December 2007
In This Issue:
Dog Park Violates "Residential Purposes Only" Deed Restriction
Notice of Pending Sale to Adjacent Owner Must Be in Writing
Resident Must Sue Co-Tenants, Not Association, for Bad Behavior
Insurer's Decision to Deny Claim Reasonable
Associations Not Protected Under California's Anti-SLAPP Statute
Association that Steps into Developer's Shoes Has Authority to Sue Manufacturer
Amenities Classified as "Common Area" for Tax Purposes
Unit Owner Entitled to Two Parking Spaces because Parking Easement Not Abandoned
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Dog Park Violates "Residential Purposes Only" Deed Restriction

Bloomfield Estates Improvement Association, Inc. v. City of Birmingham, 479 Mich. 206, 737 N.W. 2d 670 (2007)

Covenants Enforcement: A deed restriction limiting use to "Residential Purposes Only" prevented a municipal government from building a dog park on the lot.

Deed restrictions were recorded on lots in the Michigan subdivision, Bloomfield Estates, in 1915.  Lot 52, the area of concern for this case, was one of the lots on which the deed restrictions were recorded. In 1928, Bloomfield Township purchased Lot 52 and other restricted lots that were later used to comprise a 55-acre park it administered. In 1938, the restricted lots that comprised the park, including Lot 52, were conveyed to The City of Birmingham. In 1941, the Bloomfield Estates Improvement Association, Inc. ("association") was formed to enforce the deed restrictions on behalf of owners in Bloomfield Estates.

From the time Lot 52 was made a park, it had been used for a variety of park-related activities.  Several times over the years, the association asked the township to refrain from using the restricted lots for noisy activities (e.g., baseball games) or from using a building that violated the restrictions. Each time, the township responded positively. In 2003, the association was made aware of the city's plans to use Lot 52 as a "dog park," a fenced area where dogs can roam unleashed. Despite the association's protest, the township built the dog park in 2004, and the association sued the City of Birmingham to enforce the deed restriction.

The city argued that the association had waived its right to enforce the deed restriction and the trial court agreed, stating that the use of Lot 52 as a dog park constituted a "residential" use. The association appealed, and the appeals court reversed the decision, stating that "use of Lot 52 as part of a municipal park violated the deed restriction irrespective of whether part of it is fenced off as a dog park." The city contended that because Lot 52 had been used as a municipal park for 75 years, equity no longer permitted the association to enforce the deed restriction. However, the court disagreed, stating that since the dog park constituted a "more serious violation of the deed restrictions," the association had a right to challenge that use.

The association appealed to the Michigan Supreme Court based on a split decision by the appeals court. The dissenting appeals court judge opined that use of Lot 52 as a dog park could not be objected to now. That judge noted that common sense would suggest that people had brought their dogs to the park during those 75 years and that use of the lot as a dog park now did not constitute a "more serious violation of the deed restrictions."

The Michigan Supreme Court first analyzed the deed restriction that provided that lots in Bloomfield Estates were to be used for "strictly residential purposes only." The Supreme Court looked both to case law and to a dictionary to define "residential" as referring to homes where people reside. The court determined that the restricted lots could be used only for residential purposes and that, therefore, Lot 52 could not be used as a park, let alone a dog park.

The city maintained that even if the deed restriction was violated by using Lot 52 as a dog park, the association could not enforce the restriction due to its acquiescence to prior violations of the restriction. The association contended that it had the right to enforce the restriction against the dog park even though it never contested using Lot 52 as a park. The Supreme Curt noted that when it examines whether prior acquiescence to a violation of a deed restriction prevents contesting a current violation, the court compares the character of the two violations. If the current violation is more serious, the former acquiescence is overlooked. In this case, the Supreme Curt determined that the dog park was a more serious violation of the Bloomfield Estates deed restriction.

Interestingly, Justices Kelly and Weaver wrote a dissenting opinion, discounting the majority's decision as flawed because it ignored the Supreme Court's long-established principle of construing deed restrictions in favor of the free use of property. The dissenting justices noted that the use of Lot 52 as a park violated the deed restriction for over 70 years and that the majority's opinion essentially allowed the association to choose which nonconforming use it objected to and which it ignored. Calling the decision "a doggone shame," the dissenting judges also noted that the decision marked a "howling" defeat for Birmingham's carnivores. The Supreme Court affirmed the appeals court decision that use of Lot 52 as a park and as a dog park violated the deed restriction that limited the use of Lot 52 to "strictly residential purposes only." The court also affirmed the decision that despite the association's failure to contest the use of Lot 52 as a park, the use of Lot 52 as a dog park constitutes a "more serious" violation of the deed restriction.

Editor's Observation:  The city was clearly barking up the wrong tree.

©2007 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

Notice of Pending Sale to Adjacent Owner Must Be in Writing

Blue Ridge Bank and Trust Co. v. Trosen, 221 S.W.3d 451 (Mo. App. 2007)

Sales and Leases: A declaration's provision that owners of lots adjoining a lot offered for sale be afforded a 15-day written notice must receive written, not merely actual notice.

In 1977, Donald Allen, Sr. bought Lot W-2 at Lake Lotawana, Missouri. The lot was subject to a declaration of restrictions. The declaration was enforced by the Lake Lotawana Association, Inc. ("association"). The declaration afforded the association and adjacent lot owners a preemptive right to purchase lots in the subdivision. Specifically, the declaration provided:

No sale, contract to sell, or conveyance of the real estate herein described shall be made or consummated without first giving at least fifteen (15) days written notice to Grantor, and to the owners of the two side adjoining lots, of the proposed sale price and terms thereof; and thereupon the Grantor and/or either of the side adjoining lot owners shall have the first and prior right, option, and privilege during said period of fifteen (15) days to buy said real estate at the same price and upon the same terms. Such written notice shall be personally served, if service can be made on the subdivision. If any person entitled to service cannot be found on the subdivision, notice may be mailed to such person at his last address known to the Grantor. Affidavit of the person making service shall be sufficient evidence thereof.

In October 2004, Allen died testate with Lot W-2 being part of the Donald L. Allen Revocable Trust. The beneficiaries of the trust were Allen's children, Donald Allen, Jr. and Ronda Trosen, and their respective spouses ("beneficiaries"). Allen served as sole trustee of this trust. Subsequent to his death, Blue Ridge Bank and Trust Co. ("trustee") was appointed successor trustee for the trust. The trust instrument directed the trustee to sell Lot W-2 and add the proceeds to the corpus of the trust. The trustee obtained an appraisal in accordance with its fiduciary duty to sell Lot W-2, which valued the lot at $135,000.

Randy and Nancy Hanson owned the lot adjacent to Lot W-2. On February 4, 2005, the Hansons offered to purchase Lot W-2 for $135,000, the amount of the appraisal. On February 7, 2005, the beneficiaries also made an offer to purchase Lot W-2 for the appraised amount. The trustee telephoned the Hansons to inform them of the beneficiaries' offer and to inquire as to whether they would want to bid against the beneficiaries. The Hansons declined, stating they would offer no additional money, and the trustee accepted the beneficiaries' offer.

On February 15, 2005, the trustee sent a letter to the association and the adjacent lot owners informing them of the contract with the beneficiaries on Lot W-2. The sales contract provided for the closing on Lot W-2 to take place on March 1, 2005. The Hansons sent a letter to the trustee asserting their rights under the declaration and demanding the right of first refusal and that the closing date be moved to March 7, 2005, to comply with the requirement of the 15-day notice requirement in the declaration.

On February 16, 2006, the trial court ruled that the Hansons failed to comply with the 15-day notice provision in the declaration as they did not exercise their option to purchase Lot W-2 until more than 15 days after they received actual notice of the proposed sale. Relying on Gateway Frontier Properties, Inc. v. Selner, Glaser, Komen, Berger & Galganski, P.C., 974 S.W.2d 566 (Mo. App. 1998), the court noted that the Hansons had actual knowledge and were not harmed because they did not receive formal notice.

The court further found that the Hansons had received actual notice of the Lot W-2 sale in the February 7, 2005, telephone conversation with the trustee and that actual notice afforded the Hansons the opportunity to invoke their preemptive right provided in the declaration. The 15-day right to preempt the sale ran from the date of the phone call from the trustee on February 7, 2005, and expired prior to the Hansons notifying the trustee of their intent to purchase Lot W-2. The trial court determined that the beneficiaries had the right to conveyance of Lot W-2 as set out in the sales contract, and the Hansons appealed.

In reversing the trial court, the appeals court cited Wildflower Community Association, Inc., v. Rinderknecht, 25 S.W.3d 530, (Mo. App. 2000) which determined that a restrictive covenant is a private contractual obligation generally governed by the same rules of construction applicable to any covenant or contract. In a contract or in restrictive covenants, the parties' intentions must be ascertained and given effect. Unless the contract language is ambiguous, the language of the contract should be used to determine the parties' intent. The Wildflower court also noted that each provision of a contract is to be construed in harmony with others "to give each provision a reasonable meaning and avoid an interpretation that renders some provision useless or redundant."

The appeals court found the restriction provision requiring written notice of the sale of a lot to be clear, unambiguous, and not in conflict with other provisions of the declaration. As such, the notice from the trustee to the Hansons had to be in writing, and actual notice by telephone was not sufficient.

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Resident Must Sue Co-Tenants, Not Association, for Bad Behavior

Gilbert v. Simonka, Nos. S-11470, S-11841, 1282, Alas. Supreme Ct., July 25, 2007

Covenants Enforcement/Use Restrictions: In an unpublished decision, the Alaska Supreme Court affirmed a trial court's decision that a condominium resident should have sued her co-tenants instead of the association for allowing certain bad behavior to continue because there was no actionable claim against the association for "insufficient vigilance."

In October 1989, Lois Gilbert moved into a unit purchased by her mother in Nina Plaza, a condominium located in Anchorage, Alaska. What followed that purchase turned out to be a long series of disputes between Gilbert and the Nina Plaza Condominium Association ("association") as well as many of her neighbors.

Some of the disputes involved repairs to the condo, including two repairs to fix a leaking roof and repairs to and sanding of the unit's porch. Another dispute involved Gilbert parking her car in the courtyard in violation of Nina Plaza rules and walking her dog without a leash, also a violation. Gilbert also filed various complaints with state and federal agencies: with the Alaska Human Rights Commission citing the association's failure to remove snow from Gilbert's porch and driveway, with the federal Department of Housing and Urban Development when the association replaced a metal bar with a fence barring Gilbert from driving into the courtyard to unload groceries, and with the Anchorage Equal Rights Commission for having been forcibly removed from an association board meeting after attempting to record the meeting, and for an allegedly discriminatory action by a towing company for refusing to tow a vehicle that was parked in Gilbert's assigned parking space.

Gilbert also had numerous problems with her neighbors, alleging that they assaulted her on various occasions, rear-ended or otherwise vandalized her car, stole her plants, tampered with her mail and mailbox, and verbally harassed her.

In July 1998, Gilbert sued the association and Steven Simonka, an owner of four rental units at Nina Plaza, alleging wrongful exclusion from ownership privileges and discrimination on the grounds of sex and disability. Nina Plaza and Simonka sued Gilbert and her mother 17 months later, seeking permanently to enjoin Gilbert from residing in Nina Plaza. The two cases were consolidated and scheduled for trial but were dismissed due to the parties' failure to comply with the pretrial scheduling order and lack of preparation for the trial.

In June 2000, Gilbert sued the association again, alleging the same misconduct and adding a new claim for intentional infliction of emotional distress. Because Gilbert failed to serve the second complaint on the association and Simonka, the court dismissed the complaint without prejudice. Gilbert appealed the dismissal of both suits, and the appeals court reinstated both suits and consolidated them. The trial court judge ruled that although the association had allowed certain bad behavior by Gilbert's neighbors to continue for longer than it should have, Gilbert's remedy was to sue her co-tenants and that there was no actionable claim against the association for "insufficient vigilance" in enforcing its regulations. The court found no discrimination on the basis of her disability and required her to keep her dog on a leash and to pick up after the dog.

In March 2004, the association sued Gilbert and her mother, alleging that Gilbert had failed to keep her dog on a leash and pick up after it, asking the court to enjoin Gilbert from occupying the condo and to award it $750 in unpaid fines. In February 2005, the court ruled that because Gilbert's physical condition had deteriorated between the December 2003 trial and the 2005 trial, Gilbert was no longer able to walk her dog on a leash and clean up after it. The judge ruled that a reasonable accommodation could be made and that the association was not retaliatory in filing its lawsuit. Gilbert appealed both decisions.

The Alaska Supreme Court reviewed the trial court's evidentiary rulings and denial of a continuance under the abuse of discretion standard, stating that an abuse of discretion will be found when a party has been deprived of a substantial right or seriously prejudiced by the lower court's ruling. The court determined that the trial judge's granting of a one-day continuance to Gilbert due to a sinus infection was proper and that his decision to require her to proceed to trial after the continuance was not an abuse of discretion. The Supreme Court also affirmed the decision to limit the number and scope of Gilbert's witnesses and the decision not to require the association or its management company to turn over copies of the association's management contract or a videotape made of the inspection of Gilbert's condo (as neither Gilbert nor the association ever offered the tape into evidence).

The Supreme Court noted that the trial court judge provided adequate assistance to Gilbert as a pro se litigant and agreed that there was no legal basis for Gilbert's claims of Simonka's harassment and incitement of his tenants to harass Gilbert and vandalize her property. The Supreme Court also ruled that Gilbert failed to present any evidence of additional damages suffered after an earlier settlement of the leaking roof issue; that she could not prove the kind of behavior currently that she had suffered in the past, such as assaults and vandalism; and that she could not show any evidence of discriminatory intent by the association on the basis of gender and/or disability.

The Supreme Court also determined that there was no legal support or evidence for Gilbert's diminution of value claim, that the association's issuance of a house rule regarding quiet hours was a reasonable enforcement of the association's bylaws with regard to noise control, and that the trial judge had fashioned a reasonable accommodation for Gilbert's disabilities with regard to her walking her dog.

©2007 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Insurer's Decision to Deny Claim Reasonable

Lakehurst Condominium Owners Association v. Trinity Universal Insurance Company of Kansas, 486 F. Supp. 2d 1205 (W. Dist. Wash. 2007)

Contracts/State and Local Legislation and Regulations: Because an insurer's grounds for denying a claim were reasonable, the insurer met its duty to act in good faith and to deal fairly with its insureds.

The Lakehurst Condominium Owners Association ("association") is the association of unit owners in Lakehurst Condominium, located in Seattle, Wash. After the condominium suffered water intrusion damage, the association made claims to American Alliance Insurance Company ("American") and Trinity Universal Insurance Company ("Trinity") (collectively "insurers") for damages caused by the water intrusion damage. The Trinity policy insured the condominium from September 1, 1999 until September 1, 2000, and the American policy was in place from September 1, 2000 until September 1, 2001. The association's claims against each company alleged that the condominium damage included "collapse caused by hidden decay," which occurred during the term of the policy.

Both insurance policies contain substantially similar exclusionary language. Trinity's policy excludes damage caused by decay, particularly decay caused by water damage, and American's excludes loss or damage caused by decay as well as loss caused by water damage. The policies both provide coverage for direct physical loss or damage to covered property caused by the collapse of any part of a building if hidden decay caused the collapse. Each of the insurers and the association retained an expert to inspect the areas damaged by water intrusion. After making exploratory openings and examining the building's structure, the experts concluded that the damage to the condominium resulted from water intrusion caused by "faulty or inadequate construction techniques." Both the expert retained by American and the expert retained by Trinity performed tests to determine the status of the structural integrity of the framing using International Building Code criteria. In each test, the framing was found to have reached a state of substantial structural impairment in 2004 and was reaching a state of imminent collapse in 2005. Based on the findings of their experts both American and Trinity denied the association's claim.

The association sued American and Trinity, stating four causes of action: (1) the association sought a declaratory judgment regarding coverage; (2) the association alleged breach of contract for failing to provide coverage determinations; (3) the association alleged breach of the duty of good faith for failing to conduct an adequate investigation into the scope, nature, and severity of the property damage to the condominium and by failing to adopt and implement reasonable standards for prompt investigation of its claims; and (4) the association alleged that the insurers breached Washington's Consumer Protection Act ("Act"), relying on the standard set forth in the bad faith claim. The court granted the insurers partial summary judgment on the claims for breach of the duty of good faith and violation of the Act.

In considering the insurers' motion, the court examined whether the insurers were entitled to summary judgment as a matter of law. Courts must draw all inferences in favor of the non-moving party. However, the mere assertion that a genuine issue of material fact exists does not preclude the use of summary judgment.

American and Trinity had a duty to act in good faith and to deal fairly with their insureds and if they did not, then a tort action could arise. Further, the insurers had a duty to act reasonably in interpreting the policy and investigating the claim. A Washington court could rule in favor of an association if the insurers' denial of coverage was unreasonable, frivolous, or unfounded. However, the burden is on the insured to provide evidence that the insurer acted unreasonably in denying the claim. Citing case law, the court noted that the test is "not whether the insurer's interpretation of the policy is correct but whether the insurer's conduct was reasonable."

The court found that American and Trinity acted reasonably in their investigations of the association's claims because they retained qualified experts to conduct extensive inspections and those experts based their findings on independent, third-party criteria, the International Building Code. The court determined that the association produced no evidence other than statements about the alleged unreasonableness of the investigations. The association also argued that the insurers unreasonably interpreted "collapse" rather than "substantial impairment." Based on the reports by the experts retained by the insurers, the court found that both experts used the standard of substantial structural impairment. Therefore, the court ruled that the association failed to present any issue of material fact as to raise a question of the reasonableness of the insurers' investigation or policy interpretation.

Regarding its claims under the Act, the association was required to show "(1) an unfair or deceptive act or practice; (2) in trade or commerce; (3) which affects the public interest; (4) that injured the plaintiff's business or property; and (5) that the unfair or deceptive act complained of caused the injury suffered." The Act provides specific regulations for the insurance industry. Pursuant to the Act "failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies" and "refusing to pay claims without conducting a reasonable investigation" are unfair or deceptive acts or practices. Based on the court's analysis, the association did not demonstrate that the insurers violated the Act. Therefore, the court found that no issue of material fact existed regarding a violation of the Act.

©2007 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Associations Not Protected Under California's Anti-SLAPP Statute

Palmia Master Association v. Rufran, No. G037850, Cal. App. Ct., July 25, 2007 and Brown v. Clay Hill Condominium Homeowners Association, No. A115074, Calif. App. Ct., July 20, 2007

Covenants Enforcement/State and Local Legislation and Regulations: In unpublished decisions, the California appeals court upheld two trial courts' decisions that ruled that two associations were not protected under California's Anti-SLAPP Statute.

In two separate California cases, owners associations filed anti-SLAPP motions in litigation involving lawsuits against the associations by members. In both cases, the California Appeals Court ruled that the owners' causes of action did not arise from the associations' exercise of free speech.

The first case is Palmia Master Association v. Rufran. Palmia Master Association ("Palmia Association") is the homeowners association for Palmia, a senior citizen housing development in Mission Viejo, California. It is governed by a declaration of covenants, conditions, and restrictions. Helene Rufran owns a home in Palmia and is a member of the association.

The association sued Rufran for tutoring children in her home, charging that it violated the declaration and regulations that prohibited nuisances, interference with other members' right of quiet enjoyment, and use of a home for nonresidential purposes. The association alleged that its board of directors voted to fine Rufran $100 per day for the violations at a disciplinary meeting. It asked the court to bar Rufran from tutoring children in her home and to direct her to pay the fine imposed by the board at the disciplinary meeting. It also sought declaratory relief.

Rufran counter-sued, seeking a declaration from the court that her tutoring was consistent with the residential use of her home and was not a nuisance. She asked that the association be enjoined from assessing the $100-per-day fine or interfering with her tutoring and she asked for damages for the association's intentional infliction of emotional distress based on threatening letters she received from the association and a disciplinary hearing that culminated in absurd findings and the unreasonable fine. She claimed that the association had pursued an invidious program of harassment against her and stated that she is a retired teacher who has tutored a few preschoolers and grade school aged children for free in her home for the last 16 years. She stated that the association had leveled false accusations against her and her students based on anonymous and unsubstantiated complaints. She also contended that the association sent letters to her falsely accusing her and her students of violating the association's security and engaging in criminal conduct and terrorist acts by playing pranks, intimidating and disrupting other residents, and creating a nuisance.

The association filed an anti-SLAPP motion to strike Rufran's cross-complaint. The trial court denied the association's motion, finding that Rufran's suit attacked the procedures used by the association in its proceedings -- not anything related to the association's right of free speech and/or petition.

In Brown v. Clay Hill Condominium Homeowners Association, Linda and Cynthia Brown, sisters, own a condominium unit in Clay Hill Condominium and are members of the Clay Hill Condominium Homeowners Association ("Clay Hill association"). They rented their unit to Scott Dykes from 1991 to 2003. In November 2002, Dykes sued the Browns and a property management company for alleged mold contamination from water leaks.

From January 2003 through September 2003, the association told the Browns that it would investigate and remedy the mold in their unit. The association hired a consultant to investigate water leaks and approved repairs recommended by the consultant. However, in September 2003, the Browns learned that the association intended to halt the repairs.

In October 2003, Dykes sued the association, charging that the association was negligent in allowing water to leak into the unit he rented from the Browns. In June 2005, the Browns filed a cross-complaint against the association for breach of contract and other alleged wrongs. The following month, both the Browns and the association settled with Dykes. In connection with the settlement, the Browns agreed to dismiss their cross-complaint against the association without prejudice to assert their claims in a separate lawsuit.

The Browns then sued the association alleging the association's breach of contract, negligence, breach of fiduciary duty and fraud. The foundation of their lawsuit was the association's alleged misconduct in allowing water to leak into their unit, which resulted in mold contamination and the association's alleged intentional and negligent misrepresentations contained in false promises made by the association from February 2004 until June 2005 that it would participate in a joint defense with the Browns against Dyke's claims, which forestalled the Browns from filing a cross-complaint in the Dykes lawsuit.

In August 2005, the association filed the first of three anti-SLAPP motions, directed to the count of fraud. The association argued that the causes of action arose from acts in furtherance of its right of free speech, specifically, statements to the Browns made in connection with an issue under consideration by a judicial body in the Dykes litigation when the parties were co-defendants.

"SLAPP" is an acronym for "strategic lawsuit against public participation." California's Anti-SLAPP Statute protects free speech and petitioning activity. It is the state's response to the problems created by meritless lawsuits brought to harass people who exercise these rights and provides:

A cause of action against a person arising from any act of that person in furtherance of that person's right of petition or free speech under the United States or California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is probability that the plaintiff will prevail on the claim.

A party bringing an anti-SLAPP motion bears the initial burden of establishing that the cause of action is based on its protected free speech or petitioning activity. The four categories of protected activity are: (1) any written or oral statement or writing made before a legislative, executive or judicial proceeding, or any other official proceeding authorized by law; (2) any written or oral statement or writing made in connection with an issue under consideration or review by a legislative, executive or judicial body, or any other official proceeding authorized by law; (3) any written or oral statement or writing made in a place open to the public or a public forum in connection with an issue of public interest; and (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.

If the moving party meets its burden, the burden shifts to the opposing party to "establish that there is a probability that it will prevail on the claim."

Both trial court decisions were appealed. In Palmia Master Association, the appeals court found that the disciplinary hearing from which Rufran's cross-complaint arose was not protected free speech or petitioning activity. Thus, the association failed to meet its initial burden.

The court considered that homeowners association disciplinary hearings are not an integral part of any statutory scheme by which the state satisfies its own compelling interest, noting that the association offered no legal authority suggesting that the disciplinary hearings are subject to judicial review by administrative mandate. The court found that while a homeowners association may be a "quasi-governmental" entity in a colloquial sense, no court has held that they have "quasi-judicial" power in the technical sense required to render their decisions reviewable by administrative mandate. The court further found that the disciplinary hearing did not involve "an issue of public interest."

In its consideration of the statute, the court found that the statute does not provide a definition of "public interest." However, it requires that there be some attributes of an issue that make it one of public, rather than private, interest. The court cited recent California case law to illustrate properties that define issues of public interest. It determined that issues of public interest may "include activities that involve private persons and entities, especially when a large powerful organization may impact the lives of many individuals." However a matter of public interest should concern a substantial number of people. Thus, the court considered that a matter of concern to the speaker and a relatively small specific audience is not a matter of public interest.

The court found that the disciplinary hearing was a private controversy between the association and Rufran that was of no interest to the public at large. The hearing may not even have interested the association's other members because the hearing addressed complaints made by only some of Rufran's neighbors and did not involve any broad issues affecting other members of the association. Although Rufran's cross-complaint assailed the association's disciplinary process, it did not seek relief that would reform that process or benefit other members of the association.

The court discounted citations relied upon by the association that involved fundamental governance of homeowners associations. It found that no fundamental governance issues were raised by the circumstances of the case and that Rufran's cross-complaint did not challenge the association's right to hold disciplinary hearings or seek to reform its disciplinary procedures.

The appeals court found that Rufran's cross-complaint did not arise out of protected activity because the disciplinary hearing was not an official proceeding authorized by law and did not involve an issue of public interest. It affirmed the trial court's ruling and ordered that Rufran recover her costs on appeal.

In Brown, the appeals court focused on the substance of the actions in evaluating whether Clay Hill association's conduct was protected. It determined that the association had an obligation to prevent and remedy the water damage that occurred to the Browns' unit because of a leak from common area that was under the association's control. The association's breach of this obligation physically damaged the Browns' unit. The association's activity that gave rise to the SLAPP motion was the fact that the association did not respond to the leaks in a timely and appropriate manner, but that the association made statements to the Browns during the Dykes litigation that it would investigate and remedy the mold contamination. The court explained that the principal acts or omissions constituting the Browns' alleged breach of obligation was not the association's representations to the Browns but its failure to investigate and remedy the mold.

Citing City of Cotati v. Cashman, 29 Cal. 4th 69 (2002), the appeals court iterated that a defendant's act underlying a plaintiff's cause of action must itself have been an act in furtherance of the right of petition or free speech. Protected speech or petitioning activity must be the activity that gives rise to the asserted liability. The appeals court determined that the association's acts underlying the Browns' claims were not the statements made to the Browns but the association's deficient performance of its obligation to maintain the condominium common area. The association's liability arose from its inadequate property management, not from its exercise of free speech.

The court rejected the association's argument that the association's statements during the Dykes litigation fell within the scope of the litigation privilege because the association was not a party or other participant in the Dykes litigation at the time of the statements, and the association failed to establish another basis for applying the privilege.

In arguing that the Browns' causes of action arose from prior litigation, the association contended that the Browns' allegations about those statements and their claim for punitive damages showed that the association's protected speech was not incidental but was a substantial basis for the claims. The Browns' allegation that the association made empty promises about remediation efforts was their means of proving the association's breach and the extent of damages caused by the breach.

Finally, the association argued that its alleged promises were a necessary part of the Browns' suit because the Browns relied upon those promises to estop the association from invoking the statute of limitations. The Browns stated that they relied on the association's promises and did not discover their claims against the association until September 2003 when the association revoked its earlier promises to remedy the mold. The association argued that the Browns included allegations about the association's 2003 promises for the express purpose of estopping the association from invoking the statute of limitations. The appeals court determined that, in any event, a cause of action does not arise from acts in furtherance of free speech just because of alleged misrepresentation to estop a statute of limitations defense, adding further that an anti-SLAPP motion addresses the cause of action, not individual allegations or theories supporting the cause of action.

The appeals court determined that the association failed to demonstrate that the causes of actions contained in the Browns' suit arose from protected speech or petitioning activity, so it did not need to address whether the Browns established a probability of prevailing on their claims. It reversed the trial court's order that struck the Browns' first and second causes of action for negligence, breach of fiduciary duty, and the award to the association of attorney's fees and costs. It affirmed the trial court's order to the extent that the motion to strike the Browns' third cause of action for breach of contract was denied. It remanded the case for consideration of the demurrer as to the first and second causes of action and instructed that the Browns recover their costs incurred on appeal. The court further ruled that the association was not entitled to costs and attorney's fees incurred in the trial court because it failed to demonstrate that the motion was frivolous.

©2007 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Association that Steps into Developer's Shoes Has Authority to Sue Manufacturer

Port Liberte Homeowners Association, Inc. v. Sordoni Construction Company, 393 N.J. Super. 492, 924 A.2d 592 (2007)

Powers of the Association: Under New Jersey law, an owners association formed after misrepresentations or omissions were made by a manufacturer has standing to assert common law and consumer fraud claims against the manufacturer of a product used by the developer in the construction of the common elements.

Port Liberte is a residential condominium development in Jersey City, New Jersey, comprised of single-family detached homes, townhomes, and mid-rise buildings and established pursuant to the New Jersey Condominium Act ("Act"). The developer and original sponsor of phase one of the development was Port Liberte Partners. Dryvit is a corporation that manufactures and sells exterior insulation finishing system barriers for building. Dryvit sold an insulation system to Port Liberte Partners for use on the phase one buildings in Port Liberte. Sordoni Construction Company ("Sordoni") was the general contractor for the project. Novingers, Inc. ("Novingers") was the subcontractor Sordoni engaged to install the Dryvit insulation finishing system.

Port Liberte Partners began constructing phase one in January 1986 when it hired Sordoni as its general contractor. On May 30, 1986, Port Liberte Partners registered the project with the New Jersey Department of Community Affairs ("DCA"). In July 1986, Port Liberte Partners chose to install Dryvit's insulation finishing barrier on the exterior of phase one buildings, and on July 17, 1986, Sordoni executed a subcontract with Novingers to install the exterior insulation finishing system. Upon completion a year later, Dryvit issued a three-year warranty on the system.

In February 1987, Port Liberte Partners filed copies of its master deed and declaration of covenants with the DCA. On March 10, 1987, the master deed and declaration were recorded in Hudson County, marking establishment of Port Liberte Homeowners Association, Inc. and Port Liberte Condominium Association I, Inc. (together, "associations").

Prior to January 1991, Port Liberte Partners had been in complete control of the project. On January 25, 1991, Port Liberte Partners filed for Chapter 11 bankruptcy protection and relinquished control of the project to the associations before 75 percent of the units were sold. After gaining control, the associations discovered defects in the exterior insulation finishing system, which allegedly caused significant water and structural damage to the buildings. As a result, the associations sued Sordoni, Dryvit, and Novingers in June 1992.

After 11 years of litigation and eight years of mediation, the associations settled with all parties except Dryvit. On June 23, 2003, the associations amended their complaint to assert claims for common law fraud and consumer fraud under the New Jersey Consumer Fraud Act ("CFA").  The associations alleged that prior to Dryvit's negotiating and agreeing to supply the exterior insulation finishing system, it falsely advertised and represented to Port Liberte Partners and to Novingers that its system was a complete water barrier system even though it knew that the finishing system was defective and would not remain water-impermeable when installed over non-masonry substrate, even when installed in strict conformity with installation specifications.

The associations also asserted that Dryvit made false and misleading representations knowing that Novingers and Port Liberte Partners would rely on those misrepresentations in recommending, selecting, and purchasing Dryvit's products and that the associations were third-party beneficiaries of the contract between Dryvit and Novingers. In response, Dryvit argued that because the associations did not exist at the time the finishing system was installed, they could not have been recipients of Dryvit's alleged misrepresentations or omissions and could not have participated in the decision to utilize Dryvit's system. At the trial level, the court sided with Dryvit and dismissed the associations' complaint.

On appeal, the associations contended that when Port Liberte Partner's filed for bankruptcy protection and turned over the associations to owners, the associations immediately stepped into the shoes of the developer. The associations asserted that any misrepresentations and/or omissions of fact made to or withheld from Port Liberte Partners were as if they were made to or withheld from the associations as the developer's successors because the associations were the end-users of the system and thus were the parties adversely affected by Dryvit's fraud. Dryvit maintained that the trial court properly dismissed the associations' claims because they did not make or participate in the decision to select Dryvit's products at Port Liberte and did not even exist at the time the decision was made.

The question presented to the appeals court was whether the associations, nonprofit corporations charged with controlling and maintaining a condominium's common elements and formed after Dryvit's misrepresentations or omissions were made, had standing to assert common law and consumer fraud claims against the manufacturer of a product used by the developer in constructing the common elements.

In considering this question, the court focused on the relationship between a developer and a condominium association. The court noted that that relationship is unique because a condominium owner holds a hybrid real property interest consisting of "two distinct tenures, one in severalty and the other in common." The court further stated, "a developer remains in control of the association until a specific point in time when the developer relinquishes control to the unit owners… until that point, or in the present case, when the developer becomes insolvent, the developer retains control of the association and elects the majority, if not all of its board members."

The court relied on the Act as the basis for its stance on the issue. According to the Act, the association "shall be for the administration and management of the condominium and condominium property, including but not limited to the conduct of all activities of common interest to the unit owners." The court also noted that associations may assert tort claims pertinent to common elements as if the claims were asserted directly by unit owners. According to the court, the unique relationship between a condominium association and a developer, which is created by statute, allows an association to step into the developer's shoes when control is passed to the unit owners.

The court also looked to the CFA to support its decision. Since the CFA allows any person who suffers an ascertainable loss to sue under the CFA, the court stated that associations charged with maintenance and repair of common areas that discover construction defects of common elements areas have standing to pursue a claim under the CFA.

Relying on several of its prior decisions, the court stated that New Jersey's CFA is one of the strongest consumer protection laws in the nation and should be construed liberally in favor of consumers. In the past, courts interpreted the CFA as not requiring direct contractual privity between the consumer and the seller of the product or service, thereby allowing indirect suppliers whose products are passed on to a buyer and whose representations are made to or intended to be conveyed to the buyer, to be sued under the CFA.

Based on previous decisions, the CFA, and the Act, the court determined that under New Jersey's legislative scheme, the associations occupied the same role as the developer.

Dryvit was on notice that the project was a condominium and that the associations, the end users of the system, would ultimately govern the common elements upon completion of the construction. As such, any misrepresentations it made to the developer were essentially made to the associations. Even if the developer had remained solvent and in control of the associations at the time the defects were discovered, the associations would have had standing to sue. Therefore, according to the court, the associations stand in the developer's place and have standing to sue Dryvit for fraud.

©2007 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Amenities Classified as "Common Area" for Tax Purposes

Sun City Grand Community Association v. Maricopa County, 164 P.3d 679 (Ariz. 2007)

Taxes and Tax Regulation: A clubhouse, golf cart, and snack shop building was properly classified as "common area" for purposes of property tax valuation even though the building was used by the general public.

Sun City Grand Community Association ("association") provides limited use of its clubhouse, golf cart, and snack shop building and some other surrounding property to the public. The association sued Maricopa County's assessor because the assessor classified the property as commercial and set the full cash value for the 2005 tax year at $5,938,624 using standard appraisal methods. As a result, the association was taxed $130,611.42 in 2005. A dispute arose because if the property was classified as common area, under an Arizona statute the tax would have been less than $10. The tax court agreed with the association, but that decision was appealed.

The appeals court stated that Arizona law did not disqualify the property as common area merely because the general public used it. The court stated that each homeowner was obligated to pay assessments and each homeowner had a right to use the property as well as to invite guests onto the property. The association acknowledged that members of the public were invited to use the building because association rules prohibited the public from using the weight room, aerobics room, swimming pools, cabana, whirlpools, business center, and tennis courts.

The court noted that Sun City Grand's declaration of covenants, conditions, and restrictions gives owners the right to use and enjoy the common area and that the community's rules and regulations explained that the community benefited from granting access to the common areas to the general public in exchange for fees. It was estimated that 10-25 percent of revenue from the property was from the general public, comprised mostly of guests of residents.

Despite these factors, the court reasoned that since the legislature had not expressly disqualified the property from common area status it may be classified as common area regardless of whether the general public made use of the facilities or not. In this case, the county argued that the association did not qualify for common area status because the association had extended the right to use the subject property to the general public.

The court disagreed, stating that just because the property was used by the general public there was no automatic disqualification from common area status. Moreover, since the legislature had expressly declined to restrict common areas to non-commercial uses, the court wrote that some actual commercial use, including use by the public was contemplated. The court also reasoned that it was not important, as the county argued, to restrict use of the property to the exclusive use of owners, residents, and their guests. The court ruled in favor of the association and allowed the association to recover the amount of excess taxes levied, plus interest and the costs of the appeal.

©2007 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Unit Owner Entitled to Two Parking Spaces because Parking Easement Not Abandoned

Wall v. Granville Towers Homeowners Association, No. B189734, Cal. App. Ct., July 24, 2007

Risks and Liabilities: In an unpublished opinion, a California appeals court ruled that where a deed grants an easement to use additional parking spaces, the declaration does not limit the number of parking spaces for each unit, the city's zoning regulations do not limit the number of parking spaces, and the easement has not been abandoned or otherwise relinquished, the parking easement will be given effect.

Scottman Wall owns Unit 71 in Granville Towers in West Hollywood, California. Granville Towers was constructed as an apartment building in 1929 and converted to condominiums in 1979, with a declaration recorded in 1980. In 1998, Granville Towers Home Owners Association ("association") prepared a disclosure document for buyers' and sellers' use that stated that specific parking spaces were not owned by sellers. Therefore title to the parking spaces could not be transferred. Each unit was entitled to use at least one parking space, with no guarantees of additional spaces.

Wall acknowledged that he had read and approved various documents, including the 1980 declaration and the 1998 disclosure, as part of escrow proceedings when he bought Unit 71. However, his unit was conveyed to him by a grant deed that referenced three parcels that had been deeded to Zenon Kesik in 1988 when the condominium units were originally sold. A preliminary title report dated March 5, 2004 described Wall's property as being comprised of three parcels, including easements to two parking spaces.

Wall sued the association in July 2004, claiming that he had been deeded an easement for two parking spaces in the building, but the association refused to permit Wall to use a second parking space. The trial court granted Wall's motion for a preliminary injunction in September 2004. In October 2005, Wall asked the trial court for summary judgment, which the trial court granted, stating that the association failed to present evidence supporting its allegation that the city of West Hollywood had rejected the parking plan containing the parking spaces referenced in the Kesik and Wall deeds or that the city had adopted a new parking plan superseding the original one. The trial court declared Wall to be the owner of the easement to use two parking spaces and that the easement had not been abandoned, relinquished, or otherwise destroyed. In January 2006, the association asked the trial court to reconsider its summary judgment ruling, and the trial court found that the association had not raised adequate grounds to merit reconsideration and awarded attorney's fees and costs to Wall. The association appealed.

The appeals court disagreed with the association's argument that the parking easement was not validly created and could not be enforced because it conflicted with the 1980 condominium declaration and with West Hollywood's zoning regulations. Stating that the declaration recognized a minimum of one space per unit rather than a maximum of one space, that the declaration did not entitle the association to eliminate existing easements, and that the association failed to present evidence of any city regulations limiting owners to a single parking space, the court ruled that the declaration, by including the phrase "not less than one" with regard to the granting of easements with the grant of each unit, implicitly authorized the ownership of additional easements. The court found that, by their plain terms, the variances approved by the city for the building neither required allocation of a single space for each owner nor limited the number of spaces for each owner.

The court disputed the association's assertion that Kesik had abandoned the parking easement by (1) failing to include a reference to the easement in his grant deed when he sold his unit, (2) the lack of evidence that he ever used the second parking space, and (3) his statement in seeking a parking variance that owners were allocated one parking space, with additional parking needs satisfied by valet parking. The court noted that abandonment is constituted by evidence of nonuse accompanied by unequivocal and decisive acts clearly showing an intent to abandon. Kesik did not abandon the parking easement. Rather, the evidence showed that Kesik intended to retain the easement because he never revised his deed to eliminate additional parking easements as the association desired.

Concluding that the association forfeited its contention of equitable estoppel (against Wall because he approved the disclosure document) because the association failed to raise the issue in trial court, the appeals court declined to exercise its discretion in considering such a contention because, as the court stated, it was neither an important issue of public policy nor did it present a question of law based upon undisputed facts. The court accordingly affirmed the trial court's decision.

©2007 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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