Harlan v. Frawley Ranches Pud Homeowners Ass'n, Inc.

901 N.W.2d 747

Robert HARLAN & Geneieve Harlan, Plaintiffs and Appellants,

v.FRAWLEY RANCHES PUD HOMEOWNERS ASSOCIATION, INC., Defendant and Appellee.

28027.

Supreme Court of South Dakota.

CONSIDERED ON BRIEFS MAY 30, 2017

OPINION FILED September 13, 2017

DYLAN A. WILDE of Wilde & Hunt, Prof. LLC, Spearfish, South Dakota, Attorneys for appellants.

ROGER A. TELLINGHUISEN, MICHAEL V. WHEELER of DeMersseman, Jensen, Tellinghuisen & Huffman, LLP, Rapid City, South Dakota, Attorneys for defendant and appellee.

SEVERSON, Justice

[¶1.] Robert and Geneieve Harlan are landowners whose land is subject to a "declaration of covenants, conditions, restrictions, and reservations for land[.]" On September 20, 2013, the Frawley Ranches Planned Unit Development Homeowners Association, Inc. (HOA) filed a certificate of renewal and amendment to the covenant with the Lawrence County Register of Deeds. The Harlans brought this action seeking declaratory judgment declaring the certificate invalid because it was alleged to have been filed in violation of the requirements established by the covenant. They also brought a claim to quiet title to their property. After a trial to the court, the circuit court denied the Harlans' claims. The Harlans appeal. We affirm in part and reverse in part.

Background

[¶2.] The Harlans are joint tenants of real property located in a planned unit development and conveyed to them by Frawley Ranch, Inc. Their deed is subject to "The Declaration of Covenants, Conditions, Restrictions and Reservations for Land Owned or Possessed or Held by Frawley Ranch, Inc." The Declaration of Covenants was recorded on September 29, 1993. The Declaration of Covenants provided that all record owners, excluding lessees and security interest holders, of the lots or parcels described within the document are members of the HOA. Among other powers, the HOA is granted the "power to administer and enforce all provisions" of the Declaration of Covenants. According to its terms, the Declaration of Covenants is initially in "full force and effect for a term of twenty (20) years" and it is:

automatically extended for successive periods of twenty (20) years, unless there is an affirmative vote to terminate th[e] Declaration by the then members of the Association casting 90% of the total votes cast at an election held for such purpose within six (6) months prior to the expiration of the initial period hereof or any extension.

[¶3.] Each member of the HOA is entitled to one vote for each lot in which they hold the interest required for membership. In the case of joint ownership of a parcel, such as the Harlans', only one vote per individual lot or parcel is allowed. At the time relevant to this case, there were 35 voting interests within the development; five of those interests belonged to Frawley Ranch, Inc.

[¶4.] At an annual HOA meeting on June 5, 2013, the HOA discussed amending the Declaration of Covenants so that it would automatically extend for successive periods of five years rather than successive periods of twenty years. It was agreed at the HOA meeting that the vote to amend would be conducted by email. On August 29, 2013, the HOA's secretary and board member, Todd Knutson, emailed the members with a proposed covenant attached. It instructed the members that "everyone must vote to either approve or reject" the new covenant and that they must reply to the email with their vote. It explained that failure to reply to the email would be considered a "NO vote." After obtaining votes by the members, the HOA board of directors determined that 90% of the members voted in favor of the amendment. On September 20, 2013, it recorded an amendment extending the Declaration of Covenants for five years. In response, the Harlans commenced this action. They alleged that the election to amend the Declaration of Covenants is required to occur at either the annual meeting of the members or a special meeting of the members and that there was not the requisite 90% of interests voting in favor of the amendment.

[¶5.] After a court trial on August 22–23, 2016, the circuit court denied the Harlans' claims for declaratory judgment and quiet title. It issued findings of fact and conclusions of law. It determined that the Declaration of Covenants did not require that an election for amending the Declaration of Covenants be held at a meeting of the members or in person and therefore an email vote was proper. In its findings of fact 24 and 25, the court found:

24. There were a total of 35 votes.

25. There were 32 ‘yes' votes and three ‘no’ votes. The affirmative vote percentage in favor of the amendment was 91.43%.

Lastly, it determined that Frawley Ranches had proven the affirmative defenses of waiver, laches, and estoppel. The Harlans appeal to this Court raising three issues. They contend the circuit court erred by determining: (1) that the email vote was a valid and binding vote; (2) that the affirmative defenses of waiver, laches, and estoppel applied; and (3) that the requisite 90% vote was obtained.

Standard of Review

[¶6.] "The interpretation of a covenant is a legal question which we review de novo." Halls v. White , 2006 S.D. 47, ¶ 4, 715 N.W.2d 577, 579. We review the circuit court's findings of fact for clear error. Id.

Analysis

1. Whether the Declaration of Covenants permits an election to amend to be conducted by email.

[¶7.] The Harlans contend Article III of the Declaration of Covenants, in conjunction with the bylaws of the HOA, require voting on amendment of the Declaration of Covenants be held at a meeting of the members. "When interpreting the terms of a restrictive covenant, we use the same rules of construction applicable to contract interpretation." Id. ¶ 7, 715 N.W.2d at 580. Article III provides:

Section 1. Term; Method of Termination and Amendments.

This Declaration shall be in full force and effect for a term of twenty (20) years from the date this Declaration is recorded in the Lawrence County Register of Deed's Office. After twenty (20) years, this Declaration, as amended, shall be automatically extended for successive periods of twenty (20) years, unless there is an affirmative vote to terminate this Declaration by the then members of the Association casting 90% of the total votes cast at an election held for such purpose within six (6) months prior to expiration of the initial period hereof or any extension. This declaration shall not be subject to termination or amendment sooner than upon the expiration of twenty (20) years from and after the initial recording hereof, except by Declarant before the conveyance of any Lot or Parcel or upon the express written agreement of all members of the Association and Declarant.^*

If the necessary votes and consents are obtained, the Board shall cause to be recorded with the Register of Deeds of Lawrence County, South Dakota, a certificate of termination, or a certificate of amendment, as the case may be, duly signed by the President or Vice-President and attested by the Secretary or Assistant Secretary of the Association with their signatures acknowledged. There upon, in the case of termination, these Covenants shall have no further force and effect. In the case of amendment, the Covenants shall continue in full force and affect for the remainder of the term subject to said amendment.

(Emphasis added.) The Declaration of Covenants is silent regarding any requirements of the election to be held under Article II. However, "[i]n addition to the right to adopt rules and regulations on the matters expressly mentioned" within the Declaration, the HOA has the right "to adopt rules and regulations with respect to all other aspects of the Association's right, activities, and duties, provided said rules and regulations are not inconsistent with the provisions of th[e] Declaration." Accordingly, the Harlans refer this Court to various provisions of the bylaws that they believe require an election to occur at either an annual meeting of the members or at a special meeting of the members.

[¶8.] The bylaws set forth that there be an annual meeting of the members and allow the board of directors to call a special meeting for any purpose. But the bylaws do not require voting to be held at a meeting of the members. The Harlans believe the bylaws make it clear that any vote of the members is intended to occur at a meeting of the members because throughout the bylaws there are repeated references to voting at meetings of the members. For example, Article X of the bylaws provides in part that the bylaws may be amended by the board of directors "or by a two-thirds majority of the members at any regular or special meeting of the membership." The method of voting at a meeting of members is also set forth. Article II, section 8 states that "[a]t all meetings of members, a member may vote in person or by proxy executed in writing by the member or by the duly authorized attorney-in-fact. Such proxy shall be filed with the secretary of the Corporation before or at the time of the meeting." Nevertheless, neither the Declaration of Covenants nor the bylaws require that an election to amend the Declaration of Covenants be held at a meeting of the members; they are silent on the requirements of the election.

[¶9.] There is also no requirement that the election be in person or through proxy. The section in the bylaws setting forth how a member may vote only applies to meetings of members, not to amendment of the Declaration of Covenants. Accordingly, the circuit court was correct to conclude that an electronic vote such as one through email was properly established by the HOA.

2. Whether the court erred in determining that the affirmative defenses of waiver, laches and estoppel applied.

[¶10.] The circuit court determined that waiver, laches, and estoppel applied against the Harlans, and it denied their claims based on those affirmative defenses. The Harlans assert that the circuit court erred by determining those defenses applied because...