Alvarez Family Trust v. Ass'n of Owners

• Decision Date: 11 December 2009
• Docket Number: No. 27695.,27695.
• Citation: 121 Haw. 474,221 P.3d 452
• Parties: ALVAREZ FAMILY TRUST; Sergio S. Alvarez and Margaret J. Alvarez, Petitioners/Plaintiffs-Appellants v. ASSOCIATION OF APARTMENT OWNERS OF the KAANAPALI ALII, Respondent/Defendant-Appellee and John Does 1-100; Jane Does 1-100; Doe Partnerships 1-100; Doe Corporations 1-100; and Doe Entities 1-100, Defendants.
• Court: Hawaii Supreme Court

221 P.3d 452

CI] 121 Haw. 474

ALVAREZ FAMILY TRUST; Sergio S. Alvarez and Margaret J. Alvarez, Petitioners/Plaintiffs-Appellants v. ASSOCIATION OF APARTMENT OWNERS OF the KAANAPALI ALII, Respondent/Defendant-Appellee and John Does 1-100; Jane Does 1-100; Doe Partnerships 1-100; Doe Corporations 1-100; and Doe Entities 1-100, Defendants.

No. 27695.

Supreme Court of Hawai`i.

December 11, 2009.

[453]

Terrance M. Revere (Rebecca A. Szucs, with him on the application) of Motooka Yamamoto & Revere, Honolulu, for petitioner/plaintiffs-appellants, on the application.

Matt A. Tsukazaki (of Li & Tsukazaki), Honolulu, for respondent/defendant-appellee, on the response.

MOON, C.J., NAKAYAMA, ACOBA, and DUFFY, JJ., and Circuit Judge NISHIMURA, Assigned by Reason of Vacancy.

[454]

OPINIONS OF THE COURT

Petitioners/Plaintiffs-Appellants Alvarez Family Trust, Sergio S. Alvarez and Margaret J. Alvarez (Petitioners) brought an action in the circuit court of the second circuit (the court)¹ claiming (1) that a vote taken by the Board of Directors (the Board) of Respondent/Defendant-Appellee Association of Apartment Owners of the Kaanapali Alii (Respondent or the Association) at a January 30, 2004 meeting, did not validly "approve," pursuant to Henry M. Robert, III, et al., Robert's Rules of Order, Newly Revised (10th ed. 2000) (Robert's or Robert's Rules of Order) and the voting requirement set forth in the Association's "Restatement of By-Laws" (the By-Laws), a "pricing policy" setting the price at which the Association would sell its leased fee interests to its members, and (2) that the Association, in realizing a profit in its sales of leased fee interests pursuant to the said pricing policy, violated, inter alia, the prohibition in the By-Laws on "conduct[ing] an active business for profit" and exceeded the powers conferred upon the Association by Hawai`i Revised Statutes (HRS) chapter 514C (1993 & Supp.2004). In its December 14, 2005 final judgment, the court granted summary judgment in favor of Respondent and against Petitioners. Petitioners filed an application for writ of certiorari (Application) on February 17, 2009 in this court, seeking review of the judgment of the Intermediate Court of Appeals (the ICA), filed on December 3, 2008, pursuant to its November 21, 2008 Summary Disposition Order (SDO)² affirming the court's final judgment. See Alvarez Family Trust v. Ass'n of Apt. Owners of the Kaanapali Alii, No. 27695, 2008 WL 4958487 at *3 (App. Nov. 21, 2008).

PART I: VALIDITY OF THE VOTE ON THE PRICING POLICY

(By: Acoba, J., with whom all justices concur)

It is concluded unanimously that (a) the By-Laws, which state that "action by a majority of directors present at any meeting" constitutes "action by the Board," require that directors abstaining from a vote be counted as present for purposes of determining whether a majority of the Board directors "present" at a meeting have acted, pursuant to Robert's Rules of Order as mandated by HRS § 514A-82(a)(16) (Supp. 2003),³ and (b) inasmuch as when the Board voted on the pricing policy at the January 30, 2004 meeting, of seven directors present at the meeting, two abstained and only three voted in favor, the pricing policy was not validly adopted.

A.

1.

Petitioners are leasehold owners of an apartment at the Kaanapali Alii condominium on the island of Maui. The Association is governed by the By-Laws and the "Restatement of Declaration of Horizontal Property Regime of Kaanapali Alii" (the Declaration).

The By-Laws state that "[t]he affairs of the Association shall be governed by a Board of Directors composed of seven (7) persons." As to the Board's meetings, Article IV, Section 9 of the By-Laws states that "[a]t all meetings of the Board of Directors a majority of the total number of directors shall constitute a quorum[⁴] for the transaction of business, and action by a majority of the directors present at any meeting at which a

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quorum is present shall constitute action by the Board." (Emphasis added.) Article IV, Section 11 of the By-Laws provides that "[n]o director shall vote or cast a proxy vote at any Board meeting on any matter in which he or she has a conflict of interest." (Emphases added.) Additionally, as stated supra, HRS § 514A-82(a)(16) states that "[a]ll association and board of directors meetings shall be conducted in accordance with the most current edition of Robert's Rules of Order."

At a July 23, 2003 meeting of the Board, Bob Gordon (Gordon), the Board's President, informed the Board that the Hawaii Omori Corporation/Royal Kaanapali Joint Venture (the Lessor), the owner of the remaining leased fee interests at Kaanapali Alii, was planning to sell its interests. The Board voted unanimously to establish a committee, chaired by Bill Fontana (Fontana), a former Board President, to "obtain the lease to fee interests on behalf of the individual unit owners who have not purchased their fee interests."⁵ At some point, Fontana formed Nohea Kai, LLC, which submitted its own offer to the Lessor to purchase the leased fee interests. Apparently, Gordon and another Board member were "considering becoming investor-members in Nohea Kai, LLC."

Subsequently, at an October 17, 2003 meeting, it appeared that the Board voted on whether to allow Nohea Kai, LLC to purchase the leased fee interests, or to acquire the leased fee interests itself.⁶ Gordon and the other Board member "recused" themselves from this vote due to their "conflict." At the October 17, 2003 meeting, "the Board, excluding the two conflicted Board members, unanimously approved a motion to seek the approval of owners to authorize the Association to acquire leased fee interests on behalf of the Association as a whole."

Pursuant to this decision, on November 3, 2003, a letter was sent on behalf of the Association to the owners (including Petitioners) of Kaanapali Alii, informing them that the Board sought to exercise the Association's right of first refusal to purchase the remaining leased fee interests at Kaanapali Alii. The letter contained a proposed amendment to the Declaration (Declaration Amendment) that had been submitted to the Board so as to "allow the Board to exercise the right of first refusal[.]"

In pertinent part, the Declaration Amendment contained the following language:

(b) Authority Pursuant to Chapter 514C, [HRS]. Notwithstanding any other provision contained in the Declaration or the By-Laws to the contrary and in addition to any other powers set forth herein or elsewhere therein, the Board of Directors shall have the power set forth in Chapter 514C, [HRS], to purchase or otherwise acquire, own, improve, use, and deal in and with the Leased Fee Interest or any or all undivided interests therein pursuant to a right of first refusal or a voluntary sale[.]

....

(c) Administration of Interests Acquired by Association. In the event that the

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Association acquires all or any portion of the interests of the Lessor, the Board shall be empowered to take all such action as it deems necessary or appropriate to administer the interest(s) so acquired, including but not limited to setting, arbitrating, and collecting lease rents, and selling and/or conveying all or any portion of such interest(s) upon such terms and conditions, including but not limited to price, as the Board deems appropriate under the circumstances, by such conveyance instruments as the Board deems appropriate.

(Emphases added.)

In a section entitled "Recommendation of the [Board,]" the letter stated that "[i]f the Association does not purchase the remaining leased fee interests, another buyer ... might increase prices beyond the level that would be set by the Association to produce a reasonable profit to the Association." (Emphasis added.) Additionally, the letter stated that "[t]here is the potential for the Association to make a `profit' on the sale of the leased fee interests to the remaining lessees." (Emphasis added.) Article IV, Section 10(O) of the By-Laws provides that "[n]othing herein contained shall be construed to give the Board of Directors authority to conduct an active business for profit on behalf of the owners, or any of them, or the Association."

Petitioners do not dispute that by "January 20, 2004, owners representing more than 75% of the common interest had voted in favor of the exercise of the right of first refusal. In this total, 54 of the 68 lessees or 79% of the lessees voted in favor of the exercise of the right of first refusal." Among those voting in favor of the Declaration Amendment were Petitioners.

At a January 20, 2004 meeting, Board member Peter Mazula (Mazula) "reported on the leased fee conversion. He indicated that the Declaration amendment to allow the Association to exercise its right of first refusal had been approved by owners holding more than 75% of the common interest, the ballot tally had been verified and the amendment was being recorded." Mazula then moved to allow the Association to exercise its right of first refusal. The Board voted on this motion, and the "[m]otion [was] unanimously approved."

Subsequently, at the subject January 30, 2004 meeting, Mazula "reported that the owners had approved the right of first refusal Declaration Amendment and that the Board had exercised the right of first refusal to purchase the remaining 68 leased fee interests from [the Lessor] at a purchase price of $5,975,000." The Board voted unanimously to approve a Borrowing Resolution to authorize the Board "to borrow the sum of up to $6.2 million plus such additional amounts as the Board determines are necessary to effectuate the acquisition of the leased fee interest in Kaanapali Alii[.]" The Board then "discussed pricing and funding policies for leased fee resales to the leasehold owners." During the discussion, Mazula "noted that the Association intends to pass through to the purchasing leasehold owners all of its transaction and carrying costs, including any increases...