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Inc. v. Pines of Greenwood, LLC

Court of Appeals of Indiana

April 11, 2019

The Village Pines at the Pines of Greenwood Homeowners' Association, Inc., Appellant-Plaintiff,
Pines of Greenwood, LLC, and Arbor Homes, LLC, Appellees-Defendants.

          Appeal from the Johnson Superior Court The Honorable Marla Clark, Judge Trial Court Cause No. 41D04-1111-PL-86

          Attorneys for Appellant Laura B. Conway Steven C. Earnhart Thrasher Buschmann & Voelkel, P.C. Indianapolis, Indiana

          Attorneys for Appellees Thomas F. Bedsole Maggie L. Smith Jenai M. Brackett Frost Brown Todd LLC Indianapolis, Indiana

          BROWN, JUDGE.

         [¶1] The Village Pines at the Pines of Greenwood Homeowners' Association, Inc., (the "HOA") appeals the trial court's entry of judgment on its claims for breach of fiduciary duty and breach of contract in favor of Pines of Greenwood, LLC ("Pines") and Arbor Homes, LLC ("Arbor Homes"). Reviewing the trial court's findings and judgment under the clear error standard, we conclude that Pines and Arbor Homes violated the stated procedure for amending relevant covenants, conditions, and restrictions affecting the parties, and remand for a hearing on damages on the breach of contract claim. We affirm in part, reverse in part, and remand.

         Facts and Procedural History

         [¶2] The HOA is a not-for-profit corporation organized under the laws of the State of Indiana with a principal place of business in Greenwood, Indiana, its primary purpose being to manage the residential community commonly known as Village Pines at the Pines of Greenwood (the "Neighborhood"). Pines developed and constructed the Neighborhood, and Arbor Homes was the exclusive builder of all of its single-family homes.

         [¶3] On January 24, 2000, The Declaration of Covenants, Conditions and

         Restrictions and Grant and Reservation of Easements for The Village Pines at the Pines of Greenwood (the "Declaration") was recorded as Instrument No. 2000-001680 in the Office of the Recorder of Johnson County by Pines and Arbor Homes. The Declaration provided that "Association shall mean The Village Pines at The Pines of Greenwood Home Owners Association," - that is, the HOA; that "Declarant shall mean [Pines]" and "[a]s long as [Arbor Homes] is the exclusive builder of single family homes on the Lots, [Arbor Homes] shall have the same rights as the Declarant hereunder"; and that "Owner shall mean the Person or Persons, including Declarant, holding fee simple interest to a Lot, excluding those having such interest merely as security for the performance of an obligation." Exhibits Volume III at 15-16, 18. It provided that "Development Period shall mean the period of time during which the Declarant owns at least one (1) lot," that "Lot shall mean and refer to any and each plot of land included in the Property[[1] designed and intended for use as a building site for a single family residence," and that "Annual Assessment shall mean a charge against a particular Owner and his Lot, representing a portion of the Common Expenses[[2] which are to be levied among all Owners and their Lots in the Property in the manner and proportions provided herein." Id. at 15-17.

         [¶4] Beginning in 2000, Pines was in charge of the HOA and had the sole power to elect officers and the HOA's Board of Directors (the "Board"). Article II of the Declaration set forth provisions for the HOA and provided in part that the Board would manage the HOA's affairs. Section 2.3 provided in part that "[e]very Owner of a Lot, except as herein provided to the contrary, shall be entitled and required to be a member[[3] of the Association" and that "[e]xcept as herein otherwise expressly provided, no person or entity other than an Owner or Declarant may be a member of the Association, and a membership in the Association may not be transferred except in connection with the transfer of title to a Lot." Id. at 19.

         [¶5] Article V of the Declaration set forth the HOA's "Maintenance Funds and Assessments" and provided in part:

5.1 Personal Obligation of Assessments. Declarant, on behalf of itself and all future Owners, hereby covenants and agrees to pay, and each Owner by accepting title to a Lot or any interest therein, whether or not it shall be expressed in the deed or other instrument conveying title, shall be deemed to covenant and agree to pay to the Association, Annual Assessments and other amounts as required or provided for in this Declaration. Amounts payable for Annual Assessments and Special Assessments (as generally defined in Sections 5.5 and 5.7, respectively) are generally referred to herein as "Assessments." Other amounts payable by an Owner to the Association, (or payable with respect to an Owner's Lot), including late charges, fines, penalties, interest, attorneys fees and other costs and expenses incurred by the Association in collecting unpaid amounts shall be added to the Annual or Special Assessments, charged to his Lot and shall be enforceable and collectible as Annual or Special Assessments. . . .
Subject to the provisions hereof, the Board shall have the power and authority to determine all matters in connection with Annual or Special Assessments, including, without limitation, power and authority to determine where, when and how Assessments shall be paid to the Association, and each Owner shall comply with all such determinations.
5.2 Maintenance Funds of Association. The Board shall establish no fewer than two (2) separate Association Maintenance Funds, into which shall be deposited all monies paid to the Association, and from which disbursements shall be made, as provided herein, in the performance of functions by the Association under this Declaration. The Association Maintenance Funds may be established as trust accounts at a banking or savings institution, in federally insured accounts, and shall include: (1) an Operating Fund for current Common Expenses of the Association, (2) an adequate Reserve Fund for capital Improvements, replacements, painting and repairs of the Common Areas (which cannot normally be expected to occur on an annual or more frequent basis) . . . . The Board shall establish a Capitalization Account which shall consist of at least fifty percent (50%) of the capital contributions made by Owners pursuant to Section 5.12 hereof.
5.5 Annual Assessments/Commencement-Collection. Annual Assessments, and any monthly installment related thereto, shall commence on the first day of the first calendar month following the Closing of the sale of the first Lot. Thereafter, the Association is specifically authorized to enter into subsidy contracts or contracts for "in kind" contribution of services, materials, or a combination of services and materials with the Declarant or other entities for payment of Common Expenses.
All Annual Assessments shall be assessed equally against the Members and their Lots based upon the number of Lots owned by each Member. Annual Assessments for fractions of any month involved shall be prorated. Subject to the terms of any subsidy contract, Declarant shall pay to the Association until the Applicable Date, an amount equal to the difference, if any, between the expenditures of the Association made pursuant to this Article V and the aggregate amount of the Annual Assessments collected by the Association. From time to time the Board may determine that all excess funds in the Operating Fund be retained by the Association and used to reduce the following year's Annual Assessments.
5.6 First Annual Assessment and Maximum Annual Increases.
[] First Annual Assessment. The initial Annual Assessment for the fiscal year in which Assessments first commence shall be calculated as determined from the Budget. The Board shall estimate and prepare a Budget for the costs and expenses to be incurred by the Association during the first Fiscal Year . . . . All costs and expenses incurred (i) in fulfilling the financial obligations of the Association prior to the first Fiscal Year or (ii) ordinarily and necessarily by the Association in excess of Assessment installments to be paid during that first partial fiscal year shall be the responsibility of Declarant, and Declarant hereby covenants to bear and to pay or otherwise satisfy such financial obligations.
5.7 Special Assessments. In addition to Annual Assessments, the Association may levy Special Assessments, at such frequency and in such amounts as established by the Board, payable over the period of an Association Fiscal Year (i) for the purpose of defraying, in whole or in part, the costs of any acquisition, construction, reconstruction, maintenance, repair or replacement provided for or required pursuant to Article II; (ii) for the purpose of defraying any other expense incurred or to be incurred by the Association as provided in this Declaration; or (iii) to cover any deficiency in the event that, for whatever reasons, the amount received by the Association from Annual Assessments is less than the amount determined to be necessary and assessed by the Board. Special Assessments for these purposes may not be levied unless approved by Members holding a majority of the votes held by all Members.
5.8 Time for Payments. Each installment of the Annual Assessment shall be due on the first day of the period covered by said installment. The amount of any Assessment, late charge, fine, penalty or other amount payable by an Owner or Resident with respect to such Owner's Lot shall become due and payable as specified herein and if said payment is not received, then said Owner shall also be responsible for any late charges, interest, fines, penalties or attorneys fees related thereto. . . . Annual Assessments shall be paid and collected on a quarterly basis or at such other frequency as may be adopted by the Board.
5.12 Initial Capital Contributions to the Association. At the closing of the purchase of a Lot from Declarant, each Owner of a Lot shall contribute to the capital of the Association, an amount equal to One Hundred Dollars ($100.00). This amount shall be disbursed at the closing to the Association or to the Declarant if Declarant has previously advanced such funds to the Association. For purposes of this Declaration, Declarant, its assignees or assigns, and Arbor shall not be considered an Owner.

Id. at 29-32, 34.

         [¶6] The Declaration provided mechanisms for amendment, which stated in part:

12.2 Termination and Amendment.
(a) Notice of the subject matter of a proposed amendment to this Declaration in reasonably detailed form shall be included in the notice of any meeting or election of the Association at which a proposed amendment is to be considered. The resolution shall be adopted by the vote, in person or by proxy, or written consent of Members representing not less than sixty-seven percent (67%) of the voting power of the Association . . . .
12.3 By Declarant. Notwithstanding anything herein to the contrary, Declarant hereby reserves the right until the expiration of the Development Period to make such amendments to this Declaration as may be deemed necessary or appropriate by Declarant, without the approval of any other person or entity, in order to bring Declarant into compliance with the requirements of any statute ordinance, regulation or order of any public agency having jurisdiction thereof, or to correct clerical or typographical errors in this Declaration or any amendment or supplement hereto; provided that Declarant shall not be entitled to make any amendment which has a materially adverse effect on the rights of any Mortgagee, nor substantially impairs the benefits of this Declaration to any Owner or substantially increases the obligations imposed by this Declaration on any Owner. Each amendment to the Declaration shall be executed by Declarant only in any case where Declarant has the right to amend this Declaration without any further consent or approval, and otherwise by the Association. All amendments shall be recorded in the Office of the Recorder of Marion County, Indiana, and no amendment shall become effective until so recorded.

Id. at 47-48.

         [¶7] At some point, the Reserve Fund was established as required by Section 5.2 of the Declaration. On May 18, 2006, the HOA held a meeting, which produced in part the following meeting minutes:


         A. The Board is making a recommendation to amend [the Declaration] to address the following items:

1. Parking 8.2 - Parking and Vehicular Restrictions . . .
2. Commercial Vehicle Parking 8.2 - Parking and Vehicular Restrictions . . .
3. Temporary Play Equipment 8.3 - ...

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