Alexander v. Sanford
325 P.3d 341
Wash. Ct. App.2014Background
- Unit owners (Homeowners) of Huckleberry Circle sued former board members, developer/Declarant (Lozier Homes), and others for negligence, breach of board duty, CPA violations, negligent misrepresentation, fraud, and civil conspiracy after pervasive water-intrusion/construction defects and a multi-million dollar special assessment.
- Many alleged wrongful acts by board members (appointments by Declarant, hiring unqualified inspector, suppressing or mischaracterizing inspection findings, withholding inspection results) occurred during 2000–2009; the board declared a repair budget and special assessment on April 24, 2011.
- Plaintiffs filed suit in September 2011; defendants moved to dismiss under CR 12(b)(6) as time-barred. The trial court held limitations ran no later than each director’s resignation and dismissed claims; it denied fee requests.
- The Court of Appeals reviewed de novo and considered the discovery rule and whether Washington recognizes the adverse-domination doctrine (tolling when culpable directors control and conceal).
- The court held Washington recognizes adverse domination (as a corollary of the discovery rule), adopted the “majority” test and required allegation of concealment; applied the doctrine to many, but not all, pleaded claims, and analyzed duty issues for future purchasers and CPA pleading defects.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| When do claims against board members accrue? (discovery / adverse domination) | Accrual was tolled by discovery rule and board concealment; claims timely because concealment continued until the 2011 budget/assessment. | Accrual occurred no later than each director’s resignation; statutes expired before suit. | Washington recognizes adverse domination (corollary of discovery rule). Tolling can apply; accrual does not automatically run at resignation. |
| Standard and scope for adverse-domination tolling (culpability & number of directors) | Tolling should apply where directors concealed wrongdoing; a culpable majority suffices. | Tolling should require intentional fraud and/or complete domination by all directors; resignation ends tolling. | Adopted majority-test (culpable majority) and required allegations of concealment; intentionality not strictly required but mere inattentiveness does not suffice. |
| Does adverse domination apply to individual unit-owner suits (not derivative)? | Yes — unit owners rely on board governance under the WCA; doctrine should protect unit owners who lacked meaningful opportunity to sue. | Doctrine applies only in derivative/shareholder contexts. | Applies to individual claims tied to board governance and WCA duties where concealment is alleged; doctrine can apply beyond classic derivative suits. |
| Do board-member duties extend to future purchasers; do claims survive 12(b)(6) on duty and causation? | Board duties (and liability) extend to future purchasers; claims against pre-sale directors survive. | Duties run to association/current owners only; directors owe no duty to later purchasers. | Directors owe duties to current unit owners; they do not owe fiduciary duties to future purchasers. Some independent tort duties to future purchasers may exist (fraud/misrepresentation), but WCA-based board-duty claims against directors who left before purchase were dismissed. |
| CPA and pleading sufficiency; attorney-fees request | CPA and other claims were sufficiently pleaded; suit not frivolous. | CPA fails because defendants were not in trade/commerce with later buyers; fees warranted under RCW 4.84.185. | CPA claims against Lozier and listed directors were dismissed for failure to plead trade-or-commerce; fee request denied because the suit was not frivolous in its entirety. |
Key Cases Cited
- In re Estates of Hibbard, 118 Wn.2d 737 (1992) (defines discovery rule accrual: when plaintiff knew or should have known essential elements)
- Hecht v. Resolution Trust Corp., 333 Md. 324 (1994) (discusses adverse-domination rationale and tolling where controllers conceal claims)
- Fed. Deposit Ins. Corp. v. Smith, 328 Or. 420 (1999) (Oregon recognizes adverse-domination as analogous to discovery rule; majority test rationale)
- Wilson v. Paine, 288 S.W.3d 284 (Ky. 2009) (adverse-domination analysis; requires culpability and concealment)
- Resolution Trust Corp. v. Grant, 901 P.2d 807 (Okla. 1995) (limiting adverse domination to fraud—cited for contrast and policy discussion)
- Haberman v. Wash. Pub. Power Supply Sys., 109 Wn.2d 107 (1987) (fraud duty can extend to third parties whom defendant intends or expects will receive information)