LAMBERT, J., Judge.
In this appeal arising from a declaratory judgment action, property owners William R. Dyer and Donna B. Dyer seek review of several orders of the Trigg Circuit Court related to the authority of a property owners' association to enforce protective covenants affecting a subdivision. We affirm.
Eagles Ridge Subdivision ("the subdivision") is a platted subdivision comprised of 81 lots and a common area lot contiguous to the eastern shore of Lake Barkley. There are two phases of the subdivision; Phase I is located in Stewart County, Tennessee, and Phase II is located in Trigg County, Kentucky. Atlantic Land Corporation, through agent Chris Creekmore, was the initial developer/owner of Phase I, which was originally known as Wilderness Acres. After developing the roads in Tennessee, Atlantic Land sold and transferred ownership of the development to North American Land Corporation/Atlantic/Seneca Land Corp. ("North American"). This project provided for the construction of inlet roads, surveying, and the recording of subdivision plats for both phases of the development. The Phase II plat was recorded on February 6, 2008.
Every lot in the subdivision is bound by respective and identical protective covenants and restrictions as set forth in the Dedication of Plat and Declaration of Protective Covenants ("the Declaration") filed by Atlantic Land on March 29, 2006,
By early 2009, the developer, North American, had lost its authority and was administratively dissolved. Prior to its dissolution, the developer had failed to appoint a board of directors for the property owners' association. Thereafter, the lot owners scheduled a meeting to organize the association. Ultimately, the lot owners for Phase II formed Eagles Ridge Property Owners Association, Inc., a Kentucky Non-Profit Corporation, ("Eagles Ridge POA") on April 16, 2010. A similar corporation had been organized in Tennessee for Phase I of the subdivision. After the board of directors was elected, North American transferred to it $15,816.45 in assessments that it had collected from the owners. Eagles Ridge POA filed the necessary documents to organize as a Kentucky non-profit corporation on April 22, 2010, and at the time of the filing of the complaint, it was still in good standing as a non-profit. Since 2010, the board has issued dues notices and initiated collection actions against owners who have failed to pay their annual assessments.
The Dyers are residents of Phase I of the subdivision in Clarksville, Tennessee. The Dyers also own Lots 33 and 35, located in Phase II in Kentucky, which they acquired at an auction in July 2008. The auction house, Golden Rule — Wilson, published a flyer including the following statement: "For protection of your investment, Eagle's Ridge properties are subject to the Eagle's Ridge Property Owners Association and its Covenants & Restrictions. The current annual fee for a lot owner is $250.00. You may view all of the Eagle's Ridge Protective Covenants at www.GoldenRuleAuction.com and go to the July 19th Auction." The purchase was memorialized by deed dated August 25, 2008.
After the Dyers failed to pay their assessments for two years, Eagles Ridge POA sent a letter to them on July 11, 2013, demanding unpaid annual dues for 2011 and 2012, as well as late fees and charges, in the amount of $1,567.74. When they failed to pay, Eagles Ridge POA filed a small claims collection action in Trigg District Court. At a hearing on December 5, 2013, Mr. Dyer testified and had Tim Futrell, another lot owner and disbarred attorney, speak on his behalf as a fact witness. Mr. Futrell offered his opinion that Eagles Ridge POA was not a lawful corporation. The court dismissed the claim without prejudice, reasoning that the parties had raised a question as to whether Eagles Ridge POA had been properly organized.
Eagles Ridge POA brought the present action seeking declaratory relief on January 8, 2014. In the verified petition, Eagles Ridge POA sought a declaration that it was a valid property owners' association with the legal authority to enforce the protective covenants and restrictions in the Declaration, and impose and collect dues on the Dyers' property. It also sought collection of the unpaid dues from 2011, 2012, and 2013, as well as all fees, penalties, and interest on the unpaid dues. Finally, it sought reasonable attorney's fees and costs. In their response, the Dyers stated that the petition should be dismissed for failure to state a claim upon which relief could be granted, because Eagles Ridge POA lacked standing to bring the action, for failure to join other similar lot owners as indispensable parties, and on res judicata grounds. They continued to assert that Eagles Ridge POA was not created in accordance with the Declaration recorded in Trigg County.
Mr. Dyer testified by deposition. He works in the construction business, and he has been involved in the development of the Mint Springs subdivision in Clarksville, Tennessee, which included restrictions and covenants along with a property owners' association. After his wife attended an auction in 2008, they purchased Lots 33 and 35 in the Eagles Ridge subdivision. Mr. Dyer called the auction company at the number on a flyer he had and asked about restrictions and whether there was a home owners' association. He was told that there was not a property owners' association. Mark Bowles, who performed the title examination, also told him that there was not a property owners' association. At the closing, Mr. Dyer admitted that he had not read all of the documents relating to the purchase, but he was not surprised that there would have been covenants or restrictions. He stated that they had not built any structures on the property and that they had only been there a handful of times. The last time he had been to the property was six years ago. Mr. Dyer did not know who was responsible for road maintenance or common areas in the subdivision. He admitted that he had paid dues at one point, but he had not paid any dues for the years of 2011, 2012, or 2013. He had not contacted anyone on the Eagles Ridge board to dispute the letters he received concerning his late dues. He thought it was irrelevant because of his belief that there was not a property owners' association.
Eagles Ridge POA filed a motion for summary judgment/declaratory judgment in support of its petition. In the motion, Eagles Ridge POA argued that the protective covenants were binding on the Dyers because they had been recorded in their chain of title, that the protective covenants required a mandatory property owners' association, that the formation and continued operation of Eagles Ridge POA was consistent with the developer's plan that annual dues should be collected, and that it was entitled to a judgment for the unpaid dues, late fees, and costs. An affidavit from Beverly Noland, who was serving as the president of Eagles Ridge POA, provided that the developer had created a property owners' association before it went bankrupt. An email dated May 16, 2007, from the office manager of the developer indicated that the property owners' association had been formed and that its members would be the directors of the association until the officers were properly elected.
In response, the Dyers argued that Eagles Ridge POA was not a property owners' association created under the terms of the Declaration because it had not been established before December 31, 2007, or when three-fourths of the lots had been sold. Therefore, even if it had the right to exist as a private, non-profit corporation, Eagles Ridge POA did not have the authority to assess and collect dues from them. They further argued that Eagles Ridge POA failed to join all other property owners to obtain a binding declaration of rights.
In a separate document, the Dyers moved to dismiss or for summary judgment. The basis of the motion to dismiss was the failure to name all of the indispensable parties to the action. In the alternative, the Dyers sought a declaration that Eagles Ridge POA did not have standing or authority to assess and collect annual dues from them because it was not formed in accordance with the Declaration and that they did not owe Eagles Ridge POA any money.
In reply, Eagles Ridge POA argued that all indispensable parties were before the court, noting that the Dyers were the only property owners who had a collection case that proceeded to small claims court. Eagles Ridge POA went on to argue that the Dyers' construction of the protective covenants would defeat the intent of the subdivision to mandate membership in the property owners' association in order to protect the owners.
Following a hearing, the circuit court entered its findings of fact, conclusions of law, declaratory judgment, summary judgment, and order on October 14, 2014. The court first concluded that no other parties were necessary for adjudication of the matter because the Dyers were the only owners who had refused to comply with the Declaration. It therefore denied the Dyers' motion to dismiss. The court then held that there were no genuine issues of material fact to decide and that the matter was an issue of law for it to decide. Based upon the documentary evidence, the court stated that there had "been a de facto and an actual Property Owners' Association since the filing of the Declaration of Protective Covenants." The court went on to state that Eagles Ridge POA had represented itself as the property owners' association referred to in the Declaration, that no other group had acted in that fashion, and that the Declaration had not been revoked or amended by any recorded instrument. Furthermore, the court stated that the developer had intended for there to be a property owners' association from its inception "to not only enforce the Protective Covenants but also to provide for maintenance of the common areas, not the least of which would be the roadways which remain privately owned and not county maintained."
After considering the law related to protective covenants, the court concluded the Eagles Ridge POA was the proper property owners' association and as such had standing and authority to bring the action and to enforce the Declaration. Therefore, the court declared that the Declaration filed May 29, 2006, as amended May 7, 2007, was binding on the Dyers as well as their successors, heirs, and assigns; that after the developer dissolved, the property owners, as the developer's successor and assigns, had the authority to establish the property owners' association; that Eagles Ridge POA was vested with the legal authority granted by the Declaration over the subdivision; and that Eagles Ridge POA had the authority to impose and collect annual dues and special assessments on the Dyers' property. The circuit court granted Eagles Ridge POA a judgment against the Dyers in the amount of $2,598.56 for unpaid annual dues for the years 2011, 2012, 2013, and 2014, as well as late fees and charges. The court also awarded taxable court costs and retained jurisdiction to determine an award of attorney fees, if sought. Finally, the court denied the Dyers' motion for summary judgment.
The Dyers filed a motion pursuant to Kentucky Rules of Civil Procedure (CR) 59.05 and CR 52.04 to vacate the October 14, 2014, judgment, to make findings of fact as they specified, and to enter a judgment consistent with their position. The Dyers disputed the circuit court's statement that they were the only property owners who had failed or refused to comply with the protective covenants in relation to the payment of annual dues. They also disputed that a de facto association had been in existence. Eagles Ridge POA objected to the Dyers' motion.
In addition, Eagles Ridge POA filed a motion seeking legal fees and costs. It sought $15,142.00 in attorney fees and $611.25 in costs. The Dyers filed an exception to the portion of the Bill of Costs requesting $60.00 in mileage as not authorized by CR 54.04(2). The Dyers also objected to the motion for legal fees, arguing that the motion was premature based on its pending post-judgment motion and that there was not an itemized list detailing the time spent.
On November 26, 2014, the court entered an order denying Eagles Ridge POA's motion for attorney fees, noting that the Declaration only permitted an award of such fees incurred in the collection of assessments. Therefore, fees incurred in the declaratory action would not be permitted by the terms of the Declaration. However, the court permitted Eagles Ridge POA to submit an itemized bill showing dates and time spent that was attributable to the collection process. In a separate order, the court awarded Eagles Ridge POA recoverable costs in the amount of $551.25. Finally, the court denied the Dyers' post-judgment motion, but included a supplemental finding that because the original developer had not initiated the establishment of the property owners' association, its board of directors served as the directors of the association and collected dues. The court also stated that no one else had attempted to create a separate association.
Eagles Ridge POA filed a statement on attorney's fees, in which it changed its request for fees to a standard one-third contingency fee in the amount of $866.19 so as not to incur further costs. By order entered December 18, 2014, the court awarded Eagles Ridge POA $866.19 in attorney's fees. It also declared that and all prior orders to be final and appealable. This appeal now follows.
On appeal, the Dyers contend that the circuit court erred in concluding that Eagles Ridge POA was created in compliance with and has the authority to enforce the Declaration. Eagles Ridge POA disputes the Dyers' arguments and specifically argues that they failed to raise a portion of their argument below or include a statement regarding preservation pursuant to CR 76.12(4)(c)(v). While we agree that the Dyers failed to include a statement of preservation and included what may be considered new arguments on appeal, we shall nevertheless consider the merits of the appeal.
An appellate court's standard of review from the entry of a summary judgment is well-settled in the Commonwealth:
Lewis v. B & R Corp., 56 S.W.3d 432, 436 (Ky. App. 2001) (footnotes omitted). Specific to this case, Triple Crown Subdivision Homeowners Ass'n, Inc. v. Oberst, 279 S.W.3d 138, 141 (Ky. 2008), citing Colliver v. Stonewall Equestrian Estates Ass'n, Inc., 139 S.W.3d 521, 523 (Ky. App. 2003), provides for de novo review: "Interpretation or construction of restrictive covenants is a question of law, which allows us to review this matter de novo." (Internal quotation marks and punctuation omitted.) The parties agree that there are no genuine issues of material fact and that there is only a question of law to decide.
The crux of the argument before this Court is whether Eagles Ridge POA was properly formed and whether it had the authority to impose and collect assessments. We agree with Eagles Ridge POA and the circuit court that it was properly formed and had that authority.
In Triple Crown, supra, the Supreme Court of Kentucky addressed the interpretation of protective covenants, noting that these were no longer meant to be strictly construed and that the intention of the parties governs:
Triple Crown, 279 S.W.3d at 140.
In support of their argument, the Dyers rely upon the Supreme Court of Kentucky's holding in Your Cmty. Bank, Inc. v. Woodlawn Springs Homeowners Ass'n, Inc., 449 S.W.3d 357, 359 (Ky. 2014), which provides that the promise to pay an association fee, as described in the instrument including real covenants at issue, "is an affirmative covenant, not restrictive or `negative[`]" and that "[t]he cause of action and remedy for violating an affirmative covenant is an action at law for damages." But as Eagles Ridge POA points out, the Court went on to explain that "these alternate rules of construction `may not be used to defeat the obvious intention of the parties. . . .'" Id. at 360.
Eagles Ridge POA, on the other hand, relies upon Colliver v. Stonewall Equestrian Estates Ass'n, Inc., 139 S.W.3d 521, 522 (Ky. App. 2003), in which this Court addressed a dispute between home owners and a homeowners' association related to the building of a detached two-car garage. The Court emphasized that "[t]he fundamental rule in construing restrictive covenants is that the intention of the parties governs." In that case, the Court determined that "the developer intentionally created an Association to enforce and oversee the restrictive covenants running with the land to preserve the character of the neighborhood." Id. at 524. Finally, the Court recognized that "[p]lainly, the developer intended at some point for the Association to take over enforcement of the covenants. This was the sole purpose for the creation of the Association. Accordingly, we agree with the circuit court that at the dissolution of the developer, its authority passed to the Association." Id. at 524-25.
In the present case, the developer set forth several covenants, conditions, and use restrictions in its Dedication of Plat and Declaration of Protective Covenants, which were to run with the land in perpetuity and were intended to be binding upon all subsequent lot owners. Article II called for the creation of a property owners' association:
Article III sets forth the covenant for the maintenance assessment. Subsection (1) provides that each owner "shall pay an annual assessment of $250 for the reasonable construction, use, and Maintenance, and expansion of the roads and common areas." The subsection provided for the due date for such payments and gave itself or the Association and assigns "the right to sue for and collect any assessment, together with interest, properly assessed under this contract." The same subsection also provided that by acceptance of a deed, the owner of each lot became a member of the Association and agreed "to pay an amount determined by the majority vote of the Owners of the Lots in Eagle Ridge Subdivision as deemed necessary for the purpose of Maintaining (including the removal of snow and the repairs and improvements of the roads and common areas) the right of ways and roadways and common areas as shown on the subdivision plat." Article V(2) gave the Association or any owner "the right to enforce, by any proceedings at law or in equity, all restrictions, conditions, covenants, reservations, liens, and charges now or hereinafter imposed by the provision of this Declaration."
Based upon the provisions of the Declaration as set forth above, the developer's intent to create a property owners' association is clear.
We also hold that Eagles Ridge POA is the valid property owners' association called for in the Declaration. The evidence confirmed that the developer formed the original association, and its directors acted as the directors of the association. Later, the property owners met, elected a new Board of Directors pursuant to the Declaration, and decided the legal form the entity would take. That the non-profit corporation they formed did not include any members
We also agree with Eagles Ridge POA that an association had been created prior to the December 31, 2007, deadline by the developer. When the owners set up Eagles Ridge POA, the developer then endorsed that entity by transferring to it the dues it had previously collected. Eagles Ridge POA has been acting in accordance with the Declaration since that time. We specifically disagree with the Dyers' argument that Eagles Ridge POA is merely a post-development ad hoc corporation for which the payment of dues was voluntary.
For the foregoing reasons, the orders of the Trigg Circuit Court are affirmed.
ACREE, CHIEF JUDGE, CONCURS.
TAYLOR, JUDGE, DISSENTS.
