Court Opinion

ID: 2729780
Source: CourtListenerOpinion
Date Created: 2014-09-08 21:48:06.112292+00
Date Added: 2024-06-11T13:27:26.053340
License: Public Domain

FOR PUBLICATION
                                                             FILED
                                                          Aug 13 2012, 9:01 am

                                                                 CLERK
                                                               of the supreme court,
                                                               court of appeals and
                                                                      tax court

ATTORNEY FOR APPELLANT:                              ATTORNEY FOR APPELLEE:

SCOTT A. TANNER                                      JOHN D. GAY
Tanner Law Group                                     North Vernon, Indiana
Indianapolis, Indiana

                             IN THE
                   COURT OF APPEALS OF INDIANA

CSL COMMUNITY ASSOCIATION, INC.,             )
                                             )
      Appellant-Defendant,                   )
                                             )
             vs.                             )   No. 40A01-1112-MI-579
                                             )
CLARENCE RAY MEADOR,                         )
                                             )
      Appellee-Plaintiff.                    )

                    APPEAL FROM THE JENNINGS CIRCUIT COURT
                         The Honorable Jon W. Webster, Judge
                            Cause No. 40C01-0905-MI-160

                                   August 13, 2012

                             OPINION - FOR PUBLICATION

BAILEY, Judge
                                           Case Summary

        Country Squire Lakes Community Association, Inc., a homeowner’s association,

(HOA), appeals the trial court’s grant of Clarence Ray Meador’s (Meador) motion for

declaratory judgment, which abrogated Meador’s obligation to pay HOA dues and

assessments. We reverse.

                                                  Issue

        The sole issue for our review is whether the trial court erred in abrogating Meador’s

obligation to pay HOA dues and assessments.1

                                  Facts and Procedural History

        The Country Squire Lakes Community (Community) was established as a gated

residential vacation and retirement community in the 1970’s. The Community is located on

approximately 1400 acres in North Vernon and includes approximately 4000 lots and more

than thirty miles of paved roads. At the time the Community was developed, it provided

residents with a variety of recreational amenities, such as an Olympic-sized swimming pool,

tennis courts, playgrounds, clubhouses, picnic areas, a marina, lakes, beaches, and a

campground. There was a full-time security team of fifteen to twenty guards that patrolled

the premises. The HOA was organized to collect dues and assessments from property owners

to pay for maintenance of the common areas and amenities.

        On his first visit to the Community in 1997, fifty-nine-year-old Meador was impressed

1
  The HOA also argues that if Meador’s obligation to pay dues and assessments is abrogated, the abrogation
terminates Meador’s right to vote in HOA business. Because we find that Meador’s obligation to pay dues and
assessments was not abrogated, we need not address this issue.

                                                    2
that the Community was the largest recreational facility in the Midwest. Meador observed

residents riding bicycles, boating on the lake, using grills in the park and campground,

swimming, and playing tennis, badminton, and volleyball.

       The following year, Meador and his wife, who had been travelling around the country

in their motor home, purchased Lot 620, which included a double-wide trailer and a forty-

foot boat dock. Meador owned a pontoon boat that he regularly drove across the lake to the

marina to purchase gas for his lawnmower and ice cream or a Popsicle. The Meadors also

had a golf cart and bicycles, which they rode around the community.

       In 2006, Meador purchased Lot 619. The deed for each lot contains a list of property

covenants labeled “Restrictions, Conditions, Covenants, and Agreements,” (Covenants).

Appellant’s App. at 7, 17. The Covenants state that every property owner shall be a

mandatory member of the HOA and shall pay his allocated share of the mandatory dues and

assessments to the HOA for the costs to maintain the common areas, streets, lakes, dams, and

other improvements and amenities. The annual dues are $75 per lot, and the current annual

assessment is $300 per lot. The Covenants further provide that they run with the land, and

that the property owner agrees to pay dues and assessments for community property

irrespective of whether the privilege of using the property is exercised.

       In addition, the HOA’s Bylaws provide that each property owner may cast only one

vote regardless of the number of lots that he owns, and that an owner cannot vote if he is

delinquent in paying dues or assessments for any of the lots that he owns. The Bylaws

further provide that a lot owner’s membership terminates when the member no longer owns

                                             3
any lots.

       As the years passed and the economy fluctuated, the Community was invaded by

investment purchasers who purchased lots for rental or contract properties.            As the

Community shifted from owner-occupied to tenant-occupied, the rental property owners

frequently stopped paying the fees and assessments to the HOA. Currently 60% to 65% of

these owners are delinquent on their fees and assessments, leaving the HOA with a three to

four million dollar revenue shortfall. As a result of this shortfall, dues and assessments are

used on essentials such as payments on a $950,000 improvement loan, repairs to a dam,

insurance, and limited road maintenance, leaving insufficient funds to maintain the

recreational amenities. For example, the Olympic-sized swimming pool and the children’s

wading pool are both empty and need to be repaired before they can be refilled. The surface

of the tennis court is rubble, and the court has no net. In addition, Meador has not been able

to use his boat dock in six years and had to move his pontoon boat to another lake when the

Community’s lake became contaminated with raw sewage. Further, the bathhouse is

saturated with mildew, the putting green is not usable, and there is just one tire swing on the

entire playground. Residents are no longer allowed to play cards in the clubhouse, and

arsonists burned down the pavilion. There is no longer a full-time security force patrolling

the Community, and the Community’s security gates have been removed.

       In addition to the demographical changes in the community, the HOA has suffered

from years of financial mismanagement. For example, as far back as June 2005, the HOA

president discovered a $450,000 shortfall in the budget and resigned because he knew that

                                              4
the HOA would run out of money before the end of the fiscal year. In 2008, the HOA

borrowed $950,000 to repair deteriorating roads but was only able to repair seven to ten miles

of them. Insurance proceeds for the repair of the pool were not used for that purpose, and the

HOA has not been placing money in a reserve fund as required by the covenants. Currently,

the reserve fund has only $15,000, which is earmarked for a new snow plow truck.

       The HOA hired a management company in August 2009 to help reduce the shortfall so

that the recreational amenities could be repaired. However, at trial, the management

company’s office manager testified that after two years, 60% to 65% percent of the property

owners were still not paying their dues and assessments, and the office manager believed that

it could take five to six years “to get it back where it was” so long as nothing unforeseen

happens during that time. Tr. at 90.

       Over the years, Meador, who has lived in the Community for fifteen years and

regularly paid his dues and assessments, has tried to influence the HOA Board of Directors in

their budgetary decisions. However, his interest in the Community has not been well-

received. For example, at one board meeting, he was told to “sit down and shut up and if [he

didn’t] like it, get out.” Tr. at 10. Meador has also unsuccessfully tried to get a financial

audit of the HOA for years. Eventually, Meador stopped paying the assessments for Lot 619.

At the 2009 annual HOA meeting, Meador was not allowed to vote because of this

delinquency. As a result, in May 2009, Meador filed a Complaint for Declaratory Judgment

wherein he asked the trial court to issue a declaratory judgment advising whether he was a

member of the HOA and whether he had been illegally denied his right to vote on HOA

                                              5
matters. Meador explained that he filed the complaint because he was “tired of being told to

sit down and shut up” and hoped to see the current HOA dissolved and replaced. Tr. at 42.

          Meador filed an amended complaint in 2009, wherein he added counts for breach of

contract, negligence, and constructive fraud. In June 2011, following unsuccessful attempts

at mediation, now seventy-four-year-old Meador filed a Second Amended Complaint for

Declaratory Judgment wherein he again asked the trial court to issue a declaratory judgment

advising whether he was a member of the HOA and whether he had been illegally denied his

right to vote on HOA matters. Meador also asked the trial court to abrogate his obligation to

pay fees and assessments to the HOA because the HOA had not maintained the Community’s

amenities and common areas.

          On November 30, 2011, following a bench trial, the trial court issued an amended

order2 which concluded that the changes in the Community were so radical that the original

purpose of the Community and the deed restrictions had long ago been defeated. The trial

court therefore abrogated Meador’s obligation to pay dues and assessments. The court

further concluded that Meador could still vote at the HOA meeting because his obligation to

pay dues and assessments had been abrogated. Lastly, the trial court stated that other

delinquent property owners could not vote. The HOA appeals.

                                       Discussion and Decision

          The HOA argues that the trial court erred in abrogating Meador’s obligation to pay

dues and assessments as provided by one of the covenants in the deed to Meador’s property.

2
    The amended order redacted references to a document that was not admitted into evidence.

                                                     6
When special findings of fact and conclusions of law are made in accordance with Indiana

Trial Rule 52, this Court must determine whether the evidence supports the findings and

whether the findings support the judgment. Mayer v. BMR Properties, LLC, 830 N.E.2d

971, 978 (Ind. Ct. App. 2005). Findings of fact are clearly erroneous when the record lacks

any reasonable inference from the evidence to support them, and the trial court’s judgment is

clearly erroneous if it is unsupported by the findings and conclusions which rely upon those

findings. Dallas v. Cessna, 968 N.E.2d 291, 296 (Ind. Ct. App. 2012). In establishing

whether the findings or judgment are clearly erroneous, we consider only the evidence

favorable to the judgment and all reasonable inferences to be drawn therefrom. Id.

       While conducting our review, we cannot reweigh the evidence or judge the credibility

of any witness, and must affirm the trial court’s decision if the record contains any supporting

evidence or inferences. Id. However, while we defer substantially to findings of fact, we do

not do so for conclusions of law. Id. We evaluate conclusions of law de novo and owe no

deference to a trial court’s determination of such questions. Id.

       A restrictive covenant is an express contract between the grantor and the grantee that

restrains the grantee’s use of his land. Villas West II of Willowridge Homeowners Ass’n,

Inc. v. McGlothin, 885 N.E.2d 1274, 1278 (Ind. 2008), cert. denied, 555 U.S. 1213, 129 S.Ct.

1527, 173 L.Ed.2d 657 (2009). Although the law does not favor restrictive covenants, the

contractual nature of these restrictions has led courts to enforce them in equity as long as the

restrictions are unambiguous and do not violate public policy. Hrisomalos v. Smith, 600

N.E.2d 1363, 1366 (Ind. Ct. App. 1992). However, public policy requires the invalidation of

                                               7
restrictive covenants when there have been changes in the character of the subject land that

are “so radical as practically to destroy the essential objects and purposes of the agreement.”

Cunningham v. Hiles, 182 Ind. App. 511, 516, 395 N.E.2d 851, 855 (1979) (quoting

Bachman v. Colpaert Realty Corp., 101 Ind. App. 306, 319-20, 194 N.E. 783, 789 (1935)).

       Here, the trial court concluded that because the amenities in the Community had not

been maintained, the changes in the Community were so radical that the original purpose of

the Community and the deed restrictions were destroyed. The trial court therefore abrogated

Meador’s obligation to pay dues and assessments. The HOA responds that the trial court’s

decision “conflicts with long-established Indiana contract law.” Appellant’s Br. at 13.

       Bob Layne Contractor, Inc. v. Buennagel, 158 Ind. App. 43, 301 N.E.2d 671, 678

(1973) and Sorrentino v. Cunningham, 111 Ind. App. 212, 39 N.E.2d 473 (1942), are

instructive. In Bob Layne, this Court held that the construction of a super highway along one

edge of a restricted residential area was not a sufficient change of condition to abrogate

restrictions against commercial development in favor of lots abutting the highway where the

benefits of the covenant could still be realized by property owners in the restricted area. Bob

Layne, 301 N.E.2d at 678.

       In Sorrentino, Cunningham argued that a restrictive covenant prohibiting the sale of

alcohol in Irvington, a community on Indianapolis’ east side, should no longer be enforced

because of changes in conditions. Specifically, he argued that much of the neighborhood had

developed into a commercial center, several taverns operated from premises adjacent to the

restricted area, and the area had been annexed into Indianapolis since the restrictions were

                                              8
imposed. This Court, however, enforced the restriction against alcohol because it was for the

benefit of all lot owners in the area, and other lot owners were still in a position to benefit

from it. Sorrentino, 39 N.E.2d at 478; see also Brendonwood Common v. Franklin, 403

N.E.2d 1136, 1140 (Ind. Ct. App. 1980) (holding that a change in conditions was not so

radical as to defeat the original purpose of the covenants).

       Here, as in Bob Layne and Sorrentino, the covenant regarding the payment of dues

and assessments is for the benefit of all property owners in the area, and the property owners

are still in a position to benefit from these payments. For example, dues and assessments are

used to pay essentials to the community, such as payments on the $950,000 improvement

loan, repairs to a dam, insurance, and limited road maintenance. We agree with the HOA that

the “lack of recreational facilities is not the type of ‘radical change’ . . . that would justify the

abrogation of a private contractual property covenant.” Appellant’s Reply Brief at 1.

Further, the HOA Bylaws clearly state that the dues and assessments on the communal

property are due irrespective of whether the privilege of using the property is exercised.

Thus, we conclude that the trial court erred in abrogating Meador’s obligation to pay dues

and assessments.

       We recognize that the HOA’s financial mismanagement and a change in the

demographics of the Community have led to a revenue shortfall and an inability to maintain

the Community’s amenities, and we appreciate the trial court’s attempt to provide relief

following these untenable circumstances. However, the relief provided is not one afforded

under Indiana law, and thus we cannot affirm the judgment. The abrogation of Meador’s

                                                 9
obligation to pay dues and assessments is not a remedy for these problems, but there are

potential alternatives that Meador and the HOA can investigate.3

                                               Conclusion

        Because the evidence does not support the trial court’s conclusion that the changes in

the Community were so radical that the original purpose of the Community and the deed

restrictions were destroyed, the trial court erred in abrogating Meador’s obligation to pay

dues and assessments.

        Reversed.

RILEY, J., concurs.

CRONE, J., dissents with separate opinion.

3
  See Ind. Code § 32-30-5-1 et seq., (Receivership); Ind. Code § 36-4-3-1 et seq., (Annexation); and 11 U.S.C.
§ 1 et seq., (Bankruptcy). We also note that other states have used blanket receivership orders, which are
designed to assist communities where investor owners collect rent with no intention of ever paying the
association. See Donna DiMaggio Berger, Can a Blanket Receivership Order Comfort Your Struggling
Community?, Condo and HOA Law (Sept. 29, 2009), http://www.condoandhoalawblog.com/2009/09/can-
blanket-receivership-order-comfort-html .

                                                     10
                              IN THE
                    COURT OF APPEALS OF INDIANA

CSL COMMUNITY ASSOCIATION, INC.,                  )
                                                  )
       Appellant-Defendant,                       )
                                                  )
              vs.                                 )     No. 40A01-1112-MI-579
                                                  )
CLARENCE RAY MEADOR,                              )
                                                  )
       Appellee-Plaintiff.                        )

CRONE, Judge, dissenting

       The majority acknowledges that “public policy requires the invalidation of restrictive

covenants when there have been changes in the character of the subject land that are ‘so

radical as practically to destroy the essential objects and purposes of the agreement.’” Slip

op. at 7-8 (quoting Cunningham, 182 Ind. App. at 516, 395 N.E.2d at 855). In my view, the

relevant facts found by the trial court and recited by the majority constitute overwhelming

proof that changes have occurred in the Community over the past decade or so that are far

more radical than a mere “‘lack of recreational facilities.’” Id. at 9 (quoting Appellant’s

                                             11
Reply Br. at 1). Real-estate speculators have turned what once was a well-appointed, well-

financed, well-maintained, and well-patrolled retirement and recreational community into an

economically and infrastructurally devastated eyesore. As such, I believe that the trial court

did not err in abrogating Meador’s obligation to pay dues and assessments under the

Covenants. That said, because a lot owner’s ability to vote is contingent upon his payment of

assessments, I would reverse the trial court’s ruling that Meador may retain his voting rights.

                                              12