[WSBARP] Bilanko v. Barclay Court Owners Association

[Eric Nelsen]

Rob, I'm printing this out immediately and attaching it to my printout of your comments on Chiwawa, which I now keep as my starting point for all legal research on CC&Rs. Many thanks for this--

Sincerely,

Eric

Eric C. Nelsen
SAYRE LAW OFFICES, PLLC
1320 University St
Seattle WA  98101-2837
phone 206-625-0092
fax 206-625-9040



From: wsbarp-bounces at lists.wsbarppt.com [mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Rob Wilson-Hoss
Sent: Thursday, April 28, 2016 10:12 AM
To: 'WSBA Real Property Listserv'
Subject: [WSBARP] Bilanko v. Barclay Court Owners Association

          Warning: this is only for people infected with HOA disease. Others are advised to ignore the following.

          OK, campers, in a continuing effect to understand how to advise our clients what the Supreme Court will do about amendments to covenants, we now take a look at today's Bilanko case, filed one hour ago (at least one hour before I started this).

          You will perhaps remember Chiwawa, the case that said lots of very interesting things about covenant amendments. Such as, (1) amendments have to comply with the general plan of the community, (2) they can't create undue burdens, (3) they can't address new subjects unless the original ones say they can, (4) they have to follow the covenant amendment rules of the covenants themselves, and (5) the Supreme Court will interpret the language of the existing pre-amendment covenants in ways that the 4-vote minority thought were completely irrational, and totally unpredictable. And, I suspect, those involved with dealing with lots of sets of covenants from the 50s and 60s would agree with the dissent. Attributing certain intent to developers who wrote their covenants decades ago ignores the reality that most of them, in my experience, were just copying something they had seen, or had a surveyor copy something he or she had seen, or used some title company form, and really had no thought at all except sell as many lots as possible. Of course, some developments have covenants that were entirely intentional in every aspect. And everything in between.

          Anyway, today the setting is a new act condo amendment; both the covenants and 64.34.264(2) specify that amendments to covenants can only be challenged within one year : "(2) No action to challenge the validity of an amendment adopted by the association pursuant to this section may be brought more than one year after the amendment is recorded."

          Here, the original covenants allowed for unrestricted renting of the apartments; the amendment limited rentals to seven apartments, and if you weren't already in the seven, you went on a waiting list. An owner sued because she was on the waiting list and it was pretty long. She said that the amendment was not valid. They did not follow the 90% majority requirement in both the original covenants and in the condo statute.

          Under Chiwawa, of course, except for the statute of limitations issue, this amendment would be stricken in a heartbeat. At the minimum, additional burden, general plan of community, and then maybe also that you have to follow your own rules for amendments.

          So, does the statute of limitations apply here? Was the question about the validity of the amendment? Here, the amendment was passed with two-thirds, but changes in use needed 90%, under the existing covenants and the statute. The member thought that was the issue - does the 90% requirement apply to a restriction on leasing as a change in use, and if so, it wasn't met.

          Justice Gonzalez, writing for a unanimous court, worked his way through the reasoning, kind of like a kayaker on a Class IV rapid. He did not agree that this was the issue. He thought the issue was, statute of limitations, and is this a void or voidable act, this amendment of the covenants. Statutes of limitations bar claims as to voidable acts, not void ones. So, this is what he said:

         1.       A previous case, Club Envy, 184 Wash App. 593, told some of us that a challenge to an amendment that was not properly passed is not barred by the one-year limitation. The member in Bilanko said this means that the time bar only applies to amendments that are passed in compliance with the part of the statute that says how they have to be passed, and this one did not comply with that part of the statute.
          2.       The Court said "invalid" in the statute meant "legally sufficient; binding." Not, out of compliance with the statutory requirement for how an amendment is passed.
          3.       The Court said that the previous Club Envy case was infected by really bad facts, including fraud (probably no vote was ever held in the first place), and that this meant that the Club Envy vote was void ab initio. The president there had recorded an amendment that he did not have the legal right to record because no other members had agreed to it, sort of. This is a sharp deviation from the general void ab initio/voidable discussions that we are used to seeing. Void ab initio means, didn't have the legal right to do it in the first place. Period. Outside the authority of the association. Not, yes, the association can amend its covenants, but it did it wrong. That would usually be, voidable, not void.
          4.       Since the Club Envy action was void, and not voidable, the time bar did not prevent challenges to it. That reasoning is standard.
          5.       In the new case, Bilanko, the Court said that an action of a corporation is voidable, not void,  if it fails to observe some statutory requirement while still acting within its corporate powers. If a statute includes language that says that failure to comply makes an act void, then it is void; otherwise, the issue is, is the action within the general powers of the corporation, and if it is, it is just voidable. Can't argue with that.
          6.       Then the Court in Bilanko said the test for whether a corporation's action is void and not merely voidable is whether it committed fraud, seriously offended public policy, or exceeded its legal authority.
          7.       Then the conclusion: regardless of whether or not the corporation needed 90% or the two-thirds was enough, the amendment was voidable, not void, because an amendment was within the powers of the corporation.
          8.       And get this: "Challenges to voidable amendments must be made within the one-year time bar set out in 64.34.264(2) Nothing restricts this to the statute of limitations in 64.34.264(2). To hold otherwise would render the time bar meaningless, for unit owners could challenge amendments years after passage. A statutory time bar is a 'legislative declaration of public plicy which the courts can do no less than respect,' with rare equitable exceptions."            THIS HAS TO APPLY TO ALL STATUTES OF LIMITATIONS, INCLUDING THE SIX YEAR STATUTE THAT APPLIES TO WRITTEN INSTRUMENTS (and other associations beyond the new act condo statute, such as HOAs) - CHALLENGES TO COVENANT AMENDMENTS ARE TIME-BARRED AFTER SIX YEARS AS VOIDABLE, NOT VOID, SO LONG AS THE ACTION IS WITHIN THE GENERAL POWER OF THE ASSOCIATION, PUBLIC POLICY IS NOT SERIOUSLY OFFENDED, OR FRAUD IS NOT INVOLVED.

          This case was a really good chance for the Court to explain what the real difference is between void and voidable, and it could have, just by discussing previous Washington law. It did not do so. If there is a statute that says that you need 90% approval for a vote changing the use of an apartment, and you vote to change the use from rental to owner-occupied, then under Chiwawa, that is the same thing, and not really a change of use. The Court could at least have said that. But what is the broader rule?  What is within a corporation's powers? My reading of the cases is that it is very rare to see a ruling that an act was outside the corporate powers, but it is possible. What about direct violations of statutes? Not here - the statute may have been directly violated, but according to this Court unless the statute says, if I am directly violated by a corporation, then the corporation is acting outside its powers, then a direct statutory violation is within the powers of a corporation.

          Yikes. I don't think it really means that.

          As Firesign Theater famously said, What Does This  Mean? For The Straight Poop:

          1.       If your client has amended its covenants and the amendments do not seriously violate public policy, are not infested with equitable diseases, or are without the general authority of the association, then the amendment is subject to a statute of limitations, whichever one applies. If you are a HOA, it will be six years.
          2.       Under Chiwawa, even though the Court sharply concluded that association had no ability whatsoever to restrict rentals, under Bilanko, restricting rentals is within the authority of the association, so the statute of limitations applies. I can find no discussion of the statute of limitations in Chiwawa, and think this means that the claim was filed within six years of the amendment.
          3.       Previously a way around Chiwawa was ratification - did the member pay dues, serve on the Board or committees, and so on, after knowledge of the change, and if so, did he or she ratify so that he or she is subject to the changes regardless; but ratification is personal, so it does not apply across the board to everyone, it does not apply to subsequent purchasers, it is case by case, and so it is a real mess from that perspective;
          4.       But now an answer to Chiwawa is the statute of limitations. How long ago was the covenant changed.

          And here is the larger, more interesting question: what about all those other rules, regulations, guidelines to interpretations of rules, resolutions and so on that associations have passed over the years that are not very specifically authorized by the covenants? Look at any website for an older HOA and you will find these everywhere. Are they subject to a six-year statute of limitations? or are they outside the authority of the association, because they are not specifically allowed by the covenants, even given the HOA powers section of RCW 64.38.020? Can the Court read the covenants to include as within the authority of the association, direct violations of covenant and statutory provisions, as Bilanko did, and at the same time, read them to not include within their authority matters within the statutory powers of associations?

          After Chiwawa, I thought that all these rules that were arguably new rules because they did not directly relate to something in the existing covenants were at risk. Now, after six years, who knows?

Arf.

Rob

Robert D. Wilson-Hoss
Hoss & Wilson-Hoss, LLP
236 West Birch Street
Shelton, WA 98584
360 426-2999
www.hossandwilson-hoss.com<www.hossandwilsonhoss.com>
rob at hctc.com

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