December 2006
In This Issue:
Association Must Comply With Law Regarding Official Records
Judicial Sale Divests Association of Its Lien for Unpaid Dues and Assessments
Board Has Authority to Adopt Rules Based on Broad Intent of Declaration
Arizona Law Prohibits Distributing Assessments Directly to Members
Board Member's Racial Slur Does Not Support Racial Discrimination Case Under Fair Housing Act
Homeowners Are Not Third-Party Beneficiaries Under Management Contracts
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Association Must Comply With Law Regarding Official Records

Hobbs v. Weinkauf, No. 2D04-4806, Fla. Dist. Ct. App., Aug. 25, 2006

Association Operations: A condominium association that kept summary accounting records rather than individual accounting records for each unit violated the Florida Condominium Act.

Melvin and Suzanne Hobbs are trustees of the Hobbs Revocable Trust, which owns a unit at Grenelefe Condominium. The Hobbses sued Grenelefe Association of Condominium Owners No. 1 Inc. ("association") and several members of the association's board, asking the court to require the association to comply with a provision of the Florida Condominium Act ("Act") that requires associations to maintain records for individual units. Specifically, the Hobbses claimed that the association violated the following provision:

A current account and a monthly, bimonthly, or quarterly statement of the account [must be kept] for each unit, designating the name of the unit owner, the due date and amount of each assessment, the amount paid upon the account, and the balance due.

The Act also authorizes unit owners to sue associations that don't maintain such records. The trial court ruled in favor of the association and board members, and the Hobbses appealed. The trial record included an affidavit by the general manager of the association, on which the Hobbses relied, that stated:

The association does not maintain an individual account for each unit owned by Sports Shinko [a golf-course management company].  The association does maintain a summary for all units owned by Sports Shinko, which would show what was invoiced to and paid by Sports Shinko on account of all its units and the total balance owed by Sports Shinko.

On appeal, the association and board members maintained that, although the association didn't keep a separate account for each unit, its summary accounting records sufficiently complied with the Act. The appeals court disagreed, stating that although information about a specific unit might be deduced from the summary accounting records, that was not enough to establish that the Act's requirement was met. The court noted that the Act was written to ensure that associations maintain "readily understood and accessible" records with respect to individual units.
 
The court also rejected the association's contention that the trial court's decision should be upheld because no harm was done, stating that a violation of the Act's requirements was a harm in itself, for which the Act authorizes injunctive relief. The court ruled that the trial court erred in granting the association's motion to dismiss, reversed the trial court's decision, and remanded the case for further proceedings consistent with the court's opinion.

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

Judicial Sale Divests Association of Its Lien for Unpaid Dues and Assessments

Pike County Tax Claim Bureau v. The Internal Revenue Service, 902 A.2d 603 (Pa. Cmwlth. 2005)

Assessments/Powers of the Association/State and Local Legislation and Regulations: An association can't refuse to issue building permits to purchasers of property sold at judicial sale due to unpaid association dues and assessments.

In November 2004, the Pike County Tax Claim Bureau ("bureau") filed a petition for a rule to show cause listing properties to be sold at judicial sale. Nine of the properties were located in the Conashaugh Lakes community, which is governed by Conashaugh Lakes Community Association Inc. ("association"). On Jan. 11, 2005, the association filed an answer as well as a new matter requesting that the trial court permit the judicial sale to proceed, with the understanding that no building permit would be issued for lots sold if dues and assessments were owed to the association. 
 
The trial court ruled that the relief the association asked for could not be granted under the law. The court concluded that, pursuant to Section 5315 of the Pennsylvania Uniform Planned Community Act ("Act"), a judicial sale divests the association of its liens for unpaid dues and assessments, and that survival of the association's liens would violate the Act. The court further concluded that the association's withholding a building permit for a prior owner's failure to pay dues and assessments would interfere with the purchaser's absolute title to the property and fee ownership.   
 
The new property owner must abide by the rules, regulations, and bylaws of the association as to all future fees associated with the property. However, the court stated that placing restrictions on the property because of prior owners' actions and refusing to issue a building permit until outstanding dues and assessments were paid was tantamount to legal blackmail. The association appealed.
 
Section 5315 of the Act was amended on Jan. 31, 2005. A pertinent section in effect at the time this proceeding commenced reads as follows:

(2) Limited nondivestiture. The association's lien for common expenses shall be divested by a judicial sale of the unit:

 (i) As to unpaid common-expense assessments made under Section 5314(b) (relating to assessments for common expenses) that come due during the six months immediately preceding institution of an action to enforce collection of a lien against a unit by a judicial sale, only to the extent that the six months' unpaid assessments are paid out of the proceeds of the sale.

 (ii) As to unpaid common-expense assessments made under Section 5314(b) other than the six months' assessment referred to in subparagraph (i), in a full amount of the unpaid assessments, whether or not the proceeds of the judicial sale are adequate to pay these assessments. To the extent that the proceeds of the sale are sufficient to pay some or all of these additional assessments after satisfaction in full of the costs of the judicial sale and the liens and encumbrances of the types described in paragraph (1) and the unpaid common-expense assessments that come due during the six-month period described in subparagraph (i), the assessments shall be paid before any remaining proceeds may be paid to any other claimant, including the prior owner of the unit.

The court limited its review to determining whether the trial court abused its discretion, clearly erred as a matter of law, or rendered a decision with a lack of supporting evidence. In its appeal, the association contended that certain property owners avoided paying dues and assessments by allowing their property to be sold at judicial sale. In one situation, the property owner held the lot for a period of time and failed to pay real-estate and county taxes. The owner allowed another family member not living with the owner to buy the property at judicial sale. Another situation occurred in which an owner sold a lot to another individual and held a mortgage on the property. The purchaser failed to pay real-estate taxes and then conveyed the property back to the prior owner, who did not record the deed. The association and the bureau took action only against the second owner, and the first owner avoided paying dues, assessments, and taxes on the lot. In such situations, the association argued, the same properties were continually sold at judicial sale, and the association was never able to collect delinquent dues and assessments. 
 
The association requested that prospective purchasers be advised that the properties sold were bound by the association's bylaws, rules, and regulations, and if a property were subject to unpaid dues and assessments, a building permit would not be issued until those fees were paid. The association proposed that it would accomplish this by meeting with new owners to reach resolutions on outstanding dues and assessments.  The association conceded that under the Act, its liens are divested by judicial sale, but it expressed a desire to control the purchase of lots so that individuals could not continue to buy properties and hold them in inventory. 
 
The association's Property Improvement and Building Code provides that an owner cannot present plans to the Design/Review Strategic Planning Committee unless all dues and assessments have been paid, and that a building permit will not be issued if dues and assessments on the property are unpaid. The association's position was that refusal to take a requested action that would affect property is not the same as taking control of the property or enforcing a lien against it. The bureau argued that it had no duty, responsibility, or authority under the law to enact the association's proposals. Further, it argued that the association's standard was too vague and speculative to enforce and that the survival of the association's liens beyond the judicial sale would have a chilling effect on future judicial sales in the community. 
 
The court interpreted the Act to mean that the association's lien for common expenses against property in the community would be divested by a judicial sale of the property. Any of the association's expenses that were due six months prior to the sale would be satisfied after payment of costs of the sale, liens and encumbrances recorded before the declaration, first mortgages or deeds of trust recorded before the dues were assessed, delinquent taxes, and any government assessments or charges. If any proceeds remained, the rest of the association's lien would be paid. The court also determined that Pennsylvania's Tax Sale Law contemplates the divestiture of all liens, with no exception, when a property is exposed to a judicial sale." 
 
The association offered no statutory or case-law authority to support its request. The court found it evident that the association was attempting to retain its lien on the property after it was sold at judicial sale, violating not only the Act but Tax Sale Law as well. Because the court found no error of law or abuse of its discretion in the trial court's decision to deny exceptions to the judicial sale of properties in the association's community, the court upheld the trial court's decision.

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

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Board Has Authority to Adopt Rules Based on Broad Intent of Declaration

Weldy v. Northbrook Condominium Association Inc., 279 Conn. 728, 904 A.2d 188 (2006)

Powers of the Association: The Connecticut Supreme Court ruled that a condominium association's board of directors has the authority to adopt rules that go beyond the provisions of the condominium declaration.

After three years of litigation, on Sept. 5, 2006, the Connecticut Supreme Court ruled on Weldy v. Northbrook Condominium Association Inc. In its decision, the court analyzed the extent of a condominium association's board of directors' authority to adopt rules and regulations in the governance of a condominium.  In reversing an appeals court decision, the court reaffirmed the board's authority to adopt rules that carry out the intent of broad provisions in the condominium's governing documents.  This was a case of first impression in Connecticut and is one of only a handful of cases throughout the country in which the extent of a condominium board's authority to adopt rules is discussed.
 
After the Northbrook Condominium Association Inc.'s ("association") board adopted a rule limiting the length of pet leashes to 20 feet, unit owners Thomas and Elizabeth Weldy sued the association.  The Weldys claimed that the leash rule constituted an amendment to the condominium's declaration, which provided, in pertinent part, that all pets must be restrained by a leash but in no way prescribed leash lengths.  In response, the association asserted that the board was authorized to adopt the leash rule, and that it did not need to proceed with an amendment process for its passage because the leash rule merely carried out the intent of a broad dictate in the declaration and properly regulated the use of common elements.
 
Initially, the Weldys applied for a temporary injunction to prevent the association from enforcing the leash rule. The trial court denied that application, holding that the leash rule was not an amendment to the declaration, but a rule that was properly promulgated by the association's board because it gave meaning to the declaration's policy that all pets must be restrained. The parties then moved for summary judgment, and the trial court again found in favor of the association. The trial court relied on two well-known community association cases in its decision. In Meadow Bridge Condominium v. Bosca, 187 Mich. App. 280 (1990)(CALR February 1991), a Michigan appeals court defined a rule or regulation as a tool to implement existing law and an amendment as something that changes existing law. In Beachwood Villas Condominium v. Poor, 448 So. 2d 1143 (Fla. Dist. Ct. App. 1984)(CALR October 1984), a Florida appeals court determined that if a rule does not contravene an express provision in a declaration or a right that can be inferred from the declaration, it is valid and is within the board's authority to enact. Applying those standards, the trial court found that the association's board properly adopted the leash rule.
 
The Weldys then appealed the trial court's decision to a Connecticut appeals court. Acknowledging that there is a "dearth of Connecticut case law addressing the propriety of condominium board rule-making," the appeals court looked to decisions of other jurisdictions. After applying the tests set forth in Meadow Bridge and Beachwood Villas, and relying on two other cases, Mohnani v. La Cancha Condominium Association Inc., 590 So.2d 36 (Fla. Dist. Ct. App. 1991) and 560 Ocean Club L.P. v. Ocean Club Condominium Association, 133 B.R. 310 (Bankr. D. N.J. 1991), the appeals court reversed the trial court's finding, deciding that the leash rule amended the declaration. The appeals court noted that the declaration's leash provision, which simply required that all pets must be restrained by a leash, was not ambiguous and needed no clarification. Any limitation on leashes would have to be made through an amendment to the declaration.
 
The Connecticut Supreme Court then granted the association's petition for certification, and in its Sept. 5, 2006, decision reversed the appeals court's decision. In its decision, the court emphasized that a condominium association's power should be "interpreted broadly." It reaffirmed the test, as set forth in Beachwood Villas, that a board-enacted rule that does not contravene either an express provision of the declaration or a right reasonably inferable therefrom would be found valid. The court found that the leash rule properly carried out the intent of the pet policy in the declaration by giving meaning to the word "restrained."
 
The import of this decision for condominium governance is quite significant. The appeals court's decision, in finding that the leash rule was not properly promulgated, dangerously limited a condominium board's authority to adopt rules and regulations to enforce and give meaning to broad dictates of a condominium declaration, and also unreasonably limited a condominium board's authority to regulate the use of a condominium's common elements. The appeals court's decision potentially had an impact on the propriety of existing rules and regulations of every condominium in Connecticut. If an association board could not adopt rules to give meaning to a declaration provision, then its rulemaking powers would be overwhelmingly curtailed, and it would be forced to undertake laborious, and often costly, amendment procedures to effect basic rules for governance.
 
After the appeals court decision was rendered, Northbrook Condominium Association could easily have attempted to pass the leash rule through an amendment process. In the end, however, it chose to raise this case to the Connecticut Supreme Court, because the board members knew the issue was not about leashes but was about fundamental issues of condominium governance. Ultimately, in validating a condominium board's authority to adopt a leash rule, the court clarified and reaffirmed a condominium board's rulemaking authority.

 Editor's Observation: [This article was provided by Ari Hoffman, an associate at Cohen and Wolf, P.C., in Bridgeport, Connecticut.]

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

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Arizona Law Prohibits Distributing Assessments Directly to Members

Haines v. Goldfield Property Owners Association, 477 Ariz. Adv. Rep 17 (Ariz. App. 2006)

Assessments: Under Arizona law, distribution of association funds is not permissible unless the funds are held in trust by the association for its members.


This case arises from an assessment that Goldfield Property Owners Association ("association") collected from its members. The special assessment of $100 per acre was levied to pay for the installation of an electrical distribution system. Most of the Goldfield Ranch property had electrical extensions installed; however, a portion of the property owned by Fountain Foothills was not included in the installation. It was determined that the type of electrical line that was being used would not be compatible with Fountain Foothills' property development plan. As a result, Fountain Foothills and the association agreed that the association would pay the estimated cost of installing the electrical extensions on the property and then would be relieved of performing the installation. After the association's board approved that agreement, Randolph and Kathleen Haines (homeowners in Goldfield Ranch) sued the association to prohibit the payout, alleging that it was illegal under Arizona statute to disperse excess assessment funds.
 
Specifically, the Haineses claimed that an Arizona statute prevented nonprofit corporations from making any distributions. The statute defined "distributions" as a corporation's direct or indirect transfer of money or other property or incurrence of indebtedness to or for the benefit of its members in respect to any of its membership interest. The association, however, argued that the payments were not distributions but instead were repayments of funds held in trust by the association on behalf of its members. At the trial-court level, the court ruled in favor of the association, and the Haineses appealed. [The appeals court disagreed with the trial court because evidence suggested that a trust may have been formed to hold the assessment, in which case it would be proper to return the money.]
 
The court determined that a genuine issue of material fact existed as to whether a trust was created.  Essentially, the proper elements of a trust include a "competent settler and a trustee, clear and unequivocal intent to create a trust, ascertainable trust res, and sufficiently identifiable beneficiaries." In this case, evidence both supported and rejected the concept that a trust was created.
 
To support the proposition that a trust was created, the association's board deposited assessment funds in a separate account and specifically instructed the bank that the association's access to the funds was limited to paying for electrical extensions. The association also informed members that the assessment funds were held in a trust-fund account and stated that the account's use was restricted only to financing electrical extensions. 
 
On the other hand, the association's minutes made no mention of holding the special assessment funds in trust. Additionally, the bank's instructions did not include terms that denoted the intent to form a trust; nor did the association refer to the special assessment funds as being held in trust, which is necessary to fulfill the intent requirement for a trust to be created. As a result of the inconclusive evidence as to whether a trust had been formed, the court remanded the case for a factual determination of whether or not a trust was created. If the trial court determines that the elements of a trust are present, then the returned assessments would be appropriate. If, however, the trial court decides that no trust was created, then the distributions would be unauthorized and would violate the statute.

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

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Board Member's Racial Slur Does Not Support Racial Discrimination Case Under Fair Housing Act

Walton v. Claybridge Homeowners Association Inc., No. 06-1914, U.S. App. Ct., 7th Dist., Aug. 2, 2006

Federal Law and Legislation: A U.S. appeals court affirmed a district court's grant of summary judgment to an Indiana homeowner association and several of its members who were accused of racial discrimination.


In January 2000, Deborah Walton purchased a home in Carmel, Indiana, governed by Claybridge Homeowners Association Inc. ("association"). In January 2003, she sued the association and 11 residents of her predominantly white subdivision, alleging that they had harassed her since she moved into her home because she was black and claiming that they violated her rights under the Fair Housing Act ("Act"). 
 
The Act makes it unlawful "to coerce, intimidate, threaten, or interfere with any person in the exercise or enjoyment of" rights protected under the Act. The association asked the court to dismiss the complaint for failure to state a claim, arguing that while the Act addresses discriminatory practices that thwart purchases of homes, it does not provide a cause of action for discriminatory practices that occur after the purchase of a home. 
 
The district court found that the Act does prohibit racial harassment after a home has been purchased and denied the association's motion to dismiss. In Walton's affidavit, she set forth several incidents, which were spread over a period of 30 months. The first incident began with an unsolicited quote for lawn-care services placed in her mailbox in February or March 2000.  When she called the company for an explanation, the owner said that the association wanted to "get rid of her" because she was a renter. 
 
A year later, a speed-limit sign was initially placed near the home of one of the white owners, but when that owner asked that it be moved, it was placed on a utility easement located next to her house.  When Walton requested that it be moved, the association refused. When Walton moved the sign herself, the association sued to enjoin her from interfering with the sign. A dispute over the location of a decorative wooden fence and brick wall at the entrance of the subdivision that abuts Walton's property led her to call the police when surveyors hired by the association to confirm that the wall and fence were located on an easement maintained by the association reportedly yelled at her to go back into her house. The association sought an injunction prohibiting Walton from interfering with the location and maintenance of the wall and fence. 
 
The last major incident contained in Walton's affidavit occurred in the fall of 2002 when the association hired workers to put down mulch in the subdivision. When they approached Walton's property, there was a confrontation, and she ordered them to leave. The confrontation was witnessed by a landscaper working in Walton's yard and by an association board member. The landscaper testified in his affidavit that, as he was leaving, the board member walked by him and said, "There is more than one way to lynch a nigger." 
 
At the hearing for summary judgment, the association argued that the Act does not provide for a claim of post-acquisition discrimination. The district court disagreed but granted summary judgment because Walton failed to provide a genuine issue of fact. Walton appealed.
 
The appeals court found that Walton had presented enough evidence against several residents and the association to preserve her argument for an appeal. The court further stated that Walton must show on appeal that 1) she is a protected individual under the Act; 2) she was engaged in the exercise or enjoyment of her housing rights; 3) the defendants were motivated in part by an intent to discriminate; and 4) the defendants coerced, threatened, intimidated, or interfered with her because of activity protected under the Act. 
 
The court noted that during the trial Walton failed to present any direct evidence that the association and the owners engaged in intentional discrimination. Nor could she show that her white neighbors were similarly situated and treated more favorably. The court found that the association sued Walton over the wall and fence but offered uncontradictory evidence that she interfered with the association's easements by attempting to dismantle the wall and preventing the association from maintaining the fence. The court then addressed the purported comment by the  board member that was overheard by the landscaper. The board member denied making the statement. 
 
The association argued that the remark did not rise to the level of coercion, interference, or intimidation necessary to sustain a claim under the Act. The court noted in East-Miller v. Lake County Highway Department, 421 F3d 558 (7th  Cir. 2005), that racial slurs can create an inference of race discrimination but emphasized that there is a difference between a pattern of harassment and an isolated act. The court stated that Walton could not prevail at trial on the board member's remark alone. It found that the remark was simply too attenuated to support a connection between the remark and the association's actions. The court concluded that "an isolated racial or religious slur made in the context of a neighborhood quarrel does not a federal discrimination case create" and affirmed the district court's decision.

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

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Homeowners Are Not Third-Party Beneficiaries Under Management Contracts

Greenacre Properties Inc. v. Rao, 933 So. 2d 19 (Fla. Dist. Ct. App. 2006)

Contracts/Association Operations: A management company cannot be sued by a homeowner as a third-party beneficiary to an association's management agreement because the management company is the indemnified agent of the association.

Radhakrishna Rao and his wife own a home and reside in the Van Dyke Farms Homeowners' Association ("association"). In 1992, the association contracted with Greenacre Properties ("Greenacre"), a management company, to manage the association and its common facilities.  Greenacre was specifically charged with maintaining the association's official and financial records. 
 
In 1999, the association sued the Raos because of alleged violations of deed restrictions governing their home. Rao responded that the association was selectively enforcing the restrictive covenants against him. Greenacre was not a party to the suit. In October 2000, while the suit was pending, Rao contacted Greenacre and asked to review all the association's files for the period of January 1998 through November 2000. When Rao went to Greenacre's office to review the records in November, he was only permitted to review the association's "official records," as defined in Chapter 720, Florida Statutes (2000) ("Act"), which regulates homeowner associations.   
 
The trial judge dismissed the association's complaint and rejected Rao's claims of selective enforcement. The judge stated that the protracted litigation between the parties was the result of a misunderstanding and should be resolved between them. The judge concluded that Rao was the prevailing party and was entitled to attorney's fees in accordance with the Act.
 
In January 2001, while the original lawsuit between Rao and the association was still pending, Rao sued Greenacre, alleging that it had breached its contract with the association based on the theory that Rao had rights under the contract as a third-party beneficiary. Rao claimed that Greenacre breached the contract by failing to produce records for his inspection, by failing adequately to maintain the records, and by failing to provide him with required notices. Rao further alleged that Greenacre's failure to provide certain notices to him resulted in damages, as well as emotional stress and physical hardships.
 
It became clear as the case progressed that Rao was trying to recover $30,000 in attorney's fees he had been denied as damages in the original lawsuit. At trial, Rao asserted that the association's claim in the 1999 trial was unfounded and based on faulty information that Greenacre had provided. Rao testified about an incident in 2000 when Greenacre denied him access to certain association records. He testified that he suffered severe emotional distress as a result of the association's suit. He said he missed 17 days of work for hearings, depositions, and inspections related to the suit and seven additional days due to rescheduling. He stated he normally earned $275 per hour. However, he did not identify any specific document that he was not shown that would have affected the outcome of the association's suit. 
 
The trial court concluded that Rao was a third-party beneficiary to the management contract between Greenacre and the association and that Greenacre had breached the contract. It awarded Rao $9,300-- $500 in statutory damages and $8,800 in damages for lost earnings--determining that Greenacre had been negligent in fulfilling its duties to Rao concerning the association's records. Greenacre appealed. 
 
The appeals court judge ruled that, because the association had a contractual obligation to indemnify Greenacre in this case, it appeared that Rao might have sued to obtain damages from the association that he didn't successfully recover in the first trial. Under the Act, homeowner associations have certain powers and duties and must maintain certain records, but typically contract with management companies to fulfill some of those duties. Although the contracts may provide incidental benefits to homeowners, they are not intended to benefit the owners directly. 
 
Although the agreement between the association and Greenacre states that the association's records should be available for inspection by association members during normal business hours, Greenacre is ultimately responsible to the association's board regarding management and operation of the association. Under the contract, the association agreed to indemnify Greenacre as its agent. 
 
The judge stated that, as a general rule, a person who is not a party to a contract cannot sue for breach of contract, even if the person receives some incidental benefit from the contract. A third party must establish that the contract expressly creates rights for that third party or primarily and directly benefits the third party. Citing Clearwater Key Association v. Thacker, 431 So. 2d 641 (Fla. Dist. Ct. App. 1983), the court noted that the association's contract with Greenacre did not create express rights for homeowners because Greenacre performed a function primarily for the association to ensure that the association fulfilled its legal obligations under the Act.   
 
The court disagreed with the interpretation of the case law the trial court relied on in determining that Rao was a third-party beneficiary of the contract between the association and Greenacre. It found that the facts of the case illustrated that the association instructed Greenacre, as its agent, to withhold certain documents from Rao. Therefore, the court determined that Greenacre acted as the association's agent. When the association ordered Greenacre not to disclose the documents, Greenacre was required to obey that instruction. 
 
The appeals court determined that whether the documents were subject to production was a matter between Rao and the association and not a matter Rao could directly enforce under third-party rights. Accordingly, the court found that the trial court erred in its judgment as a matter of law when it concluded that Greenacre had breached a contractual duty owed to Rao. 
 
The trial court's judgment awarded $500 in statutory damages for Greenacre's failure to comply with the Act that addressed an association's obligation to maintain official records that are available for inspection by its members. The Act states that "a member who is denied access to official records is entitled to the actual damages or minimum damages for the association's willful failure to comply" with a specific section of the Act. "Minimum damages" are defined as $50 per day for a maximum of 10 days. However, the court noted that Greenacre did not meet the definition of a homeowner association subject to penalties contained in the Act, and that Rao would have to sue the association directly to recover damages for the statutory violation. Rao's complaint that Greenacre's negligence in maintaining the association's records resulted in unspecified damages, emotional stress, and physical hardships did not allege that Greenacre breached any traditional standard of care in negligence that resulted in bodily injury or property damage. The trial court's judgment contained a paragraph in bold font, in which the court noted that Rao did not present evidence to prove that he suffered either a physical injury or illness that manifested itself as emotional distress. Thus, Rao was barred from recovering damages for emotional distress. However, the court upheld the $8,800 judgment awarded to Rao for lost earnings.  
 
The appeals court also took issue with the trial court's judgment over the interpretation of the "impact doctrine," which is explained in many cases as a rule that prevents the award of monetary damages for a party's "emotional distress" while permitting recovery for other types of damages. Under this doctrine, a plaintiff must provide proof of a physical injury or illness in order to recover any damages for negligence. 
 
In the appeals court's opinion, the impact doctrine prevented the award of damages for Rao's lost earnings because the claim did not allege bodily injury or property damage. The court stated that a negligence claim for economic loss is recognized only in very limited circumstances. The judge also noted that Greenacre was not negligent by any breach of fiduciary duty. Because the court found that Rao failed to present evidence to support a valid cause of action against Greenacre, it reversed the trial court's decision and instructed the trial court to enter judgment in favor of Greenacre on remand.

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

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