Eagle-Air Estates Homeowners Ass'n, Inc. v. Haphey

• Citation: 354 P.3d 766,272 Or.App. 651
• Decision Date: 29 July 2015
• Docket Number: 04CV0050MA,A151460.
• Parties: EAGLE–AIR ESTATES HOMEOWNERS ASSOCIATION, INC., an Oregon non-profit corporation, acting by and through Charles HARP, Cyndie Harp, Michael Morgan, and Janet Morgan, Plaintiffs–Respondents, v. Bruce HAPHEY, Vernon Goodsell, and John Schibel, individually, Defendants–Appellants, and Eagle–Air Estates Homeowners Association, Inc., an Oregon non-profit corporation, Defendant.
• Court: Oregon Court of Appeals

272 Or.App. 651
354 P.3d 766

EAGLE–AIR ESTATES HOMEOWNERS ASSOCIATION, INC., an Oregon non-profit corporation, acting by and through Charles HARP, Cyndie Harp, Michael Morgan, and Janet Morgan, Plaintiffs–Respondents
v.
Bruce HAPHEY, Vernon Goodsell, and John Schibel, individually, Defendants–Appellants
and
Eagle–Air Estates Homeowners Association, Inc., an Oregon non-profit corporation, Defendant.

04CV0050MA
A151460.

Court of Appeals of Oregon.

Argued and Submitted Jan. 6, 2015.
Decided July 29, 2015.

354 P.3d 768

Margaret Fiorino, Portland, argued the cause for appellants. With her on the briefs was Matthew J. Kress.

Michael W. Peterkin, Bend, argued the cause for respondents. With him on the brief was Peterkin & Associates.

Before ORTEGA, Presiding Judge, and EGAN, Judge, and GARRETT, Judge.

Opinion

GARRETT, J.

272 Or.App. 653

The subject of this appeal is the trial court's limited judgment in favor of plaintiffs, who sued defendants derivatively on behalf of the Eagle–Air Estates Homeowners Association (HOA or association), on their claims for breach of contract and conversion, and the court's supplemental judgment awarding attorney fees. The dispute is the most recent episode of longstanding litigation among members of the HOA, and we have dealt with the parties on many previous occasions.¹ The crux of plaintiffs' allegations is that defendants, who are former directors of the association, caused harm to the HOA by imposing unauthorized member assessments to pay attorney fees in related litigation brought by plaintiffs against the HOA and some of these same defendants. In particular, defendants assert that the trial court erred in its interpretation of provisions of the HOA's covenants, codes, and restrictions (CCRs), which concerned whether the assessment was a “special assessment” and, thus, expired on December 31, 2003. We conclude that the trial court erred in its interpretation of the assessment provisions in the CCRs. Accordingly, we reverse and remand the limited judgment. We dismiss the appeal from the supplemental judgment.²

In order to explain the claims and defenses at issue, we briefly recite the procedural history. Plaintiffs sued defendant Goodsell, the developer of Eagle–Air Estates, a planned

272 Or.App. 654

community subdivision, in a derivative action in 2003.³ See Morgan v. Goodsell, 198 Or.App. 385, 108 P.3d 612 (2005) (Morgan I ). Plaintiffs' claims in Morgan I revolved around Goodsell having retained a reversionary interest in an airstrip adjacent to the development. Id. at 388, 108 P.3d 612. Plaintiffs also named the HOA as a defendant, and, accordingly, it retained counsel. At membership meetings on May 18, 2002, and February 1, 2003, the HOA members approved assessments for attorney fees for

354 P.3d 769

the HOA's defense in Morgan I. Ultimately, plaintiffs lost on all claims in that action.

The HOA then sued plaintiffs, alleging trespass as a result of their continued use of the airstrip after failing to pay required assessments. Plaintiff Morgan counterclaimed, alleging that the February 1, 2003, authorization for a membership assessment to pay attorney fees in Morgan I had expired on December 31, 2003, and that the HOA had wrongfully continued to impose the assessment after that date. The trial court ruled in favor of the HOA on the trespass claim, but ruled in favor of Morgan on the counterclaim and awarded him a judgment for the amount of attorney-fee assessments that he had paid after December 31, 2003. The basis for the trial court's ruling on that issue—which is central to the current appeal—was a provision in the CCRs that limits the duration of “special assessments” to the end of the calendar year in which the special assessment was adopted. Thus, the trial court concluded that the most recent approval for the attorney-fee assessment, effective February 1, 2003, expired on December 31 of that year and that any assessments collected beyond that date had occurred without the required approval of the members. We affirmed the trial court's judgment without opinion. Eagle–Air Estates Homeowners Assn. v. Harp, 234 Or.App. 218, 227 P.3d 1242 (2010) (Eagle–Air ).

Having prevailed on his counterclaim against the HOA, Morgan turned his sights to the defendants in this action, who were the directors of the association at the time of Morgan I and Eagle–Air. In this case, Morgan and other plaintiffs alleged claims for breach of contract, but also negligence and conversion, contending that defendants

272 Or.App. 655

wrongfully caused the HOA to spend money and incur debt for the earlier litigation by hiring an attorney without membership approval and levying assessments to pay that attorney. Plaintiffs moved for partial summary judgment on the conversion and breach of contract claims.

In a 2007 letter opinion, the trial court ruled that defendants could be liable if plaintiffs could prove actual damages, but that the court could not determine “whether damages were actually incurred” because:

“1. Plaintiffs' claims are limited to attorney fees wrongfully incurred or paid after April 24, 2003.

“2. Two cases which may affect the outcome [Morgan I and Eagle–Air ] are now on appeal.

“3. The record is insufficient to establish what fees were billed, what were paid, and what are subject to a credit of write[-]off by [the attorney hired to represent the HOA in the prior litigation].”

Following the trial court's 2007 ruling, and after the appeals were resolved, defendants moved for reconsideration of that ruling. The trial court granted defendants' motion, and the parties engaged in additional briefing. Defendants argued, among other things, that the attorney-fee assessments were authorized and proper pursuant to the provision in the CCRs that grants the board of directors the authority to collect assessments to “defray the common expenses.” Defendants also argued that, even if the assessments were unauthorized, a derivative action was improper because the association (as opposed to individual members) had not been damaged by any collection of unauthorized assessments.

Ultimately, in a 2009 ruling, the trial court adhered to its 2007 ruling as to liability, explaining that “[t]he court again finds that the board does not have carte blanche to incur debt, make assessments or encumber members' properties without membership approval, in contravention of the clear and unambiguous provisions of the [CCRs].” The court also found that plaintiffs had been damaged in the amount of $24,480. That figure reflected the total assessments for attorney fees that the HOA collected after December 31, 2003, the date on which the court deemed the authorization

272 Or.App. 656

for the attorney-fee assessment to have expired. Defendants appeal the limited judgment.

Defendants raise the following four assignments of error: (1) the attorney-fee assessments were authorized, and, in concluding to the contrary, the trial court misconstrued the applicable provision in the CCRs; (2) even if the trial court correctly interpreted the

354 P.3d 770

CCRs, the court nonetheless erred in imposing liability because (a) any unauthorized assessments caused no harm to the HOA as an entity, and (b) plaintiffs failed to overcome the business judgment rule; (3) even if a derivative action could be brought, plaintiffs lacked standing to bring it because of their adversity to the HOA in related cases; and (4) no statutory basis exists for the trial court's award of attorney fees.

We need not address the second, third, and fourth assignments of error, because we agree with defendants regarding the first assignment of error, which is dispositive. The trial court's conclusion that defendants were liable for breach of contract and conversion was based on its determination that defendants failed to obtain membership authorization for assessments to pay attorney fees. The HOA membership, however, specifically approved an assessment for attorney fees on February 1, 2003. The trial court's ruling was, therefore, based on its view that that assessment was a “special assessment” within the meaning of the CCRs, which expired on December 31, 2003. As we will explain, the trial court's construction of the CCRs was erroneous.

The trial court's interpretation of CCRs presents a question of law. See Little Whale Cove Homeowners Ass'n, Inc. v. Harmon, 162 Or.App. 332, 338, 986 P.2d 616 (1999) (interpretation of CCRs presents a question of law) (citing Valenti v. Hopkins, 324 Or. 324, 926 P.2d 813 (1996) ).

The provisions regulating assessments are found in Article IV of Eagle–Air's CCRs. The relevant sections in Article IV are the following:

“Section 2. PURPOSE OF ASSESSMENTS: The assessments levied by the Association shall be used exclusively for the purpose of maintaining the Common Area, Roadway/Taxiway, Airport, and promoting

...