Cook v. The Ass'n of Apartment Owners of Mt. Terrace

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CHRISTINA D. COOK, BUBBY & YUKO LLC, E.J. TROSCLAIR, YUKO DONLEY, KARI A. THOMPSON-STUEBER, AND JEREMY E. CHELLIN, Plaintiffs-Appellants, v. THE ASSOCIATION OF APARTMENT OWNERS OF MT. TERRACE, Defendant-Appellee, and JOHN DOES 1-10; JANE DOES 1-10; DOE PARTNERSHIPS 1-10; DOE CORPORATIONS 1-10; DOE ENTITIES 1-10; Defendants

No. CAAP-20-0000536

Intermediate Court of Appeals of Hawai'i

September 30, 2024

NOT FOR PUBLICATION IN WEST'S HAWAII REPORTS OR THE PACIFIC REPORTER

APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT (CIVIL NO 1CC181000125)

On the briefs:

Terrance M. Revere and Amanda L. Dutcher (Revere &amp Associates) for Plaintiffs-Appellants.

Matt A. Tsukazaki and Tyler A. Tsukazaki (Li & Tsukazaki) for Defendant-Appellee.

Wadsworth, Presiding Judge, and Nakasone, and McCullen, JJ.

SUMMARY DISPOSITION ORDER

This appeal arises out of a dispute concerning the repair and replacement of windows at the Mt. Terrace condominium project in Hawai'i Kai, and the decision by the Board of Directors for the Association of Apartment Owners of Mt. Terrace (the Board) to treat the window project as a common expense to be charged to unit owners. Plaintiffs-Appellants Christina D. Cook, Bubby & Yuko, LLC, EJ Trosclair, Yuko Donley, Kari A. Thompson-Stueber, and Jeremy E. Chellin (Plaintiffs) own units in Mt. Terrace. They appeal from the July 31, 2020 Final Judgment, entered in favor of Defendant-Appellee Association of Apartment Owners of Mt. Terrace (the Association) and against Plaintiffs by the Circuit Court of the First Circuit (Circuit Court). Plaintiffs also challenge the following orders entered by the Circuit Court:

(1) the October 25, 2018 "Order Denying Plaintiffs' Motion for Partial Summary Judgment Regarding Plaintiffs['] Count I (Declaratory Relief) of the Complaint, Filed on January 24, 2018, Filed on July 17, 2018";

(2) the October 25, 2018 "Order Granting [Association's] Cross-Motion for Partial Summary Judgment on Plaintiffs' Complaint, Filed on January 24, 2018, Filed on August 13, 2018" (October 25, 2018 Order Granting Association's XMPSJ);

(3) the February 27, 2020 "Order Granting [Association's] Motion for Partial Summary Judgment on the Breach of Fiduciary Duty Claim (Count III) in Plaintiffs' Complaint Filed on January 24, 2018, Filed on November 21, 2019"; and

(4) the March 17, 2020 "Order Granting [Association's] Motion for Partial Summary Judgment on Plaintiffs' Claims for Declaratory and Injunctive Relief (Count I), Breach of Contract (Count II), and Failure to Fund Reserves (Count IV) Filed on January 3, 2020."^[1]

On appeal, Plaintiffs contend that the Circuit Court erred in: (1) denying Plaintiffs' July 17, 2018 MPSJ, and granting the Association's August 13, 2018 cross-motion for partial summary judgment (August 13, 2018 XMPSJ), "because the [c]ourt failed to properly apply the holding in Harrison v. Casa De Emdeko[, Inc.]," 142 Hawai'i 218, 418 P.3d 559 (2018); (2) granting the Association's November 21, 2019 MPSJ on Plaintiffs' breach of fiduciary duty claim "because [the] legislature has acknowledged that the relationship between an association and its members is fiduciary in nature and that individuals are entitled to seek relief from the court"; and (3) granting the Association's January 3, 2020 MPSJ regarding Plaintiffs' remaining claims "because [Hawaii Revised Statutes (HRS)] Chapter 514B provides Plaintiffs standing to bring contractual and statutory claims against the [Association] for its failure to set aside reserves."

After reviewing the record on appeal and the relevant legal authorities, and giving due consideration to the issues raised and the arguments advanced by the parties, we resolve Plaintiffs' contentions as follows:

(1) Plaintiffs contend that the Circuit Court erred in concluding that the "Mt. Terrace Declaration provides the [Association] the authority to treat common elements the same as limited common elements and in holding that the [Association] had the authority to charge owners the cost of maintaining the windows as a common expense."^[2] Plaintiffs argue that the windows are "limited common elements," and HRS § 514B-41(a) requires that the expenses of maintaining limited common elements be charged to the unit owners to which the limited common element is appurtenant.

"Generally, the declaration and bylaws of a condominium serve as a contract between the condominium owners and the association, establishing the rules governing the condominium. Harrison, 142 Hawai'i at 226, 418 P.3d at 567 (citing Ass'n of Apartment Owners of Maalaea Kai, Inc. v. Stillson, 108 Hawai'i 2, 9, 116 P.3d 644, 651 (2005)). If the governing condominium documents are unclear, the court looks to applicable statutory provisions. Id. at 227, 418 P.3d at 568.

The Declaration of Horizontal Property Regime of Mt. Terrace was recorded on March 23, 1972, and later restated. The Third Restatement of Declaration of Horizontal Property Regime of Mt. Terrace (the Declaration) was recorded on December 12, 1995. On March 20, 2007, owners holding more than a majority of the common interest in the Mt. Terrace condominium project approved the Amendment to the Declaration of the Association of Apartment Owners of Mt. Terrace (the Amendment). The Amendment, which was recorded on April 10, 2007, added, among others, a new provision stating, "This Project shall be governed by the provisions of Hawai'i Revised Statutes Chapter 514B, as amended to the fullest extent permitted by law."^[3] See HRS § 514B-23 (2018) (permitting an amendment to the governing documents "of any condominium created before July 1, 2006 . . . to achieve any result permitted by this chapter, regardless of what applicable law provided before July 1, 2006" where the amendment is "adopted by the vote or written consent of a majority of the unit owners").

The Declaration addresses the responsibility of unit owners for common element expenses, but does not discuss who is responsible for the expenses related to limited common elements.^[4] See Harrison, 142 Hawai'i at 227, 418 P.3d at 568 (reviewing substantially similar language in a condominium declaration and concluding that the declaration did not discuss who was responsible for limited common element expenses). The Restatement of By-Laws of the Association Of Apartment Owners Of Mt. Terrace (By-Laws), recorded on April 10, 1992, are similarly silent on this issue.

We therefore turn to the provisions of HRS Chapter 514B. HRS § 514B-41(a) (2018) states:

Common profits and expenses. (a) The common profits of the property shall be distributed among, and the common expenses shall be charged to, the unit owners, including the developer, in proportion to the common interest appurtenant to their respective units, except as otherwise provided in the declaration or bylaws. In a mixed use project containing units for both residential and nonresidential use, the charges and distributions may be apportioned in a fair and equitable manner as set forth in the declaration. Except as otherwise provided in subsection (c) or the declaration or bylaws, all limited common element costs and expenses, including but not limited to maintenance, repair, replacement, additions, and improvements, shall be charged to the owner or owners of the unit or units to which the limited common element is appurtenant in an equitable manner as set forth in the declaration.

(Emphases added.) HRS § 514B-41(c) allows a condominium board to adopt a resolution to assess certain limited common element expenses based on the undivided common interest appurtenant to each unit, if the board reasonably determines that the extra cost to separately account and charge for the limited common element expenses is not justified.

Here, neither the Declaration nor the By-Laws address the responsibility for limited common element expenses (see supra) and it does not appear that the Board adopted a resolution under HRS § 514B-41(c). Thus, pursuant to HRS § 514B-41(a), if the windows at issue are "limited common elements," expenses related to their maintenance, repair, and replacement must be charged to the individual unit owners to which the limited common element is appurtenant. See Harrison, 142 Hawai'i at 227-28, 418 P.3d at 568-69 (construing substantially similar language in predecessor statute, HRS § 514A-15(a) (2006)). The Circuit Court therefore erred in concluding that it was not material whether the windows were common elements or limited common elements -that the Declaration treats related expenses as common expenses and, therefore, the cost for the window project was to be treated by the Association as a common expense and charged to the owners based on their percentage of common interest. Accordingly, the Circuit Court erred in granting the Association's August 13, 2018 XMPSJ.

However, to the extent Plaintiffs contend that the windows should have been deemed limited common elements as a matter of law, they are not correct. Reviewed de novo, the record does not reflect, i.e., there were genuine issues of material fact, whether the windows for which expenses were incurred are common elements or limited common elements. The Circuit Court did not err in denying Plaintiffs' July 17, 2018 MPSJ on the declaratory relief claim.

(2) Plaintiffs contend that the Circuit Court erred in granting the Association's November 21, 2019 MPSJ on Plaintiffs' breach of fiduciary duty claim. Relying in part on HRS §514B-106, Plaintiffs argue that Hawai'i law recognizes that a condominium association owes a fiduciary duty to its individual members.

HRS §514B-106(a) (2018) provides that "officers and members of the board shall owe the association a fiduciary duty and exercise the degree of care and loyalty required of an officer or...