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Garden Oaks Maintenance Organization v. Chang

Court of Appeals of Texas, Fourteenth District

November 14, 2017

GARDEN OAKS MAINTENANCE ORGANIZATION, Appellant/Cross-Appellee
v.
PETER S. CHANG AND KATHERINE M. CHANG, Appellees/Cross-Appellants

         On Appeal from the 269th District Court Harris County, Texas Trial Court Cause No. 2012-72213

          Panel consists of Justices Christopher, Brown, and Wise.

          OPINION

          Marc W. Brown Justice

         This case involves the attempted enforcement of a deed restriction against building more than a single one-car or two-car garage on a property located in the Garden Oaks, Section 3, Subdivision (the "Subdivision"). Appellant Garden Oaks Maintenance Organization ("GOMO") filed suit against appellees Peter S. Chang and Katherine M. Chang seeking a permanent injunction to have the Changs remove "the additional two-car garage" they constructed on their property in the Subdivision and seeking civil damages for each day they violated the garage deed restriction. The Changs brought counterclaims for declaratory relief based on GOMO's lack of authority to enforce deed restrictions as a property owners' association under sections 201.005 and 204.006 of the Texas Property Code and under GOMO's bylaws.

         At trial, the jury found that the Changs failed to comply with the garage deed restriction. Additionally, the jury found: such failures were excused by abandonment; the deed restriction was waived; GOMO's exercise of authority to enforce the restriction was unreasonable; and GOMO should be awarded no civil damages. The jury further found that a reasonable fee for the necessary services of the Changs' attorneys in the case was $80, 000. In its final judgment, the trial court rendered judgment against GOMO and in favor of the Changs. The trial court issued four declarations and did not award attorney's fees to the Changs.

         GOMO presents two issues on appeal: (1) whether the trial court erred by failing to dismiss the Changs' declaratory-judgment counterclaims and (2) whether the declarations are erroneous. The Changs present one issue on cross-appeal: whether the trial court should have awarded the Changs their attorney's fees.

         We conclude that the Changs' declaratory-judgment counterclaims were permissible because they related to an actual, justiciable controversy and had and continue to have practical consequences. However, we conclude that the trial court erred in making declarations three and four. We also conclude that the trial court did not abuse its discretion by not awarding the Changs attorney's fees. Accordingly, we modify the trial court's judgment to delete the erroneous declarations and affirm the judgment as modified.

          I. Background

         Garden Oaks Co. was the original owner of the lots forming Garden Oaks, Section Three, Subdivision. In 1939, Garden Oaks Co. recorded a set of deed restrictions applicable to the Subdivision, which provided that Garden Oaks Co. had the right to enforce the restrictions. The deed restrictions provided:

All lots in the tract shall be known and described as residential lots, and no structure shall be erected on any residential building plot other than one detached single family dwelling not to exceed two stories in height and a one or two car garage.

Garden Oaks Co. no longer exists and did not exist at the time that the instant dispute arose.

         In May 2000, three property owners within the Subdivision filed a notice of formation of petition committee in order to create and operate a property owner's association ("POA") pursuant to sections 201.005 and 204.006 of the Texas Property Code. The May 2000 petition committee failed to file a successful petition within one year of the notice, and the committee was dissolved by operation of law.

         In July 2001, three property owners within the Subdivision filed another notice of formation of petition committee in order to create and operate a POA pursuant to sections 201.005 and 204.006 of the Texas Property Code. The notice attached an exhibit captioned, "Amendment of Deed Restrictions." In June 2002, the three individuals who filed the July 2001 notice filed a petition to amend restrictions to create a homeowners association and certificate of compliance with Texas Property Code, section 204. The petition attached the amendment exhibit and stated that it would be incorporated into the deed restrictions.

         In 2010, GOMO filed a subdivision management certificate. In 2011, Peter and Katherine Chang planned to build a new home on a lot in the Subdivision. The Changs through their builder submitted their proposed construction plans for the home to GOMO for approval. GOMO rejected the Changs' plans several times because the deed restrictions did not allow for more than a single one-car or two-car garage per lot. GOMO finally approved the Changs' plans with the caveat that the "'garage' label be removed from the attic space over the studio" due to "concern that the studio could be converted to a garage in the future." The Changs built their home. After the Changs moved in, they replaced one of the studio walls with a garage door.

         In December 2012, GOMO filed suit against the Changs for injunctive relief and for civil penalties under section 202.004(c) of the Property Code based on an alleged violation of the garage deed restriction. The Changs answered, asserting a general denial, a plea to the jurisdiction, verified pleas, and various affirmative defenses. In addition, the Changs filed counterclaims for declaratory relief.

         At trial, the jury returned these findings:

• The Changs both failed to comply with the deed restrictions;
• The failure to comply was excused by abandonment;
• The deed restriction in question had been waived;
• GOMO's exercise of authority to enforce the deed restriction in question was unreasonable;
• GOMO should be awarded $0 against the Changs as civil damages for the failure to comply with the deed restrictions; and
• A reasonable fee for the necessary services of the Changs' attorneys in this case was $80, 000.00. [1]

         The Changs moved for entry of judgment. GOMO filed objections and a motion for JNOV and to disregard jury findings. The trial court denied GOMO's JNOV motion. The Changs filed a motion for declaratory relief and final judgment. On June 8, 2016, the trial court signed an order on the Changs' motion for declaratory relief and for final judgment. The trial court concluded that "it should grant judgment on the verdict and for declaratory relief, but that it should deny judgment for attorneys' fees."

         That same day, the trial court also signed its final judgment. In its final judgment, the trial court stated that:

• The Changs' failure to comply with the garage deed restriction was excused by abandonment;
• The garage deed restriction had been waived;
• GOMO's exercise of authority to enforce the garage deed restriction was unreasonable;
• GOMO should take nothing on its claims against the Changs;
• The Changs should recover on their claims for declaratory relief; and
• The Changs should take nothing on their claims for attorney's fees.

         The trial court further rendered these declarations:

1. The Notice of Formation of Petition Committee filed on July 23, 2001 under Harris County Clerk's File No. V191699 (and the amendment attached thereto) is invalid, ineffective, and of no force and effect with respect to Defendants Peter S. Chang and Katherine M. Chang;
2. The Petition to Amend Restrictions filed on June 3, 2002, under Harris County Clerk's File No. V842579 is ineffective and of no force and effect with respect to Defendants Peter S. Chang or Katherine M. Chang;
3. The By-Laws of Garden Oaks Maintenance Organization have no force and effect against Defendants Peter S. Chang or Katherine M. Chang; and
4. Garden Oaks Maintenance Organization has no authority or standing to pursue any legal action against Defendants Peter S. Chang or Katherine M. Chang for violations of any alleged deed restrictions in the Garden Oaks Section Three.

         Both GOMO and the Changs appealed the trial court's final judgment.

         II. Analysis

         A. The Changs' declaratory-judgment counterclaims

         In its first issue, GOMO argues for reversal of the trial court's declarations because the Changs' declaratory-judgment counterclaims impermissibly repeated their affirmative defenses.[2]

         Texas's Declaratory Judgments Act (the "Act") is based upon the Uniform Declaratory Judgments Act. See Tex. Civ. Prac. & Rem. Code Ann. § 37.001 et seq. (West 2015). The Act's "purpose is to settle and to afford relief from uncertainty and insecurity with respect to rights, status, and other legal relations." Id. § 37.002(b). The Act "is to be liberally construed and administered." Id. Under the Act:

A person interested under a deed, will, written contract, or other writings constituting a contract or whose rights, status, or other legal relations are affected by a statute, municipal ordinance, contract, or franchise may have determined any question of construction or validity arising under the instrument, statute, ordinance, contract, or franchise and obtain a declaration of rights, status, or other legal relations thereunder.

Id. § 37.004(a). A contract may be construed either before or after a breach. Id. § 37.004(b). "A court of record within its jurisdiction has power to declare rights, status, and other legal relations whether or not further relief is or could be claimed."

          Id. § 37.003(a).

         Although the Act generally is not available to settle disputes already pending before a court, the Supreme Court of Texas has recognized that "[i]n certain instances, . . . a defensive declaratory judgment may present issues beyond those raised by the plaintiff, " such as where "there is an ongoing and continuing relationship." BHP Petroleum Co. Inc. v. Millard, 800 S.W.2d 838, 841-42 (Tex. 1990) (where plaintiff sued for breach of take-or-pay obligations of gas-purchase contract, because defendant's declaratory-judgment counterclaim seeking interpretation of contract would define parties' future obligations and had "greater ramifications, " it was permissible); Drexel Corp. v. Edgewood Dev., Ltd., 417 S.W.3d 672, 678 (Tex. App.-Houston [14th Dist.] 2013, no pet.) ("[I]n certain instances a 'defensive' declaratory judgment will survive a nonsuit when there are continuing obligations between the parties." (citing Millard, 417 S.W.3d at 841 & n.8)). To qualify as a claim for affirmative relief, a defensive pleading must allege that the defendant has a cause of action, independent of the plaintiff's claim, on which he could recover benefits, compensation or relief, even if the plaintiff abandons his cause of action or fails to establish it. Millard, 417 S.W.3d at 841.

         According to GOMO, the Changs merely "recast their affirmative defenses as a declaratory-judgment counterclaim." GOMO relies on the Changs' "pleading history." GOMO first argues that the Changs asserted their defenses prior to bringing their counterclaims. However, the timing of a defendant's declaratory-judgment counterclaim alone does not dictate whether the claim is a permissible one. See Friedman v. Rozzlle, No. 13-12-00779-CV, 2013 WL 6175318, at *10 (Tex. App.-Corpus Christi Nov. 21, 2013, pet. denied) (mem. op.) (rejecting timing-based argument where defendant POA did not assert declaratory-judgment counterclaim until after plaintiff homeowners made their claims). GOMO also asserts that the Changs' defenses and the headings in their counterclaims "mirror" each other. The use of "creative pleading" by merely restating defenses in the form of a declaratory-judgment action cannot deprive the plaintiff of its right to take a nonsuit. Millard, 800 S.W.2d at 841. Nor can mere repleading of claims or defenses serve as the basis for declaratory judgment or attorney's fees thereunder. See Etan Indus., Inc. v. Lehmann, 359 S.W.3d 620, 624-25 (Tex. 2011) (per curiam) (citing MBM Fin. Corp. v. Woodlands Operating Co., 292 S.W.3d 660, 669 (Tex. 2009)). At the same time, we also must look to the substance of a plea for relief, not merely its titles and headings, to determine the nature of relief sought. See Surgitek, Bristol-Myers Corp. v. Abel, 997 S.W.2d 598, 601 (Tex. 1999); State Bar of Tex. v. Heard, 603 S.W.2d 829, 833 (Tex. 1980).

         GOMO in its live pleading alleged that the Changs violated the garage deed restriction. According to GOMO, it therefore was entitled to a permanent injunction that the Changs remove the additional two-car garage and to civil damages under section 202.004(c) for each day the Changs were in violation of the restriction. The Changs raised eleven affirmative defenses, including lack of standing and lack of authority. The Changs also brought declaratory-judgment counterclaims. In their request for declaratory relief, the Changs sought declarations about the invalidity and ineffectiveness of the July 2001 notice of formation of petition committee and attached amendment exhibit and of the June 2002 petition that purported to establish GOMO as the POA for the Subdivision with powers under section 204.010 of the Property Code. In addition, the Changs sought a declaration that the by-laws of GOMO have no force and effect against them. Finally, the Changs sought a declaration that GOMO has no authority or standing to pursue any legal action against the Changs for violations of any deed restrictions.

         We find Indian Beach Property Owners' Association v. Linden, 222 S.W.3d 682 (Tex. App.-Houston [1st Dist.] 2007, no pet.), instructive. In Indian Beach, Indian Beach Property Owners' Association brought suit against Mary and B.J. Linden after the Lindens built a chain-link fence on Mary's property. 222 S.W.3d at 688-90. Indian Beach POA asserted that the Lindens had violated certain deed restrictions in building the fence without first obtaining approval. Id. at 690. The Lindens then filed counterclaims against Indian Beach POA, seeking a declaration from the trial court that the construction of the fence was in compliance with the deed restrictions applicable to Mary's property. Id.

         On appeal, our sister appellate court addressed the issue of whether the Lindens' counterclaims for a declaratory judgment constituted claims for affirmative relief. Id. at 700-02. In holding that they did, the Indian Beach court explained that the Lindens' counterclaims sought a declaration that they were "in compliance with the contractual deed restrictions regarding the construction of their fence." Id. at 702. Further, the deed restrictions on the property involved the Lindens' "ongoing and continuous relationship with Indian [Beach POA]." Id. Because the Lindens' claims for declaratory relief "involve[d] the interpretation of deed restrictions" and, therefore, the parties' future obligations under those restrictions, the Lindens had "stated a cause of action on which they could recover benefits, compensation, or relief [even] if Indian [Beach POA] abandoned or failed to establish its cause of action." Id. (citing Millard, 800 S.W.2d at 842; and Tex. Civ. Prac. & Rem. Code § 37.003(a)).

         Additionally, we find Friedman v. Rozzlle instructive. In Friedman, homeowner Rozzlle who operated a cottage-rental business filed a declaratory-judgment action against the Sun Harbour Cottages Unit 1 Owners' Association and other homeowners, including Friedman. 2013 WL 6175318, at *1. Rozzlle sought a declaration that a certain deed restriction involving short-term rentals should not be enforced as void and waived. Id. Friedman filed counter- and cross-claims that Rozzlle and other homeowners had violated the short-term rental restriction and that Sun Harbour was required to take steps to stop these violations. Id. Sun Harbour filed a cross-claim against Friedman seeking declaratory-relief that Sun Harbour had no duty to enforce the deed restrictions. Id.

         The appellate court considered Friedman's challenge to Sun Harbour's award of attorney's fees under the Act and whether Sun Harbour's declaratory counterclaim was permissible. Id. at *10-11. Because Sun Harbour sought a declaration of its rights that went beyond a mere defense to Friedman's claim for specific relief that Sun Harbour had a duty to enforce the short-term rental restriction and would have "the effect of settling future disputes as to the duty of [Sun Harbour] to enforce all restrictions, " the Friedman court concluded that Sun Harbour's declaratory-judgment cause of action was cognizable under section 37.004(a) of the Act. Id. at *11 (citing Millard, 800 S.W.2d at 841-42). The Friedman court noted that even if Friedman had nonsuited her cross-claim, Sun Harbour "could have pursued its request for a declaration that it had no general duty to enforce the conditions and covenants of the Declaration." Id. (citing Indian Beach, 222 S.W.3d at 702); see also Castille v. Serv. Datsun, Inc., No. 01-16-00082-CV, 2017 WL 3910918, at *7-8 (Tex. App.-Houston [1st Dist.] Sept. 7, 2017, no pet. h.) (mem. op.) (where plaintiff property owners brought claim that defendant Service Datsun's operation of RV park on its property violated two deed restrictions, Service Datsun's declaratory-judgment counterclaim which sought declaration about "the validity, or legal effect, of the [Gulfview subdivision deed] restrictions" and that "the continued operation of [its RV] park is not prohibited or restricted by" any deed restrictions constituted "cause of action on which [defendant] could recover benefits, compensation, or relief even if appellants had abandoned or failed to establish their own cause of action" (citing Indian Beach, 222 S.W.3d at 702; and Friedman, 2013 WL 6175318, at *10-11)).

         GOMO's attempt to distinguish Indian Beach fails. GOMO contends that, unlike the homeowner defending against a fence deed restriction in Indian Beach, the Changs did not seek an interpretation of the deed restrictions or a declaration that their additional garage was in compliance with all the deed restrictions. See id. However, the Act does not limit the subject matter of relief only to declarations of rights or status under deed restrictions, but instead reaches "any question of construction or validity arising under the instrument, statute, ordinance, contract, or franchise" at issue. See Tex. Civ. Prac. & Rem. Code Ann. § 34.004(a). Here, the Changs requested declarations regarding the invalidity of documents purportedly establishing GOMO as a POA under sections 201.005 and 204.006 of the Property Code and regarding the invalidity of GOMO's by-laws. The requested declarations would affect the ongoing future relationship of the parties concerning all the deed restrictions, not only the garage deed restriction at issue in GOMO's lawsuit. If the Changs were able to establish that GOMO was not a properly formed POA under sections 201.005 and 204.006 and could not rely on its by-laws for purposes of enforcement, then this would defend against GOMO's "garage" cause of action, but also would establish that GOMO was unable to enforce all of the other deed restrictions against the Changs. Since the Changs sought this additional relief, their counterclaims had "greater ramifications" than GOMO's original suit and "practical consequences" for the parties' ongoing relationship. See Millard, 800 S.W.2d at 842; Transp. Ins. Co. v. WH Cleaners, Inc., 372 S.W.3d 223, 231 (Tex. App.- Dallas 2012, no pet.) ("[A] declaration of rights under the circumstances presented has practical consequences.").

         GOMO's cited cases do not persuade us otherwise. In Anderson v. The NewProperty Owners' Association of Newport, Inc., 122 S.W.3d 378, 383 (Tex. App.- Texarkana 2003, pet. denied), the New POA of Newport (NPOAN) filed suit against property owner Anderson to stop the construction of a driveway. Anderson entered a verified denial challenging NPOAN's standing and capacity and, apparently, filed a counterclaim for declaratory relief. See id. After a bench trial, the trial court ordered Anderson to remove the driveway and awarded NPOAN attorney's fees. Id. The appeals court reversed and rendered judgment in favor of Anderson, determining that although NPOAN had standing and capacity to sue Anderson, it did not have authority to approve or reject her driveway plans either pursuant to assignment or under the Property Code. Id. at 385, 388-90. The appeals court concluded that Anderson could not receive attorney's fees under section 37.009 of the Act because NPOAN's cause of action involved "the same parties and same issues as alleged in Anderson's counterclaim."[3]Id. at 390-91 (refusing to apply Millard). In that case, however, ...


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