Tunis v. Country Club Estates Homeowners Ass'n, Inc.

318 P.3d 713

Joe TUNIS, Shirley Wheeler, John Ewert, and Patty Salesses, Plaintiffs–Appellants,andDonna Robbins, Plaintiff,

v.COUNTRY CLUB ESTATES HOMEOWNERS ASSOCIATION, INC., Defendant–Appellee.

No. 31,280.

Court of Appeals of New Mexico.

Nov. 19, 2013.

Certiorari Denied, No. 34,466, Jan. 23, 2014.

Scott Hulse P.C., R. Glenn Davis, El Paso, TX, for Appellants.

L. Helen Bennett, P.C., L. Helen Bennett, Albuquerque, NM, for Appellee.

OPINION

FRY, Judge.

{1} Plaintiffs appeal from the district court's order dismissing their action under Rule 1–012(B)(6) NMRA for failure to state claims on which relief could be granted. The district court reasoned that, under the doctrine of res judicata, the judgment in an earlier declaratory judgment action precluded Plaintiffs' claims in the present case.¹ Because the district court considered matters outside the pleadings, we conclude that the motion to dismiss was converted to a motion for summary judgment.

{2} In the prior declaratory judgment action, Defendant Country Club Estates Homeowners Association, Inc. (the Association), by its then president, Plaintiff Ewert, sought a declaration that the Association's governing board was the board headed by Ewert (the Ewert Board) rather than a purportedly newly elected board (the Fletcher Board). The district court in the prior action apparently confirmed an arbitration award declaring the Fletcher Board to be the legitimate board. The Fletcher Board then sought in the same action to recover its attorney fees from the individual members—Plaintiffs in the present case—of the Ewert Board, but the district court in that case ordered the fees to be paid by the Association. Now, in the present case, pursuant to a provision in the Association's bylaws, Plaintiffs (who were members of the Ewert Board) are seeking indemnification of the attorney fees they incurred in defending against the attorney fee claim made by the Fletcher Board in the prior case.

{3} Relying on Section 33 of the Restatement (Second) of Judgments (1982), we first hold under the principle of claim preclusion that the judicial declaration of the parties' status in the prior declaratory judgment action does not preclude Plaintiffs' claim for indemnification of their attorney fees in the present action. Second, we conclude that under the principle of issue preclusion, the issue of Plaintiffs' indemnification claim was not actually litigated in the prior action. Third, in response to the Association's “right for any reason” argument, we hold that summary judgment on the alternative ground of lack of standing was improper due to disputed issues of material fact. We therefore reverse.

BACKGROUND

{4} This action on appeal and the prior case arose out of differing views by homeowners regarding the development of properties of the Association. A majority of the homeowners and the then-current board of directors, the Ewert Board, which included Plaintiffs, wanted limited expansion; a minority of the homeowners wanted greater expansion. The minority enlisted the developer to vote its undeveloped lots in a recall election with the goal of ousting Plaintiffs and the rest of the Ewert Board and electing a new board. The minority prevailed in a recall election, and the Fletcher Board, which represented the wishes of the homeowner minority, took office. Four of the seven members of the ousted Ewert Board are Plaintiffs/Appellants in the case now before this Court.

{5} Following the recall election and installment of the Fletcher Board, the Ewert Board filed a complaint seeking a declaratory judgment as to the validity of the recall election and as to the legal governance of the Association. The complaint named as the plaintiff the Association “by its President, John Ewert, Plaintiff” and named as the defendant “Pamela Fletcher in her Representative Capacity as President of a Board of Directors Purportedly Elected on October 29, 2007, Defendants.” We refer to this action as “the declaratory judgment action.”

{6} During the pendency of the declaratory judgment action, the Fletcher Board submitted the issues to arbitration through the Association's architectural control committee.² The arbitrator determined that the recall election was effective and that the Fletcher Board was the duly constituted Board of the Association. The district court appears to have entered judgments confirming the award. The confirmed award apparently provided that if the Ewert Board did not turn over the Association's books and records or if it unsuccessfully tried to set aside the award, the Ewert Board might be liable for the Fletcher Board's attorney fees.

{7} In a post-judgment hearing apparently related to the Ewert Board's motion to vacate the court's judgments, the court addressed questions related to whether the Ewert Board members could be held individually liable for the Fletcher Board's attorney fees in the declaratory judgment action. As of that hearing, it appears that the Association had paid the attorney fees for the work done on behalf of the Ewert Board, at least through the arbitration. The issue at the hearing centered on the Fletcher Board's request for payment of its attorney fees. In regard to those attorney fees, the Ewert Board members argued that the Fletcher Board's attorney fees should not be assessed against the Ewert Board members individually because if they were, the Ewert Board members could seek indemnification from the Association under a clause in the Association's bylaws. They maintained that in order to avoid circuitous litigation, the Association should simply pay the Fletcher Board's attorney fees, just as it had paid the Ewert Board's attorney fees.

{8} The district court agreed with the Ewert Board and entered an order noting that because the Ewert Board's attorney fees were paid by the Association, “the fairest way to handle [the Fletcher Board's] attorney[ ] fees is for counsel to be paid by [the Association.]” This order appears to have ended the declaratory judgment action.

{9} Five of the seven members ³ of the Ewert Board then filed a complaint against the Association seeking recovery of $28,724.72, representing attorney fees they incurred to defend against the Fletcher Board's pursuit of fees against the Ewert Board members individually in the declaratory judgment action. Plaintiffs alleged entitlement to the fees under the indemnification clause contained in the Association's bylaws. In part, the provision states:

[The Association] shall indemnify any person who was or is a party ... to any ... pending or completed action [or] suit ... by reason of the fact that he or she is or was a director, trustee, officer, employee[,] or agent of [the Association] ... against expenses (including attorney[ ] fees) ... actually and reasonably incurred by him or her in connection with such suit, action[,] or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of [the Association.]

Plaintiffs further alleged that they “were involved in the [declaratory judgment action] by reason of the fact that they were members of [the Association's] Board of Directors” and also that “[t]he actions by Plaintiffs in connection with the [declaratory judgment action] were ... taken in good faith and based on what was reasonably believed to be in or not opposed to the best interests of [the Association].” In its answer to the complaint, the Association asserted affirmative defenses of res judicata and failure to state a claim upon which relief can be granted, among other defenses.

{10} The Association, under the Fletcher Board's governance, filed a motion to dismiss based on its affirmative defense of res judicata. In their response to the motion to dismiss, Plaintiffs argued that case law permits their claim to be asserted in a subsequent lawsuit and that the two lawsuits involved neither the same parties nor the same claims. In regard to their party status, Plaintiffs stated that they “were not parties to the [declaratory judgment action], but to the extent they had any involvement in [that action] at all, it was in their representative capacities, not in their individual capacities, as is the case here.”

{11} The Association responded, arguing, among other things, that Plaintiffs were barred because they were parties or “parties in privity” in the declaratory judgment action, they were individually named, and they could have asserted the claim in that action. The Association also argued that the indemnification issue was asserted and adjudicated in the declaratory judgment action.

{12} After a hearing on the motion to dismiss, the district court entered an order dismissing Plaintiffs' action for failure to state a claim upon which relief could be granted, not on res judicata grounds, but instead, in effect, on the basis of lack of standing. It held that the indemnification clause applies only to “persons who were or are part[ies] to litigation” and, because Plaintiffs alleged that they were not parties to the declaratory judgment action, they were not entitled to indemnification. Notably, neither the briefs related to the motion to dismiss nor the discussion in the hearing on the motion addressed whether Plaintiffs' complaint should be dismissed for lack of standing because they did not come within the terms of the indemnification clause.

{13} In a motion to reconsider the court's order, Plaintiffs argued for reconsideration of the dismissal because the Association's motion to dismiss was based on res judicata, not lack of standing, and because Plaintiffs had standing. In addition, within their motion to reconsider, Plaintiffs sought leave to amend their complaint “to clarify their right to relief” in an effort to establish standing.

{14} The district court heard the issues related to the motion to reconsider and entered an order determining that the district court in the declaratory...