On May 12, 2014, Division I of the Washington Court of Appeals adopted the doctrine of “adverse dominiation” in a lawsuit by condominium owners against HOA Board members, tolling the applicable statute of limitations against the board members until the homeowner had knowledge of the breach.
In Alexander v. Sanford, Huckleberry Circle Condominiums Homeowners Association (“HOA”) was established on June 29, 2000. 181 Wn. App. 135, 325 P.3d 341 (Div. I, 2014). At the time of development, the complex was designed and/or constructed with insufficient weather proofing. The homeowners alleged that the developer hired a licensed, independent inspector to give the appearance of due diligence, while not in fact undertaking an intrusive investigation of the building that would have reveal deficiencies.
In April 2003, the board received its first complaint of water intrusion into the complex and later discovered that there was ponded water present near one of the decks. In September 2003, the board received its second complaint of leaking water. The board discussed hiring a structural engineer to inspect, but no further action was taken. Meanwhile, the board continued to receive complaints of water intrusion. The independent inspector determined that the leaks were caused by gaps in the caulking and clogged weepholes, but found no major problems.
In July 2008, the board finally approved an intrusive inspection of the building envelope. One of the board members asked the board to decline to be informed of the results of the inspection until a later time because “findings would impair the marketability of units” and the board agreed. In March 2009, the board received the result of the inspection, which found that “every major component of the building envelope [was] suffering from poor or deficient construction and waterproofing detailing throughout…” The board did not share the results of the inspection with the homeowners and, in October 2009, denied having knowledge of any details of water intrusion. Throughout the course of events, the board’s membership changed.
In September 2011, the homeowners filed suit against all of the prior board members of the HOA, as well as various other interested parties. The suit alleged breach of the board members’ duty of care, negligence, violation of Washington’s Consumer Protection Act, negligent misrepresentation, fraud by omission, misrepresentation, and civil conspiracy.
The prior board members moved the trial court to dismiss the homeowner’s claims against them, arguing that they were barred by the statute of limitations. The homeowners stipulated that all of the prior board members had resigned before September 2008, but argued that the statute of limitation did not begin to run until they were aware of the board’s conduct. The trial court agreed with the board and dismissed the claims, finding that the prior board members “were not and could not have been engaged… in any continuing fraud or omission” once they left the board.
On appeal, Division I of the Washington Court of Appeals reversed, adopting the doctrine of “adverse domination.” Under the doctrine of adverse possession, claims against a corporate board member do not necessary accrue when that individual resigns from the board. The Courts will presume that a plaintiff cannot have notice of wrongdoing by board members when they are in control. Thus, the statute of limitations on those claims is tolled while the majority of the board members are concealing their wrongdoing.
The Court found that the doctrine of adverse domination applies to all claims to which the statute of limitations commences to run on discovery. These claims include claims for breach of the board members’ duty of care, violation of the Consumer Protection Act, negligent misrepresentation, and fraud. The key for application of the doctrine of adverse domination is that a majority of the board members conceal their wrongdoing from the homeowners. During such period of time, the applicable statute of limitations is tolled.
The Court also found that while the doctrine of adverse domination does not apply to the homeowner’s negligence and civil conspiracy claims, the discovery rule may still apply.