WSB Investments, LLC v. Pronghorn Development Company, LLC

Plaintiff WSB Investments, LLC owns an interest

in a timeshare unit at the Residence Club at Pronghorn

Villas Condominiums and, as a consequence of that ownership,

is a member of the associated nonprofit homeowners

association, the Residence Club at Pronghorn Villas

Condominiums Owners Association (the Res Club). When

the timeshare development, and the management of it by

its uncompensated board of directors—Thomas Hix, Scott

Denney, Scott Walley, Tiffany Clark, and Reece Fulgham

(defendants)—fell short of plaintiff's expectations, plaintiff

sued defendants, alleging claims for breach of contract,

breach of fiduciary duty, negligent misrepresentation, unjust

enrichment, and declaratory relief. The trial court granted

summary judgment to defendants on all claims.

We reverse in part, concluding that the trial court

erred in granting summary judgment to defendants on

some of plaintiff's allegations of breach of fiduciary duty.1

Specifically, we conclude that plaintiff presented sufficient

evidence regarding some of those allegations to permit a

reasonable factfinder to find that some of the directors were

grossly negligent in failing to discharge their duties "[w]ith

the care an ordinarily prudent person in a like position

would exercise under similar circumstances” or "[i]n a

manner the director reasonably believes to be in the best

interests of the corporation,” in violation of ORS 65.357,2

1 Although the complaint identifies multiple and disparate alleged breaches

of fiduciary duty (each of which would appear to have a separate measure of damages),

it does so under a single claim for breach of fiduciary duty asserted against

all defendants. Because of the way that plaintiff pleaded the claim, we refer to

plaintiff's breach-of-fiduciary-duty claim as a single claim and refer to particular

alleged breaches as "allegations” of breach of fiduciary duty.

2 As we recognized in Goodsell v. Eagle-Air Estates Homeowners Assn., 249

Or App 639, 650, 278 P3d 133, rev den, 352 Or 665 (2012), the duties of an uncompensated

director of a nonprofit corporation are defined by ORS 65.357. That statute

provides, in relevant part:

"(1) A director shall discharge the duties of a director, including the

director's duties as a member of a committee:

"(a) In good faith;

"(b) With the care an ordinarily prudent person in a like position would

exercise under similar circumstances; and

"(c) In a manner the director reasonably believes to be in the best interests

of the corporation.”

ORS 65.357(1).

Cite as 269 Or App 342 (2015) 345

so as to render defendants subject to liability under ORS

65.369.3

I. BACKGROUND

A. Substantive Facts4

1. Defendant Hix develops a new resort, defendants are

appointed to the board of directors of the homeowners

association for the resort's timeshare complex,

and plaintiff purchases a timeshare.

Defendant Hix is a real-estate developer. Hix decided

to develop a destination resort in Central Oregon and, to

that end, he and others formed High Desert Development

Partners, LLC (High Desert Development)5 to purchase land

in Deschutes County. In 2004, a subsidiary of High Desert

Development, Pronghorn Development Company, LLC

Although plaintiff did not cite ORS 65.357 as the source of its breach-offiduciary-

duty claim in the complaint, defendants did not move to dismiss those

claims under ORCP 21. Instead, they pointed out the potential deficiency in

pleading in their motion for summary judgment. Although defendants argued

at that time that plaintiff's failure to plead the breach-of-fiduciary-duty claim

under the statute explicitly warranted dismissal, they did not argue that the specific

facts alleged were insufficient to establish a breach of defendants' statutorily

defined duties or suggest that any deficiency could not be cured by amending the

complaint.

In response, plaintiff did not dispute that ORS 65.357 set forth defendants'

duties, but argued that it had adequately pleaded violations of those duties. On

appeal, defendants again note that the "fiduciary duties” owed to plaintiff are

those duties defined by ORS 65.357; however, they do not reiterate their argument

that plaintiff's failure to plead its claim under the statute requires dismissal.

Accordingly, for purposes of this opinion, we treat plaintiff's claim for

breach of fiduciary duty as a claim for breach of the duties defined by ORS 65.357.

3 ORS 65.369 limits the civil liability of "qualified directors,” including the

uncompensated directors of certain nonprofit homeowners associations. ORS

65.369(3)(d). That statute provides that "[t]he civil liability of a qualified director

for the performance or nonperformance of the director's duties shall be limited to

gross negligence or intentional misconduct.” ORS 65.369(1).

4 The parties' summary-judgment evidence presents conflicting versions of

the events that resulted in this case. However, because this appeal arises from

the trial court's grant of summary judgment to defendants, we state the substantive

facts in the light most favorable to plaintiff, the nonmoving party. Jones

v. General Motors Corp., 325 Or 404, 408, 939 P2d 608 (1997); Davis v. County

of Clackamas, 205 Or App 387, 389, 134 P3d 1090, rev den, 341 Or 244 (2006).

Because the parties filed cross-motions for summary judgment below, in stating

the facts, we consider all evidence "submitted in support of and in opposition to

both motions.” Citibank South Dakota v. Santoro, 210 Or App 344, 347, 150 P3d

429 (2006), rev den, 342 Or 473 (2007).

5 Hix had a 50 percent ownership interest in High Desert Development.

346 WSB Investments, LLC v. Pronghorn Devel. Co., LLC

(Pronghorn Development),6 broke ground on the 640-acre

Pronghorn Resort (the resort). Hix envisioned the resort as

a community of luxury timeshare units, condominiums, and

custom villas, all situated along three premier golf courses

and served by the Pronghorn Golf Club, LLC (the golf club).

As originally contemplated, the resort would have

16 buildings of timeshare units, among other types of accommodations.

Each of the contemplated 16 buildings would

contain four units, with each unit divided into 12 fractional

interests, for a total of 768 fractional interests (16 buildings

x 4 units/building x 12 fractional interests/unit). Each timeshare

owner—that is, each owner of at least one fractional

interest—would be a member of the homeowners association,

the Res Club. The Res Club would be governed by a

five-member board of directors and two documents: (1) the

Declaration of Ownership and Fractional Plan for the

Residence Club at Pronghorn Villas Condominiums (the

Declaration), for which Pronghorn Development served as

declarant; and (2) the Bylaws of the Residence Club at

Pronghorn Villas Condominiums Owners' Association (the

bylaws). Under the Declaration and bylaws, Pronghorn

Development was to appoint the members of the initial fivemember

board of directors, but, at the first annual meeting

of the Res Club, the Res Club members (including Pronghorn

Development, as declarant) were to elect a new board.

In accordance with the Declaration and bylaws,

Pronghorn Development appointed the members of the

initial board of directors of the Res Club. Those members

included Hix; Denney, an independent real-estate broker

who had encouraged Hix to finance the development of the

resort; Clark, vice president of sales and operations for High

Desert Development; and Walley, who worked for Pronghorn

Development in various roles, including as the company's

director of finance.7 At all times relevant to this case, Hix

served as president of the Res Club.

6 Pronghorn Development was owned entirely by High Desert Development

before July 2005. After that date, Morgan Stanley became an equity investor

with a 50 percent ownership interest in Pronghorn Development.

7 The initial board also included Brian LaGrange, who is not named as a

defendant in this action.

Cite as 269 Or App 342 (2015) 347

By 2005, Pronghorn Development had completed

four of the 16 anticipated timeshare buildings, for a total

of 192 fractional interests. The same year, plaintiff purchased

a 12/12 interest in Res Club Unit No. 208 for

$1,626,000, and became a member of the Res Club as a

result.

Around the time of plaintiff's purchase, Pronghorn

Development began facing financial difficulties in connection

with the resort. Those financial difficulties resulted

in a number of different acts and omissions by Pronghorn

Development and defendants over the next several years

that affected the Res Club and its members and, ultimately,

resulted in this legal action.

2. Hix and defendants, in contravention of the Declaration

and without full disclosure to all Res Club

members, agree to lease, rather than own, the common

furnishings for the Res Club after Pronghorn

Development is unable to purchase them.

Shortly before plaintiff's purchase of its timeshare,

Hix and Pronghorn Development confronted the task of furnishing

the timeshare buildings. The Declaration provided

that the "common furnishings” of each unit, including all

furniture, appliances, electronics, and other personal property,

would be owned by the Res Club. At that point in time,

however, defendants did not have the money available to

purchase the requisite furnishings. As a result, common

furnishings were not purchased for the timeshare units

and conveyed to the Res Club as the Declaration contemplated.

Instead, in order to obtain the money to purchase

the furnishings, Hix, acting on behalf of a subsidiary of

Pronghorn Development known as Pronghorn Investors,

LLC (Pronghorn Investors), arranged to finance the purchase

of the common furnishings for the Res Club through

a capital lease arrangement with a third-party leasing

company, Pacific Financial Company (Pacific). Under that

arrangement, Pacific purchased the common furnishings

from the vendors, and Pronghorn Investors agreed to lease

the furnishings back from Pacific for a monthly fee. Rather

than documenting the financing transaction as a loan from

348 WSB Investments, LLC v. Pronghorn Devel. Co., LLC

Pacific to Pronghorn Investors, however, the parties documented

it as a sale-leaseback agreement; that is, as the purchase

of the common furnishings by Pacific from Pronghorn

Investors, and Pronghorn Investors' subsequent agreement

to lease back those furnishings.

Recognizing that the Declaration required that the

common furnishings be owned by the Res Club and would

not accommodate any kind of lease arrangement, Hix and

Denney authorized an amendment to the Declaration in early

2006. The amendment stated that the common furnishings

"will be owned or leased” by the Res Club. (Emphasis added.)

Although the amendment recited that it was adopted under

the procedures spelled out in the Declaration, and had been

approved by 75 percent of the membership of the Res Club,

defendants did not, in fact, submit the amendment to the

members for their approval as required by the plain terms

of the Declaration.8

After Hix and Denney purported to amend the

Declaration to allow the Res Club to lease, rather than

own, the common furnishings, Hix, Denney, Walley, and

Clark, acting on behalf of the Res Club, authorized Hix

to sublease the furniture from Pronghorn Investors on

December 7, 2006. Defendants did not disclose the lease

arrangement with Pacific or the sublease from Pronghorn

Investors to the nondeclarant members of the Res Club.

Those transactions did not come to light until several years

later, after Pronghorn Investors failed to make lease payments

to Pacific. At that point, Pacific sued to repossess the

Res Club's common furnishings and obtained a judgment in

its favor. Notwithstanding those problems with the common

furnishings, defendants did not pursue any remedies that

the Res Club might have against Hix, Pronghorn Investors,

or Pronghorn Development.

8 Article XVI(1) of the Declaration provides that the document may be

amended only with (1) notice of the subject matter of the proposed amendment

included in the notice of any meeting at which the proposed amendment is to

be considered, (2) a resolution for the adoption of the proposed amendment contained

in the notice, and (3) adoption of the resolution with the assent of 75 percent

of the total voting interests of the nondeclarant owners and the approval of

the declarant.

Cite as 269 Or App 342 (2015) 349

3. Pronghorn Development completes the next phase of

the planned Res Club buildings but elects to sell those

units as traditional condominiums, rather than as

timeshares, and therefore does not place those buildings

into the Res Club.

After completing the first four buildings of the

planned timeshare accommodations in 2005, Pronghorn

Development constructed two more buildings that it

had originally intended to place into the Res Club. After

Pronghorn Development completed those two buildings,

however, it decided that the units in those buildings would

be more marketable as traditional condominiums than as

timeshares. Based on that decision, Pronghorn Development

capped the number of buildings in the Res Club at four and

converted the two new buildings, buildings 5 and 6, into

"the Residences” condominiums, establishing a separate

homeowners association for those condominiums. Hix and

defendants did not seek to compel Pronghorn Development

to include buildings 5 and 6 in the Res Club, or otherwise

object to the decision to treat buildings 5 and 6 in that

manner.

4. Pronghorn Development fails to pay the assessments

that it owes to the Res Club.

Pronghorn Development, as the owner of 26 unsold

fractional interests in the Res Club, as well as seven unsold

units in the Residences, retained the responsibility to pay

each respective homeowners association the reserve and

operating assessments for those unsold interests. On more

than one occasion, however, Pronghorn Development failed

to timely pay the assessments due the Res Club, because it

did not have the funds available. As a result, the amount

in arrears at one point exceeded $1 million, but defendants

did not initiate a collection action against Pronghorn

Development.

5. Hix and Walley load expenses disproportionately onto

the Res Club; Denney acquiesces in their conduct.

One strategy that Hix and Walley adopted for

addressing Pronghorn Development's financial difficulties,

350 WSB Investments, LLC v. Pronghorn Devel. Co., LLC

and the consequences that those difficulties had for other

parts of the resort, was to load expenses onto the Res Club.

Specifically, Hix and Walley "tr[ied] to figure out how to

load expenses” from the golf club, which provided services

to both the Res Club and the Residences, onto the Res Club

in order to minimize the operating deficits that Pronghorn

Development bore responsibility for. To that end, defendants

routinely permitted the Res Club to be billed for thousands

of dollars of unidentified "services,” designated simply as

"labor” or "other,” in addition to charges for a wide range of

identifiable services—including front desk services, housekeeping,

landscaping, security, and maintenance work

orders. Although the charges for those unidentified services

were among the more expensive line items billed to

the Res Club—and represented between 82 percent and 100

percent of the total cost of those services delivered across the

resort—defendants were not able to identify what particular

amenities were included within the charges or otherwise

explain why they should be attributable to Res Club activities.

And, even where charges billed to the Res Club were

attributed to an identifiable service, for example, maintenance

and repairs, those charges included—on at least one

occasion—the cost of such services performed on behalf of

the Residences homeowners association, rather than the

Res Club.

Denney was aware of what Hix and Walley were

doing, and he asked Hix if it was permissible for them to load

resort expenses onto the Res Club. Hix responded, "We can

do whatever we want.” Because Hix "controlled [Denney's]

monthly income” through a consulting agreement, Denney

refrained from disclosing Hix and Walley's conduct to anyone

else or otherwise pursuing corrective action.

6. Defendants misuse Res Club reserve funds.

As a consequence of both the amount of operating

expenses billed to the Res Club and Pronghorn

Development's failure to pay its share of the operating

assessments, the Res Club's operating fund was not sufficient

to cover the operating expenses that it owed. To cover

those operating expenses, defendants began to use money

from the Res Club's reserve fund, in contravention of both

Cite as 269 Or App 342 (2015) 351

state statute9 and the Res Club's own bylaws.10 In 2007,

the Res Club's bookkeeper and business manager informed

Hix and Walley that the practice was both unlawful and

a breach of the bylaws, and directed them to stop misusing

the reserve funds. Nonetheless, defendants continued to

authorize the use of reserve funds for operating expenses

over the next few years.

In addition to using Res Club reserve funds to cover

the Res Club's operating expenses, at one point, Hix tapped

those funds to pay the expenses of a separate entity, the golf

club. In early 2009, Hix transferred $85,000 in funds from

the Res Club's reserve account to an account belonging to

the golf club. Explaining the transfer to Denney, Hix stated

that he "had to steal money from [the Res Club] to pay the

[golf club] payroll this week.” Again, Denney did not disclose

that misuse of funds to anyone else or take any other kind of

corrective action.

7. Defendants fail to hold elections to bring a nondeclarant

member onto the board.

In addressing the financial issues confronting

the resort, defendants failed to follow through with other

of their obligations as members of the Res Club board of

90 A provision of the Oregon Condominium Act, ORS 100.175(7)(a), provides

that generally "the reserve account is to be used only for the purposes for which

reserves have been established and is to be kept separate from other funds.”

10 Article VIII(3)(b) of the bylaws provides, in full:

"The Board shall not expend funds designated as reserve funds for any

purpose other than repair, restoration, replacement, or maintenance of, or

litigation involving the repair, restoration, replacement, or maintenance of,

major components of the Condominium Property or Association Property

which the Association is obligat[ed] to repair, restore, replace, or maintain

and for which the reserve fund was established. The Board may authorize

the temporary transfer of money from a reserve fund to the Association's

operating fund to meet short-term cash-flow requirements or other expenses,

provided the Board has made a written finding, recorded in the Board's minutes,

explaining the reasons that the transfer is needed, and describing when

and how the money will be repaid to the reserve fund. The transferred funds

shall be restored to the reserve fund within one (1) year of the date of the

initial transfer, except that the Board may, upon making a finding supported

by documentation that a temporary delay would be in the best interests of the

Owners, temporarily delay the restoration. The Board shall exercise prudent

fiscal management in maintaining the integrity of the reserve account, and

shall, if necessary, levy a special assessment to recover the full amount of the

expended funds within the time limits required by this Section.”

352 WSB Investments, LLC v. Pronghorn Devel. Co., LLC

directors. In particular, the Declaration and bylaws specified

that, at the first annual meeting of the Res Club, the

members (including Pronghorn Development, as declarant)

would elect a new board. The new board was required to

have at least one director elected solely by nondeclarant

members. Defendants never held an election and, accordingly,

never brought a nondeclarant director onto the board.

Instead, Denney and Clark continued to serve until 2010,

when they resigned or were removed upon learning of Hix's

misuse of funds belonging to a charitable foundation connected

to the resort. Hix served as president of the board

until he resigned in February 2012, and Walley served until

April 2012. Fulgham, who was not appointed to the board by

Pronghorn Development until fall of 2010, also served on the

board until 2012.11

B. Procedural Facts

In 2012, plaintiff sued defendants—Hix, Denney,

Walley, Clark, and Fulgham—among others.12 Plaintiff

alleged that, as a result of their acts and omissions on

the Res Club board, defendants were each individually

liable for (1) breach of contract and violation of the

Declaration and bylaws, (2) breach of fiduciary duty,

(3) negligent misrepresentation, and (4) unjust enrichment.

13 Plaintiff also asserted a claim for declaratory

relief and an accounting. Plaintiff moved for partial summary

judgment on its claim for breach of contract and

violation of the Declaration and bylaws, as well as on its

claim for breach of fiduciary duty.

11 Besides serving on the Res Club board of directors, Hix, Denney, Walley,

and Fulgham each also served on the boards of the three other homeowners

associations at the resort: the Residences Condominiums at Pronghorn (for

traditional condominiums), the Villas at Pronghorn (for townhomes), and the

Pronghorn Community Association, Inc. (for single-family homes).

12 Plaintiff also sued Pronghorn Development, the golf club, and the Res Club.

In February 2012, however, the assets of the Pronghorn Resort were purchased

by the Resort Group, a nonparty, making Pronghorn Development and the golf

club "defunct entities” by the summary judgment stage of the case. Only the

claims against the Res Club board members are at issue on appeal.

13 Plaintiff also alleged that Hix was individually liable for breach of the

purchase-and-sale agreement. Plaintiff does not pursue that claim on appeal,

and we do not discuss it.

Cite as 269 Or App 342 (2015) 353

Defendants filed a cross-motion for summary judgment.

14 In it, they asserted that plaintiff's breach-ofcontract

claim against defendants failed, as a matter of law,

on the ground that there was no contract between plaintiff

and defendants.15 With respect to the remaining claims,

defendants asserted that they were entitled to summary

judgment on the ground that, even if plaintiff could prove

that defendants breached their duties as defined by ORS

65.357, plaintiff would not be able to establish that those

breaches were the result of gross negligence or intentional

misconduct, as required by ORS 65.369.

Plaintiff did not dispute that its claim for breach of

fiduciary duty was, in effect, a claim for breach of the statutory

duties imposed on nonprofit directors by ORS 65.357,

or that ORS 65.369 generally applies to claims for breach of

those statutory duties by "qualified directors.” Rather, plaintiff

responded that (1) whether conduct rises to the level of

"gross negligence” is always a fact question for the jury and,

alternatively, (2) it had presented evidence from which a reasonable

factfinder could find that defendants were grossly

negligent or engaged in intentional misconduct.

The trial court denied plaintiff's motion for partial

summary judgment but granted defendants' cross-motion on

all claims. First, the court ruled that defendants were entitled

to summary judgment on plaintiff's claim for breach

of contract and violation of the Declaration and bylaws, on

the ground that no contract existed between the parties.

Second, the court concluded that defendants were entitled

to summary judgment on the claims for breach of fiduciary

duty, negligent misrepresentation, and unjust enrichment,

on the ground that those claims were barred by ORS 65.369.

The court reasoned:

14 Although defendants did not designate their motion for summary judgment

as a "cross-motion,” we believe that is an appropriate characterization. See

Citibank South Dakota, 210 Or App at 347-48 (characterizing the parties' motions

for summary judgment to be "simultaneous cross-motions” where they addressed

a single claim, were filed within three days of each other, and were considered at

the same time by the trial court).

15 After the parties had filed their respective motions for summary judgment,

attorneys for defendants moved the court for an order allowing them to withdraw

as counsel for Denney. The trial court granted the motion, and Denney joined the

other defendants' motion for summary judgment.

354 WSB Investments, LLC v. Pronghorn Devel. Co., LLC

"Defendant directors served without compensation as

directors of a nonprofit corporation. Accordingly, the extent

of their potential liability is set by statute and the corporation

bylaws. ORS 65.369 limits liability to actions constituting

gross negligence or intentional misconduct. The

bylaws are even more limiting. In this case, none of the

claims alleged reflect the standard of gross negligence or

intentional misconduct. Even if such allegation was made,

the facts do not support, as a matter of law, gross negligence

or intentional misconduct.”

(Emphases added.) Third, although defendants had not moved

for summary judgment on the claim for declaratory relief,

the court concluded that there was no "legal basis” for granting

declaratory relief to plaintiff. Based on its determination

that defendants were entitled to summary judgment on

each of plaintiff's claims, the trial court entered a limited

judgment in favor of defendants.

On appeal, plaintiff assigns error to the trial court's

grant of summary judgment to defendants on all claims

except for the claim for declaratory relief. Plaintiff argues

that the grant of summary judgment was erroneous, because

plaintiff presented evidence from which a factfinder could

find that defendants' conduct amounted, at a minimum, to

gross negligence. Plaintiff also reiterates that, as a matter of

law, the issue of whether a defendant's conduct was grossly

negligent necessarily presents an issue of fact for the jury,

and contends that the grant of summary judgment was in

error for that additional reason.

II. STANDARD OF REVIEW

We review a trial court's grant of summary judgment

under ORCP 47 C to determine whether the court correctly

concluded that "there is no genuine issue of material

fact and the moving party [was] entitled to judgment as a

matter of law.” Robinson v. Lamb's Wilsonville Thriftway,

332 Or 453, 455, 31 P3d 421 (2001); O'Dee v. Tri-County

Metropolitan Trans. Dist., 212 Or App 456, 460, 157 P3d

1272 (2007). In so doing, we view the evidence in the light

most favorable to the nonmoving party—here, plaintiff—

and draw all reasonable inferences in that party's favor.

Jones v. General Motors Corp., 325 Or 404, 408, 939 P2d 608

Cite as 269 Or App 342 (2015) 355

(1997); Davis v. County of Clackamas, 205 Or App 387, 389,

134 P3d 1090, rev den, 341 Or 244 (2006).

Where, as here, the parties filed simultaneous

cross-motions for summary judgment on the same claim,

the summary-judgment record "consists of documents submitted

in support of and in opposition to both motions.”

Citibank South Dakota v. Santoro, 210 Or App 344, 347,

150 P3d 429 (2006), rev den, 342 Or 473 (2007). That is the

case even under the circumstances present here, where an

appellant assigns error to the grant of summary judgment

to the opposing party but not to the denial of its own motion.

See Allen Trust Company v. Cowlitz Bank, 210 Or App 648,

650, 152 P3d 974, decision clarified on recons, 212 Or App

572, 574, 159 P3d 319 (2007) (although the appellant did

not assign error to the trial court's denial of its cross-motion

for summary judgment, the "relevant facts” on appeal

"include[d] those that were part of the record of the case at

the time that the court ruled, even if neither party formally

submitted them to support or oppose this specific motion”).16

In other words, although we will "not address the correctness

of the trial court's denial of plaintiff's motion,” Nixon

v. Cascade Health Services, Inc., 205 Or App 232, 237 n 4,

134 P3d 1027 (2006), we conduct our review on a record that

includes the evidence submitted in connection with plaintiff's

own motion, as well as the evidence submitted in connection

with defendants' motion.

III. ANALYSIS

As explained below, we affirm the trial court's grant

of summary judgment on plaintiff's claims for breach of contract,

negligent misrepresentation, unjust enrichment, and

declaratory relief largely for procedural reasons. We reverse

16 See also Keller v. Armstrong World Industries, Inc., 342 Or 23, 30 n 5, 147

P3d 1154 (2006) (considering letter that was part of another summary judgment

motion because the wording of ORCP 47 C "is broad enough to permit the court

to consider not only the evidence submitted in support of and opposition to the

summary judgment motion but also other pleadings and evidence 'on file' ”); Lane

v. Floyd, 213 Or App 215, 221, 222 n 4, 159 P3d 1240 (2007), rev den, 344 Or

43 (2008) (where plaintiff assigned error to the grant of summary judgment to

one defendant, the summary-judgment record included "both the record made

in [that defendant's] summary judgment proceedings and the contemporaneous

record made because of plaintiff's summary judgment motion against [another

defendant]”).

356 WSB Investments, LLC v. Pronghorn Devel. Co., LLC

in part the trial court's grant of summary judgment on the

claim for breach of fiduciary duty.

A. Breach of Contract/Breach of Declaration and Bylaws

Plaintiff's breach-of-contract claim is predicated

on defendants' alleged breaches of the Declaration and the

Res Club's bylaws. The trial court granted summary judgment

to defendants on that claim, on the ground that they

were not parties to any contract with plaintiff. Although

plaintiff assigns error to that ruling, plaintiff has provided

no reasoned argument as to why the trial court's conclusion

is erroneous. And, in fact, the trial court's conclusion

appears to be consistent with the well-established legal

principles that (1) the bylaws of a corporation are a contract

"between the members of the corporation, and between the

corporation and its members,” Dentel v. Fidelity Savings &

Loan, 273 Or 31, 33, 539 P2d 649 (1975) (emphasis added);

and (2) directors, as agents of a corporation, ordinarily are

not parties to the contracts of the corporation, see Hirsovescu

v. Shangri-La Corp., 113 Or App 145, 147, 831 P2d 73 (1992);

William Meade Fletcher, 8 Fletcher Cyclopedia of the Law of

Private Corporations § 4198, 819-22 (rev 2001) ("[T]he contract

[formed by the bylaws] between a member and the corporation

is not a contract between a member and those individuals

who direct or manage the corporation.”). Therefore,

absent a well-developed argument as to why the trial court's

ruling is incorrect, notwithstanding those principles, we

decline to disturb the trial court's grant of summary judgment

to defendants on the breach-of-contract claim. Butler

Block, LLC v. TriMet, 242 Or App 395, 413, 255 P3d 665

(2011) (Court of Appeals will not "make or develop a party's

argument when that party has not endeavored to do so itself”

(internal quotation marks omitted)).

B. Unjust Enrichment and Negligent Misrepresentation

Similarly, although plaintiff assigns error to the

trial court's grant of summary judgment on its claims for

negligent misrepresentation and unjust enrichment, plaintiff

has presented no reasoned argument, in either its opening

brief or its reply brief, as to why reversal is required as

to those claims in particular. We, again, decline to develop

Cite as 269 Or App 342 (2015) 357

an argument on plaintiff's behalf. We therefore affirm the

grant of summary judgment to defendants on plaintiff's

claims for unjust enrichment and negligent misrepresentation.

Id.

C. Declaratory Relief and Accounting

As mentioned, the trial court also granted summary

judgment to defendants on plaintiff's claim for declaratory

relief and an accounting, and dismissed that claim,

based on its conclusion that "[t]here are no allegations or

facts supporting a legal basis for a declaratory judgment or

accounting against defendant directors individually.” It is

unclear to us whether plaintiff intended to assign error to

the trial court's dismissal of that claim. Although plaintiff's

assignment of error specifically identifies plaintiff's other

claims, it does not refer to the claim for declaratory relief

and accounting. Elsewhere in plaintiff's briefs on appeal,

however, plaintiff mentions that claim. Regardless, plaintiff

has not made any focused argument addressing whether

and how the trial court's ruling on the claim for declaratory

relief and an accounting is erroneous. As with plaintiff's

claims discussed above, absent such an argument, we

decline to disturb the trial court's ruling. Id.

D. Breach of Fiduciary Duty

We reach a different result with respect to plaintiff's

claim for breach of fiduciary duty. Before we analyze

that claim, however, we describe what issues are presented

to us, in the light of the parties' litigation choices below and

on appeal, so as to be clear as to the scope of our task on

appeal and as to the parameters of this decision.

In its complaint, plaintiff alleged that defendants

breached their fiduciary duties to Res Club members in 13

particulars: (1) failing to properly calculate and apportion

"common expenses,” as defined in the Declaration; (2) fabricating

or inflating common expenses charged by the golf club

and other vendors, and billed to the Res Club; (3) assessing

such expenses to the Res Club; (4) directing a disproportionate

amount of rental business and income to buildings

5 and 6, despite availability within buildings 1 through 4;

(5) failing to pay all dues and fees to the Res Club for units

358 WSB Investments, LLC v. Pronghorn Devel. Co., LLC

owned by Pronghorn Development; (6) failing to furnish

complete and accurate financial information regarding common

expenses; (7) failing to make available all Res Club

financial and expense records upon request; (8) improperly

selling the common furnishings of the Res Club; (9) failing

to call a vote of nondeclarant unit owners for the election

of a nondeclarant board member; (10) failing to fully

fund the Res Club reserve account and improperly using

reserve funds for operating expenses; (11) overcharging

nondeclarant owners and the Res Club interest charges;

(12) failing to call a turnover meeting and to transfer control

of the Res Club to nondeclarant owners; and (13) engaging

in conflicted transactions and failing to recuse themselves

from Res Club business when conflicts arose. Plaintiff

alleged further that those breaches damaged plaintiff in the

amount of "at least $2,000,000.” As noted earlier, plaintiff

did not frame its breach-of-fiduciary-duty claim in terms

of defendants' statutory duties under ORS 65.357 or otherwise

identify which of defendants' duties under ORS 65.357

it believed were breached by defendants' conduct. Instead,

plaintiff framed its claim as a common-law claim, and did

not cite to ORS 65.357 or ORS 65.369.

In turn, defendants moved for summary judgment.

Although defendants noted in their motion that plaintiff

had not pleaded its breach-of-fiduciary-duty claim under

ORS 65.357 and argued that the claim should be dismissed

for that pleading deficit, defendants asserted entitlement to

summary judgment on plaintiff's claim for breach of fiduciary

duty only on the grounds that (1) ORS 65.369 precluded

the imposition of civil liability on them for any of

their alleged breaches of duty, because plaintiff would be

unable to present evidence sufficient to create a dispute of

fact as to whether those breaches of duty were the product of

gross negligence or intentional misconduct; and (2) plaintiff

would not be able to prove damages.

In response, plaintiff did not dispute either that

its claim for breach of fiduciary duty should be treated as

a claim for breach of the statutory duties imposed by ORS

65.357(1), or that ORS 65.369(1) applies to claims for breach

of the duties imposed by ORS 65.357. Instead, plaintiff

argued that "gross negligence” is always a fact question for

Cite as 269 Or App 342 (2015) 359

the jury, making ORS 65.369 "irrelevant” at the summaryjudgment

stage of proceedings and, alternatively, that there

was evidence that would permit a reasonable factfinder

to find that defendants were grossly negligent or engaged

in intentional misconduct when committing the alleged

breaches of duties.17

Because of those litigation choices by the parties

below, we assume for the purpose of this appeal that plaintiff

can present evidence that would permit a reasonable factfinder

to find that defendants' conduct breached one or more

of their duties under ORS 65.357.18 In any event, defendants

do not contend otherwise on appeal. Therefore, the only issue

before us is whether the evidence in the summary-judgment

record would permit a reasonable factfinder to find that any of

those alleged breaches resulted from defendants' gross negligence

or intentional misconduct, as required by ORS 65.369.

The issue before us has been narrowed further on

appeal. In its opening brief, plaintiff has focused on a subset

of the alleged breaches of duty identified in the complaint:

(1) the improper use of the Res Club reserve fund to pay

operating expenses and to pay the golf club's payroll; (2) the

overcharging of the Res Club for resort expenses; (3) defendants'

failure to initiate collection efforts against Pronghorn

Development when it failed to pay its share of the Res Club

assessments; (4) defendants' handling of the common furnishings

for the Res Club; (5) defendants' failure to call a

17 On appeal, consistent with its position in the trial court, plaintiff does

not dispute that ORS 65.369(1) applies to its claims, and, in particular, does

not dispute that it must prove that any breach of fiduciary duty by defendants

resulted from gross negligence or intentional misconduct in order to hold defendants

personally liable for the breach. Neither we nor the Supreme Court have

addressed the extent to which ORS 65.369(1), and its statutory requirement of

gross negligence or intentional misconduct, applies to a claim against a nonprofit

director for breach of the duties specified in ORS 65.357(1). Because plaintiff in

this case has never disputed the statute's application to its claims, this case does

not present the occasion to analyze the issue further, and we treat the statute as

applicable to plaintiff's claims.

18 The Supreme Court recently explained,

"Parties seeking summary judgment must raise by motion the issues on

which they contend they are entitled to prevail as a matter of law. Parties

opposing summary judgment have the burden of producing evidence that creates

a material issue of fact as to those issues, but only as to those issues.”

Two Two v. Fujitec America, Inc., 355 Or 319, 326, 325 P3d 707 (2014).

360 WSB Investments, LLC v. Pronghorn Devel. Co., LLC

vote and allow for the election of a nondeclarant member to

the board; (6) defendants' engagement in "conflicted” transactions;

and (7) defendants' failure to ensure that buildings

5 and 6 were added to the Res Club. Accordingly, we confine

our review to that same subset of alleged breaches, and we do

not disturb the trial court's ruling with respect to the alleged

breaches identified in the complaint that plaintiff has chosen

not to address in any cogent way in its opening brief.19

We make three additional observations before

addressing the specific breaches of duty identified by plaintiff.

First, although the legislature has not defined "gross

negligence” for the purposes of ORS 65.369, it is a term that

has a common legal meaning. "Gross negligence” generally

means negligence characterized by near total disregard or

indifference to the rights of others or the probable consequences

of a course of conduct. See Howard v. Chimps, Inc.,

251 Or App 636, 647, 284 P3d 1181 (2012), rev den, 353 Or

410 (2013) ("To establish gross negligence, [the] plaintiff

needed to show that [the] defendant acted with reckless disregard

of safety or indifference to the probable consequences

of its acts.”).

Second, when we are assessing whether a director's

breach of a statutory duty resulted from the director's

gross negligence, so as to render the director civilly liable

for the breach of that duty, we usually must identify which

of the director's statutory duties is implicated by the director's

conduct. That is because the particular duty that was

breached informs our analysis as to whether that breach

was grossly negligent. If the director breached the statutory

duty of loyalty—that is, the duty to act "[i]n a manner

the director reasonably believes to be in the best interests

of the corporation,” ORS 65.357(1)(c)—we must examine

whether the director's conduct evidences a reckless disregard

for the best interests of the corporation. See William

Meade Fletcher, 3 Fletcher Cyclopedia of the Law of Private

19 Specifically, we affirm without further discussion the trial court's grant

of summary judgment with respect to the following allegations of breach of fiduciary

duty: directing a disproportionate amount of rental business to buildings 5

and 6; failing to furnish accurate and complete financial records; overcharging

the nondeclarant members and the Res Club interest charges; and failing to call

a turnover meeting and transfer control of the Res Club to nondeclarant owners.

Cite as 269 Or App 342 (2015) 361

Corporations § 837.60, 182-83 (rev 2002) (duty of loyalty "is

coextensive with the legitimate, enduring interests of the

corporation”). If, instead, the director breached the statutory

duty of care—that is, the duty to act "[w]ith the care an

ordinarily prudent person in a like position would exercise

under similar circumstances,” ORS 65.357(1)(b)—we must

examine, in effect, whether the director's conduct represents

a gross deviation from the level of care that an "ordinarily

prudent person” would have exercised in the same situation,

that is, whether it exhibits a reckless disregard for the

consequences of the director's chosen course of conduct. See

William Meade Fletcher, 3A Fletcher Cyclopedia of the Law

of Private Corporations § 1032, 20 (rev 2002) (duty of care

requires a director to act with "the degree of care an ordinarily

prudent person would exercise in a like position under

similar circumstances”). Those are different inquiries, and

each can lead to a different conclusion as to whether a director's

conduct in discharging his or her duties subjects him

or her to civil liability.20 Accordingly, in addressing each of

plaintiff's allegations of breach of fiduciary duty, we identify

which of the duties under ORS 65.357 appear to be implicated

by the particular allegation.21

Third, although defendants appear to argue otherwise,

whether a defendant's conduct comports with his or

her obligations under the corporation's governing documents

(in this case, the Declaration and the bylaws) bears

on the determination of whether particular conduct by the

defendant constitutes a grossly negligent violation of the

defendant's duties. As corporate directors, defendants were

obligated to comply with the provisions of the corporation's

governing documents, see ORS 100.417(1) (board of directors

of condominium association may act on behalf of the

association "except as limited by the declaration or bylaws”);

20 For example, conduct that may conceivably comport with the standard of

care in the abstract may nonetheless evidence a reckless disregard for the interests

of the corporation if, for example, the corporation's governing documents prohibit

the conduct at issue.

21 In its brief, plaintiff appears to treat its claim as implicating primarily the

duty of loyalty. Defendants in their brief appear to treat plaintiff's claim as implicating

primarily the duty of care. As a consequence, the parties' arguments with

respect to the various alleged breaches of fiduciary duty are not fully responsive

to each other.

362 WSB Investments, LLC v. Pronghorn Devel. Co., LLC

ORS 94.858(4) (authority of timeshare owners' association

is "[s]ubject to the provisions of the timeshare instrument

and bylaws”); see also William Meade Fletcher, 2 Fletcher

Cyclopedia of the Law of Private Corporations § 505, 579 (rev

2006) (corporate directors are empowered "to do whatever

is necessary to manage the ordinary business of the corporation,

subject to any express restrictions in the chart,

bylaws, or the general law”), and such governing documents

can define both what is in a corporation's best interest, as

well as the standard of care for directors with respect to certain

matters. Presented with evidence that a director acted

in a way that was clearly prohibited by the governing documents,

or failed to take an action that was clearly required

by the governing documents, a factfinder could find not only

that it was unreasonable for the director to believe that the

conduct was in the best interest of the corporation, but also

that the director acted with reckless disregard to the corporation's

best interest, as that interest has been defined

by the corporation's governing documents, and, thus, with

reckless disregard to the attendant breach of fiduciary duty.

See Palm v. 2800 Lake Shore Drive Condominium Ass'n,

10 NE 3d 307, 331-34 (Ill App 2014) (upholding trial court's

ruling that homeowners association directors' breach of

fiduciary duty was grossly negligent where directors' conduct

violated clear requirements of the condominium declaration

and state statute); see also Patin v. Ferguson, 115 So

3d 1204, 1210-11 (La App 3 Cir 2013) (breach of fiduciary

duties by LLC member was grossly negligent when conduct

violated clear statutory requirement). Put another way, a

director's statutory duties under ORS 65.357 will generally

encompass the duty to act in accordance with governing corporate

documents, and evidence that a director has disregarded

his or her unambiguous obligations under the corporation's

governing documents may be sufficient to support a

finding that the director's breach of any of those duties was

the product of gross negligence.22

22 That is not to say that every breach of an obligation under a corporation's

governing documents will amount to a grossly negligent breach of a director's

duties. The clarity of the director's obligations informs the analysis. If, for example,

a provision contained in a governing document is ambiguous, and a director

breaches the provision based on a reasonable, but mistaken, interpretation of

the obligations imposed by that ambiguous provision, that breach, to the extent

Cite as 269 Or App 342 (2015) 363

With those points in mind, we address whether

plaintiff presented sufficient evidence to withstand summary

judgment on the alleged breaches of duty identified by

plaintiff in its opening brief.23 That is, we examine whether

the evidence of the conduct underlying those alleged

breaches, and the other evidence of the circumstances of

those breaches, would permit a reasonable factfinder to find

either that defendants (1) engaged in intentional misconduct;

(2) failed to exercise the degree of care that a prudent

person would exercise in the same circumstances, and did

so with reckless disregard or indifference to the probable

consequences of their conduct (in the case of a breach of the

statutory duty of care); or (3) recklessly disregarded their

obligations to act in a manner that they reasonably believed

to be in the best interests of the Res Club (in the case of a

breach of the statutory duty of loyalty).24

1. Misuse of reserve funds

a. Misuse of reserve funds to pay Res Club operating

expenses

We reverse the trial court's grant of summary judgment

to defendants on plaintiff's allegation that defendants

breached their duties by using reserve funds to pay for

operating expenses. In our view, that allegation implicates

defendants' duty of loyalty, or the duty to act in a manner

that they reasonably believe is in the best interest of the

corporation. That is because the allegation involves conduct

that violates the bylaws' restriction on the use of reserve

funds which, a factfinder could find, define what is in the

that it also breached one or more of the director's statutory duties, would not be a

grossly negligent one.

23 As mentioned, plaintiff argues that the issue of "gross negligence” always

presents an issue of fact for the jury, thereby precluding summary judgment as

a matter of law in any case involving gross negligence. We disagree. The issue

of "gross negligence” presents a fact question for the jury so as to preclude summary

judgment only when the summary judgment record contains evidence

that would support a finding of gross negligence. If the record contains no such

evidence, then summary judgment must be granted. See, e.g., Howard, 251 Or

App at 650 (affirming grant of summary judgment on claim for gross negligence

when evidence was insufficient to permit finding that defendant acted with gross

negligence).

24 Although ORS 65.357(1) also imposes upon directors a duty to act in "good

faith,” we focus primarily on the statutory duties of loyalty and care.

364 WSB Investments, LLC v. Pronghorn Devel. Co., LLC

corporation's best interest with respect to the use of reserve

funds. Plaintiff's evidence demonstrates that the bylaws

unambiguously prohibited defendants from using reserve

funds to pay for operating expenses, and that defendants

were notified on one or more occasions by their accountants

that the bylaws "clearly prohibited” defendants' conduct.

From that evidence, a factfinder could find that defendants

recklessly disregarded their clear obligations under

the bylaws when they misused reserved funds, thereby, at

a minimum, recklessly disregarding their obligation to act

in a manner that they reasonably believed to be in the best

interest of the Res Club, as that interest is defined by the

applicable bylaws.

b. Transfer of Res Club funds to the golf club

We reverse the grant of summary judgment as to

Hix and Denney on the allegation that defendants breached

their duties by transferring $85,000 from the Res Club

reserve fund to the golf club to meet payroll. That allegation,

at a minimum,25 also implicates defendants' duty of loyalty,

or the duty to act in a manner that they reasonably believe

is in the best interest of the corporation. The summaryjudgment

evidence—that Hix admitted taking money from

the Res Club, one corporate entity, and giving it to the golf

club, a separate corporate entity—would permit a finding

that Hix, in his own words, "st[ole]” the Res Club's money,

thereby, at a minimum, breaching his statutory duty of loyalty

to the Res Club with reckless disregard for that duty. A

factfinder could also find, alternatively, that Hix's conduct

constituted intentional misconduct, subjecting him to liability

on that basis. The evidence further shows that Denney

was aware that Hix took the Res Club's funds but that he

did not take any form of corrective action, permitting a finding

that Denney acted with reckless disregard of his obligation

to act in a manner that he reasonably believed was in

the best interest of the Res Club.

Regarding the other defendants, on appeal, plaintiff

has not identified any evidence in the summary-judgment

record that would permit a finding that those defendants'

25 It also, conceivably, implicates defendants' statutory duty to act in good

faith.

Cite as 269 Or App 342 (2015) 365

conduct in connection with the $85,000 transfer amounts

to gross negligence or intentional misconduct, and it is not

our job to comb the record to identify such evidence. We

therefore affirm the grant of summary judgment to Walley,

Clark, and Fulghum on that allegation.

2. Overcharging the Res Club

We reverse the grant of summary judgment as to

Hix, Walley, Denney, and Clark on plaintiff's allegation that

defendants breached their fiduciary duties by intentionally

overloading the Res Club with resort expenses. That allegation

also implicates defendants' duty of loyalty, or the duty

to act in a manner that they reasonably believe to be in

the best interests of the Res Club. The summary-judgment

evidence would permit a reasonable factfinder to find that

there were significant disparities between the charges to

the Res Club and the charges to the homeowners association

for the condominiums; that some of the largest charges

to the Res Club were for unidentified "services” that defendants

were unable to explain; that, on at least one occasion,

the Res Club was billed expressly for services performed on

the condominiums; and that, at Res Club board meetings

attended by Denney and Clark, Hix and Walley would "try[ ]

to figure out how to load expenses from [the golf club] onto

the HOA of the Residence Club”—a practice which Denney

questioned, but that neither Denney nor Clark did anything

to stop.

From those facts, a reasonable factfinder could infer

that Hix and Walley breached their statutory duty of loyalty

with, at a minimum, gross negligence. In particular, a factfinder

could permissibly infer that the conduct of intentionally

overloading expenses onto the Res Club reflected a reckless

disregard of that entity's best interests. A reasonable

factfinder also could infer that Denney and Clark recklessly

disregarded their statutory duty of loyalty to the Res Club by

watching Hix and Walley load expenses onto the Res Club

without disclosing that conduct to the Res Club members or

otherwise taking any action to stop it.

Pointing to reports by accountants that conclude

that expenses allocated to the Res Club were reasonable,

defendants argue that no reasonable factfinder could find,

366 WSB Investments, LLC v. Pronghorn Devel. Co., LLC

in light of those reports, that defendants were grossly negligent

in allocating expenses to the Res Club. However, those

reports—which were prepared after defendants allocated

expenses to the Res Club in the challenged manner—do not

preclude a finding that defendants loaded resort expenses

onto the Res Club, in reckless disregard of the Res Club's

best interests. If a factfinder were to credit Denney's testimony

that Hix and Walley intentionally loaded expenses

onto the Res Club, beyond those expenses actually attributable

to the Res Club, that factfinder could further find that

defendants acted with reckless disregard of the best interests

of the Res Club.

Regarding Fulgham, in its brief on appeal, plaintiff

has identified no evidence to permit a factfinder to find that

Fulgham was involved in, or even aware of, Hix and Walley's

scheme to overcharge the Res Club with resort expenses,

and we decline to comb the record in search of such evidence

on plaintiff's behalf. For that reason, we affirm the trial

court's grant of summary judgment on plaintiff's allegation

that Fulgham breached his fiduciary duty by overcharging

the Res Club with resort expenses, but reverse with respect

to defendants Hix, Walley, Denney, and Clark.

3. Failure to initiate collection action against Pronghorn

Development

We affirm the grant of summary judgment to defendants

on this allegation, which we believe to implicate both

the statutory duties of care and loyalty. It is undisputed that

Pronghorn Development, the declarant, faced severe financial

difficulties and that the reason that it did not pay its

assessments was that it did not have the funds to do so. And

plaintiff identifies no evidence in the summary-judgment

record that would permit a factual finding that defendants'

failure to initiate inevitably fruitless collection efforts

against the declarant evidences a reckless disregard of the

Res Club's best interests or a gross deviation from the care

that an ordinarily prudent person would exercise under the

same circumstances. See Bernards v. Summit Real Estate

Management, Inc., 229 Or App 357, 370, 213 P3d 1 (2009)

("The duty to sue does not arise * * * when 'success' would be

of 'little or no net value.' ”).

Cite as 269 Or App 342 (2015) 367

4. The lease arrangement with Pacific

We reverse the grant of summary judgment to Hix,

Walley, Denney, and Clark on plaintiff's allegation that

defendants breached their fiduciary duties when they failed

to adequately address Pronghorn Development's decision to

lease the common furnishings for the Res Club, notwithstanding

the Declaration's representation that the common

furnishings would be owned by the Res Club. That allegation

appears to implicate, at a minimum, the statutory duty

of loyalty, and we conclude that a reasonable factfinder could

find that any breach of that duty did rise to the level of gross

negligence.

Specifically, the summary-judgment record would

permit a reasonable factfinder to find the following facts.

When defendants were made aware that the declarant was

not going to comply with its obligation under the Declaration

to provide the Res Club with common furnishings that were

owned by the Res Club, defendants did not disclose that

breach to the members of the Res Club. Instead, Hix and

Denney purported to amend the Declaration to, in effect, let

the declarant off the hook for breaching its obligation under

the Declaration. However, when purporting to amend the

Declaration, defendants did not submit the matter to the

nondeclarant members of the Res Club for their approval,

as required by the Declaration. Defendants then agreed on

behalf of the Res Club to sublease the common furnishings

from the declarant (rather than having the Res Club lease

the common furnishings directly). That, in turn, left the

Res Club exposed to the risk of a default by the declarant, as

well as placed the nondeclarant members of the Res Club in

the position of paying to lease common furnishings (through

Res Club assessments), when those nondeclarant members

had already paid to have Res Club-owned common furnishings

when purchasing their timeshares.

From that course of conduct, a reasonable factfinder

could infer that defendants' breach of their statutory duty of

loyalty was the product of a reckless disregard for the best

interests of the Res Club. Defendants' conduct effectively concealed

from Res Club members a significant breach by the

declarant, thereby impeding Res Club members' ability to

368 WSB Investments, LLC v. Pronghorn Devel. Co., LLC

protect their interest in having permanently furnished timeshare

units, either individually or collectively. Furthermore,

although it may have been reasonable for defendants to conclude

that attempting to enforce the declarant's obligation to

convey ownership of the common furnishings was not in the

interest of the Res Club at that time, a factfinder could reach

a different conclusion regarding Hix and Denney's decision

to amend the Declaration to accommodate the declarant's

breach. The decision to adopt that amendment without complying

with the Declaration's unambiguous requirements for

such an amendment further evidences a reckless disregard

for the best interests of the Res Club, as those interests have

been defined in the Declaration. Finally, defendants' decision

to sublease the furniture from the declarant's subsidiary—

rather than insisting on leasing the furniture from Pacific

directly—could support a finding that defendants recklessly

disregarded the interest of the nondeclarant members of the

Res Club in not paying for the common furnishings twice.

Although we reverse the grant of summary judgment

to Hix, Walley, Denney, and Clark on this allegation,

we affirm the grant of summary judgment to Fulghum.

Fulghum did not join the board until 2010 and, as a result,

there is no evidence that he was even involved in any

decisions regarding the common furnishings, let alone

that he was grossly negligent or engaged in intentional

misconduct.

5. Defendants' failure to hold an election to add a nondeclarant

board member

We reverse the grant of summary judgment on this

allegation as to all defendants, which, in our view, implicates

defendants' statutory duty of loyalty. The evidence in

the summary-judgment record would permit a finding that

the Declaration plainly required the board to hold an election

to replace its membership after one year and to add

a nondeclarant board member at that time. The evidence

would permit a further finding that no such election was

held during any of defendants' terms of service on the board.

From those facts, a reasonable factfinder could infer that

defendants recklessly disregarded their duty to act in a manner

that they reasonably believed to be in the best interest of

Cite as 269 Or App 342 (2015) 369

the corporation by failing to comply with the unambiguous

requirements of the Declaration, which a factfinder could

find defines what course of action is in the Res Club's "best

interest” in terms of composition and selection of the board

of directors.

6. Defendants' conflicts of interest

We affirm the trial court's grant of summary judgment

to defendants on plaintiff's general "conflict-of-interest”

allegation. Although plaintiff's theory on this allegation is

not clear to us from plaintiff's briefing, plaintiff appears

to be arguing that a reasonable factfinder could infer that

defendants were grossly negligent or engaged in intentional

misconduct simply by virtue of the fact that each of them

served on the boards of other entities associated with the

resort or were employed by other entities associated with

the resort. But the fact that defendants were involved with

other entities at the resort does not, standing alone, permit

the inference that any particular breach of duty by defendants

amounted to either gross negligence or intentional

misconduct.26

7. Defendants' failure to ensure that buildings 5 and 6

were added to the Res Club

Finally, we affirm the grant of summary judgment

to defendants on plaintiff's allegation regarding defendants'

handling of buildings 5 and 6, although we note that this allegation

does not appear to be encompassed by the complaint

and we are not certain that it was, in fact, litigated before

the trial court. In any event, the record contains no evidence

that would permit a factfinder to find that any breach of

defendants' statutory duties of care and loyalty—the duties

that appear to be implicated by this claim—resulted from

either gross negligence or intentional misconduct. To the contrary,

if anything, the evidence affirmatively indicates that

defendants acted reasonably in carrying out their duties. It

26 In addition, as defendants point out, the applicable statutes allow transactions

in which a director has a conflict of interest if the transaction is fair to the

corporation and approved in one of the ways described in ORS 65.361, indicating

that proof of a conflict of interest, standing alone, is insufficient to establish that

the approval of a particular conflict-of-interest transaction amounts to a breach

of duty that is grossly negligent.

370 WSB Investments, LLC v. Pronghorn Devel. Co., LLC

is true that the Declaration contemplated that the developer

would treat those buildings as timeshares and add them

to the Res Club. However, given the undisputed facts that

(1) the resort as a whole was facing serious financial difficulties

during the relevant time period; and (2) the developer's

counsel advised that it was permissible for the developer to

change course as to how to treat buildings 5 and 6, there is

no basis to conclude that any breach of the standard of care

by defendants was the product of reckless disregard of the

consequences of defendants' action, or that defendants acted

with reckless disregard of the best interests of the Res Club,

in their handling of the change of plan for buildings 5 and 6.

IV. CONCLUSION

To summarize, we affirm the grant of summary judgment

to defendants on all claims except for plaintiff's claim

for breach of fiduciary duty. With respect to the trial court's

grant of summary judgment on the breach-of-fiduciaryduty

claim, we rule as follows:

(1) On the allegation that defendants breached their

fiduciary duties by using reserve funds to pay operating

expenses, reversed as to all defendants;

(2) On the allegation that defendants breached their fiduciary

duties by transferring $85,000 from the Res Club

reserve fund to the golf club, reversed as to Hix and Denney,

but affirmed as to remaining defendants;

(3) On the allegation that defendants breached their

fiduciary duties by overcharging the Res Club for resort

expenses, reversed as to Hix, Walley, Denney, and Clark,

but affirmed as to Fulghum;

(4) On the allegation that defendants breached their fiduciary

duties in connection with the lease of the common furnishings,

reversed as to Hix, Walley, Denney, and Clark, but

affirmed as to Fulghum;

(5) On the allegation that defendants breached their

fiduciary duties by failing to hold an election to add a nondeclarant

board member in the manner required by the

Declaration, reversed as to all defendants; and

Cite as 269 Or App 342 (2015) 371

(6) With respect to all other allegations of breach of fiduciary

duty, the trial court's grant of summary judgment is

affirmed in all respects as to all defendants.

Reversed in part and remanded.