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Lakeside Village Homeowners Association, Inc. v. Belanger

Court of Appeals of Texas, Eighth District, El Paso

June 14, 2017

LAKESIDE VILLAGE HOMEOWNERS ASSOCIATION, INC., PRINCIPAL MANAGEMENT GROUP OF NORTH TEXAS, AND PRINCIPAL MANAGEMENT GROUP, INC., Appellants,
v.
ALFRED "CORKY" BELANGER, AND MICHAEL DRENNAN, Appellees.

         Appeal from County Court at Law No. 3 of Dallas County, Texas (TC # CC-1107783-C)

          Before McClure, C.J., Rodriguez, and Hughes, JJ.

          OPINION

          ANN CRAWFORD McCLURE, Chief Justice.

         This appeal arises from two townhome duplex owners, Alfred "Corky" Belanger and Michael Drennan, who brought breach of contract, trespass, negligence, and diversion of water claims against their homeowners association and its management company.

         FACTUAL AND PROCEDURAL BACKGROUND

         Lakeside Village

         Lakeside Village is a gated townhome community comprised of 498 units by a lake in Rockwall County, Texas. It is governed by a homeowners association, which we refer to as Lakeside. Lakeside's Board of Directors consists of nine members and four officers. The board members live in the community and are not paid, but rather, volunteer their time. Property that is not privately owned by the residential owners is owned by and subject to the control of Lakeside and is referred to as the "common area." For example, Lakeside is responsible for the 13, 500 square feet of streets, 7, 800 square feet of retaining walls, street lights, tennis courts, the pool, the gym, and the golf course. Lakeside has owned and controlled the common areas at all relevant times concerning this lawsuit.

         The Declaration of Covenants, Articles of Incorporation, and By-Laws

         The documents governing the duties and responsibilities of Lakeside are set forth in the applicable Declaration of Covenants, Conditions and Restrictions (as amended)(the Declaration), Articles of Incorporation (as amended)(the Articles), and the Amended and Restated By-Laws (the By-Laws).

         The Declaration was executed on September 27, 1971, and subsequently amended on October 3, 1974, and on July 1, 1977. Pursuant to the Declaration, "common area" means "all real property owned by [Lakeside] for the common use and enjoyment of the owners, " and "owner" is defined as "the record owner, whether one or more persons or entities, of a fee simple title to any Lot which is part of the Properties, including contract sellers, but excluding those having such interest merely as security for the performance of an obligation." Article IV, entitled "Covenant for Maintenance Assessments" provides:

Section 1. Creation of the Lien and Personal Obligation of Assessments. [Lakeside Village], for each Lot owned within the Properties, hereby covenants, and each Owner of any Lot by acceptance of a deed therefor, whether or not it shall be so expressed in such deed, is deemed to covenant and agree to pay to the Association: (1) annual assessments or charges and (2) special assessments for capital improvements within the Common Areas, such assessments to be established and collected as hereinafter provided; . . .
Section 2. Purpose of Assessments. The assessments levied by the Association shall be used exclusively to promote the recreation, health, safety, and welfare of the residents in the Properties, for the improvement and maintenance of the Common Area, and of the homes situated upon the Properties.

         The Articles of Incorporation provide:

In order to provide for the health, safety and welfare of the owners of the lots within the above-described property, . . . the following specific purposes are adopted:
To exercise all of the powers and privileges to perform all of the duties and obligations of the corporation as set forth in that certain Declaration of Covenants, Conditions and Restrictions . . .
To . . . own, hold, improve, build upon, operate, maintain, . . . real property. . . .
To erect, construct, maintain, improve, rebuild, enlarge, alter, manage, control, furnish, decorate, and fit up any and all kinds of buildings and structures of every description and which can lawfully be done under the laws of the State of Texas.

         Finally, the By-Laws give the Board of Directors the power to take all legal acts, including making reasonable rules and regulations pertaining to all common areas. The By-Laws authorize the Board to regulate the use, maintenance, repair, replacement, modification, and appearance of the common areas and to make additional improvements in the common area.

         Principal Management Group of North Texas/Principal Management Group, Inc.

         Principal Management Group, Inc. (Principal) is Lakeside's property manager for the Lakeside Village community. Lakeside contractually engaged Principal to be its managing agent in January 2005. A Management Agreement governed the parties' relationship. According to Terry Tolleson, Lakeside's president in 2011, Lakeside did not delegate any decisions regarding capital improvements to Principal. James Heck, Principal's Director of Association Services, testified that Principal is responsible for maintaining Lakeside's common areas. Specifically, the Management Agreement provides that subject to availability of funds, Principal will maintain Lakeside's common elements in accordance with reasonable standards acceptable to Lakeside's Board. Principal was authorized, under the general supervision of Lakeside's Board, to: (1) maintain office hours on site at Lakeside Village; (2) spend approximately one hour, during office hours, inspecting Lakeside in addition to the above mentioned office hours; (3) establish liaison with contractors for corrective work on common elements in accordance with Lakeside's competitive bid requirements; (4) periodically inventory all of Lakeside's assets, recommend purchase of same where necessary, and provide Lakeside with a copy of each inventory from time to time; (5) ensure that its managers are available by telephone and email during business hours and after hours for emergencies; (6) maintain business-like relations with Owners and their tenants, whose service requests, questions and complaints shall be received, considered, recorded in a systematic fashion and responded to promptly and efficiently; (7) requests or complaints which are deemed extraordinary by Principal shall after thorough investigation, be reported to Lakeside's Board with appropriate recommendations; (8) recruit, hire, train, supervise and discharge all Project personnel, except for the maintenance staff employed by the Association; (9) supervise and direct Lakeside's maintenance staff in accordance with a Project plan to be prepared by Principal on a weekly basis and submitted to the Lakeside's president for approval; (10) Lakeside's maintenance supervisor shall have a dual reporting function to the Board's president and Principal's Portfolio Manager, except however, Principal has no authority to discharge Lakeside's supervisor or other employees; (11) conduct periodic physical inspections of the property; (12) subject to availability of funds, maintain common elements of Project in accordance with reasonable standards acceptable to the Board; (13) negotiate and make contracts for services, including utilities, trash remove, law maintenance, pest control and such other contract services as may be necessary and advisable, subject to Board approval and competitive bid procedures. Additionally, Principal was authorized to enforce Lakeside's covenants and provide fiscal and accounting services, which include preparing an annual budget for the next fiscal year. Finally, Principal was authorized to prepare any special reports in accordance with Lakeside's requests and maintain records and collect any fees and assessments.

         Subject Townhouse Duplex

         The properties involved in this lawsuit, 3805 Mediterranean (Drennan's property) and 3809 Mediterranean (Belanger's property)(collectively, the duplex property), are connected by an interior wall and a foundation wall, thereby making the units a duplex. East of the properties is the common area, except for a small area immediately adjacent to the party wall. When both properties were purchased, railroad tie retaining walls were located on the common areas to the north, east, and south of the duplex property.

         Rockwall County's soil consists primarily of sandy clay. This is significant to a structure's foundation, as sandy clay is highly receptive to moisture and can cause the foundation of a house to swell and contract. The duplex property at issue was built in the early 1980s, around the same time that many of the railroad tie retaining walls were built. The duplex was built on a single foundation with a cripple wall down the middle. A cripple wall, sometimes referred to as an extension wall, is a mechanism used to extend the top grade beam to level two properties, so that the duplex property would not look like a split level dwelling from the outside. Instead of resting on top of the concrete foundation, the main floor of the duplex property relies upon the cripple wall for support, which is made out of several two-by-four boards. Due to the change in elevation, the crawl space underneath a portion of the duplex property is so large that one can walk directly into it. Upon entering the crawl space and looking to the right, one observes a slope continuing down to the south and to the west. As one continues in the southwest direction of the crawl space, the distance between the ground and the main floor increases.

         Testimony at trial indicated that there was a drainage pipe that was supposed to be connected to an inlet drain on the outside of the duplex property, so that it would collect water from the retaining wall behind the duplex property and direct it away from the property. Instead, the pipe carried water from the retaining wall to a catch basin located in the crawlspace underneath the foundation of the duplex. Belanger's property also had a gutter system with downspouts that Donald Scott, chairman of Lakeside's Capital Expenditure Committee, believed was pushing water to the backside of the retaining wall.

         Alfred "Corky" Belanger

         Belanger became a resident of Lakeside Village in 2003. He owns two townhomes. He resides in 3836 Mediterranean and owns unit 3809 Mediterranean, which is the subject of this suit. According to the seller's disclosure at the time of sale of 3809 Mediterranean, the previous owner "added a French drain in the back and guttering as preventative measures." Some witnesses speculated that this French drain was the same drainage pipe discussed above that was carrying water to a catch basin in the crawlspace. Belanger was advised to address this issue, but did not do so.

         A 2003 inspection report for 3809 Mediterranean noted that "grading is flat at south and southeast corner of house. Water is standing in this area, and all grading should slope away from the house with no low spots." The report also indicated only minor, normal movements in the foundation. An inspection conducted in 2011 revealed significant structural changes since 2003. (RR9 at 65). The 2003 inspection indicated that there were only minor cracks in the foundation which did not require any kind of maintenance, while the 2011 inspection report revealed excessive cracking which needed to be repaired.

         2005 Reserve Study

         In 2005, Lakeside arranged for an engineering reserve study to determine long and short term needs for capital improvements. A Capital Expenditure Committee was created as a result. The study revealed that the railroad tie retaining walls on Upper Mediterranean Drive behind the duplex property needed to be replaced as a single event in 2006 because the walls were structurally failing. The walls were located only five feet from the duplex property. In 2006, Lakeside considered imposing a special assessment of $150, 000 but the assessment did not pass a vote of the membership. In 2007 and 2008, railroad tie retaining walls located elsewhere in the community were replaced in phases.

         Pam Slovak, Lakeside's president in 2009 and 2010, initially testified that in 2005, Lakeside did not have sufficient funds to repair the retaining wall behind the duplex property. Despite this testimony, she later acknowledged that in 2005, Lakeside's reserve fund contained $195, 560. In 2010, Lakeside HOA maintained $282, 490 in reserve funds. Slovak also revealed that from 2006 until 2013, the capital reserve budget contained sufficient funds to repair the retaining wall behind the duplex property. But Lakeside did not immediately replace the retaining wall behind Belanger's and Drennan's properties because it was the most complex of all the walls due to its turns, varying heights and elevations. It would be the most expensive to replace and would require engineer and City permits. Despite learning of the condition of the retaining walls in 2005, Lakeside never informed its residents or gave them an opportunity to discuss or vote on the issue. According to Slovak, it was the Board's decision to make.

         Belanger's Complaints

         Belanger first noticed issues with 3809 Mediterranean beginning in late 2007 and early 2008. His tenant contacted him concerning some cracks and water issues with the driveway. Belanger first notified Lakeside sometime in 2009 concerning the cracks in the driveway. According to Belanger, more and more cracks formed and water continued to appear and flow through the property. In October 2009, Scott responded to Belanger's water complaints. By 2010, Belanger testified that at least three board members were aware of the issues with his property, but did nothing about it. Moreover, even though Belanger's driveway was actually part of the common area, Lakeside informed him that because it was his driveway, he needed to repair it.

         In November 2010, Belanger advised Lakeside that his air conditioning unit slid down the hill. He requested that someone come out and repair the area. Lakeside only provided a temporary fix, relocating his AC unit onto a concrete pad surrounded by a plywood wall. When Lakeside relocated the unit, it did not address the issues with the retaining wall.

         Belanger subsequently emailed Lakeside, asking them to inspect his property and determine whether the problem areas were common areas or his own private property, so that the responsibility to repair could be properly delegated. He received no response from the Board. He sent another five or seven emails asking for the issues to be addressed. As a result of Belanger's complaints, an email exchange occurred between Slovak and Kitty Elder, Principal's on-site Lakeside Village manager, in which Slovak relayed to Elder that she was uncomfortable replying to Belanger's emails without guidance. Slovak's email asked for legal advice from a law firm, specifically someone who could "put the right words together so [Lakeside] HOA is protected."

         Belanger testified that the damage to his townhome included black mold in the crawlspace and interior damage. The entire property is now tilted, the wall has completely separated from the stucco, and a portion of the back wall is cracked.

         Drennan's Complaints

         Drennan became a resident of Lakeside Village in 2011. He owns 3805 Mediterranean, one of the properties subject to this suit. Drennan did not inspect the home prior to purchase. He was aware the unit was situated on the down slope of a hill, and that a railroad tie retaining wall was located behind the duplex property. However, prior to purchase, Drennan did receive a Resale Certificate from Principal, prepared by Elder, Principal's on-site Lakeside Village manager.

         Drennan testified that he too started having issues with water leaks and flooding to his driveway. The retaining wall behind his property was visually rotting. Like Belanger, various walls in Drennan's townhome were cracked and the paint was splitting; sheets of drywall were separating; and portions of his hardwood floors were raised and separating. Despite these issues, Drennan did not contact Lakeside.

         Drennan then found a set of construction plans in his townhome, dated 1981, that appeared to be the construction plans for the duplex property. He gave Ernest Hedgcoth a copy of these plans. Hedgcoth is an engineer who inspected the properties and testified as an expert witness. For a construction plan to become the official plan for a structure, it must contain architect and engineering seals and be on file with the County. These 1981 construction plans contained no official architect or engineering seal. They were not on file with the County and there is no evidence to indicate whether these plans were actually used to construct the property. Nonetheless, Lakeside and Principal heavily relied on these specific 1981 construction plans to maintain their argument that the ultimate damage to Belanger's and Drennan's properties was a result of improper design and construction rather than a result of the improperly functioning retaining wall. Specifically, Lakeside and Principal argued that if the duplex had been properly constructed according to the 1981 construction plans, none of the damage would have occurred. The 1981 construction plans contained the name, Graphic Design Group, but the extent of the group's involvement is unknown.

         2010 Reserve Study

         A second Reserve Study was conducted in October 2010. It provided for five year expenditures (2010-2015) totaling $1, 338, 530, which did not include day-to-day operating expenses. It recommended that replacement of the retaining walls should begin in 2011 and be completed by 2013. Slovak testified that Lakeside did not have sufficient reserve funds available to tackle all the recommended projects, in part because members failed to pay their dues.

         In 2011, Lakeside sought a special assessment to contribute to the reserve account, but the members voted against it. Repairs to the front gate were also needed at this time because Rockwall City codes required that the front gates be widened to allow for entry of emergency vehicles. The project was more time consuming and cost intensive than initially thought because it had to be completely redone after there was opposition from residents who objected to temporary traffic on their streets. The new construction of the front gate was more complex and required the work to be done in stages.

         Prior to an April 2011 Board meeting, Lakeside received three bids for the repair of the railroad retaining wall behind the duplex. Before it could move forward with any of the proposed bids, it needed an engineering report and approval from the City of Rockwall. Lakeside never acted on any of the three bids.

         Ernest Hedgcoth's Testimony

         Hedgcoth testified extensively concerning the effect of the retaining wall's condition upon the duplex. He was of the opinion that property damage occurred because of the failing retaining wall. Had a proper concrete retaining wall accompanied by catch basins and weep holes been installed behind the duplex, water would have been allowed to seep out and not build up and exert pressure against the wall. Hedgcoth explained that lateral pressure occurs when drainage builds up until it pushes against the wall and gradually pushes the retaining wall towards the downhill slope. The retaining wall behind the property did not allow the water to properly flow through a weep hole, so the lateral pressure continued to exert significant pressure on the property's foundation, eventually rotating the cripple wall underneath the house and separating the stucco approximately three or four inches from the actual wall. Hedgcoth further opined that as the retaining wall directed water onto the southeastern corner of Belanger's property, it caused erosion. The rotation of the cripple wall and cracking of the stucco occurred on the east side of the property, and mold was found on the southeastern side of Belanger's property. According to Hedgcoth, it would have been unreasonable for either Belanger or Drennan to make repairs to the foundation before the external retaining wall issues were addressed because the retaining wall would continue to damage the foundation until repaired. Several witnesses testified that the water coming from the retaining wall onto the southeastern corner of the property was not from a capped water well, spring, the result of a sprinkler leak, or broken waterline.

         Philip Robins' Testimony

         In 2011, Lakeside retained Philip Robins, an engineer, to perform drainage work throughout the community and to work on the front gate project. Robins discussed with Lakeside a plan to reduce the erosion and water drainage problems that were occurring with the retaining wall. He specifically testified that the rain gutters located on Belanger's property were not the cause of the damage. The damage was caused by the external lateral forces and running water coming from the retaining wall. Robins agreed that it would be unreasonable for Belanger and Drennan to address the foundation issues before the retaining wall was repaired, because damage would continue to recur until the retaining wall repairs were addressed. Robins' bid to repair the retaining walls, which was one of the three bids Lakeside obtained in 2011 but never acted upon, was $49, 455. Lakeside told him that they wanted a less expensive bid. Robins told them that he would not complete the project for less because it would comprise the integrity of the retaining wall.

         Renata Woods' Testimony

         Woods testified as Lakeside's and Principal's expert witness. She investigated the retaining wall behind the duplex and reviewed the 1981 construction plans found in Drennan's townhome. Woods was of the opinion that the construction of the duplex caused the damage to the foundation, rather than the condition of the retaining wall:

Nothing that you could do with this retaining wall, no matter what type of retaining wall it is, would have stopped this condition. This retaining wall would not have alleviated the forces on this foundation wall.

         Contrary to Robins' and Hedgcoth's opinions, Woods believed that there was nothing preventing Belanger and Drennan from moving forward with the repairs to their foundation because the retaining wall was an entirely different entity. One did not impact the other. In other words, the retaining wall was not dependent on the house for support and the house was not dependent on the retaining wall for support. She observed no issues regarding the need to divert water from the hill through the duplex property. Her final opinion related to the cause of the foundation's failure, which she characterized as a result of improper design and construction.

         Initial Lawsuit Filed

         In November 2011, Belanger filed suit against Lakeside and Principal, alleging a violation of the water code, trespass, and negligence. He asserted that there was a diversion of surface water in violation of Section 11.086 of the Texas Water Code. He next alleged that Lakeside and Principal knowingly and/or intentionally diverted surface water onto his property constituting a trespass. Finally, Belanger claimed that Lakeside and Principal were negligent in maintaining and operating the common area in such a manner as to improperly divert surface and/or subsurface water onto or under his property, proximately causing damage to his property.

         Retaining Wall Rebuilt

         The City of Rockwall issued a building permit in January 2013 for a stone retaining wall to be built behind the duplex. Lakeside ultimately hired engineer Thomas Daniel to design and construct the new wall. The new retaining wall was engineered stacked stone. It stopped at the end of Drennan's townhome, which is located on the far north side of the community. According to Scott, after the railroad tie retaining wall was replaced, Lakeside determined that the railroad tie retaining wall actually doing what it was designed to do. As a result, the remainder of the railroad tie retaining wall (which extended well past the duplex property) was not replaced with the new concrete retaining wall. Hedgcoth, however, believed that the new concrete retaining wall still did not provide proper drainage. Water continued to wash down the hill and onto the southeast corner of Belanger's property.

         Amended Pleadings

         Drennan was added as a plaintiff to the lawsuit and in May 2013, Belanger and Drennan filed their fifth amended petition. It alleged the following causes of action: (1) breach of contract; (2) violation of Section 11.086 of the Texas Water Code; (3) trespass; (4) negligence; and (5) intentional conduct/gross negligence. In addition to seeking compensatory damages and attorneys' fees, Belanger and Drennan sought specific performance regarding the repair of the retaining wall and Belanger's driveway. The petition finally alleged that the plaintiffs' recovery should not be limited by the damage caps under Chapter 84 of the Texas Civil Practice & Remedies Code.

         Trial, ...


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