IN THE SUPREME COURT OF TEXAS
Brooks, et al, Petitioners,
JUNE 25, 2004
Justice Jefferson delivered the opinion of the court.
This is a declaratory judgment action involving eight property owners= challenge to their homeowners association's attempt to increase and accumulate annual assessments and impose late fees. The trial court held that chapter 204 of the Texas Property Code authorized the Board to raise assessments unilaterally. The court of appeals affirmed the trial court's judgment in part and reversed in part. Both parties petitioned this Court for review. We granted the petitions to review the interplay between Texas Property Code chapter 204 and Northglen Association's deed restrictions. We affirm the court of appeals' judgment in part, vacate in part, and reverse and render judgment in part.
Northglen Association (A Northglen is the homeowners association for six Harris County subdivisions or A sections encompassing more than 1600 single-family residences. Each section is governed by a separate set of deed restrictions through which every property owner is a member of the Association. The restrictions subject each homeowner to an annual assessment that is deposited into a maintenance fund for such services as maintaining common areas, contracting for garbage disposal, and constructing parks.
Board of Directors amended the deed restrictions to expand the Board and to
assess late fees on unpaid assessments.
The trial court granted summary judgment for Northglen, declaring that, without a vote of the homeowners, Northglen had the authority to: (1) raise the assessment for Sections One, Two, and Three; (2) raise the assessment for Sections Four, Five, and Six by ten percent each year or accumulate and assess the increase after a number of years; and (3) charge delinquent homeowners a $35 late fee. Finding that both parties had pursued legitimate interests, the trial court elected not to award attorney's fees.
court of appeals affirmed the trial court's
judgment in part and reversed in part. 76
S.W.3d 162, 176. It reversed as
to Sections One, Two, and Three, holding that the deed restrictions did not
permit annual assessments exceeding $120.
As to Sections Four, Five, and Six, the court of appeals held that
because the deed restrictions contained no language expressly forbidding
accumulation, Northglen could accumulate previous
assessments under Property Code section 204.010(16).
We hold that Northglen cannot accumulate unassessed fee increases because the language in the deed restrictions prevails over chapter 204, and we reverse that portion of the court of appeals' judgment. We affirm the portion of the court of appeals' judgment restricting increases in assessments to $120 and holding that Northglen has the authority to assess late charges for unpaid fees, in addition to the interest charges described in the deed restrictions. We conclude, however, that Northglen may not foreclose on the property if late charges are not paid. Finally, we affirm the court of appeals' judgment regarding attorney's fees.
We first consider Northglen's contention that the trial court lacked subject matter jurisdiction because Brooks did not join all Northglen property owners as parties. Northglen argues that Brooks was required to join all property owners in each affected section before the trial court could render a declaratory judgment and, alternatively, that the trial court was without jurisdiction to render a declaratory judgment interpreting the deed restrictions for Sections Three and Six because property owners from those sections were not represented in the lawsuit.
We do not have the benefit of the lower courts' views on jurisdiction because Northglen did not raise the issue either in the trial court or the court of appeals. Northglen contends that the doctrine of fundamental error excuses it from A the usual requirements of preservation of the error or briefing of the . . . argument because the absence of jurisdiction may be raised for the first time on appeal. We disagree that the absence of parties within the represented sections deprived the court of jurisdiction and therefore reject Northglen's contention as to Sections One, Two, Four and Five; however, because no property owners in Sections Three or Six were joined in the suit, we agree with Northglen that any judgment affecting those sections would be advisory.
one disputes that the trial court had jurisdiction to declare the A
rights, status, and other legal relations for the named homeowners, who
interested under a deed, . . . written contract, or other writings
constituting a contract or whose rights, status, or other legal relations are
affected by a statute. . . .
39, like the Declaratory Judgment Act, mandates joinder
of persons whose interests would be affected by the judgment.
Rule 39(a)(1) requires the presence of all persons who have an interest in the litigation so that any relief awarded will effectively and completely adjudicate the dispute. In this case, nothing in the rule precluded the trial court from rendering complete relief among Northglen and the eight homeowners who had sued for a declaration of rights. Although the parties continue to litigate its correctness, the trial court's judgment represents a final and complete adjudication of the dispute for the parties who were before the court. See Caldwell v. Callender Lake Prop. Owners Improvement Ass'n, 888 S.W.2d 903, 907 (Tex. App.B Texarkana 1994, writ denied). Rule 39(a)(2) relates to situations in which the absent party:
[C]laims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest.
37.006(a) of the Declaratory Judgment Act, which provides that a trial court=s
declaration does not prejudice the rights of any person not a party to the
proceeding, dispenses with the first of these concerns.
appreciate the risk that, unless each homeowner is joined in one suit, Northglen
may be subject to inconsistent judgments.
Northglen counters that the doctrine of fundamental error excuses its failure to preserve error. However, when Rule 39 was amended, a young law professor remarked:
Henceforth, it will be rare indeed when an appellate court properly determines that the trial court lacked jurisdiction to adjudicate a dispute when the nonjoining person=s absence is raised for the first time on appeal by one of the parties in the trial court, at least insofar as the judgment affects parties who participated in the trial, directly or indirectly, or who purposely bypassed the proceedings. The doctrine of fundamental error should no longer protect persons from the binding force of judgments when they have had an opportunity to raise the absence of the nonjoined person and waived it.
Three and Six present a different question B
does a trial court have jurisdiction to declare the rights of parties who are
not before the court? A
declaratory judgment requires a justiciable
controversy as to the rights and status of parties actually before the court
for adjudication, and the declaration sought must actually resolve the
controversy. See, e.g., The
M.D. Anderson Cancer Ctr. v. Novak, 52 S.W.3d 704, 708 (
Because there are no A plaintiffs from Sections Three and Six, there is no person in those sections for whom rights could be declared in this declaratory judgment action. As a consequence, the trial court was without jurisdiction to issue a judgment with respect to those sections, and any opinion interpreting those sections would be purely advisory. Accordingly, we vacate those portions of the lower courts' judgments relating to Sections Three and Six and dismiss those claims for want of jurisdiction.
Having resolved Northglen's appellate pleas to the jurisdiction, we reach the merits for Sections One, Two, Four and Five.
Sections One and Two
We first decide whether the deed restrictions for Sections One and Two, which are identical, allow Northglen to assess additional maintenance fees above the restrictive covenant's express limitation. The restrictions provide:
Lot in said Subdivision, when said Lot is certified by the Subdivision Engineer
to be a completed building site, is hereby subjected to an annual maintenance
charge and assessment not to exceed $10 per month or $120 per annum, for the
purpose of creating a fund to be designated and and
[sic] known as the A
maintenance fund, [sic] which maintenance charge and assessment will be
paid by the Owner or Owners of each Lot within said Subdivision, and any annexed
areas, to Northglen Association in advance annually,
commencing as to all Lots on the first day of the month following their
certification of completion. The
rate at which each
The restrictions also outline requirements for amendment. Article VIII provides that A. . . the covenants and restrictions of this Declaration may be amended during the first forty (40) year period by an instrument signed by not less than ninety percent (90%) of the Lot Owners, and thereafter by an instrument signed by not less than seventy-five percent (75%) of the Lot Owners. Therefore, a small number of homeowners may exert enormous influence on the extent to which amendments will be adopted.
Although there are practical hurdles to persuading seventy-five or ninety percent of homeowners to modify the restrictions or agree to an additional assessment, it is clear that the restrictions provide a mechanism by which Northglen can assess an annual fee greater than $120. The court of appeals agreed, holding that because the deed restriction provided that the annual assessments were Anot to exceed $10 per month or $120 per annum, Northglen did not have the authority to exceed the stated limits without first obtaining the homeowners= consent in accordance with the restrictions. 76 S.W.3d at 174.
Northglen disputes this holding, arguing that the deed restrictions should be read in three steps. First, the restrictions create a maintenance fund, for which the assessment shall not exceed $10 per month or $120 per annum. Second, when the maintenance fund is created, the Board of Directors has discretion to determine the rate at which each lot will be assessed above the $120. Third, the assessment rate and date payable may be adjusted from year to year, as the needs of the subdivision require.
support of its argument, Northglen cites Samms
v. Autumn Run Cmty. Improvement Ass'n.
23 S.W.3d 398 (Tex. App.-Houston [1st Dist.] 2000, pet. denied).
The Samms court held that a deed
restriction with language similar to Section One and Two granted the homeowners
association the authority, from year to year, to determine the rate at which
property owners would be assessed.
The Northglen deed restrictions subject each property owner to A an annual maintenance charge and assessment not to exceed $10 per month or $120 per annum, for the purpose of creating . . . the >maintenance fund>. . . . (Emphasis added.) The restrictions further provide that A [t]he rate at which each Lot will be assessed will be determined annually by Northglen, and that A [s]aid rate and when same is payable may be adjusted from year to year by [Northglen] as the needs of the Subdivision may in the judgment of [Northglen] require.
Northglen's argument does not survive the restrictions' plain language. First, the annual assessment is not to exceed $10 per month or $120 per year. The restrictions do not require that Northglen charge the maximum amount. Rather, Northglen may charge any amount so long as the amount does not exceed $120 per year. So, if Northglen had been assessing $50 per year and decided the next year that $120 was necessary, it has the authority to raise the rates unilaterally. Second, the deed restrictions neither contemplate nor permit an additional assessment once the maintenance fund is whole because the language says plainly that the assessment is not to exceed $10 per month or $120 per year. There is no language permitting an additional assessment beyond that which is included in the maintenance fund, aside from the special assessment for capital improvements.
We hold that the court of appeals correctly concluded that Northglen cannot increase assessments beyond the $120 limitation set forth in the deed restrictions, and we affirm that part of the court of appeals' judgment.
Sections Four and Five
Northglen argues B and the court of appeals held B that the deed restrictions permit accumulation of unassessed increases in maintenance fees for Sections Four and Five. 76 S.W.3d at 167. Northglen contends, specifically, that Property Code section 204.010 allows it to accumulate and assess a $430 single-year increase B raising the assessment from $120 to $550. That section provides:
§ 204.010. Powers of Property Owners' Association
(a) Unless otherwise provided by the restrictions or the association=s articles of incorporation or bylaws, the property owners' association, acting through its board of directors or trustees, may:
(16) if the restrictions allow for an annual increase in the maximum regular assessment without a vote of the membership, assess the increase annually or accumulate and assess the increase after a number of years.
The property owners counter that the trial court properly interpreted Sections Four and Five as to allowable increases. They argue that by limiting the annual assessment increase to ten percent, the deed restrictions A otherwise provide that accumulation is not permitted. We examine the competing contentions first by analyzing the deed restrictions and then by determining the extent to which they are affected by the Property Code.
Determining whether the statute applies requires an understanding of the deed restrictions. The deed restrictions for Section Four provide:
Until January 1 of the year immediately following the conveyance of the first Lot to an Owner, the maximum annual assessment shall not exceed Ten ($10.00) Dollars per month, or One Hundred Twenty ($120.00) Dollars per annum, per lot; provided, however, that from and after January 1 immediately following the conveyance of the first Lot to an Owner, the Board of Directors of the Association shall be empowered to increase said rate as the needs of the Association require; except that if any such increase shall cause the annual assessment to be greater than the aforesaid $120.00 plus the rise, if any, of the Consumer Price Index as published by the United States Department of Labor for the preceding month of July; or more than One Hundred Ten (110%) percent of the amount assessed in the preceding calendar year, whichever is greater, then shall such an increase require the vote of two-thirds (2/3) of each class of Members of the Association who are voting in person or by proxy, at a meeting duly called for that purpose.
Section Four thus permits an increase of ten percent more than the previous year=s assessment, and a greater increase if the Consumer Price Index is higher. The restriction requires a vote of the homeowners to raise the assessment beyond those amounts.
The restrictions for Section Five are similar to Section Four:
Until January 1 of the year immediately following the date of commencement of the first annual assessment as determined by the Board of Directors, the maximum annual assessment shall be $120.00 per Lot. From and after the first day of January of the year immediately following the date of commencement of the first annual assessment, the maximum annual assessment may be increased by the Board of Directors of the Association, effective the first day of January of each year, in conformance with the rise, if any, in the Consumer Price Index for Urban Wage Earners and Clerical Workers published by the Department of Labor, Washington, D.C., or any successor publication, for the preceding month of July or alternatively, by an amount equal to a ten percent (10%) increase over the prior years [sic] annual assessment, whichever is greater, without a vote of the Members of the Association. The maximum annual assessment may be increased above that established by the Consumer Price Index formula or the above-mentioned percentage increase only by approval of two-thirds (2/3rds) of each class of Members in the Association present and voting at a meeting duly called for this purpose. In lieu of notice and a meeting of Members as provided by the By-Laws of the Association, a door to door canvass may be used to secure the written approval of two-thirds (2/3rds) of each class of Members for such increase in the annual assessment or in the special assessment for capital improvements as provided. . . . After consideration of current maintenance costs and future needs of the Association, the Board of Directors may fix the annual assessment at an amount not in excess of the maximum amount approved by the Members.
Both Sections Four and Five maintain an initial $120 per annum limit on assessments, followed by discretionary increases of up to ten percent or the rise in the Consumer Price Index, whichever is greater. Those increases are tied to the previous year's assessment.
now consider how the Texas Property Code applies to the preceding deed
restrictions. One of the stated
purposes in chapter 204 is to provide a mechanism Ato
readily facilitate increases in the amount of the regular or special
assessments to allow the property owners'
associations to better provide services to the subdivisions.
In this case, the Northglen deed restrictions for Sections Four and Five Aotherwise provide that accumulation is not permitted. Section Four limits the ten percent increase to A the amount assessed in the preceding calendar year. (Emphasis added.) Section Five also limits the A increase over the prior years [sic] annual assessment. (Emphasis added.) The natural consequence of each restriction's language is that if the annual assessment for this year is $120, then next year's assessment may not be raised to the $550 that Northglen seeks. Rather, next year's assessment may be no more than $132. By specifically tying any increase to the previous year's annual assessment, the deed restrictions do not permit accumulation over multiple years.
Additionally, in Section Four, Northglen may increase fees beyond the limits by receiving a Avote of two-thirds (2/3) of each class of Members of the Association who are voting in person or by proxy, at a meeting duly called for that purpose. In Section Five the Board must receive Aapproval of two-thirds (2/3rds) of each class of Members in the Association present and voting at a meeting duly called for this purpose. Although a two-thirds vote may be difficult to achieve, the deed restrictions offer Northglen a procedure for increasing fee assessments beyond the ten-percent limit other than accumulation. The voting mechanism, combined with the increase being tied to the previous year's assessment, establishes that the deed restrictions A otherwise provide.
Because we conclude that the statute does not permit accumulation or fee increases above the deed restrictions, we need not address Brooks's contention that the statute=s accumulation provisions are unconstitutional.
We next consider whether section 204.010(10) authorized Northglen to impose a $35 late charge, in addition to the interest charge included in the deed restrictions, for failure to pay the annual assessments, and if so, whether such a construction violates the Contract Clause of the U.S. or Texas Constitution. The trial court held that Northglen could charge a late fee under section 204.010(10), and the court of appeals affirmed. Both courts noted that the deed restrictions did not expressly prohibit late fees nor limit penalties to the interest charge. We hold that Northglen may charge a $35 late fee and that such a charge is constitutional.
The homeowners argue that permitting Northglen to unilaterally assess late charges would defeat the purpose of the deed restrictions, which already impose a six percent interest charge for nonpayment. Additionally, the homeowners argue that by expressly including the interest charge in the restrictions, the homeowners necessarily rejected late charges, under the doctrine of expressio unius est exclusio alterius (to include one thing implies the exclusion of the other). Black=s Law Dictionary 602 (7th ed. 1999).
The court of appeals disagreed with the homeowners' argument and held that Northglen could assess late charges. The court considered the language of section 204.010(10), which provides, in pertinent part:
(a) Unless otherwise provided by the restrictions or the association=s articles of incorporation or bylaws, the property owners= association, acting through its board of directors or trustees, may:
(10) impose interest, late charges, and, if applicable, returned check charges for late payments of regular assessments or special assessments.
We agree that nothing in the Northglen deed restrictions could be considered Aotherwise providing. Each deed restriction contains the same provision for failing to pay assessments:
Effect of Non-payment of Assessments: Remedies of the Association. Any assessment not paid within thirty (30) days after the due date shall bear interest from the due date at the rate of six percent (6%) per annum. The Association may bring an action at law against the Owner personally obligated to pay the same, or foreclose the lien against the property. No Owner may waive or otherwise escape liability for the assessments provided for herein by non-use of any Common Area or abandonment of his Lot.
Contrary to Brooks's argument, the deed restrictions do not say the penalties are the exclusive remedies for late payments, nor do they say that late charges are not permitted. The deed restrictions only set the rate at which Northglen may charge interest on unpaid assessments.
When construing a statute, the Court must presume that every word of the legislation has meaning. Riverside Nat'l Bank v. Lewis, 603 S.W.2d 169, 173 (Tex. 1980). The statute unequivocally says the Board may impose both interest charges and late charges. That the deed restriction mentions interest charges but not late charges is not sufficient to A otherwise provide.
Brooks argues that the assessment of a late fee would violate the U.S. and Texas Constitutions= impairment-of-contracts provisions because the deed restrictions do not provide for late fees. The court of appeals examined the constitutionality of the statute and held that Section 204.010 A is not directed to any specific kind of contracts, and it does not directly contradict any contractual provision . . . . @ 76 S.W.3d at 168. The court further noted that the statute is a permissible exercise of the State's police power because Ait was enacted to promote the public welfare with regard to the property owners associations= ability to better provide services to the homeowners, maintain the common area facilities, and provide for the common security and restriction enforcement.@ Id. at 168-69. We agree and hold that the same rationale applies to the late fees imposed pursuant to chapter 204.
A statute is presumptively constitutional. Barshop v. Medina Cty. Underground Water Conservation Dist., 925 S.W.2d 618, 625 (Tex. 1996). As such, we are obligated to avoid constitutional problems if possible. Id. In this case, we must consider two factors: first, whether the statute substantially impairs the contract; and second, if so, whether the Legislature acted within its police powers in enacting the legislation. See Allied Structural Steel Co. v. Spannus, 438 U.S. 234, 244-45 (1978).
204.010 does not substantially impair Northglen's
deed restrictions. The statute
operates only where the deed restrictions do not A
Because we hold that Northglen may charge late fees for unpaid fee assessments, we must address whether it has the authority to foreclose on the homestead if a property owner fails to pay the late fee. This Court has clarified that Texas' homestead laws authorize a homeowners association to foreclose on homesteads for the nonpayment of fee assessments. Inwood Homeowners' Ass'n v. Harris, 736 S.W.2d 632, 635-36 (Tex. 1987). In Inwood, we considered whether the homestead laws of Texas protect a homeowner against foreclosure for failure to pay homeowners association assessments. Id. at 633. As a general rule, a homestead is protected against the debts of those who live in the homestead. Id. at 634. However, the deed restrictions for the subdivision included a vendor's lien permitting foreclosure on the homestead for failure to pay the fee assessment. Id. at 633. Because the property owner had notice when purchasing the property that a lien attached to the land, we held that foreclosure was permissible. Id. at 635-36.
The court of appeals, in our case, focused on the notice requirement and held that foreclosure was not a potential remedy against unpaid late charges. 76 S.W.3d at 175. The court noted that the lien to enforce the late charges attached to the property after the homestead was acquired because late charges were not included in the deed restriction. Id.
The court cited as authority an Attorney General opinion that said costs imposed upon property owners because of Chapter 204, which were not part of the deed restriction, could not be enforced through foreclosure. Id. (citing Tex. Atty Gen. Op. LO-97-019 (1997)). The Attorney General concluded that, in determining whether foreclosure is a remedy, the issue is Awhether the lien for those costs (i) attached to the property prior to the homestead right and (ii) is the result of a restriction that runs with the land.@ Tex. Atty Gen. Op. LO-97-019. The court of appeals considered the two elements and held that because late charges were not part of the deed restrictions but rather a function of the statute, Northglen could not foreclose for failure to pay late charges. 76 S.W.3d at 175-76.
Northglen argues that a developer has the authority to create liens to ensure the payment of fee assessments, and under Inwood, an appropriate remedy for failure to pay assessments is foreclosure. Northglen also contends that because property owners were aware that delinquent assessments would be subject to late charges, in the form of an interest charge, the property owners had actual notice sufficient to satisfy Inwood. Thus, because the property owners had actual notice, Northglen asserts, the late charge should also run with the land as the interest charge does.
We disagree with Northglen and agree with the court of appeals. Northglen's argument essentially amends the deed restrictions to include both late fees and interest charges. But the restrictions did not provide any notice that a late fee would be imposed in addition to the interest charge. As a result, the property owners did not have notice of the late charge. Therefore, in light of Inwood=s notice requirement, foreclosure is not an appropriate remedy for a failure to pay the late charge.
Non-profit Corporation Act
challenges that portion of the trial court=s
judgment providing that Athe
bylaws may only be amended by the members . . . .@
argues that, even absent Property Code chapter 204, it had the authority to
increase assessments because it may amend the deed restrictions unilaterally
under the Texas Non-Profit Corporation Act.
final issue is whether the property owners should be awarded attorney's
fees. The trial court declined to
award attorney fees, finding that A
the parties each had legitimate interests to pursue.@
The court of appeals affirmed, holding that A
[i]n the judgment we render, neither side
would be considered a prevailing party.@
76 S.W.3d at 176. The
Declaratory Judgment act permits a court to A
award costs and reasonable and necessary attorney's
fees as are equitable and just.@
(1) affirm the court of appeals'
judgment as to the increased assessments in Sections One and Two, the
assessment of late fees, and foreclosure; (2) reverse the court of appeals=
judgment and render judgment as to accumulation of fee increases under
Sections Four and Five; (3) vacate the trial court's
and the court of appeals'
judgments as to Sections Three and Six and dismiss for want of jurisdiction
claim as to those sections; and (4) affirm the court of appeals'
judgment regarding attorney's
Wallace B. Jefferson
204 applies to residential real estate subdivisions in a county with a
population of 2.8 million or more. Tex.
Prop. Code §
204.002. According to the 2000
U.S. Census, of the 254 counties in Texas, only Harris County comes within
United States Census, available at http://quickfacts.census.gov/qfd/states/48/48201.html.
the notoriety this dispute engendered in the neighborhood, the record does
not disclose that any other homeowners filed suit or were otherwise disposed
to contest Northglen's
similar, though less onerous, supermajority is required to charge a special
assessment in a given year. The
restrictions provide that Northglen may:
in any assessment year, a special assessment applicable to that year only
for the purpose of defraying, in whole or in part, the cost of any
acquisition, construction, reconstruction, repair or replacement of a
capital improvement . . . provided that any such assessment shall
have the assent of two-thirds (2/3rds) of the votes of each class of members
. . . .
No State shall . . . pass any Bill of Attainder, ex post facto Law,
or Law impairing the Obligation of Contracts . . . .@
U.S. Const. art. I, § 10.
No bill of attainder, ex post facto law, retroactive law, or any law
impairing the obligation of contracts shall be made.@
art. I, § 16.
We express no opinion on the court of appeals=
holding that Aany
new type of assessment . . . or attorney's fee that is imposed solely
through the authority of Chapter 204 of the Texas Property Code cannot be
enforced by foreclosure against a homestead.@
76 S.W.3d at 175. Inasmuch
as we have reversed the court of appeals'
judgment regarding accumulation, we need not decide whether foreclosure
would be an appropriate remedy for accumulated assessments.
fees imposed through Chapter 204 are not at issue in this case.