April 2009
In This Issue:
Lien for Assessments Invalid Because Covenants Had Expired
Public Policy Provides Immunity to Associations and their Agents
Homeowner Must Repaint House
Modular Home Cannot be Placed on Lot Without Association Approval
Letter to Association Members Disparaging Bookkeeper is Defamatory
Award of Reasonable Attorney Fees Approved
No-Lease Restriction Violates Fair Housing Act
Association's Insurance Does Not Cover Mudslide
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Lien for Assessments Invalid Because Covenants Had Expired

Barker v. Lake Camelot Property Owner's Association, Inc., No. 2007AP2007, Wisc. App. Ct., April 23, 2008

Covenants Enforcement/Contracts/Association Operations: A Wisconsin appeals court ruled that because a subdivision's covenants required that a majority of voting members be present at a meeting to amend the covenants, an amendment to change the expiration date of the covenants to a perpetual term was invalid because quorum was not met.

Thomas and Denise Barker purchased two lots in a Rome, Wisc., development that surrounds Lake Camelot. The deeds to the lots contained restrictive covenants that were recorded in the Adams County land records. The covenants provided for the formation of Lake Camelot Property Owner's Association, Inc. ("association") and made membership in the association mandatory for all property owners.

The covenants state that the association may adopt bylaws to govern its operation as long as a majority of votes are cast in favor of any matter voted upon. The covenants were due to expire July 1, 1999.

In February 1999, the association voted to amend the covenants to provide that the term of the restrictions be perpetual. Of 2,260 properties with voting rights, 934 members voted in favor of the amendment and 142 members voted against it, for a total of 1,076 votes, slightly fewer than half the membership. The association believed that this vote amended the restrictions to make their duration perpetual.

In September 2005, the association placed a lien on the Barkers' property for unpaid 2005 membership dues. Throughout 2005 and 2006, the association attempted to collect dues and fines from them. In October 2006, the Barkers sued the association asserting two causes of action: (1) slander of title by the association's liens, for which they sought compensatory and punitive damages; and (2) declaratory judgment that the restrictive covenants had expired. The association filed a counterclaim seeking foreclosure of its liens for maintenance and unpaid dues and fines for camping violations. Both parties filed motions for summary judgment. The trial court granted summary judgment to the association and denied the Barkers' motion. They appealed the ruling.

In their appeal, the Barkers asserted that a quorum is "a majority of the voting interests," as stated in the restrictive covenants. They maintained that if conflict exists between the restrictive covenants and the bylaws, the restrictive covenants control. They argued that the meeting on Nov. 7, 1998, at which members voted to allow amendment of the restrictive covenants through a simple majority vote of members in attendance, did not have a quorum. Therefore, the amendment was not added to the bylaws. They further contended that the Feb. 6, 1999, meeting at which members voted to amend the restrictive covenants did not have a quorum, and, therefore, the amendment did not pass. They argued that any dues, fees or fines, as well as the liens on their property assessed by the association after the July 1, 1999 expiration date of the restrictive covenants were invalid and that placement of the liens on their property constituted slander of title for which they were entitled to actual and punitive damages. 

The association argued that it was created for the purpose of enforcing the restrictive covenants. It maintained that the amendments to the bylaws and restrictive covenants that resulted from the November 1998 and February 1999 meetings, respectively, were necessary to regulate and manage the association's affairs and to enforce the restrictive covenants. It contended that even though a quorum was not present for either vote, the bylaw amendment and the extension of the covenants were governed under the doctrine of waiver, estoppel, and custom or acquiescence because to nullify the votes would result in chaos as to the association's future. Further, the Barkers' claim of slander of title and request for punitive damages was meritless. The association also argued that the Barkers did not file the necessary sworn documents to support their motion for summary judgment. However, the association's own motion included an affidavit that demonstrated that the Barkers were entitled to declaratory judgment because the covenants had expired.

The appeals court used the principles of contract construction to interpret the meaning of the bylaws and covenants. The court found that the November 1998 amendment of the bylaws and the covenants were in conflict. The covenants state that the quorum requirement is a majority of the members with voting rights and the bylaws provide that a quorum is 12 percent of the members with voting rights. Because the amendment provided that in the case of any conflict, the covenants shall control, the quorum requirement for the actions taken by the association is a majority of the members with voting rights, in accordance with the covenants. 

At the November 1998 meeting, 1,082 votes were cast, and at the February 1999 meeting, held to amend the covenant to provide for their perpetual duration, 1,076 votes were cast. Because there were 2,260 members with voting rights on those dates, neither meeting had a quorum of a majority of members with voting rights. Therefore, the court ruled that the addition to the bylaws was not validly adopted and was unenforceable. Likewise, the amendment to the covenants to suspend the expiration of the restrictive covenants was unenforceable.

The association argued that a court's interpretation of a contract should not make any clause superfluous. It contended that enforcing the quorum requirement and allowing the covenants to expire would make it impossible for the association to carry out its purpose of policing and enforcing the covenants. The court disagreed because nothing in the "policing and enforcing" provision contradicted the expiration provision; and because "restrictive covenants must be strictly construed in favor of the free use of land."

The association argued that because Wisconsin courts recognize estoppel, waiver, and custom or acquiescence and that those doctrines applied in this case because the association had existed for 26 years, and to give effect to its purpose and enable it to regulate and manage itself, the court must use those doctrines to affirm the trial court. It asserted that the trial court alluded to waiver, estoppel, and custom or acquiescence when it ruled that the logical extension of the Barkers' argument would be that all association votes were voidable if the quorum required by the covenants was not present. However, the court found that the covenants had also existed for 26 years and that the Barkers could not raise their issue until July 1, 1999. The court found that the association had produced no evidence that it had previously taken action based on the 12 percent quorum requirement contained in the bylaws. The fact that the association existed for 26 years did not override the plain unambiguous quorum requirement or the plain unambiguous expiration date for the restrictions. The court determined that to extend the concept of custom and acquiescence to the informal adoption of bylaws that were adhered to for some length of time would be contrary to good policy, and the practical effect would be to create uncertainty.

The court reversed the trial court's award of summary judgment to the association for foreclosure of maintenance liens, unpaid dues and fines for camping violations because it determined that the restrictive covenants expired July 1, 1999.

The court next considered the Barkers' claim against the association for slander of title. The Barkers argued that because the maintenance fees that the association assessed against them were invalid, the liens slandered their title to the property contrary to Wisconsin statutes. Section 706.13 of the statutes provides that a person who files a lien knowing that it is false or frivolous is liable in tort to any interested party whose title is thereby impaired. The Barkers presented no evidence that the association filed the liens knowing they were false or frivolous or intending to hurt the Barkers, so the court ruled that they were not entitled to summary judgment on their slander of title and punitive damages claims.

In summary, the court affirmed the trial court's judgment in part, reversed in part, and remanded with directions. It directed the trial court to grant the Barkers' motion for summary judgment, declaring that the restrictions expired July 1, 1999 and deny the association's motion for summary judgment for dues, fees and fines and foreclosure. On the issues of slander of title and punitive damages, it directed that the trial court grant summary judgment to the association.

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

Public Policy Provides Immunity to Associations and their Agents

Divis v. Woods Edge Homeowners' Association, 385 Ill. App. 3d 636, 897 N.E.2d 375 (Ill. App. 2008)

Association Operations/State and Local Legislation and Regulations: In Illinois, the stated public policy is that property owners are encouraged to remove the snow and ice from the sidewalks abutting their residence. To that end, a state law provides immunity for owners, lessors, occupants, or others (or their agents) in charge of residential property who attempt to remove snow or ice from sidewalks on the property.

Woods Edge Homeowners' Association ("association"), is the owners association for Woods Edge Condominium. The association contracted with Weaver Realty and Management, Inc., to manage the common elements of the condominium. The management company contracted with Servicon Enterprises, Inc., to provide snow and ice removal service on the common elements of the condominium. On Jan. 28, 2006, when George Divis left his unit at Woods Edge, he slipped and fell on a patch of ice and suffered numerous injuries. Divis sued the association, the management company, Servicon and others (collectively "defendants"), claiming that his fall was due to Servicon's not removing the snow properly and completely.

The defendants asked the court to dismiss the suit, asserting the affirmative defense available to them by virtue of Illinois' Snow and Ice Removal Act ("Act"). The Act provides:

Any owner, lessor, occupant or other person in charge of any residential property, or any agent of or other person engaged by any such party who removes or attempts to remove snow or ice from sidewalks abutting the property shall not be liable for any personal injuries allegedly caused by the snowy or icy condition of the sidewalk resulting from his or her acts or omissions unless the alleged misconduct was willful or wanton.

The trial court dismissed the case.

Divis appealed, arguing that the Act does not apply to parties who enter into a contractual obligation to remove snow and ice. The appeals court found that the Act does not make that distinction. The Act provides that an agent of or other person engaged by a property owner, lessor or occupant is not liable for damages due to his or her snow removal efforts unless those actions are willful or wanton. The court found that Servicon acted as either an agent or "other person" engaged to remove the snow and ice from the common elements at Woods Edge. The fact that Divis' fall was the result of incomplete and improper snow removal did not remove the immunity provided to the association by the Act. The appeals court affirmed the trial court's ruling.

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Homeowner Must Repaint House

Gracewood at North Hills Homeowners Association, Inc. v. Mansoor, No. 10104/07, N.Y. Supr. Ct., March 18, 2008

Covenants Enforcement: A New York court issued a mandatory injunction in favor of a homeowners association to compel the homeowner to repaint his house in accordance with the requirements of the governing documents.

Gracewood is a community situated within the incorporated Village of North Hills, Nassau County, N.Y. Abed Mansoor owns a home at 11 Cherrywood Lane, Manhasset, N.Y. In 2004, North Hills Homeowners Association, Inc. ("association") sued Mansoor for violation of the governing documents. In response, Mansoor argued that (a) he had complied with the association's painting obligation; (b) the association was estopped from approving the colors used to paint the house; (c) the association waived its obligations; (d) the association was estopped from enforcing the obligation by reason of unlawful discriminatory conduct; and (e) the association had unclean hands. In addition, he counterclaimed that the association unlawfully discriminated against him and was guilty of bad faith.

The suit resulted in a settlement between the association and Mansoor, whereby Mansoor agreed to repaint the home in accordance with the procedures contained in the governing documents, including first obtaining the association's written approval of the proposed color of the paint. Mansoor agreed to repaint the house within three years or prior to the sale or transfer of ownership of the home, whichever occurred first. The Mansoors provided general releases to the association that expressly excepted the settlement agreement, the declaration and the association's bylaws.

In 2008, three years after the settlement, the association sued Mansoor, seeking to compel compliance with the settlement agreement. It contended that it was entitled to summary judgment because there was no defense to the cause of action and because the purported defenses asserted by Mansoor lacked merit.

Mansoor counterclaimed, alleging "systematic racial discrimination" by the association that constituted a gross violation of his civil rights.

The court noted that to obtain a preliminary injunction, a party must demonstrate (1) a likelihood of probability of success on the merits; (2) irreparable harm in the absence of an injunction; and (3) a balance of the equities in granting the injunction. A mandatory injunction, which is used to compel the performance of an act, is a drastic remedy that is rarely granted.

To support its motion, the association presented proof in evidentiary form that established that unauthorized paint violations had been treated in a consistent manner to compel compliance. In lawsuits to compel compliance, other homeowners were also granted additional time in which to change the color of their homes.

The court found that Mansoor failed to present a valid defense in his opposition to the association's motion for mandatory injunction, and the association's contentions were sufficient to establish entitlement to the relief sought.

The court granted the association's motion for mandatory injunction.

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Modular Home Cannot be Placed on Lot Without Association Approval

Lawhon v. Winding Ridge Homeowners Association, Inc., C.A. No. 3654-VCN, Del. Ch. Court, Dec. 31, 2008

Covenants Enforcement: Construction of improvements without an association's approval meant that owners had to proceed at their own risk. The association had the power to deny access to a modular home in a subdivision because the lot owners failed to obtain architectural approval.

To find a lot on which to place their new mobile home, Ronald and Bobbi Lawhon turned to Dorothy Burton, a real estate agent. Burton helped the couple find a lot in the Winding Ridge Subdivision near Dover, Del.

Burton was aware that the lot was subject to covenants and restrictions outlined in a declaration of restrictions imposed by Winding Ridge Development Corp., the developer of the subdivision. Because the Lawhons did not intend to build an attached garage as a part of their new home and because the declaration required that all homes have an attached garage, Burton contacted the association's president, Brian McClafferty, to request the association's permission to build a home without an attached garage. The declaration provided that this requirement could be waived. When Burton met with McClafferty, she showed him sketches of the property and pictures of the modular home. McClafferty told Burton and the Lawhons that the modular home would not be allowed in the subdivision.

However, McClafferty agreed to present Burton's request to the association. Burton gave McClafferty at least two photos of the property, her business card and a brochure describing the home. She followed up with a short letter confirming her visit and her hopes that the association would approve her client's request. McClafferty never presented any of that material to the association.

Neither Burton nor the Lawhons received any response from McClafferty or the association. Having been informed by Burton that approval of a home without a garage was unlikely, the Lawhons arranged for a friend experienced in construction to assist them in building a garage that would satisfy the association. Because the Lawhons did not hear from the association, they purchased the lot in November 2007. Shortly after buying the lot, the Lawhons signed a contract with a modular housing company, and the company began preparing the lot for the arrival of the Lawhons' home.

The day before the home's arrival on the lot, Ronald Lawhon received a call from the construction manager informing him that a rope had been tied across the entrance to the site. Lawhon contacted McClafferty and was told that the modular home would not be permitted in Winding Ridge. At that point, no reasons were given as to why the home would not be allowed, and Lawhon did not ask. After that conversation, Lawhon contacted an attorney.

At his lawyer's request, Lawhon phoned McClafferty after the holidays to find out why the modular home would not be allowed. McClafferty read to Lawhon the declaration's architectural review provision that stated that the declaration not only restricted the erection of a dwelling without an attached garage but also required that all construction plans be submitted to architectural review for approval. Therefore, the Lawhons had embarked upon their project without first having obtained the required architectural review approval.

Lawhon subsequently mailed drawings of the proposed home to McClafferty, and McClafferty responded with a letter on Jan. 11, 2008, stating that association did not approve the modular home plans. After receiving the letter denying approval, the Lawhons' attorney contacted McClafferty and the association by letter, seeking to resolve the disagreement. McClafferty did not give a copy of that letter to the other members of the association and did not respond to the letter.

After several weeks without a response, Lawhon again telephoned McClafferty. Lawhon informed McClafferty that he had updated drawings of the home, which included an attached garage and the addition of a small gable over the front door. Lawhon offered to send those new drawings to McClafferty and the association. According to Lawhon's recollection of the conversation, McClafferty found that unnecessary and stated that no matter what changes were made, the home would not be approved. At trial, McClafferty denied making that statement, yet recalled virtually nothing of what the two men discussed. The Lawhons sued the association in March 2008, asking the court to enjoin the association from enforcing the architectural review covenant or, alternatively, to bar the association from enforcing the application for equitable estoppel, laches or waiver.

After the suit was filed, McClafferty called a special meeting of the association, the purpose of which was to discuss the proposed Lawhon home. The letter was sent to all association members, including Lawhon, a member by virtue of his ownership of property within the subdivision. 

Association members attending the meeting were informed about the Lawhons' lawsuit and were allowed an opportunity to discuss the proposed home. The general consensus was that the members did not like the color of the Lawhons' home or its proposed orientation on the property. There was discussion that the Lawhons' home would materially differ from other homes in Winding Ridge. First, it would be a deep red instead of typical earth tones. Second, it would sit perpendicular to the road instead of facing it, as the other homes do. Finally, it would not include gables, a feature common to the other homes in Winding Ridge.

For these reasons, the members contended that the proposed home would never satisfy the architectural review process. However, it appeared that the membership was willing to work toward compromise with the Lawhons, suggesting a change in the home's color and orientation on the property. There was also a suggestion that the Lawhons be given additional land to facilitate a repositioning of the home, but no compromise was reached. Following the meeting, Lawhon provided additional documentation concerning the proposed home to the association.

After the meeting, the association did not take official action concerning the Lawhons' home. Both the association and the Lawhons expected the other to initiate further contact.

At trial, the Lawhons first argued that the association lacked the authority to conduct architectural review and the authority to interfere with improvements on their lot. The association was formed on Sept. 30, 1992, in accordance with the declaration of maintenance obligations adopted by the developer. The declaration imposed covenants concerning maintaining the community pond and open spaces. It also contemplated the transfer of all management authority to the association once the last lot in Winding Ridge was sold.

The association contended that it succeeded to all the developer's rights under the declaration, including the right to conduct architectural review of improvements, which it exercised since 1995. Neither party disputed that the architectural review authority was properly created and vested in the developer. Instead, the Lawhons argued that power was never transferred to the association and that, in light of the 1996 dissolution of the developer, no entity held the right to exercise architectural review of their proposed improvements.

According to the court, the relevant provision regarding transfer of rights to the association states:

At such time as the developer has conveyed the last lot in Winding Ridge and has conveyed any open space areas and the pond area to the association, the association shall succeed to any and all powers previously held or exercised by [Developer], even though such powers or rights may not have been specifically spelled out in this instrument or specifically assigned or delegated to the [A]ssociation.

The question for the court was whether this provision was intended to transfer architectural review to the association and such a conclusion is a question of contract interpretation.

In interpreting the provision, the court sought to determine the original intent from the plain and ordinary meaning of the words chosen. If that language was unambiguous, then no other evidence would be necessary to determine the intent. According to the court, a document is not ambiguous merely because the parties do not agree as to its interpretation.

The court determined that the declaration was unambiguous because the shared intent of the parties to the declaration was to arrange for the transfer of all supervisory powers possessed by the developer, including architectural review authority, to the association at such time as the conditions precedent to that transfer had been satisfied.

The transfer was expressly conditioned on the satisfaction of two conditions: (1) the conveyance by the developer of the final lot in Winding Ridge, and (2) the transfer of any open space areas and the pond to the association. According to the court, the only evidence presented supported a finding that those conditions were satisfied. Therefore, the association possessed the power to enforce the architectural review covenant. The court explained that any uncertainty as to the satisfaction of the two conditions precedent to the transfer of the architectural review authority had to be resolved against the Lawhons because they bore the burden of proving their claim that the association did not have the power to approve or deny their application to place the modular home on their lot. The court concluded that the architectural review provision was valid and enforceable and that the Lawhons had adequate notice of its demands.

The Lawhons also argued that, even if the architectural review covenant was valid, its enforcement against them was arbitrary and capricious. According to the court, that argument also failed because the court could only conclude that the rejection of the Lawhons' home was based on "rational, objective, and permissible factors."

The architectural review provision expressly noted community harmony and outlook as factors to be considered when evaluating proposed land improvements, and Delaware case law approves of evaluations made with those criteria. According to the court, the Lawhons' home failed an objective consideration based solely on those standards because the home's color was not harmonious with a well-developed color scheme and because of its proposed perpendicular orientation. Those differences were material, thus justifying the association's disapproval of the home.

The court concluded that the Lawhons knew both when they purchased the land and when they began construction that architectural review and approval were required and that they had not received an approval. The court determined that they began construction at their own risk. Accordingly, the court ruled in favor of the association.

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

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Letter to Association Members Disparaging Bookkeeper is Defamatory

McIntyre v. Jones, 194 P.3d 519 (Colo. App. 2008)

Miscellaneous Association Problems: A Colorado appeals court affirmed a ruling that a letter sent to association members was defamatory because the statements contained in the letter were made with reckless disregard for the truth.

Debbie McIntyre and George Jones owned units in a 25-unit condominium project in Mountain Village, Colo. North Star B Condominium Association, Inc. ("association") was formed to regulate the rights and obligations of the unit owners. McIntyre was hired as manager and bookkeeper for the association and received a total salary of $400 a month for her services. The association was governed by a board of directors that consisted of Jones, Donn Wagner and Heather George.

In 2000, Jones became concerned that McIntyre was not competently fulfilling her responsibilities as manager and bookkeeper. The board requested that she provide them with the association's financial records. McIntyre refused on two occasions to provide the requested records because she erroneously believed that she could only be supervised by the association's president or treasurer.

In February 2001, Wagner sent McIntyre a letter informing her that her position as the association's manager was terminated. The letter did not explain why she was being terminated and did not address her position as bookkeeper.

On March 14, 2001, McIntyre received another letter, signed by Wagner and Jones, informing her that her position as the association's "accountant" was terminated because of her unresponsiveness and insubordination in refusing to turn over the requested association records and demanding that she turn over the records by the following day. She made the records available to Wagner on March 15 and March 24.

The association's annual meeting was held April 1, 2001, and the members elected Heather George, Steve Schneider and Tami Huntsman to the board of directors. At a meeting that day, the board voted unanimously to retain McIntyre as bookkeeper if she became bonded by May 1. In addition, they voted to require two signatures on all association checks.

In June 2001, Jones wrote to Huntsman requesting that the board not retain McIntyre as the association's "accountant" pending a full audit and listed the following complaints against McIntyre:

  • the association had been required to pay $1,460.87 in bank service fees;
  • she did not give the board the requested accounting of spending and reserves;
  • she sought reimbursement for unreasonable management expenses;
  • she failed to change trash removal companies as instructed;
  • she failed to produce association books and records for review;
  • she cashed a check drawn on the association's account, made payable to her but not signed; and
  • she failed to follow "normal procedures and safeguards," bypassing account signatories by giving herself credit against monthly dues and signing other checks.

McIntyre responded by providing the financial records to the board. After its review, the board concluded that, while some overdraft charges could be attributed to McIntyre's untimely transfers of funds from the association's savings account, she had satisfactorily refuted Jones' charges and they found no evidence of fraud. McIntyre and the board agreed that she would reimburse the association $350 for the bank service charges. The board included its conclusions in the official minutes of the Sept. 30, 2001 meeting and sent copies to all association members.

In the fall of 2001, McIntyre tried to give Jones a letter demanding that he stop making false statements about her but was unable to do so until January 2002. When Jones read the letter, he scanned it and handed it back to McIntyre saying he did not want it.

McIntyre resigned as bookkeeper in June 2002; however, the board rehired her in 2004. When Jones found out about the board's decision, he sent a letter dated Dec. 30, 2004, saying that the board had discharged McIntyre three years before for incompetence, insubordination and withholding records from review. He also claimed she had inappropriately enriched herself from association funds. Nevertheless, the board stood by its decision to hire her.

Subsequently, McIntyre sued Jones for defamation based on the Dec. 30, 2004 letter. Jones denied the allegations as false and asserted that he had a qualified privilege to publish the statements. He later claimed that his statements involved a matter of public concern and that McIntyre was a limited purpose public figure, either of which, if true, would require McIntyre to meet a higher burden of proof. The trial court ruled in McIntyre's favor but awarded her damages of only $1. The court concluded that (1) the statements in Jones' Dec. 30, 2004 letter were false and defamatory; (2) the statements did not involve a matter of public concern; (3) McIntyre was not a limited purpose public figure when Jones published the statements; (4) Jones had a qualified privilege to make the statements but lost it because he published them with reckless disregard for their veracity; and (5) though McIntyre had not proved actual damages, she was entitled to nominal damages because the statements were defamatory per se. Jones appealed.

The appeals court discussed that in Colorado, a cause of action for defamation includes the following elements: (1) a defamatory statement; (2) published by a third party; (3) with fault amounting at least to negligence on the part of the publisher; and (4) either actionability of the statement irrespective of special damages or existence of special damages caused by the publication. An action for defamation exists to compensate individuals who have suffered harm to their reputations because of the careless or malicious communications of others.

The court noted that the interest of protecting a person's reputation must be weighed against society's interest in encouraging vigorous public debate, as protected by the First Amendment to the Constitution. Therefore, if a statement does not involve a matter of public concern or pertain to a public official, a person must only prove that the publication is defamatory by a preponderance of the evidence, but if the statement involves a matter of public concern or pertains to a public official, the charge must be proved false by clear and convincing evidence. Likewise, a person must prove that the defendant published the statement with malice, knowing that the statement was false or with reckless disregard for whether the statement is true.

On appeal, Jones did not contest the trial court's finding that his letter was defamatory, but he contested the trial court's findings that the statements did not involve a matter of public concern, that McIntyre was not a public figure, that the statements were false, and that he abused his qualified privilege to publish the statements. Because the first two points impact the burden of proof, he contended that the trial court did not apply the proper burden of proof.

The court explained that the question of whether a matter is of public concern is a question of law that must be decided on a case-by-case basis. The court found that the parties to this case were private, that the defendant was not a member of the media, and that the defamatory statements were communicated in a private context. Jones did not argue that the statements were newsworthy or of any legitimate interest to the public at large but instead argued that the matters were of public concern because they pertained to the governance of a homeowners association. The court was not persuaded.

In support of his argument, Jones relied principally on Damon v. Ocean Hills Journalism Club, 85 Cal. App. 4th 468, 102 Cal. Rptr. 2d 205 (2000). In that case, residents of a planned community consisting of 1,633 homes made statements during public board meetings and the community newsletter critical of the community's general manager. Because the residents' defamatory statements concerned the manner in which a large community would be governed, the issue was of public interest within the meaning of the California anti-SLAPP statute.

The court noted that the California courts regard Damon as being limited to matters of governance affecting a large number of people and that a matter of public interest is one that affects a broad segment of the community or affects the community in a way similar to that of a governmental entity. In this case, the association's selection of a bookkeeper affected a small number of people, in a very small community.

When the court addressed the issue of whether McIntyre was a limited purpose public figure, it noted that a person who is a "public figure" has a higher burden of proof to recover in a defamation case than a private individual. It also noted that a person may be a public figure for a limited purpose when that person puts himself into or is drawn into a particular public controversy. However, the court concluded that McIntyre was not a limited purpose pubic figure because Jones' statements did not involve a matter of public concern.

The court found that case law is unclear as to whether a plaintiff must prove that an alleged defamatory statement is false or whether the truth of the statement is an affirmative defense to be proved by the defendant. The trial court assumed that McIntyre had the burden of proving that the statements were false, and because the trial court found that Jones had a qualified privilege to publish the statements, a finding that McIntyre did not appeal, the appeals court also assumed that McIntyre was required to prove that Jones' statements were false.

The court found that if a statement is true, it is not actionable irrespective of the First Amendment. If a statement is false, it is not entitled to First Amendment protection. Therefore, the court found that the trial court's findings that the statements at issue were false constituted findings of fact and would not be set aside absent a clear showing that the findings were erroneous and not supported by the record. In reviewing the findings, the appeals court bore in mind that McIntyre was not a public figure and the statements did not involve a matter of public concern; therefore, McIntyre was only required to prove by a preponderance of the evidence that the statements were false.

The evidence produced by Jones at trial to show that McIntyre paid herself twice for services performed in 2000 and paid herself additional compensation for work that was within her regular managerial duties was refuted by showing that she was paid twice in one month in 2000 to make up for a month in 1999 in which she wasn't paid, and the association's treasurer had approved the additional compensation. Furthermore, none of the board's minutes reflected that the board had never found that McIntyre had inappropriately enriched herself. The appeals court upheld the trial court findings that Jones' statements were false.

The court explained that a qualified privilege exists for communication by a party with a legitimate interest or responsibility to people having a corresponding interest or responsibility promoting legitimate public interests. When a qualified privilege exists, there is the presumption that the communication was made in good faith without malice. The court agreed with the trial court's ruling that Jones had a qualified privilege to publish the statements but that he abused that privilege. Therefore, Jones lost the privilege because he acted with reckless disregard for the truth by not investigating the facts. The court affirmed the trial court's decision.

McIntyre requested that she be reimbursed for the additional costs of the appeal and reasonable attorney's fees, but she did not cite a basis for an award and the court could find none. Additionally, because McIntyre represented herself, she did not incur any recoverable attorney's fees. The court denied her request for attorney's fees but granted her request for costs.

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Award of Reasonable Attorney Fees Approved

Mountain High Homeowners Association, Inc. v. Jewett, 224 Ore. App. 45, 197 P.3d 27 (2008)

Attorney Fees: In Oregon, the prevailing party in an action brought by an association to enforce compliance with the terms and state law provisions is entitled to recover reasonable attorney fees.

Mountain High Homeowners Association, Inc. ("association") is the homeowners association for a planned community comprised of several subdivisions that consolidated. In 1999, the association recorded several amended declarations of covenants, conditions and restrictions that incorporated the separate associations into a single planned community association. One of the individual communities was Willow Creek.

In 2000, Sharon Jewett purchased property at Willow Creek without actual knowledge of the amendment to the Willow Creek declaration that subjected Willow Creek to the new association. Jewett subsequently contested her obligation to pay assessments to the association. On June 3, 2005, Jewett recorded a document purporting to be a restatement of Willow Creek's declaration and the governing documents for the Willow Creek Association at Mountain High Homeowner's Association from and after Sept. 20, 1989.

The association subsequently sued Jewett, contending that the amended declaration recorded in 1999 was properly recorded and was the governing document for the Willow Creek community, which included Jewett's property. The association also asked the court to determine that the restatement Jewett filed in 2005 was null according to Oregon law. Oregon's Planned Community Act ("Act") provides that declarations may be amended "only with the approval of owners representing at least 75 percent of the total votes in the planned community or any larger percentage specified in the declaration." Jewett's 2005 restatement did not include a statement that 75 percent of the total votes of the community approved the restatement. Nor did the 2005 restatement provide that that the association board of directors adopted the resolution and caused the declaration to be restated as required by the Act. Additionally, the 2005 restatement did not include a certification signed by the association's president and secretary that the restatement included all previously adopted amendments then in effect. Finally, the 2005 restatement was not signed and acknowledged by the association's president and secretary as required by the Act.

The trial court granted the association's motion for summary judgment on all of its claims and denied Jewett's motion. Although the association asked the court for attorney's fees and Jewett did not object, the trial court did not award attorney's fees.

The association appealed the trial court's decision not to award attorney fees, arguing that the trial court was required to award it attorney's fees pursuant to the Act. Citing Domingo v. Anderson, 325 Or. 385, 938 P.2d 206 (1997) the appeals court first noted that a prevailing party is entitled to attorney's fees only if the award is authorized by a statute or a contract. The appeals court then looked at Section 94.719 of the Act, which provides:

…[I]n any suit or action brought by the declarant, the association or any owner or class of owners to enforce compliance with the terms and provisions of ORS 94.550 to 94.783 or the declaration or bylaws, including all amendments and supplements thereto or any rules or regulations adopted by the association, the prevailing party shall be entitled to recover reasonable attorney fees therein and in any appeal therefrom.

The court found that the association, as the prevailing party, was an association as that term is used in the Act. By asking the trial court to declare the 2005 restatement a nullity, the association sued Jewett to enforce compliance with provisions of the Act and, as such, was entitled to recover reasonable attorney's fees.

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No-Lease Restriction Violates Fair Housing Act

Villas West II of Willowridge Homeowners Association, Inc. v.  McGlothin, No. 34S02-0805-CV-266, Ind. Supr. Ct., May 15, 2008

Federal Law and Legislation/Covenants Enforcement: The Indiana Supreme Court reversed a trial court's ruling that a no-lease restriction violated the Fair Housing Act on the ground of disparate impact and remanded the case for reconsideration of the claim of intentional discrimination.

Algy and Edna McGlothin purchased a home in Villas West II Planned Unit Development of Willowridge Subdivision in Kokomo, Ind. Villas West II is subject to deed restrictions, one of which is a no-lease provision. Edna McGlothin lived in the home until she broke her hip, at which time she moved to a nursing home, and Algy McGlothin continued to live in the home until he died. After his death, his daughter rented the home out in order to pay Mrs. McGlothin's nursing home expenses. Villas West II Homeowners Association, Inc. ("association") sued McGlothin to enforce the covenant, and she countersued, claiming that the restriction violated the Fair Housing Act ("Act").

Her counterclaim included elements of two different claims, disparate impact and intentional discrimination. The trial court ruled in McGlothin's favor on the ground of disparate impact, finding that the restriction had a greater adverse effect on African Americans and racial minorities, and finding no legitimate nondiscriminatory reason for the covenant. The association appealed, and the appeals court affirmed the trial court's decision. The association then appealed to the Indiana Supreme Court.

The supreme court ruled that granting relief to McGlothin on the ground of disparate impact was erroneous, and it remanded the case for reconsideration of the intentional discrimination claim.

In its review, the supreme court considered that a restrictive covenant is an express contract between grantor and grantee that restrains the grantee's use of the land. Restrictive covenants are used to maintain or enhance the value of property by reciprocal endeavors that restrain or regulate. People who purchase property that is subject to restrictive covenants give up a certain degree of individual freedom in exchange for the protections derived from living in a community that has reciprocal goals. Restrictions recorded in a master deed have a strong presumption of validity that arises from the fact that each owner purchased the unit knowing of and accepting the restrictions. Restrictive covenants cannot be invalidated unless they are shown to violate a public policy or abrogate a fundamental constitutional right. Planned subdivisions and condominiums frequently adopt no-lease covenants that bar rental of units and forbid absentee ownership because of owners' concerns about the negative effects of high resident turnover and the perception that renters fail to maintain the property. Empirical data exists that validates these concerns. However, as in the present case, an agreement to limit the use of real property can be challenged under other law. 

To establish a claim under the Act, a claimant must demonstrate that a policy or practice has a significant adverse or disproportionate impact on a protected class. To disprove this, a defendant must show that its policy or practice has a legitimate nondiscriminatory interest.

Evidence presented at trial indicated that, regardless of income and age, African Americans rent their homes in a greater proportion than whites. Therefore, the decrease in available rental housing caused by the no-lease covenant would predictably and disproportionately affect African Americans. Although the court found the evidence supporting this argument dubious, it proceeded on the basis that a prima facie case had been established. 

At trial, the association sought to rebut McGlothin's argument by demonstrating that the no-lease provision was based on legitimate nondiscriminatory concerns. The reason for the no-lease provision was that renters do not maintain homes they rent as well as the owners would, and the restriction helped to maintain property values in the subdivision. McGlothin argued that other covenants encumbering the property adequately assured that the property would be maintained, and, therefore, the association's argument lacked factual basis.

The Indiana Supreme Court found that there is wide agreement in federal circuit courts that the Act allows disparate impact claims but found no consensus about the proper framework for analyzing such a claim. The court noted that the U.S. Supreme Court has not addressed the issue and federal district courts have in many instances derived their approach from an early disparate impact case, Metropolitan Housing Development Corp. v. Village of Arlington Heights, 558 F.2d 1283 (7th Cir. 1977), which determined that disparate impact recovery under the Act is proper when the defendant's conduct produces a discriminatory effect and four factors support granting relief: (1) the strength of the plaintiff's showing of discriminatory effect; (2) evidence of discriminatory intent; (3) the defendant's interest in the challenged conduct; and (4) whether the plaintiff seeks relief or only to restrain the defendant.

Noting that federal district courts are obligated to follow precedent, the court asserted that it was not so restricted, and because the finding in Arlington Heights II seemed doctrinally unsound, the court rejected its reasoning.

The court noted that disparate treatment claims require proof of intentionally discriminatory treatment of a protected class. Disparate impact claims, by contrast, require no proof of intent and can be established if a policy or practice has a discriminatory effect on a protected class, even if the policy or practice is presumably nondiscriminatory. 

The court determined that the trial record did not support McGlothin's claim under the disparate impact theory. Although the alternate covenants are a less discriminatory means to promote maintenance, they do not equally serve as a means to maintain property values. The court stated that maintaining property values involves improving and updating the property in addition to maintaining the property. It considered that at trial, both parties' experts testified that owners maintain property better than renters. It was shown that owners who occupy their property have an incentive to improve and update because they can reap the benefits when they sell their homes whereas, in a rental situation, the incentive is weakened because of divided ownership and occupancy. Because the evidence on this point was undisputed, the court found that the trial court erred by determining that the other covenants were equally adequate to maintain the property.

The supreme court found that the trial record was contradictory as to intentional discrimination and was ambiguous about whether the builder realized the word "restricted" sent a negative message to African Americans. The nature of its findings and the fact that McGlothin's brief contained arguments mostly but not exclusively for relief under the claim of disparate impact, led the trial court and the appeals court to conclude that disparate impact was the only issue to be considered. However, the supreme court found itself unable to discern whether relief was appropriate on McGlothin's intentional discrimination claim. 

The court reversed the trial court's ruling on the claim of disparate impact and remanded the case for reconsideration of the intentional discrimination claim. 

In a dissenting opinion, Justice Rucker argued for the precedent set in Metropolitan Housing. He noted that many courts argue that this precedent is flawed and should not be followed, acknowledging that a uniform standard for determining liability based on disparate impact claims has not been established. However, he also noted that several state and federal jurisdictions continue to follow the Metropolitan Housing methodology, and other than to make it more difficult for legitimate victims of housing discrimination to press their claims, he could see no reason to abandon it. Applying the Arlington Heights II factors, both the trial court and the appeals court concluded that the no-lease covenant violated the Act because of its disparate impact on members of the African American community residing in the City of Kokomo. He agreed with the lower court findings and would affirm the trial court's judgment.

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

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Association's Insurance Does Not Cover Mudslide

West American Insurance Company v. Red Cricket Condominium Association, No. CV 07-37-N-EJL, U.S. Dist. Ct., Dist. of Idaho, July 29, 2008

Association Operations: Although a condominium association claimed that damage to the community was caused by a flying object rather than a mudslide (which the policy specifically excluded), a U.S. district court interpreted the plain language of the association's insurance policy to exclude the damage.

West American Insurance Company ("West American") issued a commercial business owners policy to the Red Cricket Condominium Association ("association") for the effective dates of June 26, 2005 to June 26, 2006. Prior to May 2006, a construction company commenced construction on condominium units for Larkspur Land Development on a mountainside above the Red Cricket Condominiums. Excavated material was placed upslope of Red Cricket in a steep ravine through which seasonal surface runoff flowed, and in May 2006 the excavated material traveled down the mountainside and caused the collapse of most of the back concrete wall of the Red Cricket Condominiums, continuing through the building and out the garage doors in the front, destroying much of the front wall in the process. Red Cricket sued the contractor and Larkspur Land Development, and the case was mediated and dismissed by stipulation by the state court.

The association also filed a proof of loss with its own insurance company, West American, claiming that the damage was caused by a falling object, not a mudslide or mudflow, which type of damage was excluded under the terms of the insurance policy. West American argued also that even if the mudslide or mudflow was caused by the negligence of a third party, the contractor or the developer, any coverage for such loss was also excluded under the terms of the policy. The association's engineer claimed that the soil mass involved little of the native soils and that the destruction did not meet the traditional definition of mudslide or mudflow, which were naturally occurring phenomena.

Although the insurance policy did not define the terms "mudslide," "mudflow," or "falling object," the court found that in interpreting the plain language of the insurance policy as a whole the contract exclusions in the insurance contract were clear and unambiguous: "loss or damage due to mudflows or mudslides are excluded regardless if such mudflows or mudslides are caused by negligence of another party."

The court found the plain and ordinary meaning of "mudflow" to be a moving mass of soil made fluid by rain or melting snow made fluid by excessive water, without requiring that the mudflow or mudslide involve native soil or that either be a naturally occurring phenomenon. The court consequently dismissed the association's technical definition relating to native soil supplied by their engineer and concluded that there was no genuine issue of material fact that would preclude summary judgment. In applying the ordinary definitions, the court found no ambiguity and declared that the earth movement fit the ordinary definition of "mudflow" and was specifically excluded from coverage.

The court also addressed the question of whether the excavated material qualified under the insurance policy as a falling object, which is what the association claimed. The court found that the term "falling object" was ambiguous, and that there existed a genuine issue of fact whether the earth movement was a falling object in the plain sense of the words. However, because the court determined that the earth movement that was alleged to be a falling object by the association directly or indirectly became a mudflow or mudslide, and because such coverage was specifically excluded by the insurance policy as argued by West American, then the requested coverage would be excluded by the insurance contract.

Regardless of any falling object that contributed to the loss, because the loss was directly or indirectly caused by the mudslide, the court ruled that the loss suffered by the association was not included under the terms of the West American insurance policy. The court granted summary judgment to West American.

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

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