92 N.E.3d 1144
Ind. Ct. App.2018Background
- Foxcliff Estates HOA is a not-for-profit corporation formed to own, manage, maintain, repair and preserve common areas in the subdivision, including drainage facilities.
- The subdivision’s Amended Covenants and Restrictions define Common Area and place responsibility for maintenance and control of common areas on the HOA, but include an exculpatory clause: the HOA "shall not be liable in damages of any kind to any person for failure either to abide by, enforce or carry out any of the Restrictions."
- Neighbors (McAdams and the Whitneys) experienced drainage problems where water flowed across Somerset Drive onto their lots, causing alleged saturation, erosion and damage to homes. They complained to the HOA, which informed them homeowners were responsible for certain drainage and that water likely originated from other lots.
- Owners sued the HOA for breach of contractual obligations and negligent performance under the Covenants, seeking damages; HOA countered (and moved for summary judgment) that the exculpatory clause bars their claims.
- Trial court granted HOA summary judgment, holding the exculpatory clause valid and applicable to drainage-related claims; Owners appealed challenging enforceability on public-policy, unconscionability, and unequal bargaining power grounds.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of the Covenants' exculpatory clause as a matter of law | Clause is unenforceable because of unequal bargaining power, unconscionability (buried/inconspicuous), and it is contrary to public policy (should not insulate HOA from liability for failing to maintain drainage) | Exculpatory clauses are generally enforceable; parties freely allocate risk; no evidence of disparate bargaining power, the clause is conspicuous under "Enforcement" heading, and HOA services are not public-utility necessities | Court affirmed: clause is enforceable; none of the exceptions (unequal bargaining power, unconscionability, public-interest necessity) apply |
| Waiver of defense by not pleading the clause earlier | Owners argued HOA waived the defense by not listing it as an affirmative defense in the answer | HOA had referenced Covenants and Restrictions in pleadings; plaintiff showed no prejudice from timing; trial rules focus on prejudice, not timing | Court (and notes) found no waiver; no prejudice shown, and clause was raised adequately |
Key Cases Cited
- Alva Elec., Inc. v. Evansville-Vanderburgh Sch. Corp., 7 N.E.3d 263 (Ind. 2014) (summary judgment standard).
- Fresh Cut, Inc. v. Fazli, 650 N.E.2d 1126 (Ind. 1995) (parties free to contract; public policy limits on exculpatory clauses).
- Pinnacle Comput. Servs., Inc. v. Ameritech Pub., Inc., 642 N.E.2d 1011 (Ind. Ct. App. 1994) (exceptions to enforceability where unequal bargaining power, unconscionability, or public-interest necessity exist).
- Ransburg v. Richards, 770 N.E.2d 393 (Ind. Ct. App. 2002) (residential lease exculpatory clause may violate public policy when party has no meaningful choice for basic necessity).
- Trimble v. Ameritech Pub., Inc., 700 N.E.2d 1128 (Ind. 1998) (factors for evaluating whether to refuse enforcement of an agreement on public policy grounds).