Court Opinion

ID: 4239644
Source: CourtListenerOpinion
Date Created: 2018-01-26 16:10:00.734374+00
Date Added: 2024-06-11T07:48:04.319861
License: Public Domain

FILED
                                                                          Jan 26 2018, 7:36 am

                                                                              CLERK
                                                                          Indiana Supreme Court
                                                                             Court of Appeals
                                                                               and Tax Court

ATTORNEYS FOR APPELLANTS                                   ATTORNEYS FOR APPELLEE
Edward R. Hannon                                           Thomas R. Schultz
Graham T. Youngs                                           Justin C. Kuhn
Steuerwald, Hannon & Witham, LLP                           Schultz & Pogue, LLP
Danville, Indiana                                          Indianapolis, Indiana

                                            IN THE
    COURT OF APPEALS OF INDIANA

Robert A. McAdams, Quinn                                   January 26, 2018
Whitney and Vonda Whitney,                                 Court of Appeals Case No.
Appellants-Plaintiffs,                                     55A04-1707-PL-1707
                                                           Appeal from the Morgan Superior
        v.                                                 Court
                                                           The Honorable Brian H. Williams,
Foxcliff Estates Community                                 Judge
Association, Inc.,                                         Trial Court Cause No.
Appellee-Defendant                                         55D02-1602-PL-174

_________________________

Foxcliff Estates Community
Association, Inc.,
Third-Party Plaintiff,

        v.

Paul Harnishveger, Mary
Harnishveger and Chad
Gregory,

Court of Appeals of Indiana | Opinion 55A04-1707-PL-1707 | January 26, 2018                       Page 1 of 14
      Third-Party Defendants.

      Crone, Judge.

                                              Case Summary
[1]   Robert A. McAdams, Quinn Whitney, and Vonda Whitney (“the Owners”)

      appeal the trial court’s entry of summary judgment in favor of their

      subdivision’s homeowners association, Foxcliff Estates Community

      Association, Inc. (“the HOA”). The Owners sued the HOA for damages based

      on the HOA’s failure to properly repair and maintain certain drainage ditches in

      the subdivision as allegedly required by the neighborhood covenants and

      restrictions. The HOA subsequently moved for summary judgment arguing

      that the Owners’ claim for damages is precluded by an exculpatory clause in the

      subdivision’s covenants and restrictions, and the trial court granted the motion.

      The sole restated issue for our review is whether the exculpatory clause is

      unenforceable as a matter of law. Because the Owners have not met their

      burden to establish that the clause is unenforceable, we affirm summary

      judgment in favor of the HOA.

                                  Facts and Procedural History
[2]   The HOA is a not-for-profit corporation located in Morgan County and was

      formed for the “primary purposes to own, construct, manage, maintain,
      Court of Appeals of Indiana | Opinion 55A04-1707-PL-1707 | January 26, 2018   Page 2 of 14
      preserve, repair, and reconstruct the Common Area” of Foxcliff Estates

      Subdivision (“Foxcliff Estates”). Appellants’ App. Vol. 4 at 35. The Amended

      Articles of Incorporation and Amended Declarations of Covenants and

      Restrictions (“the Covenants and Restrictions”) for Foxcliff Estates provide the

      following definitions of “Common Area”:

              “Common Area” means those areas of land (1) shown on any
              recorded subdivision plat, (2) described in any recorded
              instrument or (3) conveyed to or acquired by the [HOA], together
              with all improvements thereto, which are intended to be devoted
              to the common use and enjoyment of all the Members, and any
              utility service lines or facilities not maintained by a public utility
              company or governmental agency which are located on, over, or
              below or cross through more than one (1) Parcel.

      Id. at 140.

              “Common Area” means those areas of land and lakes (1) shown
              on any recorded subdivision plat, (2) described in any recorded
              instrument, or (3) conveyed to or acquired by the [HOA],
              together with all improvements thereto, which are intended to be
              devoted or dedicated to the common use and enjoyment of all the
              members; and any drainage facilities which are located on, over,
              across or through one of more parcels. (i.e. pool, roads, tennis
              courts, boat launches, dams, other common areas and facilities).

      Id. at 36.

[3]   Regarding the obligations of the HOA, the Covenants and Restrictions provide

      that the HOA

      Court of Appeals of Indiana | Opinion 55A04-1707-PL-1707 | January 26, 2018   Page 3 of 14
              shall be responsible for the exclusive management and control of
              the common areas and all improvements thereon (including
              furnishings and equipment related thereto), and shall keep the
              same in good, clean, attractive and sanitary condition, order and
              repair. However, it shall not be the obligation of [the HOA] to
              maintain and keep free of leaves, sticks, limbs and other debris in
              the area along the lakeshore and in the water in the immediate
              vicinity of privately owned lots.

      Id. at 44. The Common Areas include but are not limited to the cemetery,

      dams, lakes, the Manor House, recreation facilities (the park, pool, tennis

      courts, and associated surroundings), roads, and signs. Id. at 46-47. As for

      drainage, the Covenants and Restrictions provide that

              [a] lot owner may not use artificial channels or means to divert
              water from the member’s lot to another lot. Each lot owner is
              responsible to use said property so as to not cause damage to
              other lots. Appropriate and adequate swales shall be created
              between adjoining lots that permit proper water drainage.

      Id. at 53.1

[4]   Finally, under the title “Enforcement,” the Covenants and Restrictions provide,

              The [HOA] and any owner shall have the right to enforce, by a
              proceeding in law or in equity, all restrictions, conditions,
              covenants, reservations, guidelines, including but not limited to
              rules or decisions of the Building Control Committee, and any
              charges or liens now or hereafter imposed by the provisions of

      1
        While we need not go into detail, the HOA’s Building Control Rules and Procedures provide more specific
      details regarding each homeowner’s duty to provide and maintain “[a]dequate roadside drainage ditch, or
      riprap for steep grades” and “[a]ppropriate and adequate swales.” Appellants’ App. Vol. 4 at 113.

      Court of Appeals of Indiana | Opinion 55A04-1707-PL-1707 | January 26, 2018                   Page 4 of 14
              this Amended Declaration and of Supplementary Declarations,
              but the [HOA] shall not be liable in damages of any kind to any person
              for failure either to abide by, enforce or carry out any of the Restrictions.
              No delay or failure by any person to enforce any of these
              Restrictions or to invoke any available remedy with respect to a
              violation or violations thereof, shall under any circumstances be
              deemed or held to be a waiver by that person of the right to do so
              thereafter, or an estoppel of that person to enact any right
              available to him upon the occurrence, reoccurrence or
              continuation of any violation or violations of the Restrictions.

      Id. at 56-57 (emphasis added).

[5]   One of the Owners, McAdams, is the fee title owner of the property known as

      4311 North Somerset Drive in Foxcliff Estates. The other Owners, the

      Whitneys, are the fee title owners of the property known as 4331 North

      Somerset Drive in Foxcliff Estates. In 2013, Quinn Whitney, and in late 2014,

      McAdams, complained to the HOA about drainage problems on their

      respective properties, specifically that water from the higher elevations of land

      on the west side of Somerset Drive “was not being properly collected in a

      drainage ditch or culvert and instead was passing across the roadway surface

      flowing onto their property, saturating it, eroding it and causing serious and

      unrepairable damage to their homes constructed thereon.” Appellants’ App.

      Vol. 2 at 15. In response to complaints by Quinn Whitney, the HOA’s Building

      Control Committee informed him on multiple occasions that it was his

      responsibility “to address the grade, drainage, and erosion issues” on his

      property. Appellants’ App. Vol. 4 at 163. Similarly, Mike Hendershot, the

      general maintenance chair for the HOA, informed McAdams that the HOA

      Court of Appeals of Indiana | Opinion 55A04-1707-PL-1707 | January 26, 2018         Page 5 of 14
      was not responsible for diverting water flow from properties and that this was

      up to each homeowner. After investigation, the HOA believed that most of the

      water was originating from property owned by Chad Gregory at 4344 North

      Somerset Drive. The HOA also informed Paul and Mary Harnishveger, the

      owners of the property located at 4322 North Somerset Drive, that water flow

      was being blocked in their driveway and that the drainage pipe needed to be

      cleared.

[6]   On February 3, 2016, the Owners filed a complaint for damages against the

      HOA asserting that the HOA breached its contractual obligations and failed to

      exercise reasonable care in the performance of its duties pursuant to the

      Covenants and Restrictions. The HOA filed its answer and a third-party

      complaint against Gregory and the Harnishvegers as third-party defendants.

[7]   Thereafter, the Owners filed a motion for partial summary judgment for

      declaratory relief, requesting the trial court to declare as a matter of law that the

      HOA had a “non-delegable duty … to maintain and repair the drainage ditch

      located on Somerset Drive for the health, safety, and welfare” of the Owners.

      Appellants’ App. Vol. 2 at 108-09. The HOA responded with its own motion

      for summary judgment asserting, among other things, that a valid and

      enforceable exculpatory clause contained in the Covenants and Restrictions

      barred the Owners’ claim for damages against the HOA.

[8]   The trial court held a hearing on the pending summary judgment motions and,

      on June 27, 2017, issued its order granting the HOA’s motion for summary

      Court of Appeals of Indiana | Opinion 55A04-1707-PL-1707 | January 26, 2018   Page 6 of 14
      judgment and denying the Owners’ motion for partial summary judgment.

      Specifically, the trial court concluded that the Covenants and Restrictions

      contain a “valid, enforceable and applicable exculpatory clause as relates to any

      liability of [the HOA] for claims arising under [the Covenants and

      Restrictions](and resulting secondary documents) defining the rights and

      obligations of the parties.” Id. at 12. The court further concluded that the

      HOA’s “liability for any action or inaction regarding its rights or obligations to

      address water drainage created and governed by [the Covenants and

      Restrictions] is included within this exculpatory clause.” Id. This appeal

      ensued.

                                        Discussion and Decision
[9]   The Owners contend that the trial court erred in denying their motion for

      partial summary judgment and granting summary judgment in favor of the

      HOA based upon the exculpatory clause in the Covenants and Restrictions.2

      “Summary judgment is appropriate only when there is no genuine issue of

      material fact and the moving party is entitled to judgment as a matter of law.”

      2
        The Owners briefly argue that the HOA waived the ability to enforce the exculpatory clause by not
      specifically referencing the clause as an affirmative defense in its answer to the Owners’ complaint, and
      instead raising it for the first time in its motion for summary judgment (and response to the Owners’ motion
      for partial summary judgment). See Paint Shuttle, Inc. v. Cont’l Cas. Co., 733 N.E.2d 513, 525 (Ind. Ct. App.
      2000) (to avoid waiver, defendant must include within its responsive pleading any affirmative defense it seeks
      to assert), trans. denied (2001). Our review of the pleadings reveals that the HOA sufficiently referenced the
      Covenants and Restrictions, which included the clause, as an affirmative defense in its answer. Regardless, it
      is well settled that the trial rules are “designed to avoid pleading traps” and the critical inquiry is “not
      whether the defendant could have raised its affirmative defense earlier,” but “whether the defendant’s failure
      to raise the affirmative defense earlier prejudiced the plaintiff.” Borne v. Nw. Allen Cty. Sch. Corp., 532 N.E.2d
1196, 1199 (Ind. Ct. App. 1989), trans. denied (1990). The Owners make no assertion that they were
      prejudiced. No waiver occurred here.

      Court of Appeals of Indiana | Opinion 55A04-1707-PL-1707 | January 26, 2018                          Page 7 of 14
       Alva Elec., Inc. v. Evansville-Vanderburgh Sch. Corp., 7 N.E.3d 263, 267 (Ind. 2014)

       (citing Ind. Trial Rule 56(C)). We review the grant or denial of a summary

       judgment motion de novo. Layne v. Layne, 77 N.E.3d 1254, 1264 (Ind. Ct. App.

       2017), trans. denied. The filing of cross motions for summary judgment does not

       alter our standard of review, as we consider each motion separately to

       determine whether the moving party is entitled to judgment as a matter of law.

       Roberts v. Henson, 72 N.E.3d 1019, 1026 (Ind. Ct. App. 2017). We may affirm

       an entry of summary judgment on any theory supported by the designated

       evidence. Alva Elec., 7 N.E.3d at 267. The party appealing a summary

       judgment decision has the burden of persuading the appellate court that the

       grant or denial of summary judgment was erroneous. Knoebel v. Clark Cty.

       Superior Court No. 1, 901 N.E.2d 529, 531-32 (Ind. Ct. App. 2009).

[10]   We begin by noting that covenants describe promises relating to real property

       that are created in conveyances or other instruments, Columbia Club, Inc. v. Am.

       Fletcher Realty Corp., 720 N.E.2d 411, 417 (Ind. Ct. App. 1999), trans. denied

       (2000) and are a form of express contract. Hamilton v. Schaefer Lake Lot Owners

       Ass’n, 59 N.E.3d 1051, 1054 (Ind. Ct. App. 2016). Our courts have long

       recognized and respected the freedom of parties to enter into contracts, Fresh

       Cut, Inc. v. Fazli, 650 N.E.2d 1126, 1129 (Ind. 1995), and it is generally accepted

       that parties may “allocate risk by contract” as a matter of such freedom. In re

       Indiana State Fair Litigation, 49 N.E.3d 545, 549 (Ind. 2016).

[11]   Accordingly, Indiana courts recognize exculpatory clauses in contracts and

       presume that the contracts represent the freely bargained agreement of the
       Court of Appeals of Indiana | Opinion 55A04-1707-PL-1707 | January 26, 2018   Page 8 of 14
       parties. Crowe v. Boofter, 790 N.E.2d 608, 611 (Ind. Ct. App. 2003). Indeed,

       “[i]t is well established in Indiana that exculpatory agreements are not against

       public policy.” Wabash Cty. Young Men's Christian Ass'n, v. Thompson, 975
N.E.2d 362, 366 (Ind. Ct. App. 2012), trans. denied (2013). “However, some

       exceptions do exist where the parties have unequal bargaining power, the

       contract is unconscionable, or the transaction affects the public interest such as

       utilities, carriers, and other types of businesses generally thought to be suitable

       for regulation or which are thought of as a practical necessity for some members

       of the public.” Ind. Dep’t of Transp. v. Shelly & Sands, Inc., 756 N.E.2d 1063,

       1072 (Ind. Ct. App. 2001) (citing Pinnacle Comput. Servs., Inc. v. Ameritech Pub.,

       Inc., 642 N.E.2d 1011, 1014 (Ind. Ct. App. 1994)), trans. denied (2002). Absent

       the abovementioned exceptions, such exculpatory clauses are generally

       enforced and will not be declared void. Id. Whether an agreement is contrary

       to public policy is a question of law dependent on the circumstances of the

       particular case. Hi-Tec Properties, LLC v. Murphy, 14 N.E.3d 767, 773 (Ind. Ct.

       App. 2014), trans. denied.

[12]   The Owners do not suggest that the exculpatory clause here is inapplicable to

       their claim against the HOA, and they concede that exculpatory clauses are

       generally enforceable. They further state that they do not mean to suggest that

       exculpatory clauses found in homeowners association covenants, or other types

       of unsigned contracts or contracts of adhesion, are categorially unenforceable.

       Instead, they assert that all three of the abovementioned exceptions are manifest

       under the circumstances presented here, and they urge us to declare the current

       Court of Appeals of Indiana | Opinion 55A04-1707-PL-1707 | January 26, 2018   Page 9 of 14
       clause unenforceable. We decline their invitation, as we find none of the

       exceptions applicable.

[13]   First, the parties’ relative bargaining power does not render the exculpatory

       clause invalid. “As a general rule, a contract may be declared unenforceable

       due to unconscionability when there is a great disparity in bargaining power

       which leads the party with the lesser power to sign a contract unwillingly and

       unware of its terms.” Pinnacle, 642 N.E.2d at 1017 (citing Weaver v. Am. Oil,

       257 Ind. 458, 464, 276 N.E.2d 144, 146 (1971)) (emphasis added). In such a

       case, the contract must be one that no sensible person not under delusion or

       duress or in distress would make, and one that no honest and fair person would

       accept. Id. The agreement here was not such an agreement, as there is no

       evidence that there was a great disparity in bargaining power between the

       Owners and the HOA.

[14]   The Owners specifically chose to purchase property in Foxcliff Estates and, in

       doing so, agreed to be bound by the Covenants and Restrictions, including the

       exculpatory clause, as a condition of the purchase. Despite the Owners’

       attempts to equate their bargaining relationship as akin to a residential tenant

       dealing with a landlord, the current situation is wholly unlike situations where

       we have recognized that a residential tenant does not share equal bargaining

       power with a residential landlord and has “no meaningful choices” when

       entering into a contract of adhesion for shelter, “a basic necessity of life.”

       Ransburg v. Richards, 770 N.E.2d 393, 402-03 (Ind. Ct. App. 2002) (holding

       exculpatory clause in residential lease between sophisticated landlord and

       Court of Appeals of Indiana | Opinion 55A04-1707-PL-1707 | January 26, 2018   Page 10 of 14
       unsophisticated tenant violated public policy), trans. denied; see Hi-Tec Props., 14
N.E.3d at 773 (holding exculpatory clause in residential lease contrary to public

       policy).

[15]   Buying a home in a specific subdivision or neighborhood is hardly a basic

       necessity of life, and prospective homebuyers have numerous meaningful

       choices, including purchasing a home in a subdivision not subject to certain

       covenants and not governed by a homeowners association. If a buyer finds the

       terms and conditions of a subdivision’s governing documents to be disagreeable

       or oppressive, that buyer is free to purchase elsewhere or to negotiate a lower

       purchase price for the property from the seller in light of the conditions. Given

       the clear availability of other purchase options to the Owners, the agreement

       here was entered into fairly, and there is no evidence that the Owners were

       placed in an unfair bargaining position.3

[16]   The Owners maintain that the “inconspicuous nature” of the exculpatory clause

       renders it unconscionable, noting that the clause is “buried in the dependent

       clause of a single-spaced sentence, in the middle of a paragraph” on page

       twenty-three of a twenty-nine page document. Appellants’ Br. at 27. We note

       that relative bargaining power, and not conspicuousness of contract terms, is

       the relevant consideration when determining whether a contract was entered

       into knowingly and willingly, see Weaver, 257 Ind. at 465, 276 N.E.2d at 148,

       3
        There is ample evidence in the record that the Owners were neither first-time nor unsophisticated home
       buyers.

       Court of Appeals of Indiana | Opinion 55A04-1707-PL-1707 | January 26, 2018                   Page 11 of 14
       and we are unpersuaded by the Owners’ claim that they were unaware of the

       exculpatory clause contained in the Covenants and Restrictions. They had the

       ability to read and understand the significance of the clause had they chosen to

       do so prior to purchasing their homes and becoming subject to the Covenants

       and Restrictions. The clause is contained under the title “Enforcement,” which

       clearly indicates that any provision relating to enforcement of or liability

       pursuant to the Covenants and Restrictions will lie therein. As noted above,

       there was no great disparity in bargaining power between the parties, and

       nothing in the designated evidentiary matter demonstrates that the agreement

       here is one that no sensible person would make or that no honest or fair person

       would accept.

[17]   Finally, it cannot be reasonably argued that the contractual relationship

       between the Owners and the HOA affects the public interest in a manner such

       as a public utility, common carrier, or situation “where the indispensable need

       of one party for the services of another deprives the customer of all real equal

       bargaining power.” Pinnacle, 642 N.E.2d at 1018. Neither the operation of the

       HOA nor the private services that it provides to the residents of Foxcliff Estates

       are matters of public concern or indispensable necessities. We conclude that

       none of the exceptions to the general enforceability of exculpatory clauses is

       applicable here.

[18]   Still, the Owners maintain that in some circumstances a court will decline to

       enforce an otherwise valid agreement on public policy grounds in cases

       involving: (1) agreements that contravene a statute; (2) agreements that clearly

       Court of Appeals of Indiana | Opinion 55A04-1707-PL-1707 | January 26, 2018   Page 12 of 14
       tend to injure the public in some way; or (3) agreements that are otherwise

       contrary to the declared public policy of Indiana. Trimble v. Ameritech Pub., Inc.,

       700 N.E.2d 1128, 1129 (Ind. 1998). The Owners challenge the clause here as

       “otherwise contrary to the declared public policy of Indiana.” Thus, we look to

       the following factors: (1) the nature of the subject matter of the contract; (2) the

       strength of the public policy underlying any relevant statute; (3) the likelihood

       that refusal to enforce the bargain or term will further any such policy; (4) how

       serious or deserved would be the forfeiture suffered by the party attempting to

       enforce the bargain; and (5) the parties’ relative bargaining power and freedom

       to contract. Id. (citing Fresh Cut, 650 N.E.2d at 1130).

[19]   Considering the above factors,4 we find no compelling reason to declare the

       exculpatory clause void.5 This is based in large part on two overarching

       observations that we have already touched upon. First, the nature of this

       contract is one governing the relationship of residents of a subdivision to an

       association made up of other residents. The residents have essentially agreed to

       insulate themselves from liability to themselves. Second, there is no evidence of

       unequal or unfair bargaining. In other words, there is no public policy

       impediment to the parties agreeing that the not-for profit HOA, a volunteer

       entity comprised of other Foxcliff Estates residents, cannot be sued for damages

       4
           The second and third factors are inapplicable to this dispute.
       5
        In support of their argument that we should find the exculpatory clause to be contrary to public policy, the
       Owners cite to information outside the record on appeal. The HOA filed a motion to strike, which we grant
       by separate order issued contemporaneously with this opinion.

       Court of Appeals of Indiana | Opinion 55A04-1707-PL-1707 | January 26, 2018                     Page 13 of 14
       “for failure either to abide by, enforce or carry out any of the Restrictions.”

       Appellants’ App. Vol. 4 at 56. The exculpatory clause is not contrary to any

       declared public policy of our State.6

[20]   In sum, the Owners have not established that the exculpatory clause is

       unenforceable as a matter of law. Accordingly, we affirm the trial court’s entry

       of summary judgment in favor of the HOA.

[21]   Affirmed.

       Robb, J., and Bradford, J., concur.

       6
         In an effort to invalidate the clause, the Owners cite to general contract principles and claim that the
       exculpatory clause renders any agreement between the parties illusory for lack of mutuality of obligation. See
       Sec. Bank & Trust Co. v. Bogard, 494 N.E.2d 965, 968 (Ind. Ct. App. 1986) (noting general principle that
       contract lacking in mutuality of obligation—failing to obligate parties to do anything—is unenforceable). As
       we have already stated, it is well settled in Indiana that parties are free to allocate risk by contract, and the
       Owners have cited no authority that this type of exculpatory clause is per se invalid for lack of mutuality.
       Indeed, we disagree with the proposition that the parties lack any legal obligation to one another simply
       because the Owners are prohibited from suing the HOA for damages. Moreover, our supreme court
       explained many years ago that consideration, rather than mutuality of obligation, is required for a valid
       contract. See Jordan v. Indpls. Water Co., 159 Ind. 337, 346, 64 N.E. 680, 683 (1902) (stating that “it is enough
       to give mutuality to a contract that is entire in its character, if there is consideration, on both sides for its
       performance.”). The Owners do not argue that the agreement lacked consideration. Their argument fails.

       Court of Appeals of Indiana | Opinion 55A04-1707-PL-1707 | January 26, 2018                        Page 14 of 14