Wdis, LLC v. Hi-Country Estates Homeowners Ass'n

• Decision Date: 13 August 2019
• Docket Number: No. 20170342,20170342
• Citation: 449 P.3d 171
• Parties: WDIS, LLC, and Dreamworks Property Management, Inc., Appellants, v. HI-COUNTRY ESTATES HOMEOWNERS ASSOCIATION, Appellee.
• Court: Utah Supreme Court

449 P.3d 171

WDIS, LLC, and Dreamworks Property Management, Inc., Appellants,

v.HI-COUNTRY ESTATES HOMEOWNERS ASSOCIATION, Appellee.

No. 20170342

Supreme Court of Utah.

Filed August 13, 2019

Troy L. Booher, Freyja R. Johnson, Beth E. Kennedy, Bruce R. Baird, Salt Lake City, for appellants

Jeffrey L. Silvestrini, Stephen T. Hester, Bradley M. Strassberg, Salt Lake City, for appellee

Chief Justice Durrant authored the opinion of the Court, in which Associate Chief Justice Lee, Justice Himonas, Justice Pearce, and Justice Petersen joined.

On Direct Appeal

Chief Justice Durrant, opinion of the Court:

Introduction

¶1 This case involves a dispute between Hi-Country Estates Homeowners Association (HOA) and a group of landowners (WDIS) within the HOA’s boundaries. At the district court level WDIS brought, among other actions, an action to quiet title in its properties against the HOA. Specifically, WDIS sought a judicial declaration that its properties were not encumbered by the HOA’s covenants and restrictions. The district court dismissed the action because it determined that it was barred by a statute of limitations. The court also held that the doctrine of res judicata precluded WDIS from challenging certain encumbrances enacted in 1990.

¶2 WDIS appeals both determinations. As to the first determination, WDIS sets forth three arguments for why its quiet title claim is not time barred: (1) it qualifies for an "actual possession" exception to statutes of limitations established in Bangerter v. Petty ,¹ (2) it qualifies for a "true quiet title" exception established in In re Hoopiiaina Trust ,² and (3) statutes of limitations do not apply to challenges of void encumbrances.

¶3 Although we disagree with WDIS’s framing of the quiet title exception, we agree that no statute of limitations applies to WDIS’s quiet title claim, because WDIS is able to establish a prima facie case of quiet title without first receiving some other relief from the court. Our decisions in Hoopiiaina and Bangerter rely on the same quiet title exception to statutes of limitations. Because this conclusion renders a determination on WDIS’s void encumbrance argument unnecessary, we decline to address it.

¶4 As to the res judicata determination, WDIS argues that reversal is warranted because the district court improperly considered evidence outside the pleadings without converting the motion to dismiss into a motion for summary judgment. Because the HOA failed to address WDIS’s plausible argument on this issue, we reverse without reaching the merits of WDIS’s argument.

Background

¶5 In August of 1970, three men—Charles Lewton, Gerald Bagley, and Harold Glazier—filed "Articles of Incorporation of Hi-Country Estates, Inc." with the Utah Secretary of State.³ That same day, they also filed a "Certificate of Limited Partnership of Hi-Country Estates, Second," with Hi-Country Estates, Inc. as the limited partnership’s general partner. The purpose of both of these entities was to "acquire, develop and sell real and personal properties." At the time of these filings, none of the shareholders owned any real property within the purported boundaries of the HOA.

¶6 Three years later, Mr. Lewton, in his individual capacity, filed articles of incorporation for the HOA. Mr. Lewton was identified in the articles of incorporation as the HOA’s incorporator. Although Mr. Lewton—together with three other individuals—owned only one, eight-acre parcel of property within the purported boundaries of the HOA, a property description attached to the articles of incorporation included approximately 2,035 acres. Additionally, at the time the articles of incorporation were filed, none of the Hi-Country Estates entities owned any of the real property included in the attached property description. And none of the actual owners of the property had agreed to be bound by the articles of incorporation, had knowledge of its filing, or had conferred a power of attorney or other authorization upon Mr. Lewton to act on their behalf. So at the time the articles of incorporation were filed, Mr. Lewton did not have authorization from the owners of the remaining 2,027 acres to include their land in the HOA.⁴

¶7 Around that same time, Mr. Lewton also recorded protective covenants for "Hi-Country Estates, Phase II" with the Salt Lake County Recorder’s Office. Mr. Lewton was the only one who signed the covenants. A property description attached to the recorded covenants included only 1,955 acres of real property—or eighty fewer acres than the area described in the attachment of the HOA’s articles of incorporation. At the time the covenants were recorded, Mr. Lewton owned only eight acres of real property inside the encumbered area.

¶8 In the years following the initial incorporation of the HOA and recording of restrictive covenants, other addenda to the articles of incorporation, bylaws, and covenants were recorded. Following the filing of a new addendum in 2015, WDIS demanded production of documents from the HOA. After reviewing these documents, WDIS discovered many alleged deficiencies in the HOA’s articles of incorporation and subsequent addenda, covenants, and bylaws. WDIS claims, for various reasons, that each of these addenda, bylaws, and covenants are invalid, improper, or unenforceable.

¶9 In August of 2016, WDIS filed the complaint in this case, alleging seven separate causes of action. The first three causes of action were for a declaratory judgment that the HOA’s covenants, articles, and bylaws were void or invalid. The fourth cause of action was for a judicial dissolution of the HOA. The fifth cause of action was to quiet title to WDIS’s property in WDIS’s favor.

And the sixth and seventh causes of action were for forms of injunctive relief.

¶10 Shortly after the complaint was filed, the HOA filed a motion to dismiss under rule 12(b)(6) of the Utah Rules of Civil Procedure. It argued that the complaint should be dismissed because all of WDIS’s claims—except for certain claims arising after 2012—were barred by statutes of limitations. The HOA also argued that the complaint should be dismissed because WDIS’s claims were precluded under the doctrine of res judicata.

¶11 WDIS replied to the HOA’s motion to dismiss by arguing that there is no statute of limitations for an action (1) challenging a document that was "void ab initio" or (2) seeking to remove a cloud from, or to quiet, the title to real property. At oral argument on the motion, WDIS clarified that the statute of limitations should not apply to its claim, because it was a true quiet title action. Additionally, WDIS argued that the HOA’s res judicata argument failed because the parties were not the same and the subject matter of previous litigation was substantially different.

¶12 In its March 10, 2017 Order, the district court granted the HOA’s motion to dismiss as to all of WDIS’s claims that arose before 2012 because it determined that they were barred by a statute of limitations. The court ruled that WDIS’s quiet title claim was not a true quiet title action, because it was dependent on a preliminary determination that the HOA’s governing documents were invalid or void ab initio .

¶13 Additionally, the district court accepted the HOA’s res judicata argument, but only as to WDIS’s first cause of action as it relates to the 1990 recording of additional restrictive covenants. So absent the district court’s statute of limitations ruling, WDIS is not precluded from bringing any claims related to the original articles of incorporation, or any subsequent addendums, covenants (except for the 1990 recording of additional restrictive covenants), or bylaws.

¶14 WDIS agreed to dismiss its remaining claims without prejudice so that it could challenge the dismissal of its complaint through this appeal. We have jurisdiction pursuant to Utah Code section 78A-3-102(3)(j).

Standard of Review

¶15 First, we must decide whether the district courted erred in ruling that a statute of limitations applied to WDIS’s quiet title claim. A district court’s application of a statute of limitations is a question of law we review for correctness.⁵

¶16 Additionally, we must decide whether the district court erred in considering material outside of the pleadings to decide a rule 12(b)(6) motion to dismiss. "[T]he propriety of a 12(b)(6) dismissal is a question of law," which we review "under a correctness standard."⁶ "In reviewing the trial court’s decision, we accept the factual allegations in the complaint as true and interpret those facts and all inferences drawn from them in the light most favorable to the plaintiff as the non-moving party."⁷

Analysis

¶17 WDIS argues that, because quiet title claims are never time barred, the district court erred by ruling that a statute of limitations applied to WDIS’s quiet title claim. Alternatively, it argues that the court erred because challenges of void encumbrances are likewise never barred.⁸ We hold that WDIS’s quiet title action is not barred by a statute of limitations, because WDIS is able to establish a prima facie case of quiet title without receiving any other relief from the district court. Because this determination renders a determination on WDIS’s void encumbrance argument unnecessary, we decline to address that argument.

¶18 WDIS also argues that the district court erred by considering material outside of the pleadings in deciding, on a rule 12(b)(6) motion to dismiss, that some of WDIS’s claims were barred by the doctrine of res judicata. Because the HOA failed to adequately brief the issue, we reverse the district court’s res judicata determination.

¶19 But before turning to the merits of this case, we must address whether we have appellate jurisdiction.

I. We Have Appellate Jurisdiction in This Case

¶20 After briefing and oral argument were complete, we identified a potential policy concern that could be created by exercising appellate jurisdiction in this case. As we noted above, after the district court issued its...