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Georgia Appreciation Property, Inc. v. Enclave at Riverwalk Townhome Association, Inc.

Court of Appeals of Georgia, Fifth Division

March 15, 2018

GEORGIA APPRECIATION PROPERTY, INC.
v.
ENCLAVE AT RIVERWALK TOWNHOME ASSOCIATION, INC.

          MCFADDEN, P. J., BRANCH and BETHEL, JJ.

          Branch, Judge.

         Georgia Appreciation Property, Inc. ("GAP") filed a declaratory judgment action against Enclave at Riverwalk Townhome Association, Inc., challenging an amendment to Enclave's governing documents that increased restrictions on owners who choose to lease out their townhome within the development. Enclave moved to dismiss the action on the ground that GAP lacked standing to file what Enclave contended was a derivative action. The parties also filed cross motions for summary judgment on the merits of GAP's claims. The trial court granted Enclave's motion to dismiss for lack of standing and further held that Enclave was entitled to summary judgment on the merits. GAP appeals. For the reasons that follow, we hold that the trial court correctly dismissed the action for lack of standing but that the portion of the trial court's order that purports to enter judgment in favor of Enclave is void and must be vacated.[1]

         Normally a motion to dismiss for failure to state a claim turns on the allegations of the complaint:

[a] motion to dismiss for failure to state a claim upon which relief may be granted should not be sustained unless (1) the allegations of the complaint disclose with certainty that the claimant would not be entitled to relief under any state of provable facts asserted in support thereof; and (2) the movant establishes that the claimant could not possibly introduce evidence within the framework of the complaint sufficient to warrant a grant of the relief sought. If, within the framework of the complaint, evidence may be introduced which will sustain a grant of the relief sought by the claimant, the complaint is sufficient and a motion to dismiss should be denied.

GeorgiaCarry.Org v. Atlanta Botanical Garden, 299 Ga. 26, 28 (1) (785 S.E.2d 874) (2016) (citation omitted). And "[i]n deciding a motion to dismiss, all pleadings[2] are to be construed most favorably to the party who filed them, and all doubts regarding such pleadings must be resolved in the filing party's favor." Id. (citation and punctuation omitted).

         Nevertheless, a dismissal for failure to meet a procedural prerequisite to filing suit, such as for a failure to make a demand in connection with a derivative suit, is a dismissal due to a lack of subject-matter jurisdiction, which is a matter in abatement. Pinnacle Benning, LLC v. Clark Realty Capital, LLC, 314 Ga.App. 609, 617-618 (2) (a), n. 36 (724 S.E.2d 894) (2012); see also First Christ Holiness Church v. Owens Temple First Christ Holiness Church, 282 Ga. 883, 885, n. 11 (655 S.E.2d 605) (2008) (a challenge to the trial court's subject matter jurisdiction is a matter in abatement). And in considering a matter in abatement "a trial court is not confined to the allegations of the complaint." Equity Trust Co. v. Jones, 339 Ga.App. 11, 14 (792 S.E.2d 458) (2016) (citation and punctuation omitted).

         Construed in favor of GAP, the record shows that at the time of the complaint, GAP owned two of thirty-two townhomes of Enclave at Riverwalk, a real estate development governed in part by a "Declaration of Protective Covenants, Conditions, Restrictions and Easements." With certain restrictions, the Declaration allowed a unit owner to lease his or her unit for residential purposes. As of February 2016, GAP leased out its two units as allowed by the Declaration.[3]

          After an unchallenged February 2016 amendment to the Declaration, [4] the Declaration provided that it could be amended by a vote of two thirds of the "Total Association Vote" except where a higher vote is required by the Enclave bylaws or by the Georgia Property Owners' Association Act (the "POA Act"):

Except where a higher vote is required for action under any other provision[s] of this Declaration, the Bylaws or by the [POA] Act, this Declaration may be amended with the affirmative vote, written consent, or any combination thereof of Owners holding 2/3 of the Total Association Vote.

         And "Total Association Vote" is defined in the Declaration to mean that unit owners whose voting rights have been suspended are not counted as a part of the "Total Association Vote":

"Total Association Vote" means the votes attributable to the entire membership of the Association (including votes of Declarant) as of the record date for such action, but specifically excluding the votes of any Owners whose voting rights have been suspended as provided herein, whether or not such members are present or represented at the meeting, if any, where such votes are to be cast.

         The February 2016 amendment to the Declaration also submitted the property and Declaration to the provisions of the POA Act, OCGA § 44-3-220 et seq. As noted above, the provision of the Declaration that allows amendments thereto is expressly subject to the terms of the POA Act. The POA Act has its own provision regarding amendment of an instrument, such as a declaration, [5] which provides:

Except to the extent expressly permitted or required by other provisions of this article, the instrument shall be amended only by the agreement of lot owners of lots to which two-thirds of the votes in the association pertain or such larger majority as the instrument may specify[.]

See OCGA § 44-3-226 (a) (emphasis supplied).

         On May 17, 2016, Enclave proposed 17 amendments to the Declaration and the bylaws of the Association and sought to obtain written consent to the amendments from the unit owners. Consents were returned to Enclave, and on July 8, 2016, Enclave published a notice to its members that it considered only 31 of 32 units eligible to vote on the amendments because one owner's right to vote had been suspended based on a delinquent account.[6] Enclave also announced that although some of the other amendments passed by a higher margin, proposed amendments 8, 11 and 12 had been approved with 21 affirmative votes. On October 5, 2016, Enclave recorded an amendment to the Declaration on the county deed records (the "October 2016 Amendment") based on the specific amendments that were deemed as having the required number of votes; this amendment thereby went into effect on that day. Proposed amendments 8, 11, and 12 are incorporated into and included in the October 2016 Amendment as sections 5, 8, and 9. And section 5 of the October 2016 Amendment imposed numerous additional restrictions on the ability of a lot owner to lease its townhome in the development.

         Of concern to GAP, prior to the October 2016 Amendment, GAP could lease each of its townhomes unless title was "conveyed or transferred to another person or entity" or the unit was "not subject to a lease for ninety (90) or more consecutive days." In its appellate brief (but nowhere in the trial court, as shown below), GAP contends that the October 2016 Amendment stripped its right to continue to lease its units so long as neither of these two conditions occurred. Instead, under the amendment, GAP cannot continue leasing its units after the current tenants leave because a required future leasing permit is only available to owners who have "occupied the Unit as his or her principal and primary residence for more than thirty (months), or satisfactorily demonstrate[d] to the Board that the Unit was purchased by the Owner to be used as a place of residence of the Owner and/or Owner's family." GAP argues on appeal that as a corporate owner, it could never qualify for a future leasing permit and that, as the only corporate owner, it therefore was targeted by the October 2016 Amendment.

         In response to the October 2016 Amendment, GAP filed the present declaratory judgment action on October 24, 2016. In Count I, GAP asserted that the POA Act requires that all 32 members of the association must be counted for purposes of amending the Declaration; that, accordingly, 22 votes were required to pass all aspects of the October 2016 Amendment; that the amendment therefore is void in its entirety; and that GAP was entitled to a declaration to that effect. In Count II, GAP asserted that even if there were sufficient votes to pass the October 2016 Amendment, various sections of the amendment "directly violate provisions of the [POA] Act, other provisions of law [including the Constitutions of the State of Georgia and the United States], or extend beyond provisions authorized by the Act." GAP asserted that it was therefore entitled to an order voiding certain provisions of the amendment. In Count III, GAP asserted that the unlawful aspects of the October 2016 Amendment as described in Counts I and II "could affect the substantive property rights of [GAP] and the contractual relations between [GAP] and its tenants" and "could materially damage [GAP] and other owners, monetarily and otherwise." (Emphasis supplied.) GAP asserted that it was entitled therefore to temporary and interlocutory injunctions restraining Enclave from enforcing the October 2016 Amendment. In Count IV, GAP averred that the amendment imposed additional leasing restrictions on its units without GAP's consent; that "the common law of Georgia requires a property owner's consent before a private party may impose substantive restrictions on the use of an owner's real property"; and that therefore, "[s]hould the [October] 2016 Amendment not be found void under Count I, " GAP was entitled to an order invalidating "the additional substantive use restrictions purported to be imposed" on its property under the amendment. Finally, in Count V, GAP sought attorney fees allowed by the Declaration for actions against the association for "[f]ailure to comply with this Declaration, the Bylaws or the rules and regulations."

         Enclave moved to dismiss on multiple grounds: (1) that GAP did not have standing to make the claims found in Counts I through IV because those claims were derivative in nature and GAP had not satisfied the necessary prerequisites for asserting such a claim; (2) that Count II seeks a mere advisory opinion; (3) that Counts I through IV fail because the October 2016 Amendment was valid under the POA Act; and (4) that GAP's claim for attorney fees fails with these other claims. The parties then filed cross-motions for summary judgment on the merits of GAP's claims.

          GAP also moved for an interlocutory injunction against enforcement of the October 2016 Amendment during the pendency of the litigation. GAP acknowledged that other members were also leasing out their townhomes and argued that the an injunction was necessary to avoid irreparable harm to all affected lot owners:

If the Association is not enjoined from enforcing the Disputed Amendments while this case proceeds in orderly fashion, significant irreparable harm will occur to the affected lot owners. The Association will continue to use threats of legal action and fines under the Disputed Amendments to force lot owners to dispose of their property or leave their properties vacant if the lot owner cannot occupy the unit. It would be inequitable to allow the Association to force ...

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