Mayfield Cove Estates Homeowners Association v. Hadaller

• Decision Date: 28 February 2012
• Docket Number: 40426-5-II
• Court: Washington Court of Appeals
• Parties: MAYFIELD COVE ESTATES HOMEOWNERS ASSOCIATION, a Washington non-profit corporation, Respondent, v. JOHN J. HADALLER, an individual, Appellant.

MAYFIELD COVE ESTATES HOMEOWNERS ASSOCIATION, a Washington non-profit corporation, Respondent,
v.
JOHN J. HADALLER, an individual, Appellant.

No. 40426-5-II

Court of Appeals of Washington, Division 2

February 28, 2012

UNPUBLISHED OPINION

QUINN-BRINTNALL, J.

Following a bench trial, the trial court entered a declaratory judgment finding that Mayfield Cove Estates Homeowners Association (HOA) had ownership, management, and control over a water system servicing the subdivision. The trial court ordered John J. Hadaller, the former HOA treasurer, secretary, and subdivision developer, to deliver to the HOA all documents and funds related to the HOA and water system in his possession and control. The trial court also awarded the HOA attorney fees and costs. Hadaller appeals, assigning error to the trial court finding that he (1) had only two votes at an HOA meeting, (2) created the water system in the HOA's name, and (3) dedicated the water system to the HOA. Hadaller argues that the trial court erred when it permitted the HOA to prosecute an issue he asserts the parties agreed they would argue in a separate action, denied his motion for reconsideration or new trial, and awarded the HOA attorney fees. We affirm.

FACTS

Between 2003 and 2007, Hadaller developed eight residential lots^[1] near Lake Mayfield in Lewis County, Washington. On August 8, 2003, Hadaller prepared and recorded against the eight lots a "Declaration of Covenants, Conditions, Restrictions, Road Maintenance Agreement, Water System" (2003 CCRs) for the HOA, a then unincorporated Washington association. Hadaller named himself both the HOA's secretary and its treasurer and maintained all documents, records, and funds thereafter.

Between 2003 and 2005, Hadaller sold Lots 1, 2, 3, and 4 to four separate buyers.^[2]Hadaller recorded "Amended Covenants" on October 27, 2006, which included a section requiring Hadaller's affirmative vote in addition to a two-thirds HOA majority vote to adopt future covenant amendments. As required by Lewis County Code, Hadaller constructed Mayfield Cove Estates Water System #1 to serve Plat 010, and Mayfield Cove Estates Water System #2 to serve Plat 017.^[3] On April 13, 2007, Hadaller recorded with Lewis County a notice to future property owners of his ownership of "Mayfield Cove Estates #2 Water System." Clerk's Papers (CP) at 513. On October 16, Hadaller sold Lots 5, 6, and 7 to attorney David Lowe and, Sherry, Lowe's wife. The Lowes' short form deed shows a list of encumbrances, including the 2003 CCRs, Amended Covenants, and 2007 notice of Hadaller's Water System #2 ownership. Hadaller retained ownership of Lot 8 and voting rights for Lot 4.

The HOA incorporated on September 3, 2008. At a December 30 meeting, Hadaller challenged the incorporation, asserting that he was entitled to four votes because he owned undeveloped acreage in Plat 010. Specifically, it appears Hadaller had intended to divide Lot 4 into two separate lots; thus, he asserted that he was entitled to vote once on behalf of his own lot, once on behalf of the portion of Lot 4 then leased by the Rockwoods, and twice more for two additional (and yet undesignated) unoccupied "lots." The HOA majority rejected Hadaller's challenge because the bylaws did not recognize the undeveloped property as granting him additional votes. The HOA bylaws granted votes to those lots recognized under separate tax parcels only. Hadaller did not subdivide Lot 4 into separate parcels until 2010.

The HOA members voted to replace Hadaller as the secretary and treasurer and directed him to make available all HOA-related records and funds in his control. Hadaller refused. The HOA attempted to gain access to the records twice more, once by providing Hadaller with HOA meeting minutes showing its decision to direct Hadaller to transfer the records and funds, and once by an email request dated January 3, 2009. Hadaller again refused and the HOA filed suit pursuant to ch. 64.38 RCW on January 14.

On January 22, in support of the HOA's motion for order to show cause, Fuchs submitted a declaration in which he stated he had never signed the Amended Covenants and that Hadaller had forged his signature. Following a January 26 show cause hearing, the trial court ruled in the HOA's favor and ordered Hadaller to transfer all HOA-related documents and funds to the HOA pursuant to RCW 64.38.045^[4] by February 25. On February 27, the trial court entered a written order awarding the HOA interim attorney fees and costs.

Hadaller moved for reconsideration on March 5. In support of his motion, Hadaller included a declaration of an expert document examiner, Travis King, stating that Fuchs's signature in the Amended Covenants was not forged. The HOA opposed reconsideration, arguing that King was not a proven expert, the trial court should disregard King's statement as inadmissible hearsay, and that the Amended Covenants were unenforceable and invalid.

By early March, Hadaller had delivered just a few documents to the HOA, none relating to the water system. Hadaller refused to transfer the funds, asserting that as the water system owner, the funds should stay under his control. Hadaller also argued that the transfer order dealt with HOA or road maintenance funds only, not water system-related funds. The HOA filed a motion asking the trial court to find Hadaller in contempt for failing to timely comply with the February 23 transfer order. On March 13, the trial court entered a second order directing Hadaller to relinquish the original documents. The trial court reserved the issues of transferring the water system-related documents and additional HOA attorney fees. The trial court ordered the funds placed into the court's registry.

Hadaller failed to comply with the March 13 order and the HOA filed a second motion for contempt. On April 3, the trial court denied Hadaller's motion for reconsideration and again ordered Hadaller to either deliver the HOA-related documents or face sanctions. The trial court entered a contempt order on April 13, and awarded the HOA attorney fees and costs due to Hadaller's failure to timely comply with the previous transfer orders.

Meanwhile, on April 8, the HOA filed a motion to confirm its water system ownership and to compel transfer of related documents and funds. Hadaller asserted that he had transferred the documents and funds to the HOA as ordered. The trial court ordered Hadaller to submit a declaration under oath describing the documents and funds he had transferred and the dates of the purported transfers. The trial court found that the HOA was entitled to the balance of its attorney fees and costs and awarded additional attorney fees incurred while attempting to obtain the records since the time of the interim award. The award did not include attorney fees related to the water system ownership issue. The trial court acknowledged that the parties contested the validity of the Amended Covenants and ruled that the factual issues of the ownership, control, and management of the water system and related funds required trial.

On June 19, the trial court entered an order awarding the HOA additional attorney fees and costs. Hadaller sought discretionary review of the trial court's February 23 transfer order and June 19 attorney fees and costs award. We denied review on August 26. The HOA sought collection of the ordered attorney fees through garnishment, but the trial court stayed collection pending review because Hadaller posted a $15, 000 supersedeas bond on July 21 pursuant to RAP 8.1(b)(1). On September 11, the trial court ordered the court clerk to disburse to the HOA $5, 520.15 plus $355.71 interest in satisfaction of the February 27 order, and $8, 125.63 plus $224.40 interest in satisfaction of the June 19 order.

On July 3, the HOA held its annual meeting and voted to adopt amended CCRs (2009 CCRs). The HOA recorded the 2009 CCRs with Lewis County on July 6. Over the July 4 holiday weekend, Hadaller trespassed onto the Lowes' property, turned off the Lowes' water, and locked the water meter. The HOA obtained a temporary restraining order (TRO) requiring Hadaller to unlock the meter and turn the Lowes' water back on. The TRO prevented Hadaller from adversely affecting any other HOA member's water supply pending a full hearing. On August 7, the trial court converted the TRO into a preliminary injunction. In doing so, the trial court found that Hadaller had no authority to unilaterally shut off or deny other members' water access and that the HOA had the responsibility to manage the water systems.

Despite the preliminary injunction, Hadaller continued to shut off the water supply to the subdivision periodically throughout October and November. In particular, on October 20, Hadaller damaged the main water line to Water System #1, flooding and contaminating the water system. Several HOA members were without water for over six hours and, once restored, were unable to drink their water for several days due to contamination concerns. The same incident led to other damages necessitating further water shut offs over the next several weeks. Hadaller refused HOA requests to correct the damage and pay for a professional inspection.

On September 23, the HOA served Hadaller with its first set of interrogatories and requests for production of documents. Hadaller did not respond to either discovery request. The HOA moved for contempt of the August 7 preliminary injunction, to compel discovery, and for related sanctions.

On December 10, the trial court began a two-day bench trial on the issue of the water system's ownership, control, and management. The HOA's trial brief presented three arguments: (1) the HOA owned the water system, (2) Hadaller had dedicated the water system to the HOA, and (3) the HOA was the proper and sole manager of the water system. Hadaller, Cheryl Greer, Fuchs, and Pamela Rockwood testified at...