IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Transcription

1 IN THE COMMONWEALTH COURT OF PENNSYLVANIA William and Bette Ann Belleville, h/w, : Appellants : : v. : : David Cutler Group, Inc. : and Malvern Hunt Homeowners : No. 284 C.D Association : Argued: October 10, 2013 BEFORE: HONORABLE BERNARD L. McGINLEY, Judge HONORABLE MARY HANNAH LEAVITT, Judge HONORABLE JAMES GARDNER COLINS, Senior Judge OPINION NOT REPORTED MEMORANDUM OPINION BY JUDGE McGINLEY FILED: January 3, 2014 William and Bette Ann Belleville (Appellants) appeal from the October 31, 2012 Order of the Court of Common Pleas of Chester County (trial court) that dismissed their Amended Complaint against David Cutler Group, Inc. (Cutler) and the Malvern Hunt Homeowners Association (Association) 1 for failure to join all 278 property owners in a planned community known as Malvern Hunt (Development) as necessary and indispensable parties. Cutler was the developer of the Development which consisted of 279 properties and was subdivided into three communities: The Reserve, The Chase and The Ridings. The Reserve consisted of 101 minimum-maintenance single-family lots. The Chase consisted of 95 carriage homes, and The Ridings 1 The Association was a non-profit, non-stock corporation.

2 consisted of 83 standard single-family units. Open spaces and amenities, including tennis courts and two playgrounds were owned and maintained by the Association. Appellants property was located in The Ridings. Membership in the Association consisted of the 196 lot owners of The Chase and The Reserve. Appellants and the other 82 residents of The Ridings were excluded from membership in the Association. As the result of the Development, Cutler filed a Declaration with the Office of the Recorder of Deeds for Chester County on March 20, The Recorded Declaration provided that only members of the Association [owners in The Chase and The Reserve] received snow removal services for their sidewalks and driveways, grass-cutting services, weed treatments and mulching services. The owners in The Ridings received no services from the Association and were responsible for all aspects of their own property maintenance. The Recorded Declaration also provided that Single Family Lots [The Ridings] shall be exempt from all assessments, charges or liens and that Single Family Lots [The Ridings] shall pay a $1,000 lump sum payment at the time of conveyance. No other terms or provisions of Article IV (pertaining to maintenance assessments) shall apply. Recorded Declaration, March 20, 2001, Article XI, at 29; R.R. at 172a (Emphasis added). The Recorded 2 A planned community may be created only by recording a declaration executed in the same manner as a deed. Section 5201 of the Uniform Planned Community Act, 68 Pa.C.S

3 Declaration also provided that no amendments may be made that impose a monetary obligation on owners in The Ridings. Appellants purchased their home in August 2001, five months after the Recorded Declaration was recorded. Appellants did not receive a copy of the Recorded Declaration which exempted Single Family Lots [The Ridings] from paying maintenance assessments. Instead, Cutler provided Appellants with an Unrecorded Declaration which contained different language than the Recorded Declaration. Specifically, the Unrecorded Declaration required residents of The Ridings to pay a one-time $1, contribution to the Association plus an annual assessment of 20% of the assessment paid by the owners of The Chase and The Reserve. Like the Recorded Declaration, the Unrecorded Declaration prohibited amendments that would impose any additional financial obligations upon owners of properties within The Ridings: 1. The open space and amenities within same as depicted on the approved subdivision plan for all of Malvern Hunt [Development], which includes the carriage houses known as The Chase at Malvern Hunt, the minimum lot maintenance single family dwelling units known as The Reserve at Malvern Hunt and the standard single family lots known as The Ridings of Malvern Hunt is available for the use and enjoyment of the owners of lots and dwelling units in all three such areas. 3

4 2. The carriage house lots [The Chase] and the minimum lot maintenance single family dwelling units [The Reserve] are to be provided with certain ongoing services from the Association, some of which are specifically set forth in Article VII, Section 1(f) and (g), such as snow removal and lawn maintenance. 3. The standard Single Family Lots [The Ridings] are intended to be owned and enjoyed without the Association providing any services with regard to snow removal, lawn mowing or any other type of lot maintenance. In short, the standard Single Family lots [The Ridings] are afforded the use and enjoyment of the Common Open Space, but the owners of these lots are not members of the [Association] never to be assessed for use and enjoyment of the open space or in any other matter impacted by the operation of the Association. (Underlining in original, emphasis added). 4. Each standard Single Family Lot [The Ridings] will have contributed $1, toward the Association funds, as a one time only contribution upon settlement between the Developer and the initial buyer of each standard Single Family Lot. It shall be this sum, in concert with the percentage payment of the annual assessment as set forth hereinbelow, which will be the contribution towards use, enjoyment and maintenance of the Common Open Space, without any further financial obligation upon the standard Single Family Lots [The Ridings]. Article XI provides that each Single Family Lot [The Ridings] Owner shall pay a sum equal to twenty percent (20%) of the annual assessment as established by the Association and applicable to all other types of lot owners being those within The Chase at Malvern Hunt and The Reserve at Malvern Hunt, which annual sum shall be the sole financial obligation upon Single Family Lot [The Ridings] Owners with regard to the use, enjoyment and maintenance of the Common Open Space and Association Facilities, without any further financial 4

5 obligation upon the standard Single Family Lots [The Ridings]. Moreover, the Declaration, at Article X, Section 1, expressly prohibits any future amendments to the Declaration that could affect the rights of the standard Single Family Lot [The Ridings] Owners or impose any financial obligation above and beyond the initial $1, contribution and the annual payment equal to twenty percent (20%) of the standard annual assessment as imposed by the Association on all other Lot Owners. (Emphasis added). Unrecorded Declaration, M, at 1-2; Reproduced Record (R.R.) at 15b-16b. In reliance on the Unrecorded Declaration provided to them, Appellants consistently paid the 20% annual assessments. In October 2003, Cutler filed and recorded with the Chester County Recorder of Deeds a First Amendment to the Recorded Declaration to clarify that property owners in The Ridings were to pay an annual 20% assessment. Appellants were not provided with or notified of the First Amendment. In 2006, the Association took control of the Development from Cutler in accordance with Article II, Section 2 of the Recorded Declaration. On August 15, 2007, the Association filed a Second Amendment to the Recorded Declaration allegedly 3 to cure an ambiguity as it related to a budget shortfall. 4 On May 7, 2008, the Association recorded a Third Amendment to the Recorded 3 The Association alleged that the Amendments were technical corrections that did not require notice or consent pursuant to Section 5219(f) of the Uniform Planned Community Act, 68 Pa.C.S. 5219(f). 4 The Second Amendment is not at issue in this controversy. 5

6 Declaration allegedly to cure an ambiguity regarding the collection of late fees, interests, costs, attorney s fees related to the non-payment of annual assessments. In January 2008, the Association sent Appellants an assessment notice that was calculated differently from the previous invoices. Through a dispute with the Association about the invoice, Appellants first learned of the three Amendments. 5 Believing that they had been wrongfully assessed under the Recorded Declaration, Appellants commenced this Declaratory Judgment action against Cutler and the Association. In Counts I-VI, Appellants asked the trial court to declare null and void the First and Third Amendments. They argue that the First and Third Amendments were recorded without notice to any owner within the Development and without consent as required by Section 5219(d) of the Uniform Planned Community Act, 68 Pa.C.S. 5219(d), 6 and in violation of the terms of 5 After discovering the Amendments and assessment exemption, Appellants disputed the obligation with the Association. Despite disagreement, Appellants continued to pay under reservation of rights, pending litigation. 6 Section 5219(d) of the Uniform Planned Community Act, 68 Pa.C.S. 5219(d), provides: When unanimous consent or declarant joinder required. Except to the extent expressly permitted or required by other provisions of this subpart, without unanimous consent of all unit owners affected, no amendment may create or increase special declarant rights, alter the terms or provisions governing the completion or conveyance or lease of common facilities or increase the number of units or change the boundaries of any unit, the common expense liability or voting strength in the association allocated to a unit or uses to which any unit is restricted. In addition, no declaration provisions pursuant to which any special declarant rights have been reserved to a declarant shall be amended (Footnote continued on next page ) 6

7 Article X, Section 1 of the Recorded Declaration which required 90-day advance written notice to all Owners of any amendments and prohibited any changes which affect solely the rights and provisions as apply to Single Family Lots [The Ridings] or which would in any manner impose any financial obligation upon such Single Family Lot Owners [The Ridings] above and beyond those set forth [in the Recorded Declaration]. Recorded Declaration, March 20, 2001, Article X, at 27; R.R. at 170a. In Count VII, Appellants sought a refund from Cutler and the Association for the illegal annual assessments they collected from Appellants. 7 In Count VIII, Appellants sought punitive damages from Cutler for intentionally deceitful conduct. Prior to trial, Cutler filed a Motion to Dismiss Appellants cause of action for declaratory relief due to lack of jurisdiction for failure to join indispensable parties, namely the other 278 property owners in the Development. The trial court reserved its ruling until after the trial. 8 A nonjury trial was held on October 16, (continued ) without the express written joinder of the declarant in such amendment. 7 Appellants also sought Class Certification which was denied on October 26, The Motion to Dismiss did not mention the other causes of action seeking monetary relief and punitive damages; just the cause of action for declaratory judgment relief. 9 At trial, Appellants withdrew claims for monetary damages as against the Association only. 7

8 On October 31, 2012, without ruling on the merits of the case, the trial court dismissed Appellants Complaint 10 for declaratory relief for failure to join indispensable parties. The trial court found: Property owners within the Chase and the Reserve will be affected by any decision rendered in this action concerning the legitimacy of the Amendments. Plaintiffs [Appellants] cannot represent the interest of property owners in the Chase and the Reserve because their interests are adverse. If property owners in the Ridings pay less or no annual assessment, the financial burden increases on property owners in the Chase and the Reserve. While Plaintiffs [Appellants] make no claim for reimbursement from the Association for assessments claimed to have been overpaid, other property owners may seek reimbursement following a decision on the validity of the amendments. Should that happen, property owners within the Chase and the Reserve would bear additional financial obligation. Because the interests of property owners within the Chase and the Reserve might be adversely impacted by the declaratory judgment that Plaintiffs [Appellants] seek, they should have been joined in this action. Similarly, the Association s interests, as represented by its Board, do not necessarily align with its members individual interests. While the Association has an interest in defending its actions in recording the various amendments, individual property owners may not argue in favor of their legitimacy. Individual property owners, whether in the Ridings, the Chase or the Reserve, may have been shown different documents at the time they purchased their homes. Some may have purchased under the Recorded Declaration, others under the First Amendment and still others under the Second Amendment. Each group may have a different view of 10 The Order dismissed the entire Complaint, not just the counts for declaratory relief. However, Appellants appeal only concerns the trial court s dismissal of their cause of action seeking declaratory relief. 8

9 which documents are operative and may be able to articulate a sound basis for finding in their favor. Trial Court Decision, October 31, 2012, at 6-7. The trial court concluded that all [279] owners in Malvern Hunt [Development] have an interest in the validity of the challenged amendments and that the rights of all owners in Malvern Hunt [Development] are so intertwined that each will be affected by the decision entered on the validity of the amendments. Trial Court Decision, October 31, 2012, at 7. On appeal, 11 Appellants argue that the trial court erred when it dismissed their Complaint. They contend that it was unnecessary to join the other 278 owners in the Development. This Court must agree. Indispensable Parties in Declaratory Judgment Actions It is well established that [t]he failure to join an indispensable party to a lawsuit deprives the court of subject matter jurisdiction. HYK Constr. Co., Inc. v. Smithfield Twp., 8 A.3d 1009, 1015 (Pa. Cmwlth. 2010). The Pennsylvania Supreme Court has held: [A] party is [an] indispensable [party plaintiff] when his or her rights are so connected with the claims of the litigants that no decree can be made without impairing 11 This Court's review in an appeal from a declaratory judgment action is limited to whether the trial court's findings are supported by substantial evidence, whether the trial court committed an error of law or whether the trial court abused its discretion. HYK Construction Company, Inc. v. Smithfield Township, 8 A.3d 1009, 1014 n. 5 (Pa. Cmwlth. 2010). 9

10 those rights. [12] [T]he basic inquiry in determining whether a party is indispensable concerns whether justice can be done in the absence of him or her. In undertaking this inquiry, the nature of the claim and the relief sought must be considered. Furthermore, we note the general principle that, in an action for declaratory judgment, all persons having an interest that would be affected by the declaratory relief sought ordinarily must be made parties to the action. Indeed, Section 7540(a) of the Judicial Code, 42 Pa.C.S. 7540(a), which is part of Pennsylvania's Declaratory Judgments Act, states that, [w]hen declaratory relief is sought, all persons shall be made parties who have or claim any interest which would be affected by the declaration, and no declaration shall prejudice the rights of persons not parties to the proceeding. While this joinder provision is mandatory, it is subject to limiting principles. For example, where the interest involved is indirect or incidental, joinder may not be required. Additionally, where a person's official designee is already a party, the participation of such designee may alone be sufficient, as the interests of the two are identical, and thus, the participation of both would result in duplicative filings. City of Phila. v. Commonwealth, 575 Pa. 542, , 838 A.2d 566, (2003) (citations and footnotes omitted). [T]he basic inquiry in determining whether a party is indispensable concerns whether justice can be done in the absence of a third party... CRY, Inc. 12 A corollary of this principle is that a party against whom no redress is sought need not be joined [as a defendant]. In this connection, if the merits of a case can be determined without prejudice to the rights of an absent party, the court may proceed. Sprague v. Casey, 520 Pa. 38, 48 49, 550 A.2d 184, 189 (1988) (citations omitted); see also Banfield v. Cortes, 922 A.2d 36 (Pa. Cmwlth. 2007). 10

11 v. Mill Service, Inc., 536 Pa. 462, 640 A.2d 372, 375 (1994). The determination of an indispensable party question involves at least these considerations: 1. Do absent parties have a right or interest related to the claim? 2. If so, what is the nature of that right or interest? 3. Is that right or interest essential to the merits of the issue? 4. Can justice be afforded without violating the due process rights of absent parties? Centolanza v. Lehigh Valley Dairies, Inc., 540 Pa. 398, 658 A.2d 336, (1995) (quoting CRY) (quoting Mechanicsburg Area School District v. Kline, 494 Pa. 476, 431 A.2d 953, 956 (1981)). Owners in The Chase and The Reserve This Court must first look at whether the 196 property owners in The Chase and The Reserve have a direct interest related to the claim. In other words, do they have a direct interest in the precedent to be set by the declaratory judgment? It is critical in these cases to correctly identify the interest being claimed and ascertain whether that interest is one that will be directly affected by the declaratory judgment. Otherwise, the entire analysis may be skewed. The interest for which a person should be made a party to a declaratory judgment proceeding is one which would be affected by res judicata or collateral estoppel. Doe v. Johnson Manville Corp., 15 Pa.D&C3d 135 (1980). Our Supreme Court has held that where the interest involved is indirect or incidental, joinder may not be required. City of Phila., 575 Pa. at , 838 A.2d at (citations, footnotes and quotation marks omitted). As one court 11

12 explained, an interest demanding joinder is not merely inconsequential, remote, or conjectural, but rather a direct claim on the subject of the action such that the joined party will win or lose by operation of the judgment. Jones v. Jones, 285 S.W.3d 356, 360 (Mo. App. S.D. 2009) (Emphasis added). This is where this Court believes the trial court erred. A more indepth look at the interest alleged is necessary. Again, Appellants sought a declaration that the First and Third Amendments were void as the result of improper procedures. The question before the trial court was whether Cutler and the Association followed proper procedure when they amended the Recorded Declaration? At the end of this lawsuit, that will be the question answered by the trial court. The Association argued that the individual owners in The Chase and The Reserve must be joined as parties 13 because if the First and Third Amendments were declared to be void (thereby relieving the owners in The Ridings from paying assessments), the owners in The Chase and The Reserve would ultimately be responsible for funding all of the maintenance expenses of the Association and their individual assessments would increase by approximately $ per year. This Court does not believe that the pecuniary interest of the individual owners in The Chase and The Reserve in not having to pay increased assessments to make up for any budget shortfall is directly related to the precedent 13 This Court will presume that the Association means that the individual owners of The Chase and The Reserve must be joined as party defendants whose interests would align with the Association. 12

13 to be set in this lawsuit. An order which declares that the owners in The Ridings have been illegally assessed may indirectly affect the individual property owners in The Chase and The Reserve. But it does not directly affect them. It does, however, directly affect the interests of the Association. The only plausible direct interest of the other owners related to Appellants claim for declaratory relief concerns the Associations duty to comply with the notice and voting requirements of the Uniform Planned Community Act and the Recorded Declaration. Any issues the individual owners in The Chase and The Reserve have with their increased assessments and a budget shortfall will be between them and the Association. The next factor this Court must review is whether the trial court may render complete relief in the absence of the owners in The Chase and The Reserve. This Court finds that complete resolution of the dispute may be made without the presence of the 196 individual owners in The Chase and The Reserve. First, Appellants seek not relief against the owners in The Chase and The Reserve. Second, there are no individual rights being decided. What will be decided is whether the First and Third Amendments were valid. The trial court s declaration, even if favorable to Appellants, will not reference the owners in The Chase or The Reserve. It will not order or direct owners in The Chase or The Reserve to do anything. It will not order them to pay increased assessments to the Association. There will be no judgment entered against them. Again, the main purpose of joinder is to protect absent parties from being bound by judgments which may affect their interests without an opportunity to be heard. Here, the declaratory judgment will bind Cutler and the Association, not the individual owners in The Chase and The Reserve. 13

14 Further, the Association has failed to identify any direct right or interest of the 196 owners in The Chase and The Reserve which would be forever lost if they are not joined as additional party defendants. Joinder is not required when the judgment does not prejudicially affect the interests of the absent parties. Again, the purpose of the First and Third Amendments was to address the obligations of the owners in The Ridings to pay annual assessments to the Association. If the relief sought by Appellants is granted, the owners in The Ridings would no longer pay assessments to the Association and some may be entitled to receive assessment reimbursements. The res judicata effect of this litigation would have no bearing on the individual rights of the owners in The Chase and The Reserve to dispute the amount of their assessments. Their ability to protect their interest in not having to pay increased assessments will not be impaired or impeded if they are not joined in this lawsuit. The absence of every owner in The Chase and The Reserve was not fatal to the trial court s jurisdiction. The trial court erred when it granted the Association s motion to dismiss for failure to join the owners in The Chase and The Reserve. Owners in The Ridings As owners in the Development who are subject to the Recorded Declaration, the owners in The Ridings undoubtedly have an interest in making sure that the Recorded Declaration was amended in accordance with the Declaration s terms and the Uniform Planned Community Act. However, this Court does not agree that it is necessary to join the other 82 owners in The Ridings in order to protect that interest. And, they do not need to be present for the trial court to render complete justice. 14

15 The trial court will enter a judicial declaration either validating or voiding the Amendments. Regardless of whether the owners in The Ridings are made parties, Cutler and the Association will be bound by the trial court s judicial declaration. If, as Appellants argue, Cutler and the Association lacked authority to adopt the First and Third Amendments, then the Recorded Declaration remains in effect and the Association must abide by its provisions. If, on the other hand, Cutler and the Association acted within their authority, then the First and Third Amendments control and the Association must abide by their provisions. The 82 owners of The Ridings need not be present in order for the trial court to decide whether the First and Third Amendments were valid. Their rights and interests in the precedent to be set are shared by all owners in The Ridings equally. The owners in The Ridings, as a whole, have an interest in whether challenged Amendments were validly adopted through proper procedures. That collective interest is being represented by Appellants. This is not a situation as in Mains v. Fulton, 423 Pa. 520, 224 A.2d 195 (1966), where the rights of each of the lot owners in a development would have been prejudiced had they not been joined in a declaratory judgment action. There, developers of Driftwood Acres in O Hara Township brought an action against lot owners who refused to permit Duquesne Light to relocate its power lines through their properties. Developers sought a declaration that Duquesne Light had an easement across lots belonging to property owners in the development. The other owners in the development had an interest in the issue sought to be determined, that is, whether Duquesne Light had an easement across their properties. The Supreme Court found that the other lot owners must be joined in order to render declaratory relief. 15

16 Here, the trial court was not asked to decide the rights, status, and other legal relations of the individual owners in The Ridings. This case is unlike Mains where, absent joinder, the rights of the owners to dispute the existence of the Duquesne Light easement were forever lost under the doctrine of res judicata. Here, absent joinder, the res judicata effect of this litigation will not bar the owners in The Ridings from asserting their individual rights against Cutler and the Association under whatever documents are deemed by the trial court to be valid. Finally, in City of Phila., our Supreme Court confirmed that Section 7540(a) of the Declaratory Judgments Act is subject to reasonable limitations and not to be applied in an overly literal manner. In that case, hundreds of parties would be affected, at least incidentally, by a declaration that Act 230 was unconstitutional and that such lawsuits could sweep in hundreds of parties and render the litigation unmanageable. The Supreme Court explained: We do not construe the statute as requiring that where a declaratory judgment as to the validity of a statue or ordinance is sought, every person whose interests are affected by the statute or ordinance must be made a party to the action. If it were so construed, the valuable remedy of declaratory judgment would be rendered impractical and indeed often worthless for determining the validity of legislative enactments, either state or local, since such enactments commonly affect the interests of large numbers of people. **** Further, as such an interpretation would result in an unwieldy judicial resolution process, it would run contrary to the Legislature's direction, as expressed in the text of the Declaratory Judgments Act, that the statute constitutes remedial legislation to be construed liberally so as to settle, and afford relief from, uncertainty relative to rights, status, and other legal relations. See 42 Pa.C.S. 7541(a); see also 1 Pa.C.S. 1922(1) (providing that 16

17 the General Assembly does not intend a result which is unreasonable or incapable of execution). City of Phila, 575 Pa. at ; 838 A.2d at (citations and quotations omitted). Here, Appellants contend that upholding the trial court s order would be cost prohibitive and effectively preclude them from obtaining a judicial remedy. This Court must agree. It is undisputed that the cost of Sheriff s service of a lawsuit in Chester County is $ per person and that Appellants would expend over $13,000 to effect personal service on all owners in The Ridings. 14 Ordering joinder of all owners in The Ridings will delay the trial and greatly increase costs. The increased costs are significant enough to place the Appellants in danger of succumbing to the burden of litigation. In view of its analysis of the other factors above which weighed against requiring joinder, this Court finds this last factor also to be supportive of its decision to reverse the trial court. Contrary to the trial court s conclusion, the individual pecuniary rights and interests of the owners in The Ridings will not be prejudiced if they are not joined as parties plaintiff. Mechanicsburg. The trial court s judicial declaration will not operate as res judicata or collateral estoppel to preclude them from or deprive them of their right to seek monetary relief from Cutler or the Association or taking the position that they are not required to pay future assessments under whichever documents the trial court validates or invalidates. 14 It would cost over $16,000 to serve the owners in The Chase and The Reserve for a total of over $20,000 for original process service alone. 17

18 Because the rights and interests of the owners in The Ridings are not essential to the merits, and because justice may be served without joining them as parties, they are not indispensable parties which deprived the trial court of jurisdiction. 15 In sum, the trial court erred when it concluded that all other owners in the Development must be joined as indispensable parties to Appellants action for declaratory judgment relief. The other 278 owners in the Development are not indispensable parties because they do not have direct rights or interests that are essential to the merits of the claim. 15 The Association argues that joinder is necessary because of the differing interests of lot owners in terms of their respective reliance on the Declaration and Amendments over the years. The trial court adopted this argument when it concluded that: [I]ndividual property owners may not argue in favor of their legitimacy. Individual property owners, whether in the Ridings, the Chase or the Reserve, may have been shown different documents at the time they purchased their homes. Some may have purchased under the Recorded Declaration, others under the First Amendment and still others under the Third Amendment. Each group may have a different view of which documents are operative and may be able to articulate a sound basis for finding in their favor. Trial Court Decision, March 20, 2012, at 6-7. This Court finds the analysis to be unpersuasive. Again, the only issue is whether the Amendments were valid. Whether the various owners were provided with different documents is unconnected to whether the Recorded Declaration was legally amended. 18

19 The order of the trial court is vacated. The matter is remanded to the trial court for proceedings consistent with this Opinion. Jurisdiction is relinquished. BERNARD L. McGINLEY, Judge 19

20 IN THE COMMONWEALTH COURT OF PENNSYLVANIA William and Bette Ann Belleville, h/w, : Appellants : : v. : : David Cutler Group, Inc. : and Malvern Hunt Homeowners : No. 284 C.D Association : O R D E R AND NOW, this 3 rd day of January, 2014, the Order of the Court of Common Pleas of Chester County in the above-captioned matter is hereby vacated. The matter is remanded for proceedings consistent with this Opinion. Jurisdiction is relinquished. BERNARD L. McGINLEY, Judge