Westlake Properties v. Westlake Pointe

• Decision Date: 12 January 2007
• Docket Number: Record No. 060518.
• Citation: 639 S.E.2d 257
• Court: Virginia Supreme Court
• Parties: WESTLAKE PROPERTIES, INC., et al. v. WESTLAKE POINTE PROPERTY OWNERS ASSOCIATION, INC.

639 S.E.2d 257

WESTLAKE PROPERTIES, INC., et al. v. WESTLAKE POINTE PROPERTY OWNERS ASSOCIATION, INC.

Record No. 060518.

Supreme Court of Virginia.

January 12, 2007.

COPYRIGHT MATERIAL OMITTED

Terry N. Grimes, Roanoke (B. James Jefferson, Rocky Mount, on briefs), for appellants.

Monica Taylor Monday, Roanoke (K. Brett Marston; J. Barrett Lucy; Gentry Locke Rakes & Moore, on brief), for appellee.

Present: All the Justices.

OPINION BY Justice LAWRENCE L. KOONTZ, JR.

This appeal arises from a judgment of the trial court confirming a jury verdict in favor of a property owners' association against the corporate developer and the corporate contractor for construction of a townhome community. The property owners' association maintained that as a result of negligence in development and construction, the septic system serving the community was damaged when massive soil erosion occurred on the community property. The sufficiency of the evidence to support this negligence claim is not at issue in this appeal. The principal issues we consider are whether the property owners' association had standing to bring the action on its own behalf and, if so, whether the individual property owners were nonetheless necessary parties to the action. We also consider whether an improper attempt to impeach a witness was adequately cured by a cautionary instruction to the jury and whether the jury was correctly instructed on the issue of proximate causation and the proper measure of damages.

BACKGROUND

Westlake Pointe is a townhome community located on Smith Mountain Lake in Franklin County. Westlake Properties, Inc. began development of Westlake Pointe in 1998.¹ In an original declaration of covenants, conditions and restrictions recorded among the land records of Franklin County on May 1, 1998, Westlake Properties stated its intention, among other things, to establish "Limited Common Easements ... which shall be easements to locate, maintain, repair, operate and replace sewer lines, septic systems and drainfields on the common area designated for drainfield use and within any sewer line, septic system or drainfields designated upon land adjoining the property." In that declaration, Westlake Properties further stated that it had "incorporated under the laws of the Commonwealth of Virginia, as a non-profit corporation, Westlake Pointe Property Owners Association, Inc." ("the Association"). The express purpose for creating the Association was to delegate to it "the powers of maintaining and administering the Community facilities" including the septic system.

The declaration also provided that "[t]he Developer will be the initial owner of the sewage disposal system ... and also of the permit issued by the state health commissioner for the construction, maintenance, and operation of the septic tank and drainfield sewage disposal system." The declaration further provided that "[t]he permit and ownership of the sewage disposal system including the drainfield or Limited Common Easements and the Common Areas upon which said easements are located ... and [the Developer's] responsibilities [to maintain and repair the system] will be transferred to the Association" upon substantial completion of the development or sale of seventy-five percent of the townhomes.

Westlake Pointe was subsequently developed to consist of forty-six separately owned townhomes in eight buildings. As originally designed, the septic system included eleven septic tanks and pump stations to service all the townhomes in the development. Individual sewer lines connected each townhome to one of the eleven septic tanks. Most of these septic tanks and the other fixtures of the septic system were installed in a slope, which was located behind four of the buildings and between them and the waterline of the lake. Effluent from the septic tanks was pumped to a drainfield located several hundred yards from the development. The drainfield was part of the common property that ultimately was deeded to the Association. Most of the fixtures of the septic system were located on lots that abutted and included portions of the slope which ultimately was deeded to the individual owners of the townhomes.

In addition to the construction and installation of the septic system, the engineering design specifications of the Westlake Pointe development plans called for the soil of the slope, where the principal fixtures of the septic system would be located, to be filled, compacted, and graded in a specific manner to prevent excessive erosion and runoff. Westlake Properties does not contest that it deviated significantly from these specifications for covering the septic system with the specified fill dirt and compacting and grading the slope. The evidence showed that Westlake Properties negligently failed to use the proper quality of fill material, did not adequately compact the fill material used, and did not contour the slope to the recommended grade.

After Westlake Pointe was fully developed, Westlake Properties turned control of the Association over to the property owners on May 2, 2003. With the transfer of control, as provided by the declaration, the Association became the record owner of the common areas of the community, including the fixtures that made up the infrastructure of the common portions of the septic system, as well as the permit issued by the state health commissioner for its operation.

The Association's articles of incorporation expressly require it "to manage and [e]nsure the maintenance, repair, replacement and operation of the septic systems." The Association is required further to maintain the septic system "in compliance with the applicable state and local laws, ordinances, and regulations." To that end, the Association is authorized to make assessments on the property owners to pay for the maintenance and repair of the septic system. Under the provisions of a recorded dedication of easements pertaining to Westlake Pointe, the individual property owners are required to maintain the sewer lines that connect their townhomes to the common fixtures of the septic system, and the Association has an easement to come onto the property of an individual property owner to repair or maintain the fixtures of the septic system.

Prior to the transfer of control to the Association and with it the obligation to maintain and repair the septic system, the property owners had reported to Westlake Properties numerous problems with the slope where the common fixtures of the septic system were located. Specifically, there had been multiple instances of soil erosion, known as "washouts," as well as resulting structural damage to various fixtures of the septic system. Westlake Properties took remedial efforts to repair the damage and rectify the situation, but problems with soil erosion along the entire slope persisted.

From August 9 to August 10, 2003, heavy rain in the Smith Mountain Lake area resulted in a catastrophic failure of the Westlake Pointe septic system. Due to excessive erosion in the slope, the septic tanks and pump stations that served a number of the townhomes were completely exposed and damaged in place or were dislodged entirely from their proper placement in the system so that they were no longer capable of functioning. The erosion rapidly spread along the slope behind other buildings. As a result of the exposure and damage to the septic tanks and pump stations, the entire community was inundated by the smell of the raw sewage.

The Franklin County Health Department investigated the damage to the Westlake Pointe septic system and directed the Association to "come up with a plan of action . . . to keep the sewage system operational and keep sewage off the ground and out of [Smith Mountain Lake]." The Association was given fourteen days to hire an engineer and report back to the Department. According to the Department, the order was directed to the Association as the party "legally responsible" for the maintenance and repair of the septic system.

The Association obtained estimates from several engineers for making repairs to the septic system and ultimately hired ACS Design LLC to devise a plan to address the erosion of the slope that was the origin of the problem with the system. ACS Design, along with the general contractor hired to perform the anticipated repair work and a consulting geotechnical engineering firm, determined that the septic system would need to be entirely redesigned. This would require the relocation of most of the septic system's infrastructure, removal of the existing fixtures of the system, and construction of a retaining wall to prevent future erosion.

According to Dan Early, the ACS Design engineer who designed the plan for the new septic system, the decision not to attempt to restore the system in accord with the original development plan was reached because the erosion of the slope made it "impossible to develop a repair [plan] that was specified on the original design." Early further stated that to repair the system so that it would be as originally designed could not have been achieved within the same budget and time frame that would be required to install the newly designed system.

After the plan to replace the septic system was approved by the health department, the Association voted to assess each homeowner $13,050 to cover the cost of the construction. The Association further determined, and advised the individual property owners, that it would seek to recover the cost of repairing the septic system from Westlake Properties. According to Philip H. Martin, an officer of the Association, it was "assumed that any recovery [from Westlake Properties] would be redistributed to the record members of the Association" at the time the special assessment was made. However, Martin further stated that "[n]o official decision has been made on that issue."

On June 17, 2004, the Association filed a motion for judgment against Westlake...