Heringer v. Barnegat Dev. Grp., LLC

• Decision Date: 27 April 2021
• Docket Number: DA 20-0512
• Citation: 485 P.3d 731,2021 MT 100
• Parties: Charles J. HERINGER, III, AS the TRUSTEE OF the CHARLES J. HERINGER, III, TRUST, DATED MAY 20, 1999, as Amended and Restated; Ronald R. Broadway; Shawn A. Schaffer and Kristy M. Schaffer; Michael A. DiFronzo; Tracie E. Pabst; Moose 59, LLC; and Moose Drool Properties, LLC, Plaintiffs and Appellants, v. BARNEGAT DEVELOPMENT GROUP, LLC; RZLDZL, LLC; and John and Jane Does 1-10; Defendants and Appellees.
• Court: Montana Supreme Court

485 P.3d 731

2021 MT 100

Charles J. HERINGER, III, AS the TRUSTEE OF the CHARLES J. HERINGER, III, TRUST, DATED MAY 20, 1999, as Amended and Restated; Ronald R. Broadway; Shawn A. Schaffer and Kristy M. Schaffer; Michael A. DiFronzo; Tracie E. Pabst; Moose 59, LLC; and Moose Drool Properties, LLC, Plaintiffs and Appellants,

v.BARNEGAT DEVELOPMENT GROUP, LLC; RZLDZL, LLC; and John and Jane Does 1-10; Defendants and Appellees.

DA 20-0512

Supreme Court of Montana.

Submitted on Briefs: March 3, 2021

Decided: April 27, 2021

For Appellants: Robert K. Baldwin, Goetz, Baldwin & Geddes, P.C., Bozeman, Montana

For Appellees: Alanah Griffith, Patrick Tillisch, Griffith & Cummings, PC, Big Sky, Montana (for Barnegat Development Group, LLC), Elizabeth W. Lund, Berg Lilly, PC, Bozeman, Montana (for RZLDZL, LLC)

Justice Ingrid Gustafson delivered the Opinion of the Court.

¶1 The owners of condominium units located in Big Sky, Montana, sued the condominium developer for breach of contract and declaratory judgment after the developer unilaterally amended the condominium declaration to create a new homeowners’ association to which new unit owners would belong, leaving the existing unit owners in the original association. Before answering the complaint, the developer revoked the amendment to the declaration. The Eighteenth Judicial District Court, Gallatin County, dismissed the case as moot and declined to award attorney fees to either party, concluding neither party was a prevailing party under the circumstances. The condominium owners appeal, raising the following restated issues on appeal:

1. Whether the District Court erred dismissing the case as moot; and

2. Whether the District Court erred in refusing to award attorney fees and costs.

¶2 We affirm.

PROCEDURAL AND FACTUAL BACKGROUND

¶3 Charles J. Heringer, III, as the Trustee of the Charles J. Heringer, III, Trust, dated May 20, 1999, as Amended and Restated; Shawn A. Schaffer and Kristy M. Schaffer; Michael A. DiFronzo; Tracie E. Pabst; Moose 59, LLC; and Moose Drool Properties, LLC (Owners) own existing condominium units in the Moose Ridge Condominium Development in Big Sky, Montana. Their seven units were built between 2007 and 2009. The Owners all purchased their individual units before September 2018.

¶4 The Amended and Restated Declaration for Moose Ridge Condominium (the "Declaration"), filed with the Gallatin County Clerk and Recorder in 2007, governs the development of the Moose Ridge condominiums and provides for the Moose Ridge Condominium Owners’ Association, Inc. (the "Association").¹ The Declaration provides a procedure for seeking the Owners’ consent to amend the Declaration. It also allows the developer to unilaterally amend the Declaration "for the purposes of correcting survey or other errors and for any other purpose unless the amendment would materially alter or change the rights of a Unit Owner or mortgagee, in which event Unit Owner and mortgagee consent shall be required as provided above." The Declaration further provides "[n]otwithstanding the procedure set forth above, the [developer] may amend this Declaration, or any other Governing Documents, prior to any sale or lease of a Unit or interest thereof."

¶5 Barnegat Development Group, LLC (Barnegat) acquired the development rights to Moose Ridge from the prior developer in September 2018 and began taking steps to develop the remaining units. Barnegat called a meeting with the Owners shortly after acquiring the development rights to discuss issues facing the Association. The meeting took place on December 5, 2018, with most of the Owners in attendance. Barnegat told the Owners the Association was facing multiple financial issues. Under the Declaration, the Association was responsible for maintaining the common elements of the condominiums as defined by the Declaration, which included, among other things, the structural components of the buildings such as the foundations, as well as the roofs of the buildings, decks, patios, and asphalt. Since the construction of the existing units about ten years prior, little to no maintenance and repair had taken place on the Owners’ units. The Association had not set aside reserve money for the repair and replacement of expensive items like roofs, decks, siding, and asphalt. In addition, one of the condominium buildings, housing two of the existing units, had unaddressed foundation issues. The statute of limitations for construction defects against the original builder/developer had run on the foundation issues and the Association was now responsible for the costs of the needed repairs to these units.

¶6 Barnegat explained to the Owners at the meeting these issues could prevent the future sale of any new units that Barnegat built. Any new owners would be added to the Association and share responsibility to pay for these existing liabilities. The cost to address these issues was unknown at that time. Given the state of the Association's finances and the unknown cost of the liabilities facing the Association, financing for purchasers of new units was in jeopardy, as banks may not approve a loan for the purchase of a condominium unit within the Association. Barnegat advised the Owners it intended to begin selling new units the following summer. If the Association had not resolved these issues by that time, Barnegat warned it would look into splitting the Association into two associations, one including all the existing units and the other including all the new units.

¶7 After the meeting, Barnegat took steps to determine the extent of the liabilities facing the Association. Barnegat ordered and paid for a reserve study, which identified the various maintenance and repairs needed, their costs, and the amount the Association needed to assess the Owners to bring the reserve accounts up to where they should be. Barnegat also commissioned an engineering report on the foundation issues, which were determined to be caused by expansive clays, settlement, and poor drainage around the building. The report estimated the cost of the repair could be anywhere between $50,000 and $350,000. Barnegat received this report shortly before the closing date for the sale of the eighth unit in November 2019. Barnegat disclosed the report to the buyer of the eighth unit. The buyer, RZLDZL, LLC, demanded Barnegat split the Association and indemnify it from any future suit. On October 16, 2019, Barnegat filed the amendment (the "Amendment") at issue in this litigation with the Gallatin County Clerk and Recorder, creating two separate homeowners’ associations. Barnegat closed the sale with RZLDZL.

¶8 In a January 8, 2020 letter from Barnegat's counsel to the Owners’ counsel, Barnegat explained the association split was in response to two issues: the unresolved foundation issues with two units and the lack of reserves to pay for needed maintenance, repair, and replacement of common elements. Barnegat explained these issues could cause financing issues and prevent the sale of new units. Barnegat maintained it

split the associations to give your clients more time to fix the issues. It was never the intention that this would be a permanent split .... [A]s soon as [the foundation issue] is fixed and the reserves are brought up to industry standards, my client will look at combining the associations again.

The owners filed suit against Barnegat² on January 24, 2020, alleging breach of contract and seeking a declaratory judgment "the Amendment is invalid, null and void."

¶9 Before Barnegat filed its answer, the Owners and Barnegat stipulated to a stay in the proceedings on February 26, 2020. While the case was stayed, Barnegat sought estimates for the cost of repairing the foundation issues, which came in at $60,000. In an April 9, 2020 letter to the Owners’ counsel, Barnegat's counsel explained its

plan is to file an amendment revoking the Amendment which split the Association into two Associations. ... Barnegat will take over the Board [of the Association] .... Then, Barnegat/Board plans to move forward with fixing [the foundation issues] and apportioning the cost between the 8 Units.

Should Barnegat revoke the amendment, I believe your clients’ lawsuit would be moot.

In closing, Barnegat's counsel informed the Owners "I will move forward with filing the Revocation of the Amendment, and then file the Motion to Dismiss."

¶10 The Owners filed a notice of withdrawal from the stipulation to stay the case on April 20, 2020. Barnegat filed a revocation of the Amendment with the Gallatin County Clerk and Recorder on April 21, 2020. Barnegat then filed both its answer and a motion for summary judgment with the District Court on April 30, 2020. In its three-page motion and brief, Barnegat argued the case was moot because it had revoked the Amendment, attaching a copy of the filed revocation as an exhibit.

¶11 The Owners filed an extensive brief in opposition and cross-motion for summary judgment, seeking a declaration from the court the Amendment was invalid because Barnegat did not have authority under the declarations to file the Amendment splitting the Association. In its response brief, Barnegat argued both counts of the complaint were moot, because it had revoked the Amendment and although it maintained that it had authority under the Declaration to file the amendment to create two homeowners’ associations, it had sworn not to unilaterally amend the Declaration again because it had resolved the underlying issues. Barnegat attached an affidavit from Russell Lucas, the managing member of Barnegat, in which he attested Barnegat had revoked the amendment, assumed control of the Association, and had begun moving forward with the needed repairs. He concluded, "I will not need to file another amendment splitting the Association into two associations as I have resolved the underlying issues which caused Barnegat to file the amendment in the first place and I prefer to have one association." Both parties sought their attorney fees...