.040 and former ROW 24.03.265).
Under Lundberg, plaintiffs do not have a right to bring a derivative action on
behalf of the nonprofit RA or MA. Their efforts to distinguish Lundberg are not
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No. 77017-9-1118
persuasive. The trial court did not err when it dismissed the plaintiffs’ derivative claims
brought on behalf of the RA and MA.
V.
While the WNCA does not authorize individual members to bring derivative
actions on behalf of a nonprofit corporation, this does not resolve whether individual
members may bring individual claims against RA or MA. The plaintiffs contend that the
trial court erred in its February 12, 2016, order by dismissing the plaintiffs’ individual
claims against the RA and MA for breach of good faith due to their lack of standing.
The plaintiffs also contend the trial court erred in denying their motion for leave to
amend their complaint to add allegations of breach of the declaration or the
Condominium Act due to standing. Because the plaintiffs have standing under the
Condominium Act, we agree.
The MA governs all of 2200 Westlake based on the master declaration. One unit
of the MA—the RA—is a residential condominium within the larger condominium. While
individual residents of the RA are not directly parties to the master declaration, they own
a portion of the overall master condominium and are bound by the terms of the master
declaration. This includes the common expense allocation within the MA.
The Condominium Act broadly allows
If a declarant or any other person subject to this chapter fails to
comply with any provision hereof or any provision of the declaration or
bylaws, any person or class of persons adversely affected by the failure to
comply has a claim for appropriate relief. The court, in an appropriate
case, may award reasonable attorney’s fees to the prevailing party.
RCW 64.34.455 (emphasis added).
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Further, the Condominium Act provides that “{tjhe remedies provided by this
chapter shall be liberally administered to the end that the aggrieved party is put in as
good a position as if the other party had fully performed.” RCW 64.34.100. Thus, by
the plain language, the Condominium Act provides a direct action for members to sue
their condominium association for violations of the Condominium Act or declaration.6
This interpretation is further supported by the legislative history. The Senate
Journal comments state that RCW 64.34.455:
provides a general cause of action or claim for relief for failure to comply
with the Act by either a declarant or any other person subject to the Act’s
provision. Such person might include unit owners, persons exercising a
declarant’s right of appointment pursuant to RCW 64.34.308(4), or the
association. A claim for appropriate relief might include damages,
injunctive relief, specific performance, rescission or reconveyance if
appropriate under the law of the state, or any other remedy normally
available under state law. The section specifically refers to “any person or
class of persons” to indicate that any relief available under the state class
action statute would be available in circumstances where a failure to
comply with this Act has occurred. This section permits attorney’s fees to
be awarded in the discretion of the court to any party that prevails in any
action.
2 SENATE JOURNAL, App. at 2091. This comment indicates that the legislature intended
to allow condominium members the right to sue their association for violations under the
Condominium Act.
Accordingly, we conclude that the trial court erred when it dismissed the plaintiffs’
direct action against the MA for breach of good faith, and denied the plaintiffs’ motion to
6 The defendants provided supplemental authorities explaining that an individual may not assert a
claim that is derivative in nature. We agree with these authorities, but they do not aid in our analysis
because ROW 64.34.445 provides direct standing for the plaintiffs against both the RA and MA.
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amend and add claims against the MA for violations of the Condominium Act based on
standing.7
VI.
The plaintiffs next challenge the trial court’s decision in its February 12, 2016,
order on the defendants’ motion for judgment on the pleadings, concluding the plaintiffs’
breach of contract claims against the RA were barred by res judicata. The trial court’s
decision was based on the prior litigation between Grace and the RA. While we agree
that, based on the pleadings before the trial court, it appears Mohandessi’s individual
claims would not be barred by res judicata, we need not reach this issue because the
plaintiffs’ complaint failed to state a cause of action for breach of contract.
We review a CR 12(c) motion for judgment on the pleadings de novo. M.H. v.
Corp. of CatholicArchbishop of Seattle, 162 Wash. App. 183, 189, 252 P.3d 914 (2011).
A dismissal under CR 12(c) is appropriate only if “it appears beyond doubt that the
plaintiff can prove no set of facts, consistent with the complaint, which would entitle the
plaintiff to relief.” Haberman, 109 Wash. 2d at 120 (internal quotation marks omitted).
The plaintiffs’ original complaint alleged two claims against the RA: (1) breach of
contract based on the assertion that the master and residential declarations were
contracts and (2) breach of implied covenant of good faith and fair dealing again based
on the assertion that the master and residential declarations were contracts. These
claims fail as a matter of law.
~ As discussed above, the trial court concluded, and we agree, that the common expense
allocation violates RCW 64.34.224(1). The WNCA also imposes an obligation of good faith in the
performance of duties. RCW 64.34.090.
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“A contract is a promise or set of promises for the breach of which gives a
remedy, or the performance of which the law in some way recognizes as a duty.”
Restatement (Second) of Contracts § 1(1981); accord Washington Fed’n of State
Emps., AFL-CIO, Council 28, AFSCME v. State, 101 Wash. 2d 536, 549, 682 P.2d 869
(1984). In contrast, condominium declarations are not promises between parties, but
are recorded real property instruments. Bellevue Pac. Ctr. Condo. Owners Ass’n v.
Bellevue Pac. Tower Condo Ass’n, 124 Wash. App. 178, 188, 100 P.3d 832 (2004).
Condominium owners are not bound to declarations under the same rules as parties to
a contract. Rather, owners have the power to amend a declaration by vote. See RCW
64.32.090(13); RCW 64.34.264(1). Here, the residential declaration may be amended
by consent of more than 67 percent of the owners.
Because the plaintiffs failed to allege a cause of action supporting a breach of
contract claim against the RA, dismissal of the plaintiffs’s breach of contract claims was
appropriate.8
VII.
The plaintiffs next contend that the trial court erred when it dismissed their
twenty-first claim: that the 2012 settlement agreement was void as the product of fraud
and collusion. The plaintiffs argue that the trial court dismissed their claim sua sponte.
We disagree.
8 The plaintiffs subsequently amended their complaint to add claims against the RA for breach of
the residential declaration arising from the RA’s entry into the November 2012 settlement agreement. On
December 20, 2016, the plaintiffs voluntarily dismissed their claims against the RA. Thus, as of
December 20, 2016, there were no claims remaining against the RA.
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No. 77017-9-1122
On March 17, 2017, the remaining defendants moved for summary dismissal of
all of the plaintiffs’ remaining claims. Vulcan and Urban Venture argued, among other
things, that the 2012 settlement agreement barred the plaintiffs’ claims. Before the
plaintiffs responded to the motions for summary judgment they sought leave to amend
their complaint to add their twenty-first claim: that the 2012 settlement agreement was
void as collusive, fraudulent, and against public policy. In support of their motion,
plaintiff submitted argument and multiple exhibits in support of the twenty-first claim.
The plaintiffs then argued in response to the motions for summary judgment that the
2012 settlement agreement was void as the product of fraud and collusion.
By the time of the summary judgment hearing, the trial court had granted leave to
amend, and the plaintiffs had filed their third amended complaint. During argument
Urban Venture and Vulcan confirmed that they were seeking dismissal of all claims,
including specifically the twenty-first claim based on the briefing submitted. The
plaintiffs did not object that the issue had not been properly raised or adequately
briefed. The plaintiffs instead argued the merits of their claim.
Because the plaintiffs did not object to the trial court deciding the twenty-first
claim, the plaintiffs’ argument that the dismissal was sua sponte fails. The plaintiffs
have not explained how the twenty first claim can survive a motion for summary
judgment and therefore have waived this argument on appeal.
VIII.
All parties appeal the trial court’s award of attorney fees and costs. The plaintiffs
challenge the court’s award of attorney fees under the 2012 settlement agreement. The
defendants cross appeal and challenge the trial court’s decision to reduce their attorney
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fees to the portion spent defending the 2012 settlement agreement. The defendants
further challenge the trial court’s failure to award attorney fees under Condominium Act.
We affirm the trial court’s award of fees under the 2012 settlement agreement to Urban
Venture, Vulcan, and the RA. Because we reverse the trial court’s dismissal of the
plaintiffs’ claims against the MA we vacate the award of fees to the MA.
In Washington, attorney fees may be awarded when authorized by a contract, a
statute, or a recognized ground in equity. Fisher Props., Inc. v. Arden-Mayfair, Inc., 106
Wash. 2d 826, 849-50, 726 P.2d 8 (1986). Whether a contract or law authorizes an
attorney fee award is question of law and reviewed de novo. Kaintz v. PLG, Inc., 147
Wash. App. 782, 786, 197 P.3d 710 (2008). Whether the amount of fees awarded was
reasonable is reviewed for abuse of discretion. Ethridqe v. Hwanq, 105 Wash. App. 447,
460, 20 P.3d 958 (2001). We review the trial court’s interpretation of statutory costs
provisions de novo. McConnell v. Mothers Work, Inc., 131 Wash. App. 525, 532, 128 P.3d
128 (2006).
A.
The 2012 settlement agreement provides for prevailing party fees “arising from
the need to take action to enforce this Agreement, including mediation, arbitration, or
litigation.” The trial court awarded defendants their attorney fees “they needed to incur
to take action to enforce the Settlement Agreement.”
The plaintiffs contend that the RA owners are not bound by the terms of the 2012
settlement agreement for several reasons. The plaintiffs contend, “the residents were
not involved in negotiations, nor were they represented by counsel.” And further, the
RA owners “never voted on, let alone approved, the terms of the settlement agreement;
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No. 77017-9-1/24
the [RA owners] did not sign the settlement agreement; [RA owners] were not told that
the settlement agreement could impact their personal rights or liabilities; and residents
were not told that a settlement had been reached until after theagreement had been
executed.”
The plaintiffs’ argument fails because RCW 64.34.304 provides unit owners’
associations with the power to “institute, defend, or intervene in litigation or
administrative proceedings in its own name on behalf of itself or two or more unit
owners on matters affecting the condominium” and “make contracts and incur liabilities.”
RCW 64.34.304(1)(d), (e). The residential declaration provides the same owners’
association powers. In the 2012 settlement agreement, RA means any officer, director,
manager, member, unit owner, principal, partner, predecessor, successor, agent,
shareholder, and/or employee.” Thus, the 2012 settlement agreement intended to bind
RA members.
Our Supreme Court has recognized that in a condominium ‘each owner, in
exchange for the benefits of association with other owners, must give up a certain
degree of freedom of choice which he [or she] might otherwise enjoy in separate,
privately owned property.” Lake, 169 Wash. 2d at 535 (citation and internal quotation
marks omitted). Thus, the RA had the authority to enter and bind the RA owners
because they agreed to give up certain freedoms, such as being signatories on a
settlement agreement where the RA settled construction defects on behalf of the
association and the RA owners. The plaintiffs have not cited any part of the residential
declaration that requires the RA owners to vote before the RA enters a settlement
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No. 77017-9-1/25
agreement for construction defects, thus their argument that the RA owners are not
bound because they did not vote fails.
The trial court did not err in awarding the defendants attorney fees under the
2012 settlement agreement.
B.
While the trial court awarded the defendants their attorney fees under the 2012
settlement agreement, it limited its award to time spent defending against the claim that
the 2012 settlement agreement was void.
The RA originally requested attorney fees of $380,862.50 for its entire defense.
The trial court subsequently granted the RA’s reduced fee request of $74,245.00 for its
work defending the 2012 settlement agreement. The court also granted the MA’s
reduced fee request, awarding $49,521. The trial court rejected Urban Venture and
Vulcan’s reduced fee request of $813,605 and reduced it further to $299,198.
The defendants argue that the trial court erred because all of the claims involved
a common core of facts or legal theories. The trial court carefully considered this claim
below explaining:
Plaintiffs brought a total of 21 claims, of which thirteen made no
reference to the Settlement Agreement and sought no relief that would
appear to require any of the defendants to incur fees arising from the need
to enforce that agreement. Plaintiffs brought their first, second, third, fifth,
seventh, eighth, twelfth, fourteenth, fifteenth, sixteenth, nineteenth, and
twentieth claims individually and/or derivatively against various defendants
for allegedly violating the Washington Condominium Act by failing to state
the formulas and methods used to establish the “Declared Value” on
which they allegedly based the allocation of common expenses, by
oppressing RA and its owners, by aiding and abetting those actions, by
breaching the Declaration, and by tortious interference. Plaintiffs’
eighteenth claim sought an accounting, derivatively, on behalf of the RA
against the MA. Those claims did not involve a common core of facts or
are based on related legal theories arising from defendants’ need to
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No. 77017-9-1/26
enforce the Settlement Agreement. Defendants are not entitled to an
award of fees incurred in defense of those claims and must segregate
those fees.
Plaintiff’s fourth, ninth, tenth, and seventeenth claims mentioned
the Settlement Agreement. The first of those claimed breach of the
Residential Declaration and Governing Documents by, among other
things, failing to reach an adequate settlement for construction defects in
the 2200 Condominium. Plaintiffs’ ninth and seventeenth claims for unjust
enrichment were against UV individually and Vulcan derivatively,
respectively. Those claims related to UV and/or Vulcan’s alleged receipt
of benefits that should have flowed to residents, which allegedly included
improper settlement proceeds, among others. Plaintiffs brought their tenth
claim for violation of the Washington Condominium Act and Governing
Documents derivatively on behalf of RA against UV and MA and
derivatively on behalf of MA against UV. Plaintiffs primarily based this
claim on the misallocation of common expenses and the appointment of
conflicted board members, but that claim included a reference to the
settlement of construction defect claims. Notably, none of those claims
sought recession or otherwise indicated that the Settlement Agreement
should not be enforced. But to the extent defendants can show that they
incurred fees arising from the need to enforce the Settlement Agreement
in relation to those claims and they segregate those fees, they would be
entitled to such an award.
Plaintiffs’ twenty-first claim is the one claim that truly appears aimed at the
enforceability of the Settlement Agreement. In that claim, plaintiffs
contend that the Settlement is void, collusive, fraudulent, and against
public policy. This claim also relates to plaintiffs’ sixth prayer for relief that
seeks a judgment declaring that agreement unenforceable (the other eight
prayers for relief do not mention the Settlement Agreement). Defendants
are entitled to those fees incurred in relation to this claim so long as they
segregate them from those they did not incur arising from the need to
enforce the Settlement Agreement.
We cannot conclude that the trial court abused its discretion in limiting the fees it
awarded under the 2012 settlement agreement.
C.
The defendants next challenge the trial court’s decision to not award attorney
fees under the Condominium Act. The Condominium Act provides that “the court, in an
appropriate case, may award reasonable attorney’s fees to the prevailing party.” RCW
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No. 77017-9-1/27
64.34.455. The trial court denied the defendants’ claim for attorney fees under the
Condominium Act and denied their motions for reconsideration.
As the trial court explained in denying Urban Venture and Vulcan’s motion for
reconsideration:
This Court held that UV and Vulcan were prevailing parties, but this Court
did not believe this was an appropriate case to award their attorney’s fees
for the reasons stated on the record at the September 12, 2017 hearing.
UV and Vulcan rely on Bilanko v. Barclay, [185 Wash. 2d 443, 375 P.3d 591
(2016)] Defendants contend this Court erred in reaching the latter
conclusion. They argue that Bilanko is “factually indistinguishable” from
this case, apparently because the Supreme Court affirmed the dismissal
of the plaintiff’s claims on statute of limitations grounds and noted that the
plaintiff could have moved.
Despite those two similarities, Bilanko is dissimilar from this case in
several critical respects that UV and Vulcan do not acknowledge.9 Here,
plaintiffs brought their claims not to enrich themselves but to derivatively
benefit the 2200 Residential Association (RA) and directly benefit their
fellow condo owners. They brought those claims as consumers to
address what they perceived to be the unfair imposition of costs on RA by
the [MA], Urban Venture LLC, and Vulcan Inc. Notably, this Court found
merit to that claim and a violation by defendants of the Washington
Condominium Act: the Declared Values that the Declaration used to
apportion those costs were simply made-up values rather than being
based on a method or formula that is capable of calculation. Further,
while the defendants make much of this Court’s reference to the “scorched
earth” litigation in this case, this Court noted that both sides were to
blame. Indeed, plaintiffs’ opposition to defendants’ motions for
reconsideration sets forth many examples of defendants’ own role in
driving up the costs of this litigation.
~ Even if Bilanko was indistinguishable in all respects with this case, and it is
plainly not, the Washington Supreme Court merely exercised its discretion to award fees
in that case. Nowhere in that decision did the Washington Supreme Court hold that it
would have been an abuse of discretion for a court to not award fees when faced with
those facts.
Similarly, as the trial court explained in denying the RA’s motion for reconsideration:
RA contends this Court erred primarily by applying to RA its
rationale for not awarding fees to [MA], and Vulcan and Urban Venture,
LLC. . In its oral ruling this Court did emphasize that plaintiffs, in their
. .
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No. 77017-9-1/28
role as consumers and on behalf of similarly situated residents, brought
consumer protection claims of self-dealing and illegal control against the
defendants. RA fails to acknowledge the reason why plaintiffs had to
occupy those roles: RA failed to take any action to address the fact that
the Declared Valued in the Declaration were based on made-up values
rather than being based on a method or formula that is capable of
calculation. Further, RA joined forces with the other defendants to actively
oppose plaintiffs’ claims at every turn. Finally, while RA makes much of
this Court’s reference to the “scorched earth” litigation in this case, this
Court notes that RA shared much of the blame. Indeed, plaintiffs’
opposition to the [defendant] motion for reconsideration sets forth many
examples of defendants’ own role in driving up the costs of this litigation.
We agree with the trial court. An award of attorney fees under ROW 64.34.455 is
discretionary. We cannot conclude that the trial court abused its discretion in denying to
award attorney fees under the Condominium Act.
We affirm the trial court’s denial of attorney fees to Urban Venture, Vulcan, and
the RA under the Condominium Act.
lx.
The plaintiffs finally argue that the trial court erred by awarding costs for
“mediator fees, meals, travel, expert fees, consultant fees, or document review
expenses” under the Declaratory Judgment Act, ROW 7.24.100. The plaintiffs contend
that “costs” should have been limited to costs allowed under RCW 4.84.010. We
disagree.
We review questions of statutory interpretation de novo. State v. Dennis, 191
Wash. 2d 169, 172, 421 P.3d 944 (2018). If a statute’s meaning is plain on its face, then
the court must give effect to the plain meaning as an expression of legislative intent.
De~’t of Ecology v. Campbell & Gwinn, LLC, 146 Wash. 2d 1, 9-10,43 P.3d 4 (2002).
ROW 7.24.100 provides “In any proceeding under this chapter, the court may
make such award of costs as may seem equitable and just.” RCW 7.24.100 “gives the
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No. 77017-9-1/29
court broader discretion with regard to costs than courts have in other kinds of
proceedings.” 15 DOUGLAS J. ENDE, WASHINGTON PRAcTIcE: CIVIL PROCEDURE § 42.24
(3d ed. 201 8). The legislature’s use of the word “may” confers discretion. Strenqe v.
Clarke, 89 Wash. 2d 23, 28, 569 P.2d 60 (1977). Empowering a court to do what is
“equitable” and “just” also indicated broad discretion. Farmer v. Farmer, 172 Wash. 2d
616, 624, 259 P.3d 256 (2011). Nothing in the statute limits a court’s discretion.
The trial court did not abuse its discretion in awarding costs under RCW
7.24.100.
x.
All parties request attorney fees on appeal. Under RAP 18.1, we may grant
attorney fees “if applicable law grants to a party the right to recover reasonable attorney
fees or expenses on review.” As discussed above, the Condominium Act grants
discretion for the court “in an appropriate case,” to award reasonable attorney fees to
the prevailing party. RCW 64.34.455. Here, RA, Urban Venture, and Vulcan are the
prevailing parties, thus we grant them attorney fees on appeal. Because the plaintiffs
prevail in their claim against the MA, we award the plaintiffs their reasonable attorney
fees on appeal of claims against the MA.
SUMMARY
We affirm the trial court’s dismissal of all claims against the RA, Urban Venture,
and Vulcan. We affirm the trial court’s conclusion that the master declaration violated
the Condominium Act because the allocation of common expenses violates ROW
64.34.224(1). We reverse the trial court’s dismissal of the plaintiffs’ claims against the
MA for violations of the Condominium Act.
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No. 77017-9-1/30
We affirm the trial court’s award of attorney fees under the 2012 settlement
agreement in favor of the RA, Urban Venture, and Vulcan. We vacate the award of
attorney fees in favor of the MA.
Affirmed in part, reversed in part.
~
WE CONCUR:
~
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