Haines v. Goldfield Property Owners Ass'n

• Decision Date: 27 October 2005
• Docket Number: No. 1 CA-CV 04-0652.,1 CA-CV 04-0652.
• Citation: 121 P.3d 1276
• Parties: Randolph J. HAINES and Kathleen N. Kenney-Haines, husband and wife, Plaintiffs-Appellants/Cross-Appellees, v. GOLDFIELD PROPERTY OWNERS ASSOCIATION, an Arizona non-profit corporation, Defendant-Appellee, and Fountain Foothills Limited Partnership, an Arizona limited partnership; Fountain Foothills 80, L.L.C., an Arizona limited liability company, Defendants-Appellees/Cross-Appellants.
• Court: Arizona Supreme Court

121 P.3d 1276

Randolph J. HAINES and Kathleen N. Kenney-Haines, husband and wife, Plaintiffs-Appellants/Cross-Appellees, v. GOLDFIELD PROPERTY OWNERS ASSOCIATION, an Arizona non-profit corporation, Defendant-Appellee, and Fountain Foothills Limited Partnership, an Arizona limited partnership; Fountain Foothills 80, L.L.C., an Arizona limited liability company, Defendants-Appellees/Cross-Appellants.

No. 1 CA-CV 04-0652.

Court of Appeals of Arizona, Division 1, Department C.

October 27, 2005.

COPYRIGHT MATERIAL OMITTED

Randolph J. Haines, Kathleen N. Kenny-Haines, Fort McDowell, Plaintiffs-Appellants/Cross-Appellees In propria persona.

Tiffany & Bosco P.A., By Robert A. Royal, Tracy S. Morehouse, Chad A. Hester, Phoenix, for Defendant-Appellee.

Mohr Hackett Pederson Blakley & Randolph P.C., By Robert C. Hackett, Matthew J. Kelly, David W. Garbarino, Phoenix, for Defendants-Appellees/Cross-Appellants.

OPINION

LANKFORD, Judge.

¶ 1 Plaintiffs Randolph J. Haines and Kathleen N. Kenney-Haines appeal from summary judgment in favor of Defendants Goldfield Property Owners Association ("Association"), Fountain Foothills Limited Partnership and Fountain Foothills 80, L.L.C. (collectively, "Fountain Foothills"). The issue on appeal is: Do Arizona statutes prohibit the distribution of excess assessments to the Association members? The issues raised on cross-appeal by Fountain Foothills are: (1) Did the superior court err in finding that Fountain Foothills' motion to dismiss for lack of standing was moot? and (2) Did the superior court err in denying Fountain Foothills' requests for attorneys' fees?

¶ 2 Our review of the summary judgment is de novo. Summary judgment is appropriate if there are no genuine issues as to any material fact. Ariz. R. Civ. P. 56(c)(1); Orme Sch. v. Reeves, 166 Ariz. 301, 305, 802 P.2d 1000, 1004 (1990). We review the evidence "in the light most favorable to the party against whom summary judgment was entered" and review de novo "whether any genuine issues of material fact exist." TWE Ret. Fund Trust v. Ream, 198 Ariz. 268, 271, ¶ 11, 8 P.3d 1182, 1185 (App.2000).

¶ 3 This dispute involves the disposition of funds collected by the Association from its members by assessment. The Haineses own property in the Goldfield Ranch development. Fountain Foothills owns approximately forty-five percent of Goldfield Ranch's total acreage. The original developer of Goldfield Ranch created a Declaration of Reservations, requiring the formation of an association to maintain Goldfield Ranch's roads. The Association, an Arizona non-profit corporation, was formed for that purpose. It later assumed responsibility for the installation and management of electrical facilities in Goldfield Ranch. All Goldfield Ranch property owners are members of the Association.

¶ 4 The Association levied a special assessment of $100 per acre on its members in 1984. The assessment was to pay for the installation of an electrical distribution system.

¶ 5 The Association installed electrical extensions on most of the Goldfield Ranch property. But it did not install them on property owned by Fountain Foothills. Fountain Foothills had determined that the type of electrical line would be incompatible with Fountain Foothills' property development plan.

¶ 6 Fountain Foothills and the Association therefore agreed that the Association would pay Fountain Foothills the estimated cost of installing the electrical extensions on its property, and in return Fountain Foothills would release the Association's obligation to provide the extensions. The Association's board of directors approved the agreement by resolution. The resolution authorized the Association to complete the electrical extensions to the remaining residential portions of Goldfield Ranch. The resolution also approved a pro rata disbursement of any remaining monies to the current Association members.

¶ 7 The Haineses attacked the resolution by seeking a declaratory judgment against the Association and Fountain Foothills. The Haineses argued that Arizona Revised Statutes ("A.R.S.") sections 10-3140(22) (2003), -11301 and -11302 (1997) prohibit the resolution, making it "illegal, ultra vires and void."

¶ 8 The superior court upheld the Association's actions. The court determined that the special assessment was to provide electrical extensions on Goldfield Ranch, this goal was attained, the Association over-assessed its members, and Arizona statutes do not prohibit redistribution of the balance. The superior court denied the Haineses' motion for summary judgment, granted the Association's cross-motion, and denied as moot a motion by Fountain Foothills to dismiss for lack of standing. The superior court also denied both defendants' A.R.S. § 12-341.01 fee requests without addressing Fountain Foothills' fee request pursuant to A.R.S. § 12-349.

¶ 9 The superior court entered final judgment, the Haineses timely appealed, and Fountain Foothills timely cross-appealed. We have jurisdiction pursuant to A.R.S. § 12-2101(B) (2003).

¶ 10 We first address the Haineses' argument that the distribution of excess assessment funds is prohibited by statute. Arizona Revised Statute section 10-11301 states: "Except as authorized by § 10-11302, a [non-profit] corporation shall not make any distributions."¹ The Association is a non-profit corporation. A "distribution" is "a direct or indirect transfer of money or other property or incurrence of indebtedness by a corporation to or for the benefit of its members in respect to any of its membership interests." A.R.S. § 10-3140(22).

¶ 11 The parties dispute whether the Association's payments are impermissible corporate distributions or lawful repayments of funds held in trust by the Association on behalf of its members. "The essential elements of a trust are a competent settlor and a trustee, clear and unequivocal intent to create a trust, ascertainable trust res, and sufficiently identifiable beneficiaries." Golleher v. Horton, 148 Ariz. 537, 543, 715 P.2d 1225, 1231 (App.1985). Although the trust beneficiaries must be specifically designated, Newhall v. McGill, 69 Ariz. 259, 212 P.2d 764 (1949), they need not accept or have knowledge of the trust. O'Brien v. Bank of Douglas, 17 Ariz. 203, 207, 149 P. 747, 749 (1915). "No technical expressions are needed for the creation of an express trust." Id. at 205-06, 149 P. at 748. The trust res may "consist of any type of transferable property, including . . . personalty." Hoyle v. Dickinson, 155 Ariz. 277, 280, 746 P.2d 18, 21 (App.1987). A trust for personalty is not required to be in writing, O'Brien, 17 Ariz. at 206, 149 P. at 748, and may be created and proved by parol evidence. Cashion v. Bank of Ariz., 30 Ariz. 172, 181, 245 P. 360, 363 (1926).

¶ 12 The evidence and inferences both support and negate the existence of a trust. Thus, a genuine issue of material fact exists as to whether a trust was created. We begin with the evidence indicating that a trust may exist. The Association's board deposited assessment funds in a separate account, specifically instructed the bank that the Association's access to the funds was limited to use for the installation of electrical extensions, informed the members that the assessment funds were held in a "trust fund account," and stated that its use was restricted to "financing electrical extensions only." Although not originally deposited there, in 2003, the assessment funds were held in an account at Bank One Trust Company — Corporate Trust Services until the Association requested transfer of the funds. This evidence supports the existence of a trust.

¶ 13 However, other evidence casts doubt on the existence of a trust. The minutes of the Association's board meeting in March 1984 referred to the funds, but made no mention of holding the special assessment funds in trust. Supplemental instructions the Association provided to Valley National Bank of Arizona, the institution where the assessment funds were deposited in 1985, refer not to a trust but to "an agency account" that had been "established . . . in the name of [the Association]." Moreover, the bank's instructions did not include terms illustrative of the intent to form a trust.² Thus, it is unclear whether a trust had been created when the assessments were first approved and levied, whether a trust was created at a later date, or whether this was a corporate account holding corporate funds. Even if the funds were kept for a time in a bank's "Corporate Trust Services" division, that alone does not show that the funds were in trust.

¶ 14 Other evidence is similarly equivocal. In some letters the Association refers to the special assessment funds as held in trust or as a "trust fund."³ But other Association letters refer to a "separate interest bearing account" referred to as the "electric fund." The evidence conflicts.

¶ 15 The Haineses rely on Borden v. Baldwin, 444 Pa. 577, 281 A.2d 892 (1971), to quell the argument that a valid trust was formed. In Borden, a non-profit corporation attempted to avoid a statutory requirement of voluntary dissolution before any distributions to members by transferring corporate property to a trust. Id. at 894. The corporation then sought to distribute the money held in trust to its members. Id. The court ruled that such payments were improper distributions prohibited by statute because they were nothing more than attempts to effectuate an otherwise prohibited distribution of the non-profit corporation's assets to its members. Id. at 895-96.

¶ 16 In contrast, the assessment funds might not be the Association's property. If the fact finder determines on remand that the special assessments are held in trust for the members, the funds belong to them. The funds would not be part of the Association's earnings, capital or assets. Although the Association placed the funds in bank accounts it controlled, the funds remained the members' property, held in trust by the...