Graoch Associates #73 Limited Partnership v. Lakeview Estates Lake Association, Inc., No. 2003-CA-001495-MR (KY 12/10/2004)

• Decision Date: 10 December 2004
• Docket Number: No. 2003-CA-001793-MR.,No. 2003-CA-001495-MR.,2003-CA-001495-MR.,2003-CA-001793-MR.
• Parties: GRAOCH ASSOCIATES #73 LIMITED PARTNERSHIP, Appellant v. LAKEVIEW ESTATES LAKE ASSOCIATION, INC., Appellee.
• Court: United States State Supreme Court — District of Kentucky

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GRAOCH ASSOCIATES #73 LIMITED PARTNERSHIP, Appellant v. LAKEVIEW ESTATES LAKE ASSOCIATION, INC., Appellee.

No. 2003-CA-001495-MR.

No. 2003-CA-001793-MR.

Court of Appeals of Kentucky.

December 10, 2004.

Appeal from Fayette Circuit Court, Honorable Laurance B. Vanmeter, Judge, Action No. 02-CI-01795.

Richard A. Getty, Jason L. Hargadon, Ben T. Keller, Lexington, Kentucky, Briefs for Appellant.

Alex L. Scutchfield, Lexington, Kentucky, Brief and Oral Argument for Appellee.

Richard A. Getty, Lexington, Kentucky, Oral Argument for Appellant.

Before: JOHNSON and TAYLOR, Judges; MILLER, Senior Judge.¹

OPINION

JOHNSON, Judge:

Graoch Associates #73 Limited Partnership has appealed from a judgment entered by the Fayette Circuit Court on July 24, 2003, which granted summary judgment to the appellee, Lakeview Estates Lake Association, Inc. Having concluded that there is no genuine issue as to any material fact and that the Association is entitled to judgment as a matter of law, we affirm.

The Association is a non-profit, non-stock private corporation organized pursuant to KRS² 273.161 et seq., for the purpose of maintaining certain common areas in the Lakeview Estates Subdivision, which is located in Lexington, Fayette County, Kentucky. Membership in the Association is restricted to those individuals and entities that own an interest in any lot or property in Lakeview Estates Subdivision. Graoch is a member of the Association by virtue of its ownership interest in a 331-unit apartment complex located within Lakeview Estates Subdivision. The Association was created by the developer of the subdivision, Lakeview Estates, Inc., in 1967 pursuant to a document entitled "Covenants and Restrictions Applicable to Lakeview Estates[.]"³ In sum, the covenants and restrictions empower the Association to levy assessments against its members for the "improvement and maintenance of properties, services, and facilities... related to the use and enjoyment by the Members of the [c]ommon [p]roperties[.]" Specifically, Article VI of the incorporating document provides, in relevant part, as follows:

Section 3. BASIS AND MAXIMUM OF ANNUAL ASSESSMENTS. Beginning January 1, 1967, or later as determined by the Board of Directors, the annual assessment shall be Sixty Dollars ($60.00) per lot. The annual assessment may be increased by vote of the Members...and may be for three-year periods and shall be automatically extended unless changed or reduced as herein provided.

The Board of Directors... may, after consideration of current maintenance costs and future needs of the Association, fix the actual assessment...ata lesser amount.

Section 4. SPECIAL ASSESSMENTS FOR CAPITAL IMPROVEMENTS. In addition to the annual assessments authorized by Section 3 hereof, the Association may levy in any assessment year a special assessment, applicable to that year only, for the purpose of defraying, in whole or in part, the cost of any construction, reconstruction, or maintenance of improvements to the Common Properties, including the necessary fixtures and personal property related thereto, provided that any such assessment shall have the assent of two-thirds of the authorized votes of the Members[.]

Section 5. CHANGE IN BASIS AND MAXIMUM OF ANNUAL ASSESSMENTS. The Association may increase the maximum and basis of the assessments fixed by Section 3 hereof prospectively for any such period provided that any such change shall have the assent of two-thirds of the authorized votes of the Members voting in person or by proxy[.]

In 1976 the Association executed a document entitled "Second Amendment to the Covenants and Restrictions applicable to [the Association,]" which delineated the membership rights for owners of multi-family properties, such as Graoch, located within the subdivision. Section 3 of the "Second Amendment" provides, in relevant part, as follows:

The owners of the multi-family properties shall pay one annual assessment...for each four (4) dwelling units upon its respective properties each year and shall pay one special assessment for capital improvements...for each ten (10) dwelling units upon its respective properties at such times as such special assessments may be authorized.

In 2001 the Association's Board of Directors proposed a $250.00 increase in the annual assessment its members were required to pay, thereby raising the total annual assessment to $350.00.⁴ The purpose of the proposed increase was to generate revenue to fund several projects designed to clean up and improve the lakes which serve as part of the common area in the subdivision. On December 19, 2001, the Association's members approved the proposed increase by a vote of 105 in favor and 47 against.⁵ As a result, an annual assessment was levied against Graoch in the amount of $28,962.50 (331/4 × $350.00).

On April 30, 2002, Graoch filed a petition for declaratory judgment in the Fayette Circuit Court, in which it alleged, inter alia, that the annual assessment levied against it was "disproportionately burdensome, unfair, unlawful and otherwise unconstitutional" and that the Association "improperly and unlawfully classified [the assessment] as an `annual assessment' as opposed to a `special assessment[.]'"⁶ Graoch maintained that the Association was required to fund all capital improvements by way of a special assessment as opposed to an annual assessment. The Association counterclaimed, asserting that Graoch owed the amount assessed against it for 2002 ($28,962.50), plus late fees.⁷

On June 19, 2003, the trial court entered an opinion and order granting summary judgment to the Association. The trial court reasoned that the Association "has the discretion to use annual or special assessments or some combination thereof to make the desired capital improvements under the Covenants." The trial court further reasoned that it lacked the authority to review the propriety of the Association's decision to levy an annual assessment against its members for the purpose of funding capital improvements.⁸ In closing, the trial court concluded that Graoch's arguments concerning the Association's voting scheme were foreclosed by KRS 273.201, which provides, in relevant part, that "[t]he right of the members [of a non-profit non-stock corporation], or any class or classes of members, to vote may be limited, enlarged or denied to the extent specified in the articles of incorporation or the bylaws." On July 24, 2003, the trial court entered a final judgment against Graoch for the amount of the annual assessment it owed for 2001 and 2002, plus late fees and interest. This appeal followed.

Graoch essentially raises two issues on appeal. First, Graoch contends that the trial court erred in its determination that the Association is not required to fund capital improvements exclusively through special assessments. Second, Graoch asserts that the trial court erred in concluding that it lacked the authority to review the propriety of the Association's decision to levy an annual assessment against its members for the purpose of funding capital improvements.

Since Graoch is appealing from an order granting summary judgment, we begin our analysis by setting forth the appropriate standard for an appellate court to follow when reviewing a trial court's ruling on a motion for summary judgment. In sum, we must determine whether the trial court erred in concluding that there was no genuine issue as to any material fact and that the moving party was entitled to a judgment as a matter of law.⁹ Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, stipulations, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law."¹⁰ In Paintsville Hospital Co. v. Rose,¹¹ the Supreme Court of Kentucky held that for summary judgment to be proper the movant must show that the adverse party cannot prevail under any circumstances. The Court has also stated that "the proper function of summary judgment is to terminate litigation when, as a matter of law, it appears that it would be impossible for the respondent to produce evidence at the trial warranting a judgment in his favor."¹² Since factual findings are not at issue, there is no requirement that the appellate court defer to the trial court.¹³ "The record must be viewed in a light most favorable to the party opposing the motion for summary judgment and all doubts are to be resolved in his favor" [citation omitted].¹⁴ Furthermore, "a party opposing a properly supported summary judgment motion cannot defeat it without presenting at least some affirmative evidence showing that there is a genuine issue of material fact for trial."¹⁵

With these principles in mind, we turn to Graoch's assertion that the trial court erred in its determination that the covenants and restrictions applicable to the Association's members do not require that all capital improvements be paid exclusively through special assessments. It is well-established that "covenants are contractual in nature and are, therefore, interpreted in accordance with principles of contract law."¹⁶ "[T]he interpretation of a contract, including determining whether a contract is ambiguous, is a question of law for the courts and is subject to de novo review."¹⁷ Moreover, one of the cardinal rules of contract interpretation is that "all words and phrases in the contract are to be given their ordinary meanings."¹⁸ In addition, it is a universal rule that a "`[a]ny contract or agreement must be construed as a whole, giving effect to all parts and every word in it if possible.'"¹⁹

Article VI, Section 3 of the original covenants and restrictions provides that the amount of the annual assessment applicable to the Association's members "may be increased by vote of the Members" [emphasis added]. Article VI, Section 3 further provides that "[t...