February 2009
In This Issue:
Fair Housing Act Does Not Protect Religious Icons Placed on Unit Owners' Doors
Homeowners Fail to State a Claim for Discrimination, Creating a Hostile Environment
Board Cannot Deny Approval of Plans Similar to Those Previously Approved
Statements by Association, Residents Protected Under Anti-SLAPP Statute
Township Ordinance Related to Mooring Boats Has Priority over Plat Dedication
Defendant Cannot Be Denied Access to Security Deposited with Court
Insurer May Not Step into Association's Shoes in Professional Negligence Claim
Declaration Must Contain an Ascertainable Standard for Levying Assessments
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Fair Housing Act Does Not Protect Religious Icons Placed on Unit Owners' Doors

Bloch v. Shoreline Towers Condominium, 533 F.3d 562 (7th. Cir. 2008)

Federal Law and Legislation: The Fair Housing Act does not protect against religious persecution when it concerns a neutral law applied across the board, even if it disrupts religious beliefs.

In September 2001, Shoreline Towers Condominium Association ("association") adopted rules for the hallways of its building in Chicago. Among other things, the rules stated that mats, boots, shoes, carts and other objects were not allowed outside owners' doors. Signs on doors or in the hallways were also prohibited. One of the drafters of the rules, Lynne Bloch, did not realize that the rules would affect the mezuzah on the doorpost of her unit. In 2004, when the hallways were repainted, all mezuzot and other religious symbols were removed. When tenants replaced the mezuzot, the association had those taken down too.

Neither Bloch nor the association disputed that a mezuzah is an essential part of the Jewish faith. Also, neither party disputed that a mezuzah is a fundamental part of the Blochs' religious duty.

The Blochs sued the association under the Fair Housing Act ("Act"), demanding damages for distress they suffered and an injunction to prevent the association from continuing to remove mezuzot. Section 804(b) of the Act forbids discrimination in the terms, conditions or privileges of sale or rental of a dwelling. Section 817 makes it unlawful to interfere with a person's enjoyment of the rights granted under Section 804. The trial court ruled in favor of the association, and the Blochs appealed.

After the litigation started, Illinois laws were changed to require accommodation for religious symbols within hallways of condominiums. The association rule that caused the controversy was changed to comply with the new state laws and therefore, there was no controversy in terms of law. The litigation continued only in the form of damages caused during the period of the old law.

In reviewing the case, the appeals court relied upon Halprin v. Prairie Single Family Homes of Dearborn Park Association, 388 F.3d 327 (7th. Cir. 2004) (CALR, June 2005). In Halprin, the court ruled that religious discrimination or harassment can be so severe that it constructively evicts the tenants from the residency. In this case, the Blochs contended that removal of their sacred object was nothing short of constructive eviction on religious grounds.

The court saw it differently, noting that this case was not a situation where a seemingly neutral rule was adopted to target an unwanted group. It was neutral with respect to religion and application. Every owner was affected because the rule banned a variety of decorations in addition to religious symbols, including political placards, for-sale notices and Chicago Bears pennants. Ultimately, what the Blochs wanted was a religious exception to a neutral rule. They contended that the association's failure to make that accommodation was a form of discrimination.

The court ruled that the Act requires accommodation only in situations of handicaps, noting that when a neutral, exception-free rule is not discriminatory it would be inappropriate for a court to require accommodation. Under the Act, the term "discriminate" is different from a "failure to accommodate." The court refused to create a new accommodation requirement for religion. Essentially, the court stated that if it were to rule in favor of the Blochs, they would have had to change the law. The court's duties were to enforce the law as enacted. The court affirmed the trial court's decision.

One judge on the court saw it differently. In a lengthy dissenting opinion, he said that he would have reversed the trial court's decision, noting that the Blochs had ample evidence that the association's motion for summary judgment should have been denied and that there had been intentional discrimination. The judge pointed to a particularly hostile example of the discrimination by the association. After Marvin Bloch, Lynne's husband, died, the Blochs' lawyer requested permission from the association's board to place a mezuzah on the Blochs' doorway during the Shiva. Rather than responding to the request, the association removed the mezuzah while the family was attending Marvin's funeral. When the Blochs and their guests, including a rabbi, returned home, they were horrified to discover that the mezuzah had been removed.

The judge said that the state law counts should have been reinstated and set out his reasons that the Act applied in this case.

©2009 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

Homeowners Fail to State a Claim for Discrimination, Creating a Hostile Environment

Chesler v. Conroy, No. 08 C 2679, U.S.D.C., N. Dist. Il., Oct. 28, 2008

Federal Law and Legislation: A U.S. District Court in Illinois dismissed an action against condominium owners and the condominium association for claims by another homeowner of discrimination and creating a hostile environment under the Fair Housing Act.

1327 Dearborn is a three-story condominium that contains three units. Lawrence and Jacqueline Chesler live in the top-floor unit; Francis Ansel lives on the second floor; and Richard and Ana Conroy live on the first floor. These residents are the only members of 1327 Dearborn Condominium Association ("association").

As a result of a contentious election in January 2006, Richard Conroy was elected president of the association and Ansel was elected treasurer. The Cheslers objected to several small expenditures to maintain common areas of the building. Following their complaints, the Cheslers claimed that the Conroys became openly hostile to them. In May, Lawrence Chesler had spinal surgery, and Jacqueline Chesler asked the Conroys to keep the front walkway and front hallway clean and dry so that he could safely maneuver through the building. The Cheslers raised numerous grievances against the Conroys with the association, but the association did nothing to remedy the deteriorating situation. The Cheslers then sued Richard Conroy, Ansel and the association, alleging that they had violated the Fair Housing Act ("Act") by discriminating against them because of Lawrence Chesler's disability and by creating a hostile housing environment. Conroy, Ansel and the association asked the court to dismiss some counts in the complaint.

To consider a motion to dismiss under Federal Rules of Civil Procedure 12(b)(6), a court must accept as true all facts alleged in the complaint and construe all reasonable inferences in favor of the plaintiff. To survive a motion to dismiss for failure to state a claim, a claim must be supported by facts that, if taken as true, at least plausibly suggest the plaintiff is entitled to relief.

In reviewing the Cheslers’ discrimination complaint, the court noted that the Act's anti-discrimination provision applied to land-use regulations. Legislative history of the Act explains that it is intended to prohibit application of special requirements through land-use regulations, restrictive covenants, and conditional or special use permits to limit the ability of individuals to live in a residence of their choice in a community. The Act is concerned only with access to housing. It was enacted in response to widespread refusal of people to sell or rent homes to members of minority groups. The court also stated, "We do not want and we don't think [U.S.] Congress wanted to convert every quarrel among neighbors . . . into a federal case" when it created the Act. Because the Cheslers did not allege the kind of discrimination targeted by the Act, the court found that they failed to state a claim in the discrimination complaint.

In the Cheslers’ hostile housing environment complaint, the Cheslers claimed that the association and other residents of the condominium created a hostile housing environment in violation of the Act. The court explained that to substantiate the claim, the Cheslers would have to meet five requirements: (1) they were members of a protected class; (2) they were subject to unwelcome harassment; (3) the harassment was based on their protected status; (4) the harassment was sufficiently severe or pervasive to deprive them of their right to enjoy their home; and (5) that Conroy, Ansel and the association knew or should have known of the harassment and failed to take prompt remedial action.

The Cheslers alleged that Lawrence Chesler was handicapped within the meaning of the Act. Accordingly, to state a claim for hostile housing environment, the court noted that any discrimination that occurred must have been because of his handicapped status. The court found, however, that the Conroys’ hostility stemmed from a personal dispute between the families over control of the association. Based on the Cheslers’ allegations, the dispute with the Conroys had existed for five months when Lawrence Chesler became handicapped within the meaning of the Act.

The court explained that to be handicapped under the Act, a person must have a physical or mental impairment that substantially limits one or more of the person's major life activities. Lawrence Chesler did not indicate that his back problems limited his life activity until after his surgery in May 2006.

The court had extensive discussions with the parties in attempts to settle the dispute economically, but it was unsuccessful. The court noted that Chesler lived on the third floor and used the fourth floor roof-top garden. He did not require a motorized lift or other mechanical aid to help him reach his unit. Though he complained that the broken intercom made it necessary for him to walk downstairs to answer the door, the parties acknowledged the intercom was now repaired.

The court granted the defendants' motion to dismiss and refused to exercise supplemental jurisdiction over the Cheslers’ remaining state law claims.

©2009 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Board Cannot Deny Approval of Plans Similar to Those Previously Approved

Dwan v. Indian Springs Ranch Homeowners Association, Inc., 186 P.3d 1199 (Wyo. 2008)

Covenants Enforcement: The Wyoming Supreme Court ruled that, if the covenants state that approval of an application for construction on a lot by a committee will not be "unreasonably withheld," the committee may not unreasonably withhold its approval.

All land owners in the Indian Springs Ranch subdivision, including Ann Dwan, are subject to recorded covenants, conditions and restrictions. Among other things, the covenants require lot owners to seek permission from the subdivision's design, environment and wildlife committee before engaging in any construction. The committee reviews homeowners’ building plans and recommends to the board of directors of the Indian Springs Ranch Homeowners Association ("association") that a plan be approved, disapproved subject to conditions or disapproved.

In 1998, Dwan began constructing a residence on her lot. Her residence was designed with a roof pitch of 10 inches of vertical rise for every 12 inches of horizontal distance. This is steeper than the pitch allowed by the covenants, which is 8 inches per 12 inches. Despite this nonconformity, her building plan was approved and construction was completed in 1999.

In 2003, Dwan sought and received approval to build a detached structure that would serve as both a guesthouse and a garage. This detached building was approved and constructed with the same roof pitch as her residence.

In 2006, Dwan presented building plans to the committee for a proposed addition to her residence, which showed the same roof pitch as her residence and guesthouse/garage. This time, the committee and the board of directors denied her application because of the non-conforming roof pitch. The covenants allow owners to present an application directly to association members to receive a variance. Instead of seeking a variance from the members, Dwan sued the association. The trial court ruled that Dwan was required to seek a variance prior to bringing legal action against the association. Dwan appealed, and the appeals court overturned the trial court's decision.

The court first addressed the issue of whether Dwan was required to seek a variance. The pertinent covenant states:

A variance shall be allowed from the conditions and restrictions of any of these covenants upon the written approval of the members of the association owning two-thirds of the sites after recommendation [and approval of] the board.

Without the recommendation of the board, a member cannot seek approval via a variance. The court remarked that even though the covenants allowed for plans to be approved subject to conditions, the committee and the board did not take that approach in Dwan's case. In fact, there was no indication from the trial record that the board would recommend to the members that her application for a variance be approved. According to the court, the correspondence between the committee and Dwan indicated that her plans were rejected by the board, and there was no possibility of successfully pursuing a variance as described in the covenants. Therefore, according to the court, Dwan was not required to take any further action before beginning her legal action against the association.

The court also considered whether the board's denial of Dwan's application was reasonable since the covenants state that the board may not unreasonably withhold approval of applications. The court concluded that the board's denial of Dwan's application was not reasonable because the board approved two earlier variances with the same roof pitch as Dwan's proposed addition. The court further stated, "It defies reason to require a homeowner to build an addition onto her residence with a shallower roof pitch than the rest of the residence. Her application should be approved." The court remanded the case for an entry of summary judgment in favor of Dwan and for further proceedings consistent with its opinion.

©2009 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Statements by Association, Residents Protected Under Anti-SLAPP Statute

Homayun v. Portobello Residential Owners Association, Nos. A116929, A117835, Cal. App. Ct., July 30, 2008

State and Local Legislation and Regulations: California's anti-SLAPP statute offered protection to an association and residents who spoke out against restaurant/nightclub owners when the owners sued the association for defamation. In an unpublished opinion, a California appeals court ruled that the accusations made against the restaurant/nightclub owners did not fall under an exception to the statute.

Zahra and Mohamad Homayun owned Za Zoo, a restaurant and nightclub located in Portobello, a planned community in Oakland, Calif. The Portobello Residential Owners Association ("association") consists of 200 residential units, a commercial office building, a marina and Za Zoo. Originally planned as a restaurant, Za Zoo also operated as a nightclub after its owners obtained a cabaret permit from the City of Oakland. The community's governing documents had been changed to permit the cabaret based on the previous owner’s assertions that diners would enjoy quiet blues and jazz background music. However, after the Homayuns took over, Za Zoo morphed into a hip-hop club.

In 2001 and 2004, Portobello residents filed complaints against Za Zoo for noise and other nuisances. In February 2006, excessive noise complaints prompted a public hearing before a city administrative hearing officer at which Jay Adams, one of the defendants in this case, testified that Za Zoo's nightclub activities were interfering with his sleep and asserted that one cannot expect 200 young people to start cars and depart quietly.

Additionally, Za Zoo’s security personnel testified that Za Zoo's customers were "unruly, drunk, rude, abusive," and there had been a rash of fights, riots, urinating and vomiting on Portobello grounds. Some Za Zoo customers sometimes slept in their cars. Further testimony revealed that the club turned away more than 700 people per night.

The Homayuns admitted that they had not obtained the city's permission to change the music format from jazz and blues to hip hop and rhythm and blues, as was required by the cabaret permit. They also asserted that Portobello residents and association board members were bothered that most of the patrons of the nightclub were African-Americans and that much of the testimony was fabricated.

The February 2006 hearing resulted in a cease and desist order regarding the unapproved music format that was to be in force for six months.

On April 24, 2006, another public hearing was held where the association produced video evidence of fighting, yelling and other disturbances at Za Zoo, some occurring after February 2006. Residents and board members accused the Homayuns of being connected with politicians and alleged the Homayuns made contributions to politicians, like the mayor of Oakland, that made it almost futile to oppose them. The Homayuns claimed that board members had, on a number of occasions, attempted to acquire Za Zoo and their accusations against the Homayuns were an attempt to drive down the sale price.

The Homayuns filed a defamation suit against the association and others, citing attempts by the association and residents to discredit and defame not only the nightclub, but the restaurant as well. The association, the association's president, Raul Axtle, and resident Jay Adams countersued, claiming protection under anti-SLAPP provisions and asked the court for attorney's fees. (A SLAPP lawsuit is a strategic lawsuit aimed at intimidating or silencing public criticism and burdening the critics with legal fees.) The trial court ruled in favor of the association and other defendants, and the Homayuns appealed.

The appeals court initiated a two-step review. First, the association had to show that the cause of action arose from a protected activity; and, second, the Homayuns had to show a probability of prevailing on the claim. The appeals court found that the trial court correctly determined that the Homayuns' accusations against the defendants fell under the anti-SLAPP statutes.

The defendants' statements were protected as statements concerning "an issue of public interest," expressly, the conditions for revoking Za Zoo's cabaret permit. The court also noted that defamatory statements were made not only in connection with an issue of interest to the members of the community, but also in context with an ongoing controversy, debate or discussion.

The Homayuns contended that the accusations that they bribed politicians fell under a SLAPP exception where (1) no charges are pending on the accused party and (2) where the defendant did not take any action that resulted in criminal prosecution or investigation. The primary issue is that such criminal investigations turn a private issue into a public issue and no longer is under the protection of SLAPP statutes.

However, a more thorough look at California case law shows that criminal conduct does not automatically fall within the exception. Instead, it requires a case-by-case analysis. The court decided in this case the allegations did not turn the private matter into a public matter. Further, the Homayuns failed to prove the second part of the test—proving the probability of prevailing on their cause. The court therefore affirmed the trial court's decision.

©2009 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Township Ordinance Related to Mooring Boats Has Priority over Plat Dedication

Magician Lake Homeowners Association, Inc. v. Keeler Township Board of Trustees, No. 278469, Mich. App. Ct., July 31, 2008

State and Local Legislation and Regulations: In an unpublished opinion, a Michigan appeals court ruled that a plat dedicating a park and beach to public use and depicting units running to the water's edge does not confer riparian rights, including the right to dock a boat overnight, to the unit owners.

Magician Lake Homeowners Association, Inc. ("association") is an association of homeowners owning back lots in the Magician Lake Woods subdivision in Keeler Township, Mich. The association sued the township's board of trustees, contending that the plat dedication conferred a right to dock boats overnight and that a local ordinance prohibiting docking boats between midnight to sunrise violated constitutional protections against taking property without due process and just compensation. The trial court ruled in favor of the township, and the association appealed. The appeals court affirmed the decision, noting that the plat dedication merely stated that "the streets, walks, courts, beaches and park in said plat are hereby dedicated to the use of the public."

The appeals court distinguished between riparian rights and nonriparian rights, specifying that a riparian owner possesses the right to anchor boats permanently off the owner's shore, whereas a nonriparian owner only has a right to use the surface of the water in a reasonable manner for activities such as boating, fishing and swimming. The court declared that the association had failed to establish that the scope of the easement intended something more than lake access, and the grant of land "to the use of the public" did not confer riparian rights.

The evidence the association presented was merely an affidavit by an owner. When that owner's grandfather and father bought lots, C.W. Coats, an original platter, told them they would be allowed to keep boats docked in the water. The evidence was hearsay and not admissible.

Furthermore, the court determined that language on the plat regarding the land running to the water's edge did not grant riparian rights to land owners. Rather, the grant only conferred the right temporarily to moor boats. The court concluded that the grant to use a park and a beach did not express or imply riparian rights of any sort, but simply authorized normal uses, such as swimming, sunbathing, fishing and picnicking. In affirming the trial court's decision, the court verified that association members' right of access did not include the riparian right to dock boats overnight. The court pointed out that even though the plat dedication included a park and walks that terminated in small beaches at the water's edge, inclusion of those words was not significantly related to riparian rights.

©2009 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Defendant Cannot Be Denied Access to Security Deposited with Court

Sapphire Beach Resort and Marina Condominium Association v. Pacheco-Bonanno, No. 2002-50, U.S. Dist. Ct., Dist. of Virgin Islands, Aug. 22, 2008

Assessments: A defendant who deposits money with a court as security in one case cannot be barred from access to that money if a different plaintiff files a new lawsuit against the defendant and seeks an order requiring the deposit of a security.

Sapphire Beach Resort and Marina Condominium Association ("association") manages a condominium development at Sapphire Beach Resort in the U.S. Virgin Islands. The association filed a debt and foreclosure action against Ruby Pacheco-Bonanno, a Sapphire Beach condominium owner, for past due common charges and assessments associated with her unit. In December 2007, the court granted the motion for summary judgment of another defendant in the suit, determined that it no longer had jurisdiction over the matter and remanded the matter to a lower court. Pacheco-Bonanno then filed a motion with the court, seeking the return of the $30,000 security she had deposited in the court's registry.

The association opposed the motion, claiming that an assignee of the association had filed a separate foreclosure action against Pacheco-Bonanno for the same condominium unit and urged the court to transfer the deposited security to the new matter. The court rejected the association's reasoning that funds deposited in a court's registry as security by a defendant in one case are fungible and may be used as a security in an entirely different case involving that defendant. The court found that the association's proposition could not be supported either in logic or law and granted Pacheco-Bonanno's motion to return the $30,000 security deposit to her.

©2009 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Insurer May Not Step into Association's Shoes in Professional Negligence Claim

State Farm Fire and Casualty Company v. Weiss, 194 P.3d 1063 (Colo. App. 2008)

Risks and Liabilities: Colorado law does not allow an equitable subrogation action premised on a professional negligence claim against an attorney.

Robert Weiss, a lawyer at Weiss and Van Scoyk, LLP, drafted the original covenants that governed Running Bear subdivision. Under those covenants, unit owners were permitted to rent their units for as few as one night. When the association decided to amend the covenants to limit rental periods to not less than 30 days, it contacted Weiss to prepare the amendment. Weiss advised the association that it could amend its covenants without the consent of persons or entities holding liens on the individual units. Weiss based that advice on the provisions of the Colorado Common Interest Ownership Act ("Act"), but the association had opted out of the Act when it recorded the covenants.

As a result of the amendment, a unit owner sued the association for lost rental income. The association's litigation attorney concluded that the original covenants did not permit amendment without the consent of a super majority of lien holders. Based on that conclusion, the association settled with the homeowner for $52,000, which State Farm Fire and Casualty Company ("State Farm") paid under the association's insurance policy.

When State Farm initiated an equitable subrogation action against Weiss on the theory of professional malpractice, Weiss filed a motion to dismiss the case, asserting that State Farm could not bring a professional negligence action when the association was never Weiss' client. The trial court granted Weiss' motion.

Weiss asked the court to award attorney’s fees and costs pursuant to Colorado law. State Farm objected on the ground that the dismissal was based only on a public policy concern and requested a hearing. The trial court concluded that the award of attorney’s fees and costs was mandatory and ordered State Farm to request a hearing no later than Feb. 16, 2007, if it wanted one. When State Farm filed a notice to set a hearing, the trial court rejected the request as untimely and concluded that a hearing would not materially aid in the reasonableness determination. The trial court awarded Weiss $4,708 in attorney’s fees and $199.41 in costs. State Farm appealed.

On appeal, the key issue and an issue of first impression in Colorado state courts, was whether an equitable subrogation action premised on a professional negligence claim against an attorney would be allowed.

The appeals court first noted that Colorado law prohibits the assignment of legal malpractice claims, but explained that subrogation is somewhat different from assignment because subrogation occurs when one person is substituted in the place of another with reference to a lawful claim. Under the doctrine of equitable subrogation, when State Farm paid the association for a loss caused by Weiss and his firm, State Farm could (if allowed under Colorado law) seek recovery from the third party. In that situation, State Farm would stand in the shoes of the association. The idea behind subrogation is that it prevents one party from being unjustly enriched. In this case, the association would be prevented from being unjustly enriched by recovering from both State Farm and Weiss and prevents Weiss from escaping liability.

The court looked to Essex Insurance Company v. Tyler, 309 F. Supp. 2d 1270 (D. Colo. 2004), in which the U. S. District Court for the District of Colorado noted that the Colorado Supreme Court would not permit an equitable subrogation claim based on an attorney's professional negligence for the same reasons that prohibit the assignment of such claims. In that case, the insurance company sued the attorneys retained to defend the insured for legal malpractice, alleging that they failed to file vital pleadings and adequately to protect against surprise testimony at trial. The insurance company argued that it was equitably subrogated to the rights of the insured by having had to pay a $237,000 judgment.

In Essex, the U.S. district court noted that Colorado case law is clear that most legal malpractice claims require an attorney-client relationship. It noted the policy concerns regarding duty, conflict of interest and liability limitations that support a prohibition on the assignment of legal malpractice claims. The Essex court also analyzed another case in which a division of the appeals court ruled that assignment of a legal malpractice claim would undermine the vital relationship between an attorney and client, unduly burden the justice system and restrict the availability of competent legal services. The Essex court also noted that even when an insurance company hires an attorney to represent its insured, the attorney owes a duty only to the insured.

Aside from this analysis, the court also noted that of the majority of jurisdictions that have addressed this issue, 10 of 16 (excluding Essex) prohibit the equitable subrogation of professional negligence claims against attorneys. Seven of those 10 cases that prohibit assignment concluded that equitable subrogation is similar enough to assignment that the policies supporting a prohibition on assignments are equally applicable to equitable subrogation.

The court in this case concluded that it agreed with the analysis, conclusions and public policy choice adopted by the court in Essex. It noted that the differences between equitable subrogation and assignment are not sufficient to override the strong public policies in Colorado's jurisprudence that protect the sanctity of the attorney-client relationship from interference and intrusion of third parties.

The court added that equitable subrogation creates a conflict of interest between the attorney and client. It reasoned that if subrogation were to be allowed, an attorney contemplating a settlement agreement for a client, knowing that the client will be reimbursed by an insurer, must also consider that the insurer, unhappy with the settlement or the manner in which the matter was handled, may sue the attorney for professional negligence. According to the court, this would create a concurrent conflict of interest, which is prohibited.

Therefore, the appeals court affirmed the order of the trial court and remanded the case for determination of an award of reasonable attorney's fees.

©2009 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Declaration Must Contain an Ascertainable Standard for Levying Assessments

Willow Bend Homeowners Association, Inc. v. Robinson, 665 S.E.2d 570 (N.C. App. 2008)

Assessments: A North Carolina appeals court determined that a homeowners association’s assessments must contain some ascertainable standard by which the court can objectively determine both that the amount of the assessment and the purpose for which it is levied fall within the contemplation of the covenant.

Willow Bend Subdivision is located in Cumberland County, N.C., and consists of eight separate lots. The Willow Bend Homeowners Association, Inc. ("association") enforces the CC&Rs for Willow Bend subdivision. The declaration provides for an architectural review committee to review plans and approve, when appropriate, proposed building plans.

Section 1 of the declaration provides for the association to collect assessments. Section 2 of the declaration states, "The assessments levied by the [Willow Bend Homeowners] Association shall be used exclusively to promote the recreation, health, safety and welfare of the residents in the properties and for the improvements and maintenance of the common area." Section 3 describes the maximum annual assessment, and Section 4 specifies the votes required to increase it.

In June 2003, Thurston and Charlotte Robinson bought a lot in Willow Bend. As required under the declaration, the Robinsons submitted construction plans to the architectural review committee. The committee denied the Robinsons' plans because they did not comply with the set-back provisions of the declaration. After several more attempts to amend the set-back provisions and without receiving approval, the Robinsons filed a discrimination complaint against the association with the Fayetteville Human Relations Commission ("FHRC") and the North Carolina Human Relations Commission ("NCHRC"). The FHRC determined that the association did not discriminate against the Robinsons, and the NCHRC dismissed the charges against the association because it found no reason to believe that the association committed an unlawful discriminatory housing practice against the Robinsons.

In January 2006, the association board voted seven to one to raise the annual assessment to $1,000 to cover the substantial cost of defending the association against the legal action brought by the Robinsons. The Robinsons notified the association that they wished to exclude themselves from the portion of the association's annual assessment the association had used to litigate against them. The Robinsons attempted to pay $500 of the annual assessment, but the association refused to accept this payment.

The association sued the Robinsons in small claims court for the $1,000 assessment plus interest and attorney's fees. The court awarded the association the $1,000 and interest, but not the attorney's fees.

The Robinsons appealed the judgment to a district court on the grounds that the section of the declaration allowing the association to impose the assessment was vague and could not be enforced. The court determined that the declaration was not vague as to the association's right to assess attorney's fees it incurs in defending against members' claims and concurred with the small claims court in its award of $1,000 to the association.

The Robinsons appealed the trial court's decision, arguing that the trial court erred by ruling that the restrictive covenants contained in the declaration were not vague as to the association's right to assess attorney fees. The appeals court cited Beech Mountain Property Owner's Association, Inc. v. Seifart, 48 N.C. App. 286, 269 S.E.2d 178 (1980) (CALR January 1981), which found that covenants that impose affirmative obligations must include an ascertainable standard that allows a court to determine objectively that both the assessment amount and the purpose for which it was levied fall within the contemplation of the covenant. The court examined whether the purpose of the assessment, in this case, fell within the contemplation of the declaration. The declaration allows the association to levy assessments "to promote the . . . welfare of residents" in Willow Bend. The appeals court opined that a restrictive covenant allowing assessments for the "welfare" of neighborhood residents may be vague and unenforceable with respect to many types of assessments; however, in this instance, the court was looking to whether the "welfare" covenant in the declaration contemplated an assessment to cover the cost incurred by the association in defending itself and its members in the litigation with the Robinsons.

In answering this question, the court noted that North Carolina case law prevents non-profit corporations from representing themselves in a legal proceeding and requires them to be represented by legal counsel. If the association was unable to defend itself against outside legal claims, the association and its members could face substantial monetary liability. Because the association had the power to levy an assessment to cover the costs of a judgment, which would serve the welfare of the association, the court reasoned that an assessment to pay legal costs to defend such an action against the association must also serve the welfare of the association and its members. Citing Ocean Trail Unit Owners Association v. Mead, 650 So. 2d 4 (Fla. 1994) (CALR August 1995), the court found that assessments for legal fees were clearly foreseeable pursuant to the welfare covenant in the declaration. The Robinsons knew, or should have known at the time they purchased their lot, that under the North Carolina Nonprofit Corporation Act, the association had the power to do all things necessary or convenient to carry out its affairs. Therefore, the association could, at any time, levy assessments because of incurred liabilities in legal issues.

The appeals court examined whether the assessment levied by the association could be objectively determined to fall within the contemplation of the "welfare" covenant. Because the assessment was for costs associated with obtaining legal representation and nothing more, the court found the restrictive covenant in question contained an ascertainable standard by which the court could objectively determine both the amount of the assessment and the purpose for which it was levied. In confirming the trial court's decision, the appeals court narrowly construed its finding to incidents where an association is defending itself against legal claims.

©2009 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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