DWYER, J.
¶ 1 Eighteen condominium owners (collectively Homeowners) filed suit against Gary Sanford, Paul Burckhard, James Sansburn, Richard Peter, Shana Holley, Brett Backues, Joseph Cusimano, Jason Farnsworth, Patricia Hovda, Alexander Philip, Huckleberry Circle, LLC, Lozier Homes Corporation, Diane Glenn, and Construction Consultants of Washington, LLC
¶ 2 Contrary to the trial court's ruling, we hold that Washington law does not provide that a cause of action necessarily accrues against a corporate board member no later than upon the board member's resignation. We hold, instead, that the doctrine of adverse domination applies in Washington. The application of that doctrine to the pleadings in this case demonstrates that several of Homeowners' claims should not have been dismissed on the face of the complaint as untimely filed. However, given that we also hold both that directors of a homeowners' association do not owe fiduciary-like duties to future purchasers and that Homeowners failed to plead all of the elements of a CPA claim, various of Homeowners claims were properly dismissed. Accordingly, we affirm in part and reverse in part.
¶ 3 A trial court's ruling on a motion to dismiss under CR 12(b)(6) presents a question of law, which we review de novo. Cutler v. Phillips Petroleum Co., 124 Wn.2d 749, 755, 881 P.2d 216 (1994). A CR 12(b)(6)
Burton v. Lehman, 153 Wn.2d 416, 422, 103 P.3d 1230 (2005).
¶ 4 Homeowners all own residential units at Huckleberry Circle condominium complex in Issaquah.
¶ 5 The Association's first board consisted of Sanford, Burckhard, and Sansburn. In their complaint, Homeowners allege that at the time of development, Declarant, Lozier Homes, Sanford, Burckhard, and Sansburn were aware, or should have been aware, that the complex "was not being designed or constructed in a manner consistent with minimum requirements of building code [sic] with respect to weatherproofing." Homeowners further allege that insufficient weatherproofing was a pervasive problem throughout this region, and that Declarant, Lozier Homes, Sanford, Burckhard, and Sansburn were aware of this fact at that time.
¶ 6 Declarant, Lozier Homes, Sanford, Burckhard, and Sansburn prepared a limited warranty, developed a "maintenance program," and hired a "licensed inspector" for the complex. Homeowners allege that the purpose of these actions "was to give the appearance of due diligent inspection of the construction quality of the building envelope, while not in fact undertaking an intrusive investigation of building components which would have revealed water intrusion." Declarant, Lozier Homes, Sanford, Burckhard, and Sansburn retained Glenn, d/b/a The Construction Consultants, as the complex's inspector. Glenn was not a licensed inspector but, rather, was a political activist for the building industry.
¶ 7 Homeowners further allege that, in order to protect themselves from liability, Declarant, Lozier Homes, Sanford, Burckhard, and Sansburn included provisions in the project declaration that allowed Declarant to appoint a fourth nonvoting member to the board and that limited "the power of the Association's Board and the Association to engage in litigation against the Declarant for violation of the implied warranties of quality under the Washington Condominium Act."
¶ 8 Burckhard resigned from the board on May 15, 2001, at which time he was replaced by Holley. Between May and November 2001, Glenn performed multiple nonintrusive inspections of the complex, which revealed only minor repair issues. On May 9, 2002, Sansburn and Holley resigned from the board, and the Association elected Backues, Cusimano, and Peter in their place. On that same date, Declarant exercised its right to add a nonvoting member to the board. Declarant appointed Sanford to this position.
¶ 9 On August 13, 2002, the board hired Glenn to perform another inspection of the complex. Homeowners allege that "Sanford did not advise the Board that Glenn had no experience in helping condominium associations identify concealed defects and damage." Glenn's inspection again did not find any serious issues or defects.
¶ 10 In March 2003, Ken Harer, a construction defect attorney and architect, contacted the board in order to inform it that the complex showed signs of potentially serious hidden construction defects and that the statutory limitation period on any warranty claims would soon expire. Peter met with Harer, who explained his concerns. Shortly thereafter, Peter e-mailed Backues and Cusimano regarding the meeting and expressed concern that he might have a conflict of interest because he was employed by an affiliate of Lozier Homes. The board took no action based on Harer's advice.
¶ 11 Peter notified the board in April 2003 that he intended to resign, but the board instead had him switch terms with another member so that someone could be elected to replace him in May. Also that April, the board received its first complaint of water leaking through a window in one of the units. None of this information appeared in any of the board's minutes. Homeowners allege that "the decision to omit these facts from the minutes was part of a deliberate effort on the part of Defendant Peter and/or the other Board members to conceal material information from unit owners."
¶ 12 Peter resigned from the board on May 29, 2003, and Farnsworth was elected to replace him. On August 20, 2003, the property manager contacted contractor Mark Jobe regarding bids for deck maintenance and deck drainage issues. Jobe stated:
The board took no action upon receiving Jobe's warnings.
¶ 13 On September 22, 2003, the board received its second complaint of water leaking into a unit. On October 17, 2003, the board met to consider hiring a structural engineer to inspect the decks at the complex; however, no further action to hire an engineer was taken. The board thereafter received a third complaint about water leaking into a unit. Following the receipt of this complaint, "Sanford volunteered Lozier and the Declarant" to perform deck inspections. On January 18, 2004, Backues resigned from the board.
¶ 14 In March 2004, a unit owner complained directly to Lozier Homes of a leak in the owner's unit. Sanford, who was still the board's nonvoting member, wrote a letter to the property manager, blaming the leak on "gaps in caulking in the siding and wood trim around the decks ... and clogged weepholes in window frames." Sanford wrote a second letter to the property manager in April, alleging that the same conditions had caused a leak in another unit. Homeowners allege that Sanford wrote these letters in order to discourage prosecution of a warranty claim.
¶ 15 In June 2004, Glenn performed another exterior visual inspection at the complex. Homeowners allege that this inspection "was not reasonably calculated to determine the actual source of water leaks." Glenn recommended maintenance in the form of caulking and painting, but again found no major problems. Glenn performed another similar inspection in November 2004, and again recommended caulking and painting.
¶ 16 On November 6, 2004, the statutory limitation period applicable to a claim for breach of implied warranties on common elements under the Washington Condominium Act
¶ 18 By March 24, 2006, Sanford resigned from the board. On June 27, 2006, Cusimano announced his resignation from the board. On July 20, 2006, Philip resigned from the board.
¶ 19 In July 2008, the board finally approved an intrusive inspection of the building envelope. However, the board told the unit owners that the purpose of the inspection was "to provide your association with a preliminary assessment and a list of priorities pertaining to future building maintenance and repair issues." In October 2008, Peter
¶ 20 The inspection performed by Improcon and Grace Architects revealed that
(Alteration in original.) The board did not share the results of the inspection with the unit owners.
¶ 21 Homeowners allege that "[a]t an October 27, 2009 HOA meeting, homeowners presented questions about the details of water intrusion repairs. The Board replied that the answers were not known, and individuals with specific complaints were directed to the Project property manager." In January 2010, the board hired J2 Engineers to create a repair plan for the defects revealed by the inspection. On March 3, 2011, the board received a partial estimate for the cost of repair which totaled approximately $2.4 million. At a homeowners meeting on April 24, 2011, the board declared a budget that included a special assessment for the cost of repair. That May, the Association imposed a special assessment on the unit owners in excess of $2.5 million to fund the repairs.
¶ 22 In September 2011, Homeowners filed suit against all of the prior board members,
¶ 23 The trial court ruled that the statutory limitation period applicable to Homeowners' claims was three years and that "the statute of limitation for actions against the
¶ 24 Lozier Homes, Sanford, Sansburn, and Burckhard thereafter moved for an award of attorney fees, asserting that Homeowners' claim against them was frivolous. In response, counsel for Homeowners submitted extensive documentation of the research he had conducted prior to drafting the complaint.
¶ 25 Homeowners stipulated that all individually named board members had resigned at some unidentified time before September 2008.
¶ 26 Homeowners appeal the trial court's rulings on the motions to dismiss. Lozier Homes, Sanford, Burckhard, and Sansburn cross appeal the trial court's order denying their claim for an award of attorney fees.
¶ 27 Respondents contend that the trial court's dismissal of Homeowners' claim was proper because Homeowners lacked standing to file suit. This is so, Respondents assert, because the Washington Nonprofit Corporation Act
¶ 28 "Standing is a threshold issue, which we review de novo." In re Estate of Becker, 177 Wn.2d 242, 246, 298 P.3d 720 (2013). "To have standing, one must have some protectable interest that has been invaded or is about to be invaded." Orion Corp. v. State, 103 Wn.2d 441, 455, 693 P.2d 1369 (1985).
¶ 29 Homeowners asserted that they sustained damages to their individual property.
¶ 30 Homeowners contend that the discovery rule delayed the accrual of the causes of action as to all defendants on all claims, regardless of when various board members resigned from the board.
¶ 31 The discovery rule is an exception to the normal rules governing when a cause of action accrues. In re Estates of Hibbard, 118 Wn.2d 737, 744-45, 826 P.2d 690 (1992).
Hibbard, 118 Wash.2d at 749-50, 826 P.2d 690. "Under the discovery rule, a cause of action accrues when the plaintiff knew or should have known the essential elements of the cause of action."
¶ 32 Here, the trial court ruled that the relevant statutory limitation period is three years.
¶ 34 In Quinn, we held that any fraudulent concealment by an attorney, which might serve to toll the commencement of a statutory limitation period, ends when the attorney-client relationship ends, unless the attorney takes further steps to extend the concealment. 63 Wash.App. at 741, 821 P.2d 1256. We articulated two bases for our holding that the plaintiff had not brought his claim of legal malpractice within the applicable limitation period. First, we relied upon the rule established in Richardson v. Denend, 59 Wn.App. 92, 96-97, 795 P.2d 1192 (1990), which states that "upon entry of the judgment, a client, as a matter of law, possesses knowledge of all the facts which may give rise to his or her cause of action for negligent representation." Quinn, 63 Wash.App. at 737, 821 P.2d 1256. Second, we held that the plaintiff had not alleged that his attorney took any steps after the entry of judgment to conceal his negligence. Quinn, 63 Wash. App. at 742, 821 P.2d 1256. Again, we did not purport to establish a rule applicable to all fiduciary relationships. Indeed, Division Two has rejected the argument that a statutory limitation period automatically begins to toll when a fiduciary relationship ends. Doe v. Finch, 81 Wn.App. 342, 351, 914 P.2d 756 (1996) ("Although a breach of professional duty generally must occur before the professional relationship ends, the intentional concealment of a breach can continue after the relationship has ended." (footnote omitted)), aff'd, 133 Wn.2d 96, 942 P.2d 359 (1997).
¶ 35 Contrary to Respondents' assertion, Washington has no current "black-letter law" directly on point.
¶ 36 The doctrine of adverse domination is a corollary of the discovery rule. Hecht, 333 Md. at 346, 635 A.2d 394; see also Resolution Trust Corp. v. Farmer, 865 F.Supp. 1143, 1154 n. 11 (E.D.Pa.1994). Some jurisdictions that have adopted the doctrine of adverse domination have done so on the basis that it is analogous to the discovery rule. See, e.g., Smith, 328 Or. at 430, 980 P.2d 141 ("Oregon recognizes the adverse domination doctrine, which is analogous to Oregon's discovery rule."); Larney, 308 Ill. App.3d at 86, 241 Ill.Dec. 304, 719 N.E.2d 165 ("Logical application of the discovery rule and agency law principles leads to recognition of the adverse domination doctrine."). Washington applies the discovery rule to "claims in which the plaintiffs could not have immediately known of their injuries due to ... concealment of information by the defendant." Hibbard, 118 Wash.2d at 749-50, 826 P.2d 690. We hold that because Washington utilizes the discovery rule, the doctrine of adverse domination is also applicable in this state.
¶ 37 Having concluded that Washington recognizes the doctrine of adverse domination, we must now decide which version of the doctrine best comports with Washington law. This inquiry requires us to answer two questions: (1) What is the level of culpability that the board members must exhibit in order for the doctrine to apply? and (2) Must the plaintiff implicate all board members, or only a majority thereof?
¶ 38 There exists disagreement among jurisdictions as to the level of culpability required in order for the doctrine of adverse domination to apply.
Wilson, 288 S.W.3d at 290.
¶ 39 The Kentucky Supreme Court held that the doctrine of adverse domination may be invoked only where intentional wrongdoing is alleged. Its reason for so holding, the court stated, was that
¶ 40 The West Virginia Supreme Court of Appeals, on the other hand, held that the doctrine of adverse domination could apply regardless of the directors' degree of culpability. That court determined that "regardless of whether the alleged wrongdoing was intentional or merely negligent, the knowledge of officers' and directors' wrongdoing cannot be imputed to the corporation because those officers' and directors' control over the corporation prevents it from learning of the misconduct that is injuring it." Clark, 192 W.Va. at 403, 452 S.E.2d 714. This was so, the court stated, because "a corporation ... [can be] prevented from discovering its claims against those in control ... by the sheer fact of their control." Clark, 192 W.Va. at 403, 452 S.E.2d 714. One such example, the court offered, was when "`the directors and officers may be so disengaged from their responsibilities that they themselves are unaware of the breach of their duty to the corporation.'" Clark, 192 W.Va. at 403, 452 S.E.2d 714 (quoting Hecht, 333 Md. at 348, 635 A.2d 394).
¶ 41 In our view, a standard similar to that applied by Kentucky courts better accounts for the reality of the modern corporate structure. In order for the discovery rule to apply, the situation must be one "in which plaintiffs could not immediately know of the cause of their injuries." Hibbard, 118 Wash.2d at 750, 826 P.2d 690. This type of situation is unlikely to exist where the directors are merely "disengaged" and not concealing information from the shareholders. Although shareholders might not immediately know the cause of their injuries if they are inattentive to the corporation's mismanagement, the discovery rule does not apply where "the plaintiff [was] sleeping on his rights." Crisman v. Crisman, 85 Wn.App. 15, 20, 931 P.2d 163 (1997). In light of Washington's discovery rule, we hold that the doctrine of adverse domination applies only where the plaintiff alleges concealment by board members.
¶ 42 This leads us to our second question: Must the plaintiff implicate all board members in the concealment, or only a majority? Among other courts, two different approaches have emerged:
Dawson, 4 F.3d at 1309-10.
¶ 43 Many states adopt the "majority test" for policy reasons. In Smith, the Oregon
¶ 44 On the other hand, states that adopt the "complete domination" test, also typically do so for policy reasons. In Aiello v. Aiello, 447 Mass. 388, 404, 852 N.E.2d 68 (2006), the Massachusetts Supreme Court determined that the "complete domination" test more closely comported with modern corporate law. Specifically, the court focused on the role of corporate shareholders. The court stated that "a corporate shareholder who discovers that directors or officers have injured a corporation may, in many cases, bring a derivative suit on that corporation's behalf." Aiello, 447 Mass. at 403, 852 N.E.2d 68. As such, the court held, "[t]he mere existence of a majority of culpable directors should not lead to a presumption that a corporate plaintiff is unable to discover or redress the wrongs perpetrated by such directors, thereby tolling a statute of limitations." Aiello, 447 Mass. at 403, 852 N.E.2d 68.
¶ 45 We deem the "majority test" more consonant with Washington law. We agree with the Oregon Supreme Court that, "`While [culpable board members] retain control they can dominate the non-culpable directors and control the most likely sources of information.'" Smith, 328 Or. at 432, 980 P.2d 141 (quoting Williams, 599 F.Supp. at 1193-94 n. 12). We can easily envision a scenario in which non-culpable minority board members are "kept out of the loop" or even intimidated into submission by culpable board members determined to conceal their wrongdoing. In instances such as these, the culpable majority can effectively prevent the shareholders from learning of their wrongdoing. In such a situation, "`it is appropriate for the directors to bear the burden of rebutting a presumption of control, because they have greater access to the relevant information.'" Wilson, 288 S.W.3d at 289 (quoting Grant, 901 P.2d at 818). Thus, we will apply the "majority test" for adverse domination.
¶ 46 Typically the doctrine of adverse domination applies to derivative actions brought by shareholders on behalf of the corporation. In this case, however, the claims were brought by the unit owners in their individual capacity, not on behalf of the Association. Thus, the question is whether the doctrine of adverse domination can apply to claims brought by individuals. We hold that it can, at least in lawsuits premised upon duties or obligations stemming from the WCA.
¶ 47 The doctrine of adverse domination stems from the same or similar principles that underlie other equitable tolling doctrines. The West Virginia Supreme Court of Appeals has recognized that the doctrine of adverse domination is similar to the doctrine of continuous representation. Smith v. Stacy, 198 W.Va. 498, 505, 482 S.E.2d 115 (1996) (citing Clark, 192 W.Va. 398, 452 S.E.2d 714). As the Stacy court noted, Clark applied the doctrine of adverse domination to claims
¶ 48 We, likewise, find these two doctrines similar. Washington law recognizes the doctrine of continuous representation in legal malpractice litigation. Janicki Logging & Constr. Co. v. Schwabe, Williamson & Wyatt, PC, 109 Wn.App. 655, 663, 37 P.3d 309 (2001). We have suggested that the doctrine may also apply in cases of accounting malpractice. Burns v. McClinton, 135 Wn.App. 285, 299, 143 P.3d 630 (2006) (declining to apply continuous representation where plaintiff's claim was not for failure to "provide adequate accounting services"). As we have held previously, the continuous representation doctrine "prevents an attorney from defeating a malpractice claim by continuing representation until the statute of limitations has expired." Janicki, 109 Wash. App. at 662, 37 P.3d 309. The continuing representation doctrine prevents the limitation period from commencing so long as the attorney continues to represent the client on that particular matter. Janicki, 109 Wash. App. at 663-64, 37 P.3d 309.
¶ 49 The doctrine of adverse domination functions in a similar manner. The doctrine prevents corporate board members from defeating claims by continuing to dominate the board. See Hecht, 333 Md. at 351, 635 A.2d 394 ("This prevents the culpable directors from benefiting from their lack of action on behalf of the corporation."); In re Blackburn, 209 B.R. 4, 10 (Bankr.M.D.Fla. 1997) (adverse domination is "grounded in the equitable notion that the receiver should not be time barred from pursuing the management of an insurer in liquidation to recover for alleged wrongdoing that management committed while in control of the insurer"). Additionally, when a board is controlled by directors who continue the wrongdoing initiated by their predecessors, the board continues to "represent" the interests of the shareholders (or here, the unit owners) on the particular matter associated with that wrongdoing.
¶ 50 The two doctrines are based on similar rationales. One of the policy reasons underlying Washington's adoption of the continuing representation doctrine was that "`[t]he attorney has the opportunity to remedy, avoid or establish that there was no error or attempt to mitigate the damages.'" Janicki, 109 Wash.App. at 663, 37 P.3d 309 (quoting 3 Ronald E. Mallen & Jeffrey M. Smith, Legal Malpractice § 22.13, at 431 (5th ed.2000)). This rationale also rings true for corporate directors who, while they are in control of the board, have "the opportunity to remedy ... or attempt to mitigate the damages" caused by prior board members. Shareholders (or unit owners), on the other hand, are generally limited to their ability to file suit or replace the board with new directors whom they hope will be more honest than their predecessors.
¶ 51 As one federal court noted, decisions adopting the doctrine of adverse domination "reflect an implicit appreciation of the realities of the shareholders' position, that, without knowledge of wrongful activities committed by directors, shareholders have no meaningful opportunity to bring suit." F.D.I.C. v. Bird, 516 F.Supp. 647, 651 (D.P.R.1981). This reality is the same for the unit owners of a homeowners' association. The WCA defines the duties of board members in their governance of the association.
¶ 52 In this case, some of the board member defendants owed a duty of "care required of fiduciaries," while others owed a duty of "ordinary and reasonable care." Regardless of the degree of care owed, the role of the board members is the same — to govern the homeowners' association. See RCW 64.34.300. It would make little sense to apply the doctrine of adverse domination to claims against some of the complicit board members but not to others where the allegations are that a series of directors acted in concert to the detriment of the unit owners. The doctrine of adverse domination concerns itself with directors' concealment of information from the corporation and its constituents. The degree of care owed to a corporate shareholder or association unit owner is unrelated to the danger of concealing their wrongdoing to the detriment of those to whom the duties are owed.
¶ 53 The doctrine of adverse domination applies to claims brought by the individual plaintiffs herein.
¶ 54 We must next determine whether the doctrine of adverse domination applies to all of Homeowners' claims or to only some of those claims. There is a split of authority as to whether there is a limit to the types of claims to which the doctrine of adverse domination can apply. For instance, Oklahoma limits the doctrine of adverse domination to fraud claims. Grant, 901 P.2d at 815-16; Resolution Trust Corp. v. Greer, 911 P.2d 257, 265 (Okla.1995). In Grant, the Oklahoma Supreme Court reasoned that the doctrine of adverse domination was designed to be narrow, and thus should not apply to all types of claims. 901 P.2d at 815. The court held,
Grant, 901 P.2d at 815-16.
¶ 55 For its holding, the Oklahoma Supreme Court relied heavily on a federal court decision explaining that, in Texas, the doctrine of adverse domination "must be limited to those cases in which the culpable directors have been active participants in wrongdoing or fraud, rather than simply negligent." Dawson, 4 F.3d at 1312. Applying that rule to the case at hand, the Dawson court explained,
4 F.3d at 1312-13. The court's primary concern was with concealment, more so than the nature of the underlying claim itself.
¶ 57 The view espoused by the Oregon and Kansas courts best comports with Washington law. Washington's discovery rule is not limited to fraud claims. See, e.g. Cox v. Oasis Physical Therapy, PLLC, 153 Wn.App. 176, 190, 222 P.3d 119 (2009) (negligence). "[W]ithholding the reach of adverse domination to cases involving negligence and breach of fiduciary duty would carve out unjustified special exceptions from the ... discovery rule for corporate officers and directors." Scaletty, 257 Kan. at 358, 891 P.2d 1110 (citation omitted). The concern of courts such as Grant and Dawson that the doctrine of adverse domination would "overthrow the statute of limitations completely in the corporate context" if applied to negligence claims, Dawson, 4 F.3d at 1312, is adequately allayed by a requirement that the plaintiff must allege concealment in addition to the elements of the claim. Therefore, the doctrine of adverse domination should apply to all claims to which the discovery rule applies.
¶ 58 This general rule being established, we turn now to the specific claims asserted in Homeowners' complaint. Homeowners assert the following claims: breach of board member duty of care, negligence, violation of the CPA, negligent misrepresentation, fraud by omission and misrepresentation, and civil conspiracy. As pleaded, the doctrine of adverse domination applies to four of those types of claims.
¶ 59 The doctrine of adverse domination most clearly applies to the claims for breach of board member duty of care. The doctrine of adverse domination is frequently applied to claims for breach of corporate duties. Wilson, 288 S.W.3d at 286; Aiello, 447 Mass. at 389, 852 N.E.2d 68; Smith, 328 Or. at 431, 980 P.2d 141; Demoulas, 424 Mass. at 503, 677 N.E.2d 159; Scaletty, 257 Kan. at 359, 891 P.2d 1110; Clark, 192 W.Va. at 401, 452 S.E.2d 714; Hecht, 333 Md. at 328, 635 A.2d 394; United Park City Mines Co. v. Greater Park City Co., 870 P.2d 880, 885 (Utah 1993); Kahn v. Seaboard Corp., 625 A.2d 269, 271 (Del.Ch.1993). Indeed, the purpose of the doctrine is to protect the corporation and its constituents. It would be inconsistent with this purpose to not apply the doctrine to board member duty of care claims. Thus, the doctrine applies so long as concealment is sufficiently alleged.
¶ 60 Homeowners' adequately plead concealment with respect to the board member duty of care claims. Homeowners allege that the board member defendants "fail[ed] to advise the plaintiffs and others of consistently reported construction problems and other material information, [and] misrepresent[ed] the nature of investigations to plaintiffs." Homeowners allege that the board remained culpable until April 24, 2011, when they declared a budget that included the special assessment. Thus, the Homeowners sufficiently allege that the board continued until that time to conceal the facts that established the basis for these claims. The doctrine of adverse domination therefore applies to these claims.
¶ 62 Homeowners' attempt to assert CPA claims against Sanford, Burckhard, Sansburn, and Lozier Homes. The discovery rule can apply to CPA claims. Mayer v. Sto Indus. Inc., 123 Wn.App. 443, 463, 98 P.3d 116 (2004), affirmed in part, reversed in part on other grounds, 156 Wn.2d 677, 132 P.3d 115 (2006). Thus, the doctrine of adverse domination can also apply to CPA claims.
¶ 63 Homeowners assert negligent misrepresentation claims against Lozier Homes, Sanford, Burckhard, and Sansburn. Generally, the discovery rule can apply to negligent misrepresentation claims. First Md. Leasecorp v. Rothstein, 72 Wn.App. 278, 286, 864 P.2d 17 (1993). Therefore, the doctrine of adverse domination also can apply to negligent misrepresentation claims.
¶ 64 Homeowners sufficiently plead concealment with respect to these claims. Homeowners allege that the board members continually ignored the advice of experts, and failed to disclose to the unit owners that they had received such advice. Homeowners also allege that the board members mischaracterized the resealing and caulking efforts as "preventative measures," and that the board members "continued to conceal the severity of the problem from the ownership at large." In fact, Homeowners specifically allege that Philip and "[t]he other Board members [in 2006] cooperated or agreed that the scope of the problem should be concealed." Further, the Homeowners allege that the board purposely kept themselves in the dark about the results of an inspection and thereafter withheld the results of the inspection from the Homeowners. As pleaded, the board members continued their concealment until April 24, 2011, when they declared a budget which included the special assessment. Thus, the Homeowners sufficiently allege that the board continued to conceal the facts that established the basis for these claims. As such, the doctrine of adverse domination applies to Homeowners' negligent misrepresentation claims.
¶ 65 Homeowners assert fraud claims against Lozier Homes, Sanford, Burckhard, Sansburn, and Peter. The discovery rule can apply to fraud claims. RCW 4.16.080(4). It is also widely accepted that the doctrine of adverse domination can apply to fraud claims. See, e.g. Grant, 901 P.2d at 815-16.
¶ 66 Homeowners allege that these defendants acted fraudulently in two respects. Homeowners allege that these defendants "breached their duties to plaintiffs to disclose" and "made material misrepresentations... of existing facts regarding the presence of defective construction, the cause of water intrusion, the advice of counsel regarding prosecution of a Washington Condominium Act warranty claim, the actual purpose of the `maintenance' program developed by Lozier, and Glenn's and CCW's lack of qualifications and conflict of interest." Homeowners allege that "the decision to omit these facts [regarding the advice of counsel] from the minutes was part of a deliberate effort on the part of Defendant Peter and/or
¶ 67 Finally, Homeowners assert civil conspiracy claims against Lozier Homes and Sanford. As Homeowners implicate only one board member, not a majority, the doctrine of adverse domination does not apply to these claims.
¶ 68 Therefore, with respect to the breach of board member duty of care claims, CPA claims, negligent misrepresentation claims, and fraud by omission and misrepresentation claims, the statute of limitations was presumptively tolled until April 24, 2011. On the face of the complaint, these claims were timely and the trial court erred by dismissing them as a matter of law.
¶ 69 For those claims to which the doctrine of adverse domination does not apply, i.e., Homeowners' negligence and civil conspiracy claims, the discovery rule may still apply.
¶ 70 Pursuant to Homeowners' complaint, it is plausible that Homeowners did not know and could not reasonably have known of the facts underlying their causes of action until April 24, 2011, the date that the Association's board declared a budget that included the repair assessment. The trial court erred by determining that all causes of action accrued against each board member no later than upon the board member's resignation from the board and thus by dismissing all of Homeowners' claims. Whether the discovery rule serves to toll the accrual of Homeowners' negligence and civil conspiracy causes of action presents a question of fact to be decided on remand.
¶ 71 In the alternative, Respondents contend that Homeowners' claims fail as a matter of law because the board members did not owe a duty to Homeowners. This is so, Respondents assert, because board members owe a duty only to the Association. Respondents further assert that in the event that the board members do owe a duty to unit owners, the duty does not apply to future purchasers.
¶ 72 In order to establish liability under a tort theory, the plaintiff must prove duty, breach, causation, and damages. Xiao Ping Chen v. City of Seattle, 153 Wn.App. 890, 899, 223 P.3d 1230 (2009). The existence of a duty is a question of law, which we review de novo. Parrilla v. King County, 138 Wn.App. 427, 432, 157 P.3d 879 (2007).
RCW 64.34.308(1). The statute clearly dictates that the members of the board of directors owe duties to the unit owners when appointed by the declarant. RCW 64.34.308(1)(a); see also Kelsey Lane Homeowners Ass'n v. Kelsey Lane Co., 125 Wn.App. 227, 242-43, 103 P.3d 1256 (2005).
¶ 74 The statute further provides that elected board members owe to unit owners a duty premised upon a lesser standard of care than that applied to those board members who were appointed by the declarant. The statute does not indicate, however, that elected board members owe no duties to unit owners. A homeowners' association "has no life independent of the individual homeowners who are by statute ... required to be members of the Association." Stuart v. Coldwell Banker Commercial Grp., Inc., 109 Wn.2d 406, 413-14, 745 P.2d 1284 (1987). Thus, by owing duties to the association, the elected board members necessarily owe those same duties to the current unit owners.
¶ 75 Indeed, it would make little sense if the board members owed duties to unit owners if appointed, but no duties to the unit owners if elected. Both sets of directors are tasked with operating the homeowners' association.
¶ 76 Each of the plaintiffs purchased their units on the following dates:
Cindy Alexander July 19, 2006 Blocker Ventures, LLC February 7, 2003 Chris Clark November 3, 2005 R. Bruce Edgington April 19, 2006 Kipp and Jennifer Johnson March 19, 2008 Gopikrishna and Himabindu Kanuri August 8, 2006 Chris and Elizabeth Kasprzak September 19, 2002 Paul and Joyce Hyojung Larkins August 1, 2006 Kristine Magnussen January 11, 2008 Scott McKillop September 1, 2005 Caine and Dana Ott July 14, 2006 Mara Patton August 15, 2007 Peter Richards September 2, 2009 Dante Schultz December 14, 2005 Winifred Smith July 24, 2002 Robert and Colette Stoddard August 12, 2005 Neil West May 27, 2004 Liang Xu and Jia Lu Duan February 6, 2007
¶ 77 Each of the defendant-board members left the board on the following dates:
Gary Sanford March 24, 2006 Paul Burckhard May 15, 2001 James Sansburn May 9, 2002 Richard Peter May 29, 2003 Shana Holley May 9, 2002 Brett Backues January 18, 2004 Joseph Cusimano June 27, 2006 Patricia Hovda Unknown date before September 2008 Alexander Philip July 20, 2006
¶ 78 As the above tables demonstrate, a significant number of Homeowners' claims are asserted against board members who resigned before certain of the plaintiffs purchased their respective units. Thus, Homeowners insist that the board members' duties extend not only to current owners but to future owners as well. Although board members owe duties to current unit owners, it does not necessarily follow that those duties extend to future owners. Homeowners' contention raises two separate questions: (1) Do the appointed board members owe a fiduciary duty to future owners? (2) Do any of the board members owe a freestanding duty of care to future owners independent of their WCA-defined duties to current owners?
¶ 79 A fiduciary relationship can arise either in law or in fact. Liebergesell v. Evans, 93 Wn.2d 881, 890, 613 P.2d 1170 (1980). A fiduciary relationship arises at law when "the nature of the relationship between the parties [is] historically considered fiduciary in character; e.g., trustee and beneficiary, principal and agent, partner and partner, husband and wife, physician and patient, attorney and client." McCutcheon v. Brownfield, 2 Wn.App. 348, 356-57, 467 P.2d 868 (1970); accord Micro Enhancement Int'l, Inc. v. Coopers & Lybrand, LLP, 110 Wn.App. 412, 434, 40 P.3d 1206 (2002). On the other hand, a fiduciary relationship arises in fact when there is "`something in the particular circumstances which approximates a business agency, a professional relationship, or a family tie, something which itself impels or induces the trusting party to relax the care and vigilance which he otherwise should, and ordinarily would, exercise.'" Hood v. Cline, 35 Wn.2d 192, 200, 212 P.2d 110 (1949) (quoting Collins v. Nelson, 193 Wn. 334, 345, 75 P.2d 570 (1938)). "Superior knowledge and assumption of the role of adviser may contribute to the establishment of a fiduciary relationship." Liebergesell, 93 Wash.2d at 891, 613 P.2d 1170.
¶ 80 Homeowners contend that the appointed board members owe a fiduciary duty to future unit owners because it is foreseeable that the units will be sold. However, while foreseeability might be sufficient to establish a general tort duty, it is not sufficient to establish a fiduciary duty. Cf. Nguyen v. Doak Homes, Inc., 140 Wn.App. 726, 732-33, 167 P.3d 1162 (2007) (foreseeablility alone not enough to establish duty in fraudulent misrepresentation claim by second purchaser against original seller). The plaintiffs must allege "`something in the particular circumstances which approximates'" a fiduciary relationship. Hood, 35 Wash.2d at 200, 212 P.2d 110 (quoting Collins, 193 Wash. at 345, 75 P.2d 570). A board member's relationship to an individual who might purchase a unit sometime in the indeterminate future does not approximate a fiduciary relationship. Thus, the appointed board members of a homeowners' association do not owe fiduciary duties to future purchasers.
¶ 81 Accordingly, Homeowners' claims against board members that resigned before certain plaintiffs' units were purchased can survive Respondents' CR 12(b)(6) motions to dismiss only if those board members owe a free-standing duty of care to future owners independent of their WCA-defined duties. On this question, one California case, Frances T. v. Village Green
Frances T., 42 Cal.3d at at 505-06, 229 Cal.Rptr. 456, 723 P.2d 573 (footnote omitted).
¶ 82 In Frances T., the plaintiff alleged in her complaint that the board members, who possessed knowledge of a recent increase in crime at the complex, created an unreasonably dangerous condition by failing to repair a hazardous lighting condition within a reasonable period of time and by ordering her to disconnect her exterior lighting. Frances T., 42 Cal.3d at 509-10, 229 Cal.Rptr. 456, 723 P.2d 573. The court found that those allegations were sufficient to state a negligence claim against the board members. Frances T., 42 Cal.3d at 509, 229 Cal.Rptr. 456, 723 P.2d 573. Specifically, the court held that the board members' duty arose not by statute, but from their knowledge "that a condition or instrumentality under their control posed an unreasonable risk of injury to the plaintiff." Frances T., 42 Cal.3d at 510, 229 Cal.Rptr. 456, 723 P.2d 573.
¶ 83 We find the reasoning in Frances T. persuasive. Analyzing Homeowners' claims in the same manner as the Frances T. court, we hold that Homeowners have pleaded an independent duty owed to future unit owners with respect to only some of their claims.
¶ 84 With respect to their claims for breach of board member duty of care, Homeowners allege that the board members "owed plaintiffs a duty of due care in the management and governance of the Association." As this duty is exactly the duty the board members owe under the WCA, Homeowners have not pleaded an independent duty. All board member duty of care claims asserted against board members who left the board before the date of purchase of a particular plaintiff's unit
Sanford Burckhard Sansburn Peter Holley Backues Cusimano Hovda Phillip
Alexander X X X X X X X Blocker Ventures X X Clark X X X X X Edgington X X X X X X Johnson X X X X X X X X Kanuri X X X X X X X X Kasprzak X X X Larkins X X X X X X X X Magnusson X X X X X X X X McKillop X X X X X Ott X X X X X X X Patton X X X X X X X X Richards X X X X X X X X X Schultz X X X X X Smith X X X Stoddard X X X X X West X X X X X Xu X X X X X X X X
¶ 85 With respect to these claims, Lozier Homes was not a member of the board and could not have owed an independent duty to the plaintiffs. Thus, the board member duty of care claims are only cognizable against Lozier Homes pursuant to a theory of vicarious liability for the actions taken by Sanford, Burckhard, and Sansburn. Claims against Lozier Homes were thus properly dismissed where claims against all three of these individuals were properly dismissed.
¶ 86 With respect to their claims for negligent misrepresentation. Homeowners allege that Lozier Homes, Sanford, Burckhard, and Sansburn breached their duties to "disclose existing material facts" regarding the construction defects, Glenn's lack of credentials, and the advice received from Harer and Jobe. In order to state a claim for negligent misrepresentation, a plaintiff must allege that
Austin v. Ettl, 171 Wn.App. 82, 88, 286 P.3d 85 (2012) (quoting Ross v. Kirner, 162 Wn.2d 493, 499, 172 P.3d 701 (2007)). Ordinarily, "[a]n omission alone cannot constitute negligent misrepresentation, since the plaintiff must justifiably rely on a misrepresentation." Ross, 162 Wash.2d at 499, 172 P.3d 701. "When a duty to disclose does exist, however, the suppression of a material fact is tantamount to an affirmative misrepresentation." Crisman, 85 Wash.App. at 22, 931 P.2d 163.
¶ 87 "Ordinarily, the duty to disclose a material fact exists only where there is a fiduciary relationship." Tokarz v. Frontier Fed. Sav. & Loan Ass'n, 33 Wn.App. 456, 463-64, 656 P.2d 1089 (1982) (citing Oates v. Taylor, 31 Wn.2d 898, 903, 199 P.2d 924 (1948)). Outside of a fiduciary relationship, the court will only find a duty to disclose
Favors v. Matzke, 53 Wn.App. 789, 796, 770 P.2d 686 (1989) (citations omitted). Homeowners do not allege any facts establishing that the relationship between the future unit owners and the board members resembled any one of the relationships listed in Favors.
Sanford Burckhard Sansburn Lozier Homes
Alexander X X X X
Blocker X X
Ventures
Clark X X
Edgington X X X X
Johnson X X X X
Kanuri X X X X
Kasprzak X X
Larkins X X X X
Magnussen X X X X
McKillop X X
Ott X X X X
Patton X X X X
Richards X X X X
Schultz X X
Smith X X
Stoddard X X
West X X
Xu X X X X
¶ 88 In addition to their negligent misrepresentation claims, Homeowners also plead claims for fraud by omission and misrepresentation. In order to state a claim for fraud, the plaintiff must establish "(1) representation of an existing fact; (2) materiality; (3) falsity; (4) the speaker's knowledge of its falsity; (5) intent of the speaker that it should be acted upon by the plaintiff; (6) plaintiff's ignorance of its falsity; (7) plaintiff's reliance on the truth of the representation; (8) plaintiff's right to rely upon it; and (9) damages." Stiley v. Block, 130 Wn.2d 486, 505, 925 P.2d 194 (1996). Unlike for
¶ 89 This expectation, however, is informed by our decision in Nguyen, wherein we held that the original seller of a home has no duty to disclose a concealed defect to the second purchaser. 140 Wash.App. at 732-33, 167 P.3d 1162. Whereas the Haberman plaintiffs asserted a claim for fraudulent misrepresentation, the Nguyen plaintiffs asserted a claim for fraudulent concealment. Nguyen, 140 Wash.App. at 729, 167 P.3d 1162. Viewing Nguyen in light of Haberman, in order for a second purchaser to state a claim for fraud against the original seller, the subsequent purchaser must allege that the original seller made an affirmative misrepresentation; allegations of omissions alone will not suffice. Here, Homeowners allege both omission and misrepresentation. Homeowners allege that they relied on Lozier Homes, Sanford, Burckhard, Sansburn, and Peter, but what actions Homeowners undertook as a result of such reliance is unclear. However, given that Homeowners pleaded that Lozier Homes, Sanford, Burckhard, Sansburn, and Peter made affirmative misrepresentations, we can hypothesize a set of facts that will satisfy the duty requirement set out in Haberman. This is all that is required to survive a CR 12(b)(6) motion. Kinney v. Cook, 159 Wn.2d 837, 842, 154 P.3d 206 (2007). Hence, all plaintiffs sufficiently state a claim for fraud against Lozier Homes, Sanford, Burckhard, Sansburn, and Peter.
¶ 90 Finally, Homeowners assert a civil conspiracy claim against Lozier Homes and Sanford. In order to establish a civil conspiracy, a plaintiff
All Star Gas, Inc. of Wash. v. Bechard, 100 Wn.App. 732, 740, 998 P.2d 367 (2000). Homeowners allege that Lozier Homes and Sanford conspired to
Homeowners allege, in other words, that Lozier Homes and Sanford conspired to commit the torts that formed the basis for their other claims. Homeowners' civil conspiracy claims thus incorporate all of Homeowners' other claims. As previously noted, a duty can arise to third persons where the defendant fraudulently misrepresents a material fact. Because the civil conspiracy claims incorporate Homeowners' fraud claims, Home-owners
¶ 91 Homeowners fail to properly plead their CPA claims. In order to prevail on a claim for violation of the CPA, the plaintiff must establish "(1) an unfair or deceptive act or practice (2) occurring in trade or commerce (3) with a public interest impact (4) that proximately causes [and] (5) injury to a plaintiff in his or her business or property." Douglas v. Visser, 173 Wn.App. 823, 834, 295 P.3d 800 (2013) (citing Svendsen v. Stock, 143 Wn.2d 546, 553, 23 P.3d 455 (2001); Indoor Billboard/Wash., Inc. v. Integra Telecom of Wash., Inc., 162 Wn.2d 59, 83-84, 170 P.3d 10 (2007)).
¶ 92 Homeowners allege that Lozier Homes, Sanford, Burckhard, and Sansburn, took various actions "[i]n order to protect themselves from potential liability under the implied warranties of quality of the Washington Condominium Act for selling seriously defective construction at the Project." However, none of the plaintiffs purchased their units from Lozier Homes, Sanford, Burckhard, or Sansburn.
¶ 93 Although not addressed by the trial court, Respondents contend that the naming of spouses as codefendants is not necessary to create community liability and, therefore, the spouses of the individual board members are not proper parties to the suit.
¶ 94 In their cross appeal, Sanford, Burckhard, Sansburn, and Lozier Homes contend that the trial court erred by denying their request for attorney fees pursuant to RCW 4.84.185. This is so, they assert, because Homeowners' complaint was clearly frivolous, as Homeowners knew that the statutory limitation periods on their claims had long since expired. Our resolution of the issues in this appeal belies that assertion.
¶ 95 RCW 4.84.185 reads, in pertinent part, "In any civil action, the court ... may, upon written findings by the judge that the action . . . was frivolous and advanced without reasonable cause, require the nonprevailing party to pay the prevailing party the reasonable expenses, including fees of attorneys, incurred in opposing such action." We review a trial court's decision under RCW 4.84.185 for an abuse of discretion. Rhinehart v. Seattle Times. 59 Wn.App. 332, 339-40, 798 P.2d 1155 (1990). "A frivolous action is one that cannot be supported by any rational argument on the law or facts." Rhinehart, 59 Wash.App. at 340, 798 P.2d 1155. In order for the court to award attorney fees under RCW 4.84.185, the lawsuit must be frivolous in its entirety and "advanced without reasonable cause." N. Coast Elec. Co. v. Selig, 136 Wn.App. 636, 650, 151 P.3d 211 (2007). As some of Homeowners' claims should have survived Respondents' CR 12(b)(6) motions to dismiss, Homeowners' lawsuit was clearly not frivolous in its entirety. The trial court did not err by denying the request for an award of attorney fees.
¶ 96 Sanford, Burckhard, Sansburn, and Lozier Homes also request attorney fees on appeal pursuant to RAP 18.9(a).
¶ 97 The decision of the trial court is reversed and remanded for further proceedings with respect to the following claims: all negligence claims against Lozier Homes; all civil conspiracy claims against Lozier Homes and Sanford; all fraud claims against Lozier Homes, Sanford, Burckhard, Sansburn, and Peter; all board member duty of care claims marked in the following chart,
Sanford Peter Backues Cusimano Hovda Phillip Lozier Homes
Alexander X X
Blocker Ventures X X X X X X X
Clark X X X X X
Edgington X X X
Johnson X X X Kanuri X Kasprzak X X X X X X X Larkins X Magnussen X McKillop X X X X X Ott X X Patton X Schultz X X X X X Smith X X X X X X X Stoddard X X X X X West X X X X X Xu X
and all negligent misrepresentation claims marked in the following chart.
Sanford Burckhard Sansburn Lozier Homes
Alexander
Blocker Ventures X X
Clark X X
Edgington
Johnson
Kanuri
Kasprzak X X
Larkins
Magnussen
McKillop X X
Ott
Patton
Richards
Schultz X X
Smith X X
Stoddard X X
West X X
Xu
¶ 98 The decision of the trial court is affirmed in all other respects.
¶ 99 Affirmed in part, reversed in part.
We concur: COX, J., and GROSSE, J., Pro Tern.
Homeowners do sufficiently allege facts from which we can envision a hypothetical set of facts, consistent with the complaint, establishing that Sanford, Burckhard, and Sansburn were agents of Lozier Homes. Accordingly, Homeowners state negligent misrepresentation claims with respect to Lozier Homes only to the extent that it is vicariously liable for the actions of Sanford, Burckhard, and Sansburn. Negligent misrepresentation claims against Lozier Homes were properly dismissed where claims against all three of these individuals were properly dismissed.
Homeowners also sufficiently allege facts from which we can envision a hypothetical set of facts, consistent with the complaint, establishing that Lozier Homes is the alter ego of Declarant. These claims have been reduced to default judgment against Declarant. Whether Lozier Homes is responsible for liability assigned to Declarant in that judgment is a question beyond the scope of the briefing and argument herein and will need to be addressed upon remand.
Second, Lozier Homes contends that Homeowners' negligence claims fail because there is no such thing as a claim for negligent construction. This contention fails regardless of the accuracy of Lozier Homes' characterization of the law. Homeowners' claims are for negligence "in undertaking the construction, inspection, condition reporting, and repair of the Project." (Emphasis added.) Homeowners' negligence claims thus are not merely for negligent construction.
