Beaver Lake Ass'n v. Beaver Lake Corp., 41476

• Decision Date: 19 April 1978
• Docket Number: No. 41476,41476
• Citation: 200 Neb. 685,264 N.W.2d 871
• Court: Nebraska Supreme Court
• Parties: BEAVER LAKE ASSOCIATION, a Nebraska non-profit Corporation, John A. Otto, M.D. and Theodore Thornton-Trump, Appellees, v. BEAVER LAKE CORPORATION, a Nebraska Corporation, Appellant, Impleaded with Albert Schmuecker, Ramon Fusaro, M.D., Ronald Alter, Russell Woeltz, Richard Miller, Kenneth Ireland, and Ronald Buethe, Appellees, Impleaded with Robert L. Gerlach, Kenneth J. Crumpley, Lawrence L. Brown and H. Duane Pemberton, Appellants.

Page 871

264 N.W.2d 871

200 Neb. 685

BEAVER LAKE ASSOCIATION, a Nebraska non-profit Corporation, John A. Otto, M.D. and Theodore Thornton-Trump, Appellees, v. BEAVER LAKE CORPORATION, a Nebraska Corporation, Appellant, Impleaded with Albert Schmuecker, Ramon Fusaro, M.D., Ronald Alter, Russell Woeltz, Richard Miller, Kenneth Ireland, and Ronald Buethe, Appellees, Impleaded with Robert L. Gerlach, Kenneth J. Crumpley, Lawrence L. Brown and H. Duane Pemberton, Appellants.

No. 41476.

Supreme Court of Nebraska.

April 19, 1978.

Syllabus by the Court

1. Contracts against public policy are those which tend to be injurious to the public, or against the public good.

2. Courts should be cautious in holding contracts void on ground of public policy and before they do so prejudice to the public interest should clearly appear.

3. A bylaw which gives a developer control of the board of directors of a homeowners' association, even though valid initially, may be contrary to public policy and become void when used to defeat the quasi-municipal functions of a homeowners' association and in aid of conflicting private purposes of the developer. Each such case will necessarily have to be considered on its own facts.

4. An action for declaratory judgment may be an appropriate remedy for determining the validity of a bylaw of a homeowners' association.

Peter E. Marchetti, of Nelson, Harding, Marchetti, Leonard & Tate, Omaha, for appellant.

James F. Kasher, of Zweiback, Brady, Kasher, Festersen & Pavel, P. C., Omaha for John A. Otto, M.D., and Theodore Thornton-Trump.

Herbert K. Elworth, of Casey & Elworth, Plattsmouth, for Beaver Lake Ass'n.

Heard before WHITE, C. J., and BOSLAUGH, CLINTON and WHITE, JJ., and COLWELL, District Judge.

CLINTON, Justice.

This is an action for declaratory judgment seeking a determination that certain bylaws of the Beaver Lake Association pertaining to the right of the Beaver Lake Corporation to name a majority of the directors of the association are null and void; to enjoin the defendants from interfering with amendment of the bylaws; to declare the rights of the parties with respect to the operation and control of the association; and to declare that certain of the parties are proper members of the board of directors of the association and that certain other parties to this action have no authority to act as directors. After trial the court granted the relief requested. The Beaver Lake Corporation (hereinafter Corporation) appealed from the judgment and argues the following assignments of error: (1) The trial court erred in declaring that the bylaws were void as against public policy. (2) Declaratory judgment is not an appropriate remedy in this case. (3) The Beaver Lake Association (hereinafter Association) was not properly authorized to bring the action. (4) The individual plaintiffs are not real parties in interest and there is a defect in the parties plaintiff. We affirm.

Certain background information identifying the parties and their relationship to the events which give rise to this action is necessary to an understanding of the issues. Corporation, as owner, became the developer of a residential and recreational area in Cass County, Nebraska, known as Beaver Lake. It caused the development to be platted into 2,000 lots, constructed a dam, built roads, installed a water and sewer utility system, and constructed a club house. It then engaged in the sale of lots. It caused Association to be incorporated and certain bylaws to be adopted. All purchasers of lots became members of Association by virtue of provisions in the purchase contracts and in the bylaws.

The purpose of Association was to "acquire, hold, use, operate, provide, and maintain utility and recreational facilities, areas, equipment and services" for the benefit of the members. The operation and maintenance of streets, utilities, lake, club house, and other common areas was financed by assessment against members pursuant to provisions of the bylaws.

After many of the lots were sold and a substantial number of homes built by purchasers, Corporation became insolvent. In lieu of foreclosure it conveyed to its mortgagee the unsold lots, the utilities system, and certain other common areas.

The original board of directors of Association consisted of three persons, all associated with Corporation. Later, pursuant to an amendment to the bylaws, the board of directors was increased to seven, consisting of three purchasers of lots elected by the members, and four persons named by Corporation. It is the provisions of the bylaws which enable Corporation to control the board of directors which is the subject of attack in this action.

The two individual plaintiffs are lot owners and members of Association and their standing as plaintiffs is challenged here. Three of the individual defendants are lot owners, members of Association, and members of the board of Association elected by the members. Four of the individual defendants are persons named to the board of Association by Corporation. The other four individual defendants are lot owners, members of Association, and persons elected to the board by the members as replacements for the four named by Corporation. It is the status of the latter eight "directors" which is at issue here.

Among other things the petition alleges as follows: That part of the overall plan of development of the Beaver Lake subdivision was the ultimate ownership and operation of the utilities and other common areas by Association after acquisition from Corporation. On about October 10, 1975, Corporation proposed to have Association take over the utilities and common areas; that negotiations for the takeover reached an impasse; and that the Corporation has now conveyed all its interest in the subdivision, including unsold lots, utilities, and common areas, and no longer has any interest in Beaver Lake.

It further alleges that the following is the substance of bylaws adopted by the original board of directors:

"i. Article III Section 2 provides that beginning in 1975, the Board of Directors shall consist of seven persons, three of whom shall be elected by the regular members and four of whom shall be appointed by Beaver Lake Corporation. Beaver Lake Corporation designees need not be members while directors elected by Regular Members must be members of the Association;

"ii. Article III Section 3 provides that any vacancy in a directorship previously filled by Beaver Lake Corporation shall be filled by a new appointment by Beaver Lake Corporation. Other vacancies may be filled by remaining directors.

"iii. Article XI Section 4 provides that a lien for membership charges may be cancelled by application of Beaver Lake Corporation if it becomes an owner of a lot for which membership charges are delinquent.

"iv. Article VII provides for amendments to the By-Laws and states that in 'no event may the By-Laws be amended or repealed, nor may any By-Laws be adopted either by the Board of Directors or by the Regular Members, if such changes would affect any of the rights of Beaver Lake Corporation, unless Beaver Lake Corporation shall give written consent thereto'."

The petition further alleges that Corporation has not performed its obligations under contract with Association and with the members; that because of the conveyance by Corporation in lieu of foreclosure because of an inability to resolve the issue arising from the alleged failure of the corporation to fulfill its contractual obligation to Association and the members, "a conflict of interest has arisen between the Plaintiff Association and those directors who have been appointed to its Board of Directors by Defendant, Beaver Lake Corporation."

It further...