September 2009
In This Issue:
No-Pet Policy Does Not Violate State or Federal Fair Housing Acts
Possession Under An Executory Contract Is Not Adverse
Written Notice of Reconvened Annual Meeting Not Required for Vote to Commence Litigation
Association Not Creditor of Declarant at Time of Illegal Transfer of Funds
Courts May Not Run Afoul of Rules of Civil Procedure in Granting Possession
Exclusivity Agreements between Cable Companies, Multi-Unit Developments Banned
Exclusion Clause Gives Insurer Right to Deny Association Coverage
Court's Waiver Order Does Not Bar Association from Collecting Judgments
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No-Pet Policy Does Not Violate State or Federal Fair Housing Acts

Hawn v. Shoreline Towers Phase I Condominium Association, Inc., No. 3:07-ev-97/RV/EMT, U.S. Dist. Ct. of Fla., March 12, 2009

Covenants Enforcement/Use Restrictions/Federal Law and Legislation: An association board was within its rights to deny a homeowner's request to have a dog, when the homeowner did not provide sufficient documentation of a disability and the association had a no-pet policy.

Davis Hawn is the owner of a condominium unit governed by Shoreline Towers Phase I Condominium Association. For several years, Shoreline had a no-pet policy and posted a sign on its property stating "No Animals Allowed." Hawn was aware of the policy when he bought his unit in 2004; but, at that time, he said he "wasn't concerned about it." However, in January 2005, after he adopted a Labrador retriever puppy, he wrote the association's board of directors to propose a change in policy that would allow unit owners to own pets. In his letter, he did not claim that he was disabled, or that Booster, his dog, was a "service animal."

Booster was a puppy at the time Hawn adopted him and more than a year away from being certified as a service dog. Hawn's letter to the board stated that the puppy had become his close companion, who taught him, "to be more responsible, caring, and less self-centered," and who, "sleeps at the foot of my bed and has even jumped into the shower to be with me." He requested a six-month trial period, "to give folks a chance to prove that they love their pets as one would love any other family member."

The record does not reflect what action the board took in response to Hawn's initial letter; but more than a year later, he wrote another letter to the board asking for permission to keep Booster in his unit, claiming that he was disabled and that Booster had been certified as a "service animal, … trained to help me both physically and psychologically." The letter also stated that his ability to walk was restricted due to a leg injury, he was often in pain, and Booster performed tasks that helped him overcome his disabilities. He attached a separate letter stating that he had been assaulted in his condominium unit and because of the ordeal was afraid to be alone. He explained that his service animal could make him aware of an intruder, summon help, and bring the phone upon command. He also attached Booster's "resume" to these two letters with the dog's certification records.

Hawn provided letters from two medical providers. Patrick Evans, a psychologist, stated that Hawn suffered from severe panic attacks, was unable to properly cope with anxiety and stress and was particularly vulnerable in his condominium unit due to past occurrences on the property. Evans wrote that he was, "prescribing a service animal," to provide support and help Hawn cope with his, "emotionally crippling disability." At the time Evans signed this one-page letter, his entire treatment of Hawn consisted of two recent one-hour counseling sessions. The other letter was from Desmond Hoda, a chiropractor, who wrote that  Hawn had mobility limitations, and a support animal would assist him with this disability. At the time Hoda signed his letter, he too had seen Hawn only two times.

After submitting this request to the association, Hawn attended a board meeting and asked to have his request put on the agenda, which it was. He then read a speech explaining how Booster was a service animal who was helpful and necessary for him to overcome his disabilities. During the speech, he voluntarily gave details of his personal life and medical history and became "tearful and emotional." He later claimed that during the meeting, the board, "ignored his request in deliberate indifference to his physical and mental impairments," and "treated [him] poorly" in that they suggested he move from Shoreline.

In August 2006, Shoreline's general manager asked Hawn for additional information to consider his request, including documentation to support his alleged disabilities and the qualifications of Evans and Hoda. Hawn did not respond or otherwise provide the requested information.

In September 2006, the general manager wrote a letter to Hawn, once again asking for further documentation to consider his request. The letter concluded by stating that, "[w]hile the association sympathizes with your situation, at this time we must deny your request to keep a pet in your condominium unit 3023." Hawn did not respond to this letter or provide the information that was requested; instead, he filed a complaint with the Florida Commission on Human Relations ("Commission"). During the course of the Commission's investigation, Evans and Hoda filed Medical Certification Forms under oath, in which they stated that Hawn was disabled and a service dog was necessary. These forms were provided to the board. The Commission found cause to believe that the association had discriminated against Hawn by not providing reasonable accommodation for his disabilities. He then sued the association, alleging violation of the Federal Fair Housing Act, violation of the Florida Fair Housing Act and intentional or reckless infliction of emotional distress, seeking an injunction.

The association moved for summary judgment. Since the Florida Fair Housing Act and the Federal Fair Housing Act contain essentially identical provisions and implicate essentially the same facts, the trial court considered them together and collectively referred to them as the "FHA." Hawn first challenged the "No Animals Allowed" sign posted on the property. He argued that the sign demonstrated discriminatory intent to violate the FHA, which prohibits any notice, statement or advertisement, with respect to the sale or rental of a dwelling that indicates any preference, limitation or discrimination based on [handicap] or an intention to make any such preference, limitation or discrimination. He argued that discrimination could be inferred from the sign because if the point of the policy were merely to deny pets, the association could have posted a sign that said "No Pets Allowed." He argued that because the term "animals" is a larger category than "pets," and would, arguably, include service animals, it established discriminatory intent. The court noted that he did not cite any case law to support his argument and, furthermore, that although the sign could perhaps be worded more precisely, the fact that it read, "no animals" instead of "no pets" simply did not reflect an intentional preference, limitation or discrimination based on handicap in violation of the FHA.

Hawn also argued that the association violated the FHA by failing to make a reasonable accommodation for his alleged disabilities. Under the statutes, it is unlawful to discriminate against a person by refusing, "to make reasonable accommodations in rules, policies, practices or services, when such accommodations may be necessary to afford such person equal opportunity to use and enjoy a dwelling." The court explained that whether an accommodation is required by law is "highly fact-specific, requiring case-by-case determination." To prevail under this line of argument, a person must establish: (i) that he or she is disabled or handicapped within the meaning of the FHA; (ii) that the offending party knew or should have known of the disability or handicap; (iii) that the offending party knew that an accommodation was necessary to afford the disabled individual equal opportunity to use and enjoy the dwelling; (iv) that such an accommodation is reasonable; and (v) that the offending party refused to make the requested accommodation. In the court's opinion, Hawn failed to meet the first, second and third criteria.

Assuming that Hawn was disabled under the FHA guidelines, the court concluded that no reasonable jury could find that the association knew or should have known about his disability because at the time he initially lobbied the board for permission to keep Booster, he lobbied to keep him as a pet. At that time, he did not claim to be physically or psychologically disabled. In addition, he waited a year after his initial request to have Booster certified as a service animal. Furthermore, the court did not find the letters provided by Evans and Hoda helpful in establishing Hawn's disabilities because they did not provide any information about Hawn's disabilities. Neither letter indicated whether his limitations were permanent, or whether Booster was actually necessary to afford Hawn equal opportunity to use and enjoy his dwelling, as opposed to being just desirable and helpful. The court found it noteworthy that the letters did not describe the providers' individual qualifications, background or Hawn's treatment history.

The court found no evidence to indicate that the association would have refused to accommodate Hawn if he had provided adequate documentation that he was disabled and needed a service dog. Instead, it considered it commendable that the board did not deny Hawn's request outright, but attempted to get additional information from him to make an informed decision. Insofar as the court found the letters from Evans and Hoda deficient in several ways, it found that the board was well within its right to request additional information. The court concluded that Hawn failed to establish that the association knew the accommodation was necessary, and the FHA claims failed.

In considering the final count of Hawn's complaint, the court explained that, to prevail on a cause of action for intentional infliction of emotional distress, a claimant would have to prove that the offending party's action was "so outrageous in character and so extreme in degree as to go beyond all possible bounds of decency, and to be regarded as utterly intolerable in a civilized community." Hawn contended that he was treated poorly because board members, "wrongfully claimed that he was requesting the use of a pet rather than a trained service animal." He further asserted that, in deciding to deny his request, the board acted with, "reckless disregard for the impact that its callous decisions would have on him." The court quickly dismissed this claim, stating that Hawn wholly failed to satisfy the high standard for intentional infliction of emotional distress.

The court granted summary judgment in favor of the association and its board of directors.

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

Possession Under An Executory Contract Is Not Adverse

Klein v. Meza, 4 So. 3d 51 (Fla. Dist. Ct. App. 2009)

Contracts: A prospective purchaser's continued occupancy of a condominium unit after her failure to make the payment called for in a contract for deed to purchase the unit does not constitute adverse possession under Florida law.

In January 2000, Kendall Acres Condominium Association sued Isobel Isserlis, the owner of unit G-5 in Kendall Acres Condominium, and Melania Meza, the occupant of the unit, to collect approximately $3,400 in unpaid assessments. Before the action commenced, Isserlis died, and Linda Klein, Isserlis' only child and heir, was substituted for Isserlis in the association's suit. Klein counterclaimed, asserting the association's malicious prosecution, slander of title and abuse of process.

In 1991, Meza entered into a contract for deed with Isserlis to purchase unit G-5. She claimed that she had paid the assessments, and the association had made a bookkeeping error. Within weeks after the association's action commenced, a balloon payment of $44,800 that Meza was required to make to Isserlis under the terms of the contract for deed for unit G-5 became due. Meza never made this payment, which was necessary for her to acquire title, but continued to occupy unit G-5 and pay the same monthly payment that was required under the contract for deed.

In August 2004, the trial court began to question whether Klein was a proper party to the association's suit. To address this concern, Klein had Meza execute a quitclaim deed prepared by her attorneys conveying title to unit G-5 to Klein. Meza afterward realized Klein and her attorneys were not representing her interests and hired her own lawyers. She sued Klein claiming (i) that she had become the owner of the unit by adverse possession; (ii) that Klein had illegally terminated the contract for deed; and (iii) that the 2004 quitclaim deed she executed was invalid.

In response to Meza's claim about the validity of the 2004 quitclaim deed, Klein asserted ownership of the unit under a deed purportedly executed by Isserlis in 1997. Although Klein claimed this deed was witnessed and notarized in 1997, when it was signed, later testimony proved this was a lie.

Based on Meza's claim that she, Klein's former housekeeper, with little knowledge of English, had relied on Klein, an experienced real estate investor and broker, in not making the balloon payment due under the contract for deed and in executing the 2004 quitclaim deed and Klein's purported attempt to perpetrate a fraud on the court with regard to the 1997 deed, the trial court entered a default judgment against Klein and then entered final judgment invalidating both deeds and quieting title in Meza on her adverse possession claim. Klein appealed. 

At the beginning, the appeals court noted that the trial court's rulings concerning the validity of the 1997 and 2004 deeds had no bearing on the outcome of the case. The court explained that, even if the 1997 deed were invalid, title remained vested in Isserlis' estate, and Klein, as the sole heir, was entitled to enforce the contract for deed unless Meza was legally excused from performing under the contract. Likewise, even if the 2004 deed were invalid, the fact remained that Meza never made the balloon payment required under the contract of deed to take title to the unit.

Meza established for the court that she was in possession of unit G-5 from January 1991 until February 2000, pursuant to the written contract of deed. However, the court explained that both Section 95.18 of the Florida statutes and Florida case law make clear that, "possession under an executory contract is not adverse . . ." Likewise, Meza's continued occupancy following her failure in February 2000 to make the balloon payment did not constitute adverse possession under Section 95.18 because she reverted to her status as a tenant, making monthly payments to Klein, which Klein accepted. The court found, therefore, that Meza had neither alleged nor proved facts that would entitle her to fee simple ownership of unit G-5 without paying the balance of the agreed purchase price.

Because the court found no evidence to support a judgment in Meza's favor, it reversed the trial court's ruling and remanded the case with instructions that the trial court determine whether any basis exists for forgiving Meza's failure to comply with the contract of deed; and, if so, what reasonable time period would be sufficient for her to secure financing to make the balloon payment, suggesting that this would also provide the trial court with an opportunity to determine what, if any, sanction should be imposed on Klein for her fraudulent representations regarding the 1997 deed.

The appeals court also ordered the trial court to determine, on remand, to whom the balloon payment should be made.

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

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Written Notice of Reconvened Annual Meeting Not Required for Vote to Commence Litigation

Lake Forest Master Community Assn, Inc. v. Orlando Lake Forest Joint Venture, No. 5D08-2096, Fla. App. Ct., April 3, 2009

Association Operations/State and Local Legislation and Regulations: A Florida appeals court reversed a grant of summary judgment in favor of a developer, finding that the association obtained proper authorization from members to commence litigation.

Lake Forest Master Community Association sued Orlando Lake Forest Joint Venture, Orlando Lake Forest, Inc., and NTS Mortgage Income Fund (collectively, "developer") for alleged construction defects in the common areas, seeking damages in excess of $4 million. The developer denied that any construction defects existed at the time the common area was turned over to the association and moved for summary judgment based on its contention that the association failed to meet the condition precedent of approval by a majority of the association's voting members required under Sec. 720.303 of the Florida Homeowners' Associations statute. The trial court ruled in favor of the developer, concluding that proper notice was not given to all residents entitled to vote.

The statute provides that, "before commencing litigation . . . in the name of the association involving amounts in controversy in excess of $100,000, the association must obtain the affirmative approval of the majority of voting interests at a meeting of the membership at which a quorum has been attained." Notice of the association's annual meeting held Jan. 9, 2007, was properly mailed to each lot owner on Dec. 22, 2006. According to association documents, a quorum is 30 percent of the membership, or 220 owners. The quorum at the Jan. 9, 2007, meeting consisted of 290 members. At that meeting, members elected persons to fill vacancies on the board of directors, but the meeting was recessed to reconvene on Feb. 13, 2007, in order to elect members of the architectural review committee ("ARC"). In the interim, a board meeting was conducted at which the board determined that the Feb. 13, 2007, meeting to elect members of the ARC would be adjourned and reconvened once again on March 13, 2007, for the purpose of asking residents to vote on pursuing action against the developer for alleged construction deficiencies.

More than 367 lot owners attended the Feb. 13, 2007, meeting by person or proxy and, after the election of ARC members was conducted, the president announced that the annual meeting would reconvene at 7 p.m. on March 17, 2007, at the clubhouse, for the purpose of allowing residents to vote for or against pursuing legal remedies against the developer for construction defects in the common areas. Notice was mailed to the lot owners with the March newsletter, and a notice was posted on the clubhouse bulletin board.

The developer argued that the association's bylaws required that written notice of the February and March meetings be provided to the owners. The appeals court rejected this argument, noting that the statute contemplated that a temporary suspension of a previously noticed meeting could be continued at a different date, time and place without further written notice when the information was announced prior to adjournment of the meeting. Because the association's bylaws did not provide otherwise, the court found that the meetings were properly conducted without additional notice to the members.

The court reversed the trial court's decision and remanded the case for proceedings on the association's cause of action.

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

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Association Not Creditor of Declarant at Time of Illegal Transfer of Funds

Luria v. Board of Directors of Westbriar Condominium Unit Owners Association, No. 080515, Va. Supr. Ct., Feb. 27, 2009

Developer Liability/Risks and Liabilities/Warranties: The Virginia Supreme Court reversed a circuit court ruling that a developer breached his fiduciary duty to a condominium association as a creditor because of a failure to show that the developer had actual notice of structural defects.

Jon Luria is a real estate developer in northern Virginia. In 1996, he began construction of The Westbriar Condominium in Fairfax, Va., a four-building condominium that contained 244 units. Luria held title to the condominium property through two limited liability companies and a corporation that managed development of the property. Each of these entities served as declarants of the condominium project.

During construction of the project, Luria did not honor general and administrative costs as provided in agreements he made with lenders, and he made a series of improper transfers and draws of funds from the various declarant entities. He used an alternative to stucco or siding on the exterior of the buildings, Exterior Insulation and Finish System, and hired a reputable certified contractor to install it. Installation was certified after its completion in compliance with Fairfax County building regulations.

On June 8, 1999, the project architect, Christian Lessard, sent Luria a letter identifying 10 problems with construction discovered during his substantial completion walk-through, two of which related to the exterior finishing system. He suggested that a moisture meter be used to verify that there were no moisture problems behind the exterior surface. Subsequently, Lessard and Luria executed an indemnification agreement that provided that Luria would indemnify Lessard from any liability arising from Luria's failure to correct the problems enumerated in Lessard's letter.

In October 2000, Lessard provided Luria with a field report that itemized various problems with individual units. Three items related to the exterior finishing system. The report recommended flashing and caulking the system and suggested that Luria hire a "water proofing engineer" to verify all flashing applications.

In July 2002, control of the Westbriar Condominium Unit Owners Association passed to the unit owners. Afterward, the association hired an engineering firm to conduct a warranty inspection for the purpose of, "identifying structure defects," as defined by the Virginia Condominium Act ("Act"). The firm's report detailed several defects, and noted that the exterior finishing system was in poor condition. The estimated cost of repairs recommended in the report was $3,730,000. By letter dated March 12, 2003, the association notified Luria of the defects within the scope of the statutory warranty. The association's engineering consultants conducted a follow-up inspection to specifically address the problems with the exterior finishing system and prepared a supplemental report. The supplemental report noted that the defects were "systematic and comprehensive" and recommended that the system be "completely removed and replaced."

In May, the association sued the declarants, Luria, and Ellen Luria and others, alleging that the defendants had constructed the buildings with major structural defects and that Luria used the declarant entities he controlled to fraudulently avoid obligations owed to the association as creditor.

The association's motion for judgment included six counts. Counts II, IV and VI were dismissed. The court entered judgments against the declarants (Count I) and Jon and Ellen Luria (Count VII, alter ego liability), concluding that they breached the Act's statutory warranty provision and assessed damages against them in the amount of $5,813,416.

Count III of the association's motion alleged that by making improper transfers and distributions for his own benefit, Luria breached his fiduciary duty to the association as a creditor. Count V alleged that the improper transfers constituted illegal distributions by the declarants.

The court held a bench trial and issued an opinion letter awarding judgment against Luria on both counts, relying on Marshall v. Fredericksburg Lumber Company, 162 Va. 136, 173 S.E. 553 (1934). In Marshall, the Virginia Supreme Court found that "where there are existing creditors of a corporation, the stockholders will not be permitted, as against those creditors, to withdraw the assets of the corporation without consideration . . . " In its opinion, the trial court stated that Luria's conduct fell within the conduct contemplated and prohibited by the court in Marshall.

The court stated that the weight of the evidence showed that by virtue of information Luria received on-site and from his experience in construction and development, he knew there were problems regarding installation of the exterior finishing system. In making its determination, the court stated that it relied upon Lessard's letter, the indemnification agreement and Lessard's field report.

Based on its determination that Luria was on notice of serious defects from the use and installation of the system, the court adopted the position that the association was a creditor of the declarants from the time when the first unit was sold in 1998. It further concluded that Luria's withdrawal of declarant assets constituted self-dealing and was a breach of the fiduciary duty he owed to the association as a creditor of the declarants. It ordered him to refund the sum of $3,484,363.40. It used the same analysis in awarding the association identical relief against Luria under Count V for illegal distributions by the declarants. Luria appealed, and his appeal was granted only as to the issue of the duty owed to a potential statutory warranty claimant under Counts III and V.

In his appeal, Luria argued that the courts had never imposed upon the managing member of a limited liability company a fiduciary duty to a third part creditor. He also argued that the association was not a creditor of the declarants because he did not have actual notice of any potential statutory warranty claim. He contended that the circuit court erred as a matter of law in finding that the legal right to assert a claim in the future creates a fiduciary duty.

The association argued that the court properly imposed liability upon Luria, asserting that it was a creditor because Luria had knowledge of defects that would support a claim for breach of statutory warranty and that notice of a statutory warranty claim. In this case, it was not possible because the declarants controlled the association prior to the transfer of control to the unit owners.

The court considered that whether the association was a creditor was dispositive in resolving the appeal because its status triggered both the creation of fiduciary duty and liability under Marshall. The Virginia Supreme Court has held that potential tort claimants can be considered creditors if the punitive debtor has adequate notice of the claim. In this case, the circuit court failed to require a showing of actual notice of the structural defects to support its conclusion that the association was a creditor of the declarants in 1998. The "should have known" standard implicitly applied by the court was an erroneous legal standard. The circuit court erred in finding that the association, as a potential statutory warranty claimant, was a creditor of the declarants at the time transfers were made to the developer because the evidence did not show that the developer had actual notice of the units' structural defects. Accordingly, its judgment on Counts III and V was reversed.

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

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Courts May Not Run Afoul of Rules of Civil Procedure in Granting Possession

McKenna v. Camino Real Village Association, No. 4D07-4331, Fla. App. Ct., April 8, 2009

Assessments/State and Local Legislation and Regulations: A Florida court lacked jurisdiction to enter an order while appeal from a previous order was pending.

Cheryl McKenna failed to pay assessment fees to the Camino Real Village Condominium Association in Boca Raton, Fla. The association filed a complaint for foreclosure and damages against her. The trial court granted summary judgment in favor of the association, but the judgment was reversed by the appeals court. On remand, the association amended its complaint to add Real Estate Depot, Inc. ("RED"), an entity that acquired a deed from McKenna in 2003, and the court entered final judgment of foreclosure against RED, but denied the motion as to McKenna.

At the foreclosure sale, JPL Properties, Inc. ("JPL") purchased RED's interest in the condominium. The court clerk received the funds from the foreclosure sale and disbursed the amount owed to the association, in full satisfaction of the final judgment, and issued a certificate of sale and title to JPL.

The court denied JPL's first motion for writ of possession without prejudice, but issued an order on Aug. 13, 2007, requiring McKenna to: (i) file a notice of assessment amounts due and owing, and (ii) deposit that sum and the amount paid by JPL at the foreclosure sale into the court registry within 10 days. McKenna appealed the order on Sept. 12, 2007, but never complied. JPL then filed an amended motion seeking an order to show cause or for default and for writ of possession due to McKenna's non-compliance.

On Oct. 10, 2007, while the appeal of the August order was pending, the trial court entered a judgment striking McKenna's pleadings, entering a default, and directing the issuance of a writ of possession in favor of JPL. The order (i) took judicial notice that McKenna did not file a notice with the court of the sums due to the association; (ii) found that McKenna had failed to deposit that amount along with the amount paid by JPL at the foreclosure sale into the court registry; (iii) found that the association's lien was superior to McKenna's rights and RED's rights; (iv) found JPL to be a bona fide purchaser for value; and (v) ordered the clerk to issue a writ of possession in favor of JPL within 30 days from the date of the order. McKenna appealed.

The appeals court reversed the trial court's ruling, finding that a lower court may not render a final order disposing of a cause pending judicial review of a non-final order. In this case, the August order was not final; it required McKenna to deposit monies into the court's registry, but did not resolve the issues between her and JPL. Thus, while the appeal from the August order was pending, the trial court was prohibited from rendering a final order disposing of the cause.

The October order was a final order because it entered a default judgment against the owner and ordered the issuance of a writ of possession. It finally resolved the issues between McKenna and JPL. That was true notwithstanding the fact that the association still had a claim pending against McKenna in trial court. Florida case law provides that when it is obvious that a separate cause of action is pleaded that is not interdependent with other pleaded claims, it should be appealable if dismissed with finality at trial level and not delayed of appeal because other claims between the parties are pending. By entering a final order in favor of JPL, the trial court ran afoul of the rules of civil procedure. The appeals court, therefore, reversed the Oct. 10, 2007, order and remanded the case for further proceedings.

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

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Exclusivity Agreements between Cable Companies, Multi-Unit Developments Banned

National Cable & Telecommunications Association v. Federal Communications Commission, No. 08-1016, 08-1017, U.S. App. Ct., Columbia Circuit, May 26, 2009

Federal Law and Legislation: A U.S. appeals court upheld the FCC's order banning exclusive contracts for video services in multiple dwelling units.

Finding that exclusivity agreements between cable companies and owners of apartment buildings and other multi-unit developments ("MUDs") have an anti-competitive effect on the cable market pursuant to Sec. 628(b) of the Communications Act ("Act"), the Federal Communications Commission ("FCC") banned them. The FCC not only forbade cable operators from entering into new exclusivity contracts, but also from enforcing old ones.

The FCC believes that these contracts, which involve a cable company exchanging a valuable service, like wiring a building for the exclusive right to provide service to the residents, may be regulated under Sec. 628 of the Act as cable company practices that significantly impair the ability of their competitors to deliver programming to consumers.

The National Cable & Telecommunication Association, representing cable operators and apartment building owners, petitioned the U.S. Court of Appeals for review of the FCC's order and argued that the FCC exceeded its statutory authority, arbitrarily departed from precedent, and otherwise violated the Administrative Procedure Act ("APA"). The association claimed that the FCC failed to justify its change in policy and to consider the retroactive effects of its action.

After careful consideration, the court concluded that the FCC acted well within the bounds of the Act and general administrative law.

The association argued that Congress was not concerned with barriers to service, but with practices that prevent cable competitors from obtaining certain kinds of programming desired by the public when it enacted Sec. 628. The FCC asserted that statutory prohibitions often go beyond the principal evil to cover reasonably comparable evils, and it is ultimately the provisions of our laws, rather than the principal concerns of our legislators, by which we are governed.

Mindful of the broad language of the statute and the fact that its express purpose is to promote the public interest by increasing competition and diversity in the multichannel video programming market, the court concluded that, although the primary purpose for Sec. 628 was to expand competition for programming, nothing in Sec. 628(b) unambiguously foreclosed the FCC's interpretation to permit regulation of exclusive service agreements.

The court further found that the FCC was broadly authorized, pursuant to 47 U.S.C. Sec. 548, to "prescribe regulations to specify particular conduct that is prohibited by subsection (b)," "prescribe regulations to implement the statute" and to "order appropriate remedies." The court's view of Sec. 628's structure was that Congress had a particular manifestation of the problem, but in no way expressed an intent to limit the FCC's power solely to that interpretation of the problem. Although the association pointed to considerable evidence that Congress was specifically concerned with unfair dealing over programming, it offered no evidence from the legislative record to show that Congress chose its language so as to limit the FCC solely to that particular abuse of market power.

For its primary APA claim, the association argued that in deciding to bar exclusivity contracts, after affirmatively permitting them in 2003, the FCC failed to explain its change of heart and, thus, acted arbitrarily and capriciously. The court agreed that a government agency must either be consistent with prior action or offer a reasoned basis for its departure from precedent. Yet, the court reasoned it is equally true that an agency is free to change its mind when a showing is made that "prior policies and standards are being deliberately changed, not casually ignored." Greater Boston Television Corp. v. FCC, 444 F.2d 841, 852 (D.C. Cir. 1970).

The court believed that the association failed to give the FCC credit for its extensive analysis of the issue. The court noted that rather than merely observing that exclusivity contracts could theoretically have both pro-competitive and anti-competitive effects, in 2007 the FCC extensively analyzed the question and concluded that the damages caused by exclusivity contracts significantly outweighed the benefits, and that these kinds of agreements would likely, "raise prices, limit access to certain programming, and delay deployment of fiber optic and broadband technologies." Its analysis indicated that, "triple-play competition between phone and cable providers lowers prices, spurs deployment of advanced technology, and facilitates efficiency and simplicity in the market." Order, 22 F.C.C.R. at 20,243-51.

Moreover, the court noted that the FCC fully considered contrary comments. Specifically, it acknowledged the view that exclusivity contracts might spur investment by allowing cable operators some certainty that they could recoup their costs or might enable MUD residents to pool their bargaining power and, thus, extract cable company concessions. In the end, however, it rejected these arguments because the MUD owners' interests would not always be the same as those of the residents, and exclusivity contracts might have existed before competition even existed. It reasoned that the practical reality would not substantiate the theoretical benefits.

The court determined that the FCC clearly articulated the concerns driving its change in policy, as well as the basis for the new, reasonable inferences the FCC drew from a significantly updated record, and this marked the limits of its review.

The final issue presented by the association in its petition concerned the FCC's decision to apply its rule to existing contracts. The association argued that this amounts to, "directly retroactive" action barred by the APA's requirement that, "legislative rules . . . be given future effect only." First, the court thought it readily apparent that the FCC's action has only "future effect" as that term is used in the APA. It found that, here, the FCC, "had impaired the future value of past bargains, but had not rendered past actions illegal or otherwise sanctionable." The fact that a company might conduct its business in accordance with the current law and be frustrated when the law changes, is not a legitimate basis for forbidding retroactive rules.

In the court's opinion, the FCC balanced the benefits against the harms and expressly determined that applying the rule to existing contracts was worth the costs of upsetting prior expectations or existing investments.

In sum, the court found that the challenged order was fully authorized by Sec. 628 and was the product of careful agency consideration. The petitions for review were denied.

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

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Exclusion Clause Gives Insurer Right to Deny Association Coverage

Philadelphia Indemnity Insurance Company v. Yachtsman's Inn Condo Association, Inc, 595 F. Supp. 2d 1319 (S. Dist. Fla. 2009)

Contracts: A U.S. District Court ruled that the issuer of a general liability insurance policy did not have a duty to defend a condominium association and its management company against a worker's personal injury claim because the policy contained a pollution exclusion clause.

Yachtsman's Inn Condominium is located in Key Largo, Fla. Yachtsman's Inn Condominium Association, Inc. contracted with Moss & Associates Property Management, Inc. ("Moss") to manage and maintain the condominium common areas, including the underground parking garage. Philadelphia Indemnity Insurance Company ("insurer") issued a commercial general liability insurance policy to Moss, naming the association as an additional insured.

Moss hired Milton Boone to pressure wash the condominium's underground garage. During this job, he was exposed to feces, raw sewage and battery acid that had accumulated on the premises, causing him to suffer severe dermatological injuries. He sued the association, alleging it negligently failed to maintain the premises in a safe condition. The association sued Moss, arguing that it hired Boone to perform the work. Both parties moved for summary judgment, and both parties' pleadings addressed the interpretation of the insurance policy's pollution exclusion.

The insurer argued that Boone's claims against Moss and the association were not covered under the policy because of the language of the pollution exclusion. Moss argued that summary judgment in favor of the insurer was inappropriate because issues of fact existed stemming from the ambiguity of the policy's terms.

The policy stated:

This insurance does not apply to … "Bodily injury" … arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of "pollutants" … [a]t or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured … The policy defines pollutants as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste."

The insurer argued that the injuries that were the underlying cause of Boone's action were the result of causes specifically excluded in the policy. The insurer contended that the pollution exclusion was unambiguous and barred coverage for the damages claimed by Boone because the damages arising from exposure to "feces, raw sewage and battery acid," fell under the policy's exclusion's language defining a "pollutant." Moss maintained that the policy language was ambiguous as it pertained to Boone's complaint because no Florida court had specifically defined battery acid as "acid" or feces and sewage as "waste."

The court relied upon Deni Associates of Florida, Inc. v. State Farm Fire & Casualty Insurance Co., 711 So.2d 1135, 1136-37 (Fla. 1998) where, under very similar circumstances, the court found that the pollution exclusion excluded liability from coverage, "arising out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants." It noted that the definition of "pollutant" in Deni was identical.

The court ruled in favor of the insurer, finding that the pollution exclusion unambiguously applied to battery acid, raw sewage and feces.

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

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Court's Waiver Order Does Not Bar Association from Collecting Judgments

Whispering Ridge Homeowners Association v. Chaudry, Nos. D050631, D052506, Cal. App. Ct., April 20, 2009

Association Operations/Miscellaneous: In an unpublished opinion, a California appeals court affirmed a trial court's refusal to apply a res judicata bar to interest declarations granted to a homeowners association for attorneys’ fees and costs incurred in enforcing restrictive covenants.

Whispering Ridge Homeowners Association in San Diego County, Calif., sued Waheed Chaudry to enforce landscaping requirements contained in covenants governing the residential development where Chaudry owned property. Over the course of protracted litigation, four separate awards for attorneys’ fees and costs were issued in favor of the association. The amounts for the first and second awards were determined by the trial court in 2002, and the amounts for the third and fourth awards were determined by the appeals court in 2003 and 2004. In August 2004, the association filed a memorandum of costs on the fourth award. The memorandum of costs specified a greater amount than the amount set forth in the court's remittitur (a ruling by a judge lowering the amount of damages granted by a jury in a civil case), and the association stated that it was not seeking any amount greater than that set by the court. In November 2004, the association filed four declarations of accrued interest and obtained four writs of execution to collect each of the four awards.

Chaudry moved to recall the writs of execution, arguing that the association had waived its right to collect the first three awards because it had stated it was only seeking to recover the amount in the fourth award. In 2005, the trial court recalled the writs of execution obtained by the association for the first three awards based on its factual finding that the association had earlier stated its intent to waive its rights to obtain recovery in those writs, and the association did not appeal this waiver order.  However, after the time to appeal the order had expired, in October 2006, the association obtained a second set of writs of execution and filed interest declarations for the four awards. Chaudry moved to strike the interest declarations and recall the writs, arguing that enforcing the first three awards was barred by res judicata based on the trial court's waiver order recalling the first set of writs. Res judicata bars relitigation of the same claim and relitigation of the same issue raised in a different cause of action. The trial court denied Chaudry's motions and changed its 2005 waiver order, concluding that the association had not waived its rights to collect the amounts in the first three awards. The trial court explained that it now recognized that the association had only waived any fees or costs exceeding the amount set forth in the court's remittitur for the fourth award, not the preceding three awards.

The court agreed with Chaudry that the trial court had no authority to correct its 2005 waiver order because the order was an appealable order, and the time to appeal had already passed. However, although the court noted that a trial court generally is barred from correcting judicial error in an appealable order after the time to appeal has passed, and this principle is consistent with the manner in which finality is defined for purposes of res judicata, there are other requirements for invoking res judicata that were not met. Four elements are required to invoke the doctrine of res judicata: (1) the claim or issue in the present action must be identical to the one litigated in a prior proceeding; (2) the prior proceeding must have resulted in a final judgment or order; (3) the judgment or order must be on the merits; and (4) the party against whom the doctrine is being asserted must have been a party or in privity with a party to the prior proceeding.

In this case, the third element, a judgment or order on the merits, was missing. The court refused to construe the waiver order, which was made to support the recall of the first set of writs without extinguishing the judgment, as a determination on the merits for purposes of res judicata. Although the waiver order adjudicated the association's right to recover under the money judgments, the waiver finding did not impact the existence or the validity of the money judgments themselves, and, therefore, there was no judgment on the merits. The court held that the trial court properly declined to apply the waiver order as a bar to the second set of writs of execution and the interest declarations obtained by the association.

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

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