Knaack v. Henley Park Homeowners Ass'n, Inc.

Decision Date26 August 2022
Docket NumberA22A0743
Citation365 Ga.App. 375,877 S.E.2d 821
Parties KNAACK v. HENLEY PARK HOMEOWNERS ASSOCIATION, INC.
CourtGeorgia Court of Appeals

David Joseph Metzger, Gala Villahoz, Atlanta, for Appellant.

Rebecca E. Strickland, Christine H. L. Russell, Atlanta, for Appellee.

Phipps, Senior Appellate Judge.

In this civil action challenging the validity of home leasing limitations enacted by defendant Henley Park Homeowners Association, Inc. (the "Association" or "HOA"), plaintiff Jennifer Knaack, a former Association member, appeals from the trial court's order granting summary judgment to the Association. Knaack contends on appeal that disputed questions of fact remain with respect to several of the trial court's rulings. For the reasons that follow, we reverse the trial court's ruling that Knaack lacks standing to bring her claim for monetary damages but affirm the grant of summary judgment to the Association on that claim, as Knaack has not shown any harm resulting from the Association's actions. In addition, while we affirm the trial court's ruling that Knaack lacks standing to bring her claim for a declaratory judgment as to the validity of the new leasing restrictions in this direct action against the Association, we vacate the grant of summary judgment to the Association on that claim and remand the case for the trial court to dismiss that claim without prejudice.

Viewed in the light most favorable to Knaack, the nonmovant, see Henry v. Griffin Chrysler Dodge Jeep Ram , 362 Ga. App. 459, 460, 868 S.E.2d 827 (2022), the record shows that she bought a single family home (the "Property") in the Henley Park subdivision in 2011, at which time she became a member of the Association. The Property is subject to a "Declaration of Covenants, Restrictions and Easements for Henley Park" issued in 1990 (the "Declaration"). As relevant to this appeal, Section 9.3 of the Declaration, which governs amendments thereto, states, in pertinent part:

Amendments to this Declaration, [with exceptions not relevant here], shall be proposed and adopted in the following manner: (a) Notice of the subject matter of the proposed amendment shall be included in the notice of the meeting of the Association at which such proposed amendment is to be considered and shall be delivered to each Owner [of property in the subdivision]; [and] (b) at such meeting, a resolution adopting a proposed amendment may be proposed by either the [Association's board of directors] or by Owners. Such amendment must be approved by a Two-Thirds Vote[, with other exceptions not relevant here].

Knaack listed the Property for sale in or around June 2018 and moved out of state the following month. In early August 2018, Knaack entered into an agreement (the "Agreement") to sell the Property for $393,000 to HP Georgia I, LLC — the Georgia office of Home Partners of America — a company that "provides alternative mechanisms for people to lease or lease to purchase homes." As part of the Agreement, HP Georgia I asked the Association to complete a questionnaire that sought information about the Association and its leasing rules. The Agreement also included a Buyer Addendum, which contained 18 paragraphs supplementing the Agreement, several of which authorized HP Georgia I to terminate the Agreement within a certain time frame or upon the occurrence or non-occurrence of various contingencies.

On August 13, 2018, the Association's board of directors enacted several new Community Rules governing the leasing of homes subject to the Declaration. In relevant part, the new rules provide:

6.1 Homeowners must own their homes for one full year (12 months) prior to being eligible to rent the home to third parties. Approval to rent will be granted to homeowners by the HOA provided the rental quota limit, if any, for the subdivision has not been exceeded.
6.2 The required minimum rental period will be one year (12 months).
6.3 Each unmarried adult intending to rent a home at Henley Park shall submit a separate rental application to the [Henley Park] HOA.
6.4 Each adult intending to rent a home at Henley Park may be subject to background screening. The Association retains the right to withhold approval for rental/occupancy of any individual based on adverse background.

HP Georgia I terminated the Agreement on August 21, 2018. The written termination form indicates, without elaboration, that the termination was based on "the failure of the following contingency to which the Agreement is subject: Buyer Addendum." Another buyer bought the Property for $385,000 in April 2019.

In the interim, Knaack sued the Association in December 2018 for breach of the Declaration and of the covenant of good faith and fair dealing.1 She alleged, inter alia, that the Association: (i) breached the Declaration by adopting the new Community Rules in violation of the Declaration's amendment requirements; and (ii) breached the covenant of good faith and fair dealing by adopting the new Community Rules for the purpose of preventing Knaack from selling the Property to HP Georgia I. She sought monetary damages and a declaration that the new Community Rules are void.

Following discovery, the Association moved for summary judgment. As to Knaack's breach-of-Declaration claim, the Association contended that: (i) Knaack's proposed sale to a corporate entity was barred by the Declaration; (ii) the new Community Rules did not further restrict Knaack's use of the Property; (iii) the new rules were properly adopted pursuant to the Association's Articles of Incorporation; and (iv) regardless, Knaack cannot show that HP Georgia I terminated the Agreement because of the new Community Rules. The Association further contended that Knaack cannot establish a breach of the duty of good faith and fair dealing because the Association did not breach any contractual obligations to her and that her alleged damages are too speculative to be recoverable. During oral argument, the Association also argued that, to the extent that Knaack claimed that the new Community Rules constituted an unauthorized amendment to the Declaration, she lacked standing because such a claim must be brought as a derivative action on behalf of the Association. See OCGA § 14-3-740 ; Phoenix Airline Svcs. v. Metro Airlines , 260 Ga. 584, 585-586 (1), 397 S.E.2d 699 (1990).

In its order granting the Association's motion for summary judgment, the trial court first concluded that Knaack lacks standing to bring her claims because her challenges to the validity of the new Community Rules, which affect all Association members, must be brought in a derivative action. The court also ruled that, regardless: (i) Knaack cannot establish that HP Georgia I terminated the Agreement as a result of the adoption of the new Community Rules; (ii) the new rules did not restrict Knaack's rights to use the Property; (iii) the body of the Declaration prohibited the sale of the Property to HP Georgia I regardless of any limitations imposed by the new rules; (iv) Knaack cannot establish damages resulting from the new rules; and (v) absent a breach of the Declaration, Knaack also cannot establish a breach of the covenant of good faith and fair dealing. This appeal followed.

"We review de novo a grant or denial of summary judgment, viewing the evidence and all reasonable conclusions and inferences drawn from it in the light most favorable to the nonmovant." Henry , 362 Ga. App. at 460, 868 S.E.2d 827.

Summary judgment is proper when there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. The burden on the moving party may be discharged by pointing out by reference to the affidavits, depositions and other documents in the record that there is an absence of evidence to support the nonmoving party's case. If the movant meets this burden, the nonmovant cannot rest on [her] pleadings, but rather must point to specific evidence giving rise to a triable issue.

Id. at 460-461, 868 S.E.2d 827 (citations and punctuation omitted); see OCGA § 9-11-56 (c), (e). "In that vein, speculation which raises merely a conjecture or possibility is not sufficient to create even an inference of fact for consideration on summary judgment." Handberry v. Manning Forestry Svcs. , 353 Ga. App. 150, 152, 836 S.E.2d 545 (2019) (citation and punctuation omitted).

1. Knaack first challenges the trial court's ruling that she lacks standing. She contends that (a) she has standing to bring this direct action because she suffered a special injury separate and distinct from other Association members, and (b) regardless, because standing implicates the trial court's subject matter jurisdiction, it may not be resolved in a motion for summary judgment. For the reasons that follow, while Knaack has standing to assert her claim for monetary damages, she lacks standing to seek a declaratory judgment, and the trial court should have dismissed that claim without prejudice.

The Association is organized as a nonprofit corporation under the Georgia Nonprofit Corporation Code. See OCGA § 14-3-101 et seq. ; see also OCGA § 44-3-227 (a). Under that Code, members of a nonprofit corporation may, under certain circumstances, file derivative proceedings. See OCGA § 14-3-740 et seq.

In a nonprofit derivative suit, a member asserts for the corporation's benefit rights or remedies belonging to the corporation, not to the member. The wrong which the action seeks to redress is one which the corporation, not the individual, has sustained. The member is a mere nominal party, having no right, title or interest in the claim itself. One of the primary underlying reasons for the derivative action — especially applicable to nonprofits — is to avoid a multiplicity of lawsuits.

Dunn v. Ceccarelli , 227 Ga. App. 505, 507 (1) (a), 489 S.E.2d 563 (1997) (citations omitted) (physical precedent only); accord Ga. Appreciation Property v. Enclave at Riverwalk Townhome Assn. , 345 Ga. App. 413, 419, ...

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