September 2006
In This Issue:
SLAPP Motion Does Not Apply to Lawsuit That Does Not Arise Out of Issue of Public Interest
Attorney Fees Violation Possibly Mitigated by 'Bona Fide Error' Defense
Homeowner May Not Replace Gravel Apron With Pavement
Judicial Sale Does Not Extinguish Restrictive Covenants and Easements
Association's Refusal to Grant Approval for Architectural Alterations Is Capricious and Arbitrary
Association Has No Duty to Purchase Earthquake Insurance
Quick Links:
E-mail Our Editor
Visit Our Home Page
View Archives
View Credits
printer friendly
 

SLAPP Motion Does Not Apply to Lawsuit That Does Not Arise Out of Issue of Public Interest

Williams v. Merrihew, No. F046011, Cal. App. Ct., Nov. 17, 2005

State and Local Legislation and Regulations: In an unreported case involving an early motion in a dispute between a subdivision and some homeowners regarding control of a wastewater-treatment facility, a California appeals court reversed a decision throwing out a case regarding transfer of the facility based on an anti-SLAPP motion.

John Williams was a principal with the developer of Del Rio West at River Nine ("DRW"), a 51-lot subdivision. DRW has a homeowner association and is governed by a recorded declaration of covenants, conditions, and restrictions. As a part of the development of DRW, a wastewater-treatment facility was constructed and turned over to the association. The declaration provided that the wastewater treatment facility may offer service for additional developments in the vicinity of DRW.

In order for the wastewater-treatment facility to be able to serve additional developments without these other developments becoming a part of DRW, Section 5.10 of the declaration provided that the facility would be transferred to a nonprofit entity for ownership and operation. After the declaration was recorded, the Del Rio Lago ("DRL") subdivision was developed near DRW. Williams, who served as a principal of the developer of both DRW and DRL, as president of DRW's association, and as a director of the Del Rio Community Services Corporation ("CSC"), the nonprofit entity set up to own and operate the wastewater-treatment facility, transferred the facility to CSC. 

Kenton Merrihew and other owners of lots in DRW (collectively, "Merrihew") sought to have the ownership of the wastewater-treatment facility returned to DRW's association. Merrihew was elected to the board of the association and continued efforts to have the facility conveyed to the association. Merrihew also attended at least one local board of supervisors meeting and raised the issue there.  

Merrihew retained the services of an attorney to represent the owners in their quest to regain control of the wastewater-treatment facility. Williams then sued Merrihew, claiming (1) improper notice of board meetings, (2) retaining an attorney to pursue personal claims at association expense, and (3) intentional interference with the contract between DRL and CSC. Williams also wanted the court to determine that the declaration authorized the conveyance of the facility to CSC, and sought monetary damages as compensation for the breach-of-contract claim and an injunction against further interference and breeches of the declaration. 
    
Merrihew responded by filing a special motion to strike under California's anti-SLAPP statute. Such a motion asks courts for early dismissal of cases known as "Strategic Lawsuits Against Public Participation." An anti-SLAPP motion protects against litigation that seeks to mute (1) any written or oral statement made before an official proceeding authorized by law; (2) any written or oral statement connected with an issue under consideration or review by an official proceeding authorized by law; (3) any statement made in a place open to the public or in a public forum in connection with an issue of public interest; or (4) any other conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or an issue of public interest. 
  
The trial court ruled that Merrihew's acts constituted protected free speech and that Williams' suit did not attempt to stop the speech and actions made directly to him by Merrihew but aimed to stop the acts Williams claimed Merrihew had threatened to commit if Williams did not reconvey the treatment facility to the association. 
  
Williams appealed, and the appeals court reversed the trial court's decision. Based on the record, the appeals court found three instances when Merrihew pursued a claim against Williams. The first instance was a personally communicated ultimatum from Merrihew to Williams that he should reconvey the wastewater-treatment facility to the association "or else," with no mention of specific consequences. Second, Merrihew used his influence as a board member to hire his personal attorney at the association's expense to assert an "individual claim." Third, Merrihew's attorney served on Williams, as president of the association prior to Merrihew's election to the board, a proposed complaint in a members' derivative action on behalf of the association seeking to rescind the conveyance of the facility.   
 
The appeals court examined each of these causes of action. The court first stated, "A cause of action is subject to a motion to strike under the anti-SLAPP statute even if it is based only in part on allegations regarding protected activity." The court noted, however, that it is the principal thrust of the action that determines whether the anti-SLAPP statute applies "not when the protected action is merely incidental to an action based on non-protected activity." In other words, if the thrust of the complaint dealt with the derivative action, then the anti-SLAPP statute would apply. 
 
Personal communications between Merrihew and Williams are not a matter of public interest or a public issue, and the court noted that the issue of ownership and operation of the wastewater-treatment plant was irrelevant to the public. Again, Williams' contention that the board acted in an impermissible manner in retaining counsel was merely an internal employment issue and was neither a public issue nor an issue of public interest. Williams did not seek to stop the association from retaining counsel; he only questioned the manner in which the counsel was chosen. The issues examined by the appeals court did not fall into any category contemplated to be protected by the statute and the court.  The court stated that its discussion did not address the merits of these questions but only dealt with whether each cause of action was viable in the face of the anti-SLAPP motion.

©2006 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

Attorney Fees Violation Possibly Mitigated by 'Bona Fide Error' Defense

Cohen v. Beachside Two-I Homeowners' Association, No. 05-706 ADM/JSM, U.S. Dist. Ct. (Dist. Minn.), Nov. 17, 2005

Assessments/Attorney Fees: The "bona fide error" defense might protect attorneys who charged attorney's fees exceeding the amount allowed by statute, and even though a homeowner was entitled to summary judgment on late fees that were not authorized by an association's governing documents, under the voluntary-payment doctrine he could not recover the late fees he paid.

Glenn Cohen owned a townhome in Beachside Two-I, a townhome development in Minnetonka, Minnesota, from June 5, 1997, to Nov. 19, 2004. Cohen obtained a mortgage on his property from U.S. Bank and made monthly payments to "U.S. Bank Home Mortgage." When Cohen bought the townhome, he became a member of Beachside Two-I Homeowners' Association ("association") and was obligated to pay monthly assessments. Beginning in September 1998, Cohen occasionally missed the monthly payment but typically made up the deficiency. In November 1999, the association began charging Cohen $10 late fees, and increased the penalty to $20 in August 2002. Cohen paid all late fees until January 2003, when he began paying only the assessments and not the late fees or legal fees. This pattern continued until June 2003, when Cohen stopped paying the assessments altogether.   
  
On Sept. 11, 2003, Fredrick Krietzman, an attorney employed with the Minneapolis law firm Felhaber, Larson, Fenlon & Vogt, P.A., notified Cohen that his account had been referred to the law firm for collection. On Oct. 18, 2003, Cohen responded to the letter by disputing the amount he owed and stating that, pursuant to the Fair Debt Collection Practices Act ("Act"), Krietzman should no longer contact him or send him collection notices. The association filed a lien statement in the Hennepin County land records in April 2004. U.S. Bank paid off the lien against Cohen's property in May 2004, and the association recorded a satisfaction and release of lien. Cohen sued the association, Krietzman, the law firm, and U.S. Bank on April 7, 2005.
     
In his complaint, Cohen alleged that Krietzman and the law firm violated the Act by charging attorney's fees in violation of a Minnesota statute that caps at a small amount the attorney's fees recoverable in a mortgage foreclosure by advertisement. The court determined that the amount charged by Krietzman and his firm indeed had exceeded the maximum recoverable amount allowed under the statute. However, the court noted that Krietzman and his firm might be protected under the "bona fide error" defense and ruled that the claim should remain for discovery as to whether the error was intentional.
     
Cohen also asserted a number of state-law claims against the association. First, he argued that the association lacked the authority to assess $10 and $20 late fees. The court agreed with Cohen, because the association's governing documents (the declaration and bylaws) contained no provisions for assessing $10 and $20 late fees. However, under the voluntary-payment doctrine, which provides that someone who makes a payment voluntarily cannot recover it on the ground that he was under no legal obligation to make the payment, the court declared that Cohen was entitled to recover only late fees that he refused to pay beginning in January 2003.
     
The court went on to address each of Cohen's other arguments. Although Cohen argued that the declaration did not authorize the collection of attorney's fees, the court stated that a fair reading of the declaration and the bylaws as a whole demonstrated the intent to authorize the association's board of directors to collect attorney's fees. Whereas Cohen argued that attorney's fees could not be collected --  because the governing documents authorized such collection only upon foreclosure, and an actual foreclosure sale never took place because U.S. Bank paid off the lien before the sale -- the court determined that the term "foreclosure" was broad enough to include the entire foreclosure process rather than the completed sale itself. 
     
The court also ruled that the assessment increases implemented by the association's board did not violate the governing documents. Finally, the court determined that U.S. Bank did not violate a Minnesota law that requires businesses doing business under a different name to file a certificate of assumed name with the secretary of state, as Cohen had charged. The court also denied Cohen's claims of additional violations of the Act, abuse of process, conversion, negligent infliction of emotional distress, invasion of privacy by publication of private facts, and punitive damages.

©2006 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

Homeowner May Not Replace Gravel Apron With Pavement

Dolan v. Villages of Clearwater Homeowner's Association Inc., C.A. No. 097-S, Del. Chancery Ct., Oct. 21, 2005

Architectural Control/Covenants Enforcement: In an unpublished opinion, a Delaware chancery court upheld a trial court's ruling in favor of an association review board's denial of an owner's request to replace the white gravel area around and under her home with pavement. The court ruled that the review board's focus on the fact that the alteration would have disrupted visual harmony was in line with the declaration.

The Villages of Clearwater ("Villages") is comprised of three sections, each with distinct architectural style homes: (1) Newport Village is composed of larger lots with larger free-standing homes; (2) Northampton Cottages is composed of cottages on smaller lots; and (3) Village of Half Moon Bay is composed of houses designed in the "Key West" style. 

Anne Dolan owns a home in the Village of Half Moon Bay section, where all Key Weststyle houses are raised on pilings and have an apron or driveway of white pea gravel extending from the paved street to the house and, in most instances, under the house. Both the gravel apron and the raised foundation are distinct to this style of house. Deed restrictions that apply to all lots in the Villages are contained in Article 7 of the Declaration of Covenants, Conditions, and Restrictions of the Villages. Pursuant to Article 7, authority to approve architectural modifications was transferred from the developer to the Review Board of the Villages of Clearwater Homeowner's Association, Inc. ("association"). Section 7.3 of the declaration states that the objectives the review board must consider when evaluating homeowners' applications for proposed improvements, include "ensuring that the architectural design of structures and their materials and colors are visually harmonious with the Development's overall appearance, history, and cultural heritage, with surrounding development, with natural land forms and native vegetation."

In November 2003, Dolan applied to the review board to replace the white gravel in front of her home with white paving, with a gutter catchment system to assist with drainage. The review board rejected the application because, if the request were granted, Dolan's house would be the only Key West–style house in the development without a white gravel apron and with a professionally designed gutter catchment system. 
 
Dolan sued the association, seeking a judicial determination that the review board's decision was improper and asking the court to authorize her to proceed with the plans. The association responded with two arguments to support the review board's denial of Dolan's application. First, the paved area would not be visually harmonious with the neighborhood, as required by the declaration; second, paving the area would have an effect on drainage. The association's concerns about drainage were dismissed as unfounded; so, in her appeal, Dolan raised two main arguments: (1) that the declaration was ambiguous about the meaning of "visually harmonious," and, thus, the restriction must be interpreted in her favor; and (2) that if the declaration were not ambiguous about the meaning, the review board enforced it arbitrarily and unreasonably against her. 

Both cases were heard by a master, and the final master's report concluded that the deed restriction was not ambiguous and that it clearly directed the association to preserve the visual harmony of the Villages. The report further explained that the developer had a plan to construct separate areas with different and distinct architectural styles, the most distinctive of which is the Key West style used in the Half Moon Bay section. Other owners' applications to replace their gravel aprons with pavement had been denied by the review board. Therefore, the master determined that the association did not act arbitrarily or capriciously when it denied Dolan's request, because the white gravel apron is an exterior element that contributes to the Key West style. Dolan again appealed.
 
The chancery court reviewed the master's decision de novo and found that it was thoughtful and well-reasoned. The court agreed with the master that the deed restriction was not ambiguous and concluded that the review board correctly denied Dolan's request on the basis of ensuring visual harmony in the development. The restriction provides that the review board is directed to ensure visual harmony with both the surrounding development and the development's overall appearance. The court agreed with the master that "surrounding development" meant the area in which the structure was located -- i.e., both the Half Moon Bay section of the development and the overall appearance of the Villages as a whole. The court noted that photographs from the trial record showing white stone yards in front of the houses constituted sufficient evidence to illustrate that the stones are a distinctive architectural feature of this style. 
 
Dolan proposed that the restriction provided that design materials and color must be "visually harmonious" with the Villages as a whole and the surrounding development outside the Villages. The court did not agree, because inherent in the developer's design was the creation of three individual sections with three distinct styles of architecture. Thus, the court found that the review board's focus on the fact that the proposed alterations disrupted the visual harmony of Half Moon Bay was sensible and followed the declaration. Furthermore, the court stated that the association had no authority over the area outside the Villages and thus found that Dolan's interpretation of the deed restriction was nonsensical and could not serve as an alternate interpretation of the restrictions. The court agreed with the master that to maintain the visual harmony created by the unique elements of the Key West style provided a valid basis for the review board to deny Dolan's application.
 
Dolan contended that the review board's written decision failed to cite visual harmony expressly as the basis for denial of her application and that the "after-the-fact" explanation was unfair. The court found that Dolan waived the issue because she did not fairly present it to the master, and even if she had presented the exception, it could be inferred by the text of the review board's denial that the reason for the denial was the visual discordance inherent in Dolan's request. Therefore, the court found that there was no reason Dolan could fairly claim she had been surprised or blindsided by the review board's rejection.   

The court concluded that the master's report correctly determined that the review board's denial of Dolan's application for improvements was not arbitrary, capricious, or otherwise unreasonable. Under Delaware law, a deed that conditions the right to make improvements on the permission of a developer or review board is enforceable, but permission must not be withheld unreasonably, and the burden is on the review board to show its actions are reasonable. Where the review board is directed to ensure improvements are "visually harmonious" with the surrounding development, the rejection of a request for approval based on a lack of visual harmony can be upheld if the decision of the review board is not arbitrary or unreasonable. In other words, if a community has a sufficiently coherent visual style, a deed restriction may protect the perpetuation of that style so long as the authority entrusted with that task does so in an even-handed, non-arbitrary manner.
 
The court also found that the master's report was not arbitrary or unfair to Dolan, who repeatedly relied on an example in which the review board permitted another owner in Half Moon Bay to place brick pavers under the house but required the white gravel apron to remain between the house and the street. In the court's opinion, this reinforced the strict enforcement of the deed restriction because the review board permitted the brick pavers only under the house, where they are less visible, but required that the white gravel remain between the house and the street. The court felt that the compromise, although debatable, was nonetheless consistent with the view that white gravel is a distinctive element of the Key West style. For the above reasons, the court found that the master's decision was not wrongful, and Dolan's claims were dismissed. The court ordered each party to pay its own court costs.

©2006 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

Judicial Sale Does Not Extinguish Restrictive Covenants and Easements

Locust Lake Village Property Owners Association v. Wengerd, No. 2 C.D. 2006, Pa. Commw. Ct., May 25, 2006

Assessments: Owners' argument that Pennsylvania's Real Estate Tax Sale Law trumped the Uniform Planned Community Act by extinguishing restrictive covenants and easements on units they purchased at a judicial sale was not valid. The chain of title for the units clearly referred to the owners association and, therefore, the owners' obligation to pay assessments.

David and Emma Wengerd purchased 24 units in Locust Lake Village Development in 2003. The subdivision is a planned community located in Tobyhanna Township, in Monroe County, Pennsylvania.  After they purchased the units, Locust Village Property Owners Association ("association") tried to collect assessments due on the units. The Wengerds did not pay the assessments because they believed that they had purchased the units pursuant to two Pennsylvania laws, one of which related to judicial sales and one of which related to repository tax sales. They contended that those laws extinguished restrictive covenants and any easements on the units. 

In February 2005, the association sued the Wengerds to collect the past-due assessments and fees, and in June 2005, the association filed a motion for summary judgment in the cases. The association claimed that the Uniform Planned Community Act ("Act") gave the association authority to collect assessments. The trial court ruled in favor of the association and awarded it $13,774.81, plus costs and attorney's fees. The Wengerds appealed the case to a superior court, which transferred the case to a commonwealth court.
 
On appeal, the Wengerds again relied on Pennsylvania's Real Estate Tax Sale Law, which extinguishes restrictive covenants and express and implied easements on property when that property is purchased by judicial sale. The Wengerds specifically argued that restrictive covenants and easements are interests in real property that fall within the meaning of "estates" as delineated in the statute. The court noted that the statute did not define "estate" and looked to Black's Law Dictionary and the Restatement of Property (First) to define the word. Black's defines "estate" as the "amount, degree, nature, and quality of a person's interest in land or other property."  The Restatement notes that "estate" means "an interest in land which (a) is or may become possessory; and (b) is ownership measured in terms of duration." A comment in the Restatement particularly states: "The word 'possessory' as here used has a considerable exclusionary effect. Such interests as easements, profits, restrictive covenants, and agreements affecting the use of land, powers of appointment, and rents are not possessory interests and are not interests which may become possessory...."

The appeals court noted that the Restatement's definition of estate did not support the Wengerds' argument. The Wengerds next maintained that the trial court erred when it found that they gained easement rights over common areas and facilities when they purchased the 24 units, because their tax- claim deeds did not refer to a subdivision plan. The court rejected that argument, too, citing case law that determined that a grantee has notice of everything that affects title that could have been discovered by a title examination. The tax-claim deeds contained lot and section numbers and other details that presumably associated the units with the Locust Lake Village subdivision. The court noted that the Wengerds' failure to perform due diligence was to their detriment, and determined that they were responsible for the assessments.
 
In affirming the trial court's decision, the court noted that the Act specifically authorizes associations to "adopt by-laws, rules, regulations, and budgets for revenues and expenditures, as well as collect assessments for common expenses." In this case, the association's bylaws allowed the association to levy assessments and provide that all members must pay those assessments.

©2006 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

Association's Refusal to Grant Approval for Architectural Alterations Is Capricious and Arbitrary

Rankin v. Covington Oaks Condominium Owners Association Inc., No. 04-04-00861-CV, Tex. App., Ct. Nov. 23, 2005

Covenants Enforcement/Powers of the Association/Architectural Control: A Texas appeals court granted a declaratory judgment and attorney's fees to owners whose requests to modify their condominium units were arbitrarily denied by the association.

Michael Rankin and Suzanne Farrer own adjacent condominium units in Covington Oaks Condominium, in San Antonio, Texas. On Dec. 8, 2002, in accordance with the procedures outlined in the Condominium Declaration for Covington Oaks, Rankin and Farrer applied to the architectural review committee of Covington Oaks Condominium Association ("association") for approval to construct fire doors between the utility rooms of their two units and to install insulation and radiant barrier paint in their shared attic space. The proposed modifications did not affect any other unit and were not visible from outside the units. All parties agreed that the requested modifications would not affect electrical, pipes, utilities, or structural supports of the condominium. 

Covington Oaks' condominium declaration provides that "If two (2) owners of adjoining residential units so agree, then such Owner or Owners shall have the right, with the prior written approval of the Board of Managers,...to remove all or part of any intervening partition or floor to create doorways or other openings in such partition or floor...." 
 
On Jan. 20, 2003, the board denied the requests without explanation. On Feb. 12, 2003, after their attempts to contact the condominium's manager failed, Rankin and Farrer sent the association's attorney a request that the board's decision be reviewed. Once again, their applications were denied without explanation. Rankin and Farrer sued the association, requesting a declaratory judgment. Although the association raised several construction issues during discovery prior to trial, it failed to investigate or substantiate any concerns it may have had, and testimony at trial evidenced that the board did not feel any explanation was necessary for its denial of Rankin's and Farrer's petitions.  The board's representative stated that the association's position was that the board had the authority to deny the claim regardless of documentation presented by Rankin and Farrer. 

The jury found that the association acted arbitrarily, capriciously, or discriminately in denying Rankin's and Farrer's requests for improvements but made no award of damages or attorney's fees. Following the jury verdict, the association filed a motion to enter judgment or, alternatively, judgment notwithstanding the verdict. Rankin and Farrer sought a judgment based on the jury's findings in their favor and attorney's fees. After considering the post-trial motions, the trial court entered a take-nothing judgment in favor of the association and denied the requested attorney's fees. Rankin and Farrer appealed. 

The appeals court observed that an individual's right to use his or her property in whatever manner he or she may desire is among the most fundamental rights an individual property owner possesses. In its review of restrictive covenants, the court relied on Section 202.003 of the Texas Property Code, which requires liberal construction of restrictive covenants to effect to their purpose and intent, and, citing Texas case law, stated that the courts strictly construe covenants "against the party seeking to enforce it in favor of the free and unrestricted use of the premises."  

The appeals court also referred to the Texas Declaratory Judgments Act, which provides that persons whose rights, status, or other legal relations are affected by any instrument, statute, municipal ordinance, contract, or franchise have a right to have a court determine questions of construction or validity arising under that instrument and to obtain a declaration of rights, status, or other relations thereunder, the purpose of the declaratory action being "to establish existing rights, status, or other legal relationships." The court further stated that a declaratory judgment applies whenever controversy exists "as to the rights and status of the parties, and the controversy will be resolved by the declaration sought." Because the determination sought by Rankin and Farrer would clearly terminate the uncertainty giving rise to the proceedings, settle the dispute between Rankin and Farrer and the association, and end the controversy, the court determined that a declaratory judgment was appropriate.
 
The association argued that the jury verdicts were in conflict with each other. In its review, the appeals court relied on Bender v. Southern Pacific Transport, 600 S.W.2d 257, finding that if a jury's findings are inconsistent with a trial court's grant of a take-nothing judgment, that judgment constitutes a judgment notwithstanding the verdict, and such a judgment is properly granted only if no evidence supports an issue or if the evidence establishes an issue as a matter of law. Considering the evidence in the light most favorable to the jury findings, the jury findings must be upheld and the judgment reversed if any evidence supports the jury findings. The appeals court has a duty to harmonize jury findings when possible and reconcile conflicts in the jury's finding. This appeals court found that a trial court abuses its discretion when it refuses to award attorney's fees despite sufficient evidence to show that the fees are reasonable, necessary, and equitable as a matter of law.

The Texas Uniform Condominium Act provides that prevailing parties in suits to enforce declarations are entitled to reasonable attorney's fees and costs of litigation from the other party. Because the jury found that the association acted in an arbitrary, capricious, or discriminatory manner by denying Rankin's and Farrer's requests, the appeals court found they were entitled to an award of attorney's fees. The court reversed the trial court's take-nothing judgment, rendered a declaratory judgment in favor of Rankin and Farrer, and remanded the matter to the trial court for a determination of reasonable attorney's fees consistent with its opinion.

Editor's Observation: In my opinion, this case illustrates why there is agitation to curb boards of directors. Why deny that which the documents seem to permit? Why give no explanation? What was the attorney's role?

©2006 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

Association Has No Duty to Purchase Earthquake Insurance

Rubin v. Juanita Shores Condominium Owner's Association, No. 53677-0-I, Wash. App. Ct., Nov. 21, 2005

Risks and Liabilities: Because a condominium's declaration did not explicitly require the owner's association to purchase earthquake insurance, the association was not required to do so. Furthermore, without any requirement to purchase earthquake insurance, the association only had to exercise reasonable care in purchasing earthquake insurance.

Melvin Rubin purchased a unit in the Juanita Shores Condominium, in Kirkland, Washington, on Nov. 1, 2001. Knowing that a February 2001 earthquake had caused some damage at Juanita Shores and that a local fault line had recently been discovered, Rubin sued the Juanita Shores Condominium Owner's Association ("association") in September 2002, alleging that its insurance policy was inadequate. Rubin claimed: (1) that the association failed to comply with the condominium declarations in purchasing earthquake insurance; (2) that the association breached its fiduciary duty in failing to purchase adequate insurance; and (3) that the association either negligently or intentionally purchased inadequate insurance. Rubin asked the court to order the association to obtain the insurance coverage ostensibly required by the declarations, and to obtain earthquake and other insurance providing for full replacement cost. 

The association denied the allegations and counterclaimed, alleging that Rubin failed to pay a special assessment and an increase in his monthly fees. The association sought a judgment for the unpaid amounts, enforcement of its lien, and attorney's fees. The association also moved for summary judgment on Rubin's claims, asking the court to dismiss them and to impose sanctions against Rubin. The court granted the motion for summary judgment but denied the request for sanctions and entered a judgment for the association of $14,142.83 (including attorney's fees). Rubin appealed, and the association cross-appealed from the denial of its request for fees. 

The court stated that because the language of the declarations did not require the association to purchase earthquake insurance, the declarations do not create a duty to purchase adequate earthquake insurance. The declarations required the association to carry fire and casualty insurance, but the court noted that fire insurance was property insurance, and not fire or casualty insurance. Even had the association been required to purchase earthquake insurance, the court stated that Rubin had failed to present admissible evidence that the policy purchased by the association was inadequate.

With regard to Rubin's contention that the insurance purchased by the association did not meet the declarations' requirement that the company providing the policy possess an "AAA" rating by Best's Insurance Reports ("Best's"), the trial court had concluded that -- because Best's highest rating was "A++" and the company did not use the "AAA" rating -- the declarations' requirement could not be enforced, and that absent an enforceable provision, the association's duty was to exercise reasonable care in choosing an insurance carrier. The appeals court affirmed the trial court's dismissal of Rubin's claims regarding the adequacy of the insurance the association purchased.

The court also affirmed the trial court's granting of the association's motion for summary judgment on its counterclaims. The court made no determination as to whether the attorney's fee award ($10,000 of the $14,142.83 judgment) was reasonable because it was unclear how the trial court actually arrived at that figure, and remanded the case for reconsideration and entry of findings. The court affirmed both the trial court's conclusion that Rubin was entitled to make a good-faith argument that punitive damages be allowed and the denial of the association's motion for sanctions. Finally, the court granted the association's request for an award of fees for that portion of the proceedings related to the foreclosure of the association's lien for Rubin's unpaid assessments.

©2006 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

 

6402 Arlington Blvd. | Suite 500 | Falls Church, VA  22042 | (888) 224-4321
This e-mail was sent to inform you of CAI products, services or events.
For more information, please visit www.caionline.org.
Change your e-mail address