February 2011
In This Issue:
Covered Porch Violates Restrictive Covenants
Insurance Policy Does Not Cover Risk of Future Flooding
Ruling Reversed; Trial Court Didn't Certify Class Action
Court Can't Grant Relief That Wasn't Requested in Lawsuit
Association Not Liable for Owner's Death by Drowning
Residents of Future Phases Have Easement for Park
Discrimination Claims Precluded by Collateral Estoppel
Association Can Enforce Agreement to Sell Parkland
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Covered Porch Violates Restrictive Covenants

Bodine v. Harris Village Property Owners Association, Inc., No. COA09-1458, N.C. App. Ct., Sept. 7, 2010

Architectural Control/Covenants Enforcement: A North Carolina appeals court upheld a directed verdict that a homeowner was subject to injunction and liable for fines and attorney's fees because the covered porch he constructed on his lot did not have the prior written approval of the homeowners association and violated size restrictions contained in the declaration. 

Harris Village is a homeowner’s association in Mooresville, North Carolina. The association’s architectural committee is authorized by the association’s declaration to decide, in its sole and absolute discretion, the precise site and location of any structure placed upon any lot.

Todd Bodine purchased a lot in Harris Village in 2006 and received a copy of the declaration. In 2007, he made plans to add a swimming pool and covered deck to his lot, and he provided preliminary sketches to the association as well as a request for architectural approval.  Because no architectural committee had been appointed, the board acted as the committee, pursuant to authorization contained in the bylaws. Subsequently, without notice to Bodine, the board held a meeting and considered his request for the pool and deck.

The day after the board meeting, the concrete was poured for Bodine's deck. The association contacted Bodine to inform him that there was a problem and advised him to cease construction. However, by then the foundation had already been completed.

At Bodine's request, a meeting of the board was held that day, and after the meeting, it seemed that the parties had reached an understanding. Minutes of the meeting state that the board approved the cement pad and a 10' x 14' detached pool house. Subsequently, Bodine obtained a building permit that included a 10' x 42' pool house. He assumed that because the Town of Mooresville permitted the larger structure, the association would approve it also.

The association sent Bodine a letter asserting that he was in violation of the declaration because the construction "appears to be a detached building more than 320 square feet instead of an addition to your home . . ."  At this time, the pool was completed and construction of the covered porch had begun.

Bodine sued the association, seeking a ruling that the declaration did not prohibit him from constructing a 320 sq. ft. porch on his lot. The association filed a motion to dismiss and counterclaim, seeking declaratory and injunctive relief, fines and attorney's fees.

The court granted a directed verdict in the association's favor and awarded attorney's fees totaling $96,000. The court also granted the association's liens for fines totaling $39,700 and ordered that the covered porch be removed. In addition, the association was granted permission to foreclose on the house in the event Bodine failed to comply with the court's orders by a specified date. Bodine appealed.

The court considered the central issue to be that the 10' x 42' structure on Bodine's lot was not approved by the association before construction began.

Bodine contended that the trial court erred by denying summary judgment on his original action, requesting that the court declare he was not prohibited from constructing the covered porch on his lot and that the attorney's fees provision of the declaration did not apply to enforcement of architectural control violations. He also asserted that the trial court erred by directing a verdict against him on grounds that credibility and authorization issues existed regarding the board's ability to enforce architectural restrictions that were not embodied in the recorded declaration.

The declaration provides that, "no structure shall be erected on any lot without the approval of the committee. . . The committee shall have the absolute and exclusive right to refuse to approve the proposed plans and shall notify the owner within thirty (30) days of receipt of the plans from the owner."  The declaration also provides that the association may file a lien for assessments, including reasonable attorney's fees, and may bring suits to enforce its terms.

Sometime after the declaration was recorded, the association members adopted an interpretation and clarification of the HOA existing CCRs. The interpretation provides that, "The maximum size (area) allowed for any accessory building is 320 square feet."  The interpretation was not recorded in the county land records.

Revisions to the North Carolina Planned Community Act actmade in 2005 established two independent methods for a homeowners association to enforce its declaration:  (1) by mechanisms established in the declaration; or (2) by the provisions contained in the act.

The appeals court's examination of the declaration revealed that a written certificate of approval is required before a structure can be built or a material modification may be made to any dwelling in the subdivision. Under the legal mechanism established by the declaration, a homeowner must make a request for approval of a new structure or a modification of an old structure and receive a certificate of approval from the appropriate board. Without the certificate, the homeowner may not proceed to erect the structure.

Bodine argued that the disapproval of his request for modification was illegal since the board did not appoint an architectural committee as required in the declaration. Furthermore, he argued that under the bylaws and North Carolina law that the board must appoint other boards, including an adjudication committee to impose fines authorized by the act. He next contended that a section of the declaration, which states that nothing in the declaration shall be construed to be in conflict with the act, prohibited the board from levying the fines imposed by the trial court.

After reviewing the trial record, the appeals court found no facts to indicate that the 10' x 42' structure on Bodine's lot had been approved by an appropriate agency of the association. Furthermore, a jury resolution would not produce the answers to factual questions for which Bodine sought resolution. Lacking any proof, or the possibility that a jury would come to a different conclusion necessary for Bodine to prevail in his action, the court affirmed the trial court's directed verdict.

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Insurance Policy Does Not Cover Risk of Future Flooding

Continental Casualty Company v. Sycamore Springs Homeowners Association Inc., No. 1:09-cv-0007-LMJ-DML, U.S. Dist. Ct., S. Dist. Ind., Aug.30, 2010

Risks and Liabilities: An insurance company is not liable for damages awarded to a homeowners association in a prior settlement of the association's negligence claims against the developer.

Sycamore Springs, a subdivision in Indianapolis, Ind.,is located in a natural depression that is part of the 100-year flood plain of the White River. The subdivision developers constructed levees and floodwalls to protect the property and surrounding area. After other sections of the subdivision were developed, Courtyard Homes at Sycamore Springs purchased Parcel D. As a condition of the sale, the seller backfilled a retention pond located on the property so that the parcel could be more densely developed than was originally planned. As a result of the backfilling, the storm water detention storage capacity was reduced. In addition, Courtyard granted several drainage easements to owners of various other parcels in the area. The construction of duplexes rather than single-family homes on the parcel increased the rate and volume of storm water runoff that resulted in a decrease in the system's ability to absorb runoff. In 2003, heavy rains fell and one of the retention ponds overflowed, flooding the subdivision's common areas and several homes located outside of Parcel D.

In August 2005, Sycamore Springs Homeowners Association, Inc. sued Courtyard, alleging 10 counts, including negligent design, construction and approval of the stormwater drainage system; negligent design and installation of other amenities; breach of duty to the association; breach of the implied warranty of habitability; breach of expressed or implied covenants; breach of the promise to provide amenities; breach of the stormwater agreement; conversion; unlawful distributions and unlawful conveyances.

Continental Casualty Company issued a general liability insurance policy to Sheehan Construction Co., Inc., the primary developer of Sycamore Springs, for the policy period September 2002 through September 2003. Courtyard was added to the policy as an insured by way of an endorsement.

Courtyard tendered the association lawsuit to Continental, requesting a defense and indemnity, but Continental denied coverage. The lawsuit ended in an agreed judgment between Courtyard and the association. Damages in the amount of $335,000 were awarded to the association for "the costs to restore the drainage system to absorb runoff," to ameliorate the risk of property damage and personal injury from future flooding.

After the court approved the agreed judgment, Courtyard and the association entered into a separate agreement whereby Courtyard paid the association $35,000 and the association agreed not to execute the unsatisfied portion of the judgment but limit its proceeds to Courtyard's insurance policies.

Continental sued the association, seeking a declaratory judgment that it was not obligated to pay any part of the judgment against Courtyard. The association counterclaimed, alleging that Continental was liable for breach of the third-party insurance contract between Continental and Courtyard, seeking $300,000 in damages and post-judgment interest.

The insurance policy provided one million dollars in property damage coverage per occurrence and one million dollars in personal injury coverage per offense.  Occurrence is defined in the policy as "an accident, including continuous or repeated exposure to substantially the same general or harmful conditions."  The policy defines personal injury as “injury including consequential bodily injury arising out of one or more of the following offenses:  the wrongful eviction from, wrongful entry into or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor.”  The policy covers damages incurred because of bodily injury or property damage only if they are caused by an occurrence that takes place in the coverage territory during the policy period. 

The parties essentially agreed that the policy language was ambiguous but disputed whether the court should construe the language against the insurer or from a neutral stance. The association argued that, by virtue of the agreed judgment and settlement agreement, it was a judgment creditor of Courtyard and was entitled to a favorable reading of the policy and summary judgment under both the property damage and personal injury provisions of the policy.

Conversely, Continental argued that Indiana courts have made clear that where a case involves a dispute between an insurer and a third party, even a judgment creditor, the court must use a neutral stance to construct policy language.

Indiana law provides that insurance contracts are governed by the same rules as other contracts, and their interpretation generally presents a question of law that is appropriate for summary judgment.

Continental argued that there was no occurrence and no personal injury offense, because the natural and ordinary consequences of Courtyard's decisions to reduce the size of the drainage system were not accidents or occurrences.   It asserted that in the underlying litigation between the association and Courtyard, the association did not seek compensation for physical injury to tangible property; rather, it sought compensation to avoid future flooding. Therefore, none of the damages awarded in the agreed judgment were covered by the Continental policy.

The association failed to direct the court to any part of its final and third amended complaint that sought anything other than damages to remedy the drainage system to avoid future flooding. Although the association urged the court to note its allegation in the third complaint that it suffered injuries, "including the costs to repair, replace or upgrade . . . the curbs, curb ramps and other amenities," the court observed that these allegations were made solely within the association's argument that Courtyard was liable for costs to fix or replace numerous curbs, ramps and improvements that did not comply with the Americans with Disabilities Act.

The association contended that the genesis of its claim was the flood, and therefore damages awarded in the agreed judgment were covered by Continental's policy. However, the court concluded that the only damages awarded in the agreed judgment that concerned the drainage issue were to alleviate the future risk of flooding and not for any physical property damaged caused by the flood.

Property damage is defined in the policy as: (a) Physical injury to tangible property, including all resulting loss of the use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that cause it; or (b) Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the occurrence that caused it.

The association argued that the section (b) definition provided coverage for loss of use that happens after the policy expires because it is deemed to occur at the time of the physical injury or occurrence that caused the loss of use.

The court acknowledged some ambiguity in the policy language. Construing the provision from a neutral stance, the court concluded that the policy covered only existing loss of use, and the damages sought by the association were not for any existing loss of use.

The court observed that the plain language of the policy provided coverage of damages resulting from the happening of an accident or occurrence, not damages that are necessary to prevent an occurrence. Here, the accident was the flooding that resulted from faulty workmanship, and any damages that resulted would be recoverable. However, the policy did not provide coverage for anticipated damages from a future loss.

The court found that the policy did not cover the particular damages sought by and awarded to the association in the agreed judgment. Its property damage provision did not contemplate ameliorating future risk of harm.

Although the flood fell within the policy's definition of personal injury, the association sought and received damages to ameliorate the unreasonable risk of future harm. Although that potential harm, if and when it occurs, might fall into the policy's definition of an offense, it did not occur within the 2002-2003 policy period. Accordingly, the court found that the policy did not provide personal injury coverage for damages awarded to the association in the agreed judgment.

The court granted summary judgment in favor of Continental.

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Ruling Reversed; Trial Court Didn't Certify Class Action

Epstein v. Villa Dorado Condominium Association, Inc., No. ED93467, Mo. App. Ct., May 4, 2010

Assessments: A declaratory judgment in favor of unit owners who sought to have a special assessment declared invalid was reversed on appeal because the trial court failed to certify the class action.

Villa Dorado Condominium is a residential community located in St. Louis, Mo., that consists of 264 units in 45 separate buildings. Of these, nine buildings are equipped with elevators.

In 2008, the association's board of directors voted to repair the elevators. The elevator repairs were a common expense estimated to be $351,000. The board voted to levy a special assessment against all units in the condominium, including those in buildings that were not served by elevators to pay for the repairs.

The unit owners sued the association, requesting a permanent injunction against the association prohibiting it from assessing repair costs of all limited common elements and a judgment declaring that the special assessment against the class members, consisting of all unit owners that were not served by the elevators, was illegal, invalid and void. They requested that the assessment be rescinded and any assessments already collected be refunded together with interest and attorney's fees.

The trial court ruled that the special assessment was illegal, invalid and void as to all owners in buildings without elevators and ordered the association to refund all assessments collected from those units. The court also enjoined the association from taking action to enforce the assessment and ordered the association to pay the unit owners' attorney's fees. The association appealed.

The unit owners petitioned the trial court for an order certifying them as a class pursuant to Rule 52.08, Rules of Civil Procedure. Rule 52.08 provides that certification of a class action must be determined by court order, and the court shall use all reasonable effort to direct notice to all members of the class that the court will exclude the member from the class if requested by a specified date; that the judgment, whether favorable or not, will include all members who do not request exclusion; and that any member who does not request exclusion may enter an appearance through counsel.

The appeals court found that nothing in the trial court record indicated that the unit owners proposed as part of the class had received proper notice. Beyond the request in the petition, the record was devoid of any evidence indicating that the trial court considered class issues or that the requirements of Rule 52.08 were established. The appeals court determined that because there was never proper class certification, the trial court erred when it extended the judgment to parties not named in the suit and, moreover, extended the judgment to those unit owners who were not party to the case.

The court noted that when declaratory relief is sought, all persons who have or claim any interest that would be affected by the judgment must be made parties to the proceedings. The court found that all unit owners not served by elevators were not made parties to the proceedings; however, the trial court's declaration affected those owners directly, and therefore, all owners without elevator access had an obvious interest in any judicial declaration regarding the elevators, rendering them indispensable parties to the trial court proceeding.

The appeals court reversed trial court judgment and remanded the case to allow the owners an opportunity to join parties or comply with the requirements for class certification.

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Court Can't Grant Relief That Wasn't Requested in Lawsuit

In re: Park Memorial Condominium Association, Inc., 322 S.W.3d (Texas App. Ct. 2010)

Miscellaneous Association Problems/Risks and Liabilities: A Texas appeals court set aside an order that a condominium association release insurance proceeds for damage sustained by the condominium to the unit owners.

After Park Memorial Condominium sustained significant structural damage, the association, in lieu of making the needed repairs, sought to sell the condominium complex for $17 million. It filed a declaratory action in a Texas district court, requesting that the court affirm its right to sell the condominium. Some, but not all, of the individual homeowners opposed the association's plan to sell the property and filed a separate lawsuit in another district court, asserting that the association failed to properly maintain the property and mishandled a lawsuit against the insurer that resulted in a settlement agreement through which the association received some unspecified amount of money to settle the damage claims. The two lawsuits were consolidated.

The insurance proceeds, specifically the question of who controlled them, caused disagreement among the homeowners and the association. In October 2009, the homeowners filed a motion asking the trial court to resolve the conflict by ordering the association to distribute all of the insurance proceeds to the unit owners. In response, the association objected that the pleadings filed by the homeowners did not claim entitlement to the proceeds, and thus, the trial court could not grant relief that was not requested in the pleadings.

The homeowners argued that the association, as a fiduciary, was obligated to distribute all of the proceeds to the condominium unit owners. The association, however, believed it should be entitled to an offset of some of the proceeds because it alleged wrongdoing on the part of some homeowners to thwart the sale of the complex.

Notwithstanding the association's objections, the trial court granted the homeowners' motion and instructed the association to distribute the insurance proceeds equally among each unit owner.

The homeowners petitioned the appeals court for a writ of mandamus, and the appeals court issued a stay of the order, pending resolution of the petition.

Generally, the decisions of a lower court made in the course of a continuing case will not be reviewed by higher courts until there is a final judgment in the case. A writ of mandamus offers one exception to this rule. If a party to a case is dissatisfied with some decision of the trial court, the party may appeal the decision to a higher court with a petition for a writ of mandamus before the trial proceeds.

The association presented two arguments to support its request for mandamus relief: (1) its due-process rights were deprived because the trial court granted the homeowners relief that was not requested in their pleadings; and (2) the Texas Rules of Civil Procedure do not authorize a trial court to resolve a disputed fact issue.

The court noted that due process requires a full hearing before a court having jurisdiction, an opportunity to introduce evidence at a meaningful time and in a meaningful manner and the right to judicial findings based on the evidence.

The relief sought by the homeowners (distribution of the insurance proceeds) should have been, but was not, apparent from their pleadings. In fact, their petition did not assert any claim to the insurance proceeds.

The appeals court observed that the primary function of pleadings is to notify the opposing party of one's claims and defenses, as well as the relief sought. A trial court cannot grant relief to a party in absence of pleadings supporting the claim for relief unless the issue has been tried by consent. Therefore, the court concluded that the trial court abused its discretion by granting the homeowners relief not requested in their pleadings.

The association also claimed that the trial court abused its discretion when it summarily resolved a disputed issue of fact without either a trial on the merits, a motion for summary judgment or a settlement by the parties.

The homeowners asked the trial court to rule on the merits of the dispute, but not by summary judgment or bench trial. The association claimed that the parties had reached an enforceable settlement, pursuant to Rule 11, Rules of Civil Procedure. However, Rule 11 provides that no agreement touching a lawsuit pending will be enforced unless it is in writing, signed and filed with the papers as part of the court record or made in open court and entered into the record.

The homeowners argued that the association agreed to distribute the insurance proceeds in exchange for the homeowners' agreement to permit the sale of the complex. They claimed that, while the details of the settlement had not been worked out, the general agreement was entered into the record at a hearing on November 9, 2009. However, the mandamus record disputed this claim, and the appeals court concluded that the record clearly failed to demonstrate an enforceable Rule 11 agreement among the parties. Thus, in absence of a motion for summary judgment or trial on the merits, the trial court was not authorized to attempt to resolve the parties' dispute by court order. Moreover, the homeowners' assertion of an agreement did not change the fact that the trial court improperly ordered distribution of the insurance proceeds without any pleadings requesting such relief.

The court determined that the trial court's order compelling the association to distribute insurance proceeds was void and represented an abuse of the court's discretion. It lifted its stay and conditionally granted the association's petition for writ of mandamus and directed the trial court to set aside its order, stipulating that the writ would issue only if the trial court failed to act in accordance with the appeals court's opinion.

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Association Not Liable for Owner's Death by Drowning

Nader v. Carlyle Condominiums, No. 94445, Ohio App. Ct., Sept.16, 2010

Risks and Liabilities/Miscellaneous Association Problems: An Ohio appeals court upheld a ruling that a condominium association's installation of surveillance cameras did not constitute an assumption of duty to protect residents from the dangers of using the condominium's swimming pool.

Laila Nader purchased a condominium in the Carlyle Condominiums, a 533-unit high rise building with approximately 800 residents, located in Cyahoga County, Ohio. Nader swam daily in the condominium's indoor pool that was three to five feet deep. The pool was owned and maintained by 12900 Lake Avenue Condominium Association.

In July 2007, Nader, who was 73 years old, drowned in the pool. Approximately two hours later, another resident discovered her body and contacted the front desk to call 911. Nader was transported to the hospital, where she was pronounced dead.

Nader's estate sued the association for wrongful death, and the association filed a motion for summary judgment, asserting that Nader was an experienced swimmer who used the pool everyday for 20 years, and the pool had numerous warning signs that stated, "No lifeguard on duty – Swim at your own risk.”

The estate opposed the association's motion, arguing that the association was liable for the accidental drowning because it informed residents that the pool was monitored by surveillance cameras on closed-circuit television, and Nader relied on the monitors for emergency purposes when she swam alone in the pool.

The trial court granted the association's motion, reasoning that the surveillance cameras were installed for security purposes, not to protect swimmers' safety. The estate appealed.

On appeal, the estate argued: (i) that the trial court erred by failing to recognize that the association assumed, and subsequently breached, a duty to protect Nader while she swam; (ii) that there was a genuine issue of material fact as to whether the association employed lifeguards; and (iii) that the association failed to present evidence on all issues raised in the complaint.

The estate argued that while swimming pools have generally been held to be an open-and-obvious danger negating any duty on the part of the owner, the association assumed a duty when it informed residents that the pool was monitored. The association argued that because the dangers associated with the pool were open and obvious, it had no legal duty to protect Nader.

The appeals court noted that it has long been established that an owner of land owes no duty to warn invitees of open-and-obvious dangers on property because the nature of the hazard itself serves as a warning. The estate claimed the association violated the assumption of duty doctrine, under which an individual, who would normally have no legal duty, creates such a duty when they undertake an action that other parties reasonably rely on . The estate argued that the association created such a duty when it assumed the role of monitoring condominium activities because Nader relied on the monitoring in case of an emergency when she was swimming.

The court found no evidence to support that the association assumed a duty to protect Nader by installing the surveillance cameras, nor any evidence to support that Nader reasonably relied on the cameras as protection. If Nader had any belief that the surveillance cameras were present to protect her from dangers of swimming in the pool, that belief would have been negated by the several warning signs posted near the pool. Further, the Carlyle pool is 55' x 25' long, or 1375 square feet, and Ohio law does not require lifeguards to be employed at pools that are smaller than 2000 square feet. Therefore, there was no requirement that the association employ lifeguards at the Carlyle pool.

The court overruled the estate's assignments of error and affirmed the trial court's grant of the association's motion for summary judgment.

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Residents of Future Phases Have Easement for Park

Rainier View Court Homeowners Association, Inc. v. Zenker, No. 39187-2-II, Wash. App. Ct., Sept. 8, 2010

Developmental Rights/Powers of the Association: A Washington appeals court affirmed a finding that even though subdivision plats were ambiguous, extrinsic evidence served to establish the grant of an easement for residents of future phases of the development to use the community park.

Rainier View Court is a gated residential community in Spanaway, Wash,, that was designed for construction in three phases. Rainier View Court Homeowners Association, Inc. is comprised of homeowners in Phases I and II of the development.

The approved preliminary plat of the subdivision shows a park, labeled Tract "B," that is located inside Phase I but adjoins all three phases of the development. In approving the development, the decision of the hearing examiner for Pierce County's Planning and Land Services Department indicated that only the design of the plat as a whole, including the single-family homes in Phases I and II, the multifamily units in Phase III and all of the open spaces including the Tract B park, satisfied the requirements for development within the high-density residential district zone.

A dedication on the recorded final plat of Phase I states, "All lot owners shall have a 1/86th undivided interest in Tracts B, E and F for taxing purposes with said tracts to be deeded to the Rainier View Court Homeowners Association for ownership.”

At the same time the final plat of Phase I was recorded, the developer recorded the declaration of protective covenants for Rainier View Court, which created Rainer View Court Homeowners Association, Inc. . The declaration does not expressly reference easement rights in the Tract B park.

Edward Zenker is the developer of Rainer View Court, and was one of three initial directors of the association. The declaration provided for a new board to be elected when 100 percent of the lots were sold. Although 100 percent of the lots were sold by April 2005, Zenker remained on the board until October 2007, at which time members held a special meeting to demand that he resign and turn governance of the association over to the members.

In July 2007, a resident of Phase I complained to the county planning department that she objected to future residents of Phase III using the Tract B park. The department was concerned that, contrary to the original intent of the planned community, the lot owners in Phases I and II might try to exclude future Phase III residents from using the park.

The following month Zenker recorded an easement to use the park for residents of Phases II and III. The association sued for declaratory relief, alleging Zenker lacked authority to grant the easement and asking the court to declare the easement null and void. The association also alleged that Zenker breached his fiduciary duty to the association by granting the easement.

Zenker moved for summary judgment, contending that the Phase I plat, together with the hearing examiner's decision, granted residents in all three phases easement rights to use the community park; therefore, his later grant of the easement to residents of Phases I and II was superfluous.

The trial court granted summary judgment in Zenker's favor, finding that the recorded plats, viewed in light of the hearing examiner's decision and all surrounding circumstances, granted the residents in Phase III an easement to use the Tract B park. The association appealed.

The association argued that because the final Phase I plat did not contain any explicit language granting future residents of Phase III easement rights to use the Tract B park, the trial court erred by relying on surrounding circumstances to ascertain the grantor's intent.

The appeals court noted that a party can create a private easement by including the grant in a recorded plat. No particular words are necessary to create an easement so long as the language used shows an intent to grant with terms that are certain and definite. Washington statutes provide that any dedication shown on the face of a plat shall be considered a quitclaim deed to the grantee for the purpose intended by the donor.

The Phase I plat states:

We hereby convey an easement for ingress, egress and utilities over, under and across the private roads as shown hereon to the present and future lot owners of existing and future phases of the plat of Rainer View Court, for all purposes not inconsistent with the use of a private road and utilities easement.

The appeals court concluded that because Phase II and Phase III residents had direct access to existing county roads from their respective plats, the private road easements conveyed in the Phase I dedication served no other practical purpose than to allow Phase II and III residents access to the park.

The association argued that the court could not look to surrounding circumstances to determine the grantor's intent because the Phase I plat unambiguously granted rights in the park to Phase I residents only. To support its argument, the association referred to the language that explicitly provided that the Phase I lot owners have a 1/86 undivided interest in the park for tax purposes, with ownership in the park dedicated to the association. The association maintained that the grantor could not have intended to allow residents in all three phases to use the park because only Phase I residents are liable for the taxes.

The court found that purchasers of Phase I lots were on notice that the developers planned future phases of construction. Moreover, they were clearly on notice that the Phase II lot owners would have an ownership interest in the park, despite being free from tax liability. Importantly, the court noted that the association did not contend that Phase II residents were excluded from using the park.

The court found it was clear the developers intended to construct the park for the enjoyment of all subdivision residents. The hearing examiner's decision clearly demonstrated that the park was a necessary amenity for approval and development of the project. Additionally, the hearing examiner's decision demonstrated that the developers designed the mix of different kinds of housing to satisfy the county zoning requirements.

The association next contended that the trial court erred by relying on the hearing examiner's decision as binding legal authority. However, the appeals court found that nothing in the trial court's order indicated that it believed it was bound by the hearing examiner's decision. Instead, it indicated that the court relied on the decision insofar as it evidenced Zenker's design for the entire subdivision and his intent to grant residents in all phases of the development the right to use the park.

Last, the association maintained that the trial court erred by failing to address its breach of fiduciary duty claim. The court determined that the association's claim rested on its allegation that Zenker engaged in self-dealing when, while still serving on the association's board he granted an easement to residents of future phases that those residents did not already have. This claim failed because future Phase III residents had a right to use the park before Zenker recorded an express easement clarifying that right. Finding that the association had not alleged any genuine issue of material fact supporting its claim, the appeals court denied the claim. The court affirmed the trial court's decision.

In a dissenting opinion Judge David Armstrong expressed his opinion that the majority had attempted to create through a patchwork of assumptions a written easement when none existed. He concluded that nothing in the private road easement granted rights to use the park. He maintained that where the developer unequivocally granted a private road easement, it was inappropriate for the court to rewrite the document to create an entirely new easement. He further observed that the majority cited no authority for its proposition that plat easements can arise automatically unless the plat specifically states otherwise. He concluded, therefore, that even considering extrinsic evidence of the developer's intent, there was no showing that the developer actually granted an easement to future Phase III residents to use the park.

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Discrimination Claims Precluded by Collateral Estoppel

Weatherspoon v. Provincetowne Master Owners Association, Inc., No. 08-cv-02754-MSK-KLM, U. S. Dist. Ct., District of Columbia, Sept. 2, 2010

Federal Law and Legislation: A federal court granted summary judgment to a homeowners association in a discrimination action filed by one of its members, finding that the action was barred by collateral estoppel because the issues had been presented and determined by the state court.

Bettie Weatherspoon, who owns a parcel of real estate in the association of Provincetowne in Fort Collins, Colo., sued the association pro se for violations of the Fair Housing Act and the First Amendment to the United States Constitution. She alleged that various association members created a hostile environment for her within the community because of complaints she had filed against other members. The following claims were set forth in her complaint: (i) the association discriminated against her on the basis of race by failing to take action on her complaints and by citing her twice for violations of use restrictions; (ii) the association discriminated against her on the basis of handicap (mental illness) by citing her for violations after her house was broken into and failing to take action on her complaints that noise from other properties aggravated her disability; (iii) the association retaliated against her for having invoked her rights under the Fair Housing Act by ignoring her complaints and prohibiting her from reviewing association records during normal business hours, by conspiring with certain homeowners to install surveillance cameras directed at her and by filing an unfounded lawsuit against her in order to threaten and intimidate her; and (iv) the association deprived her of her rights secured under the First Amendment's "freedom of religion" clause by citing her on two occasions for violations relating to an eight-foot cross she erected in her yard.

The association moved for summary judgment on all Weatherspoon's claims for the following grounds: (i) the claims were barred by the doctrine of res judicata; (ii) the claims for race and disability discrimination failed because under the Fair Housing Act, the prohibition on discrimination applies only to the sale or rental of a dwelling, not to conduct that occurs after a homeowner obtains property; and (iii) any claim for religious discrimination failed, as a matter of law, because homeowners associations are not required to grant religious accommodations to otherwise religion-neutral policies.

The court found that the doctrine of res judicata, an affirmative defense, requires that the party invoking the doctrine set forth facts sufficient to satisfy all of four elements: (i) that a prior lawsuit ended with a judgment on the merits; (ii) that the parties are the same; (iii) that a prior suit was based on the same causes of action; and (iv) the non-movant had a full and fair opportunity to litigate the same claims.

Facts provided by the association demonstrated that it sued Weatherspoon in Larimer County Court for constructing a large wooden cross in her back yard without obtaining prior approval from the association. The court ruled in the association's favor, concluding that the cross was constructed in violation of the community's covenants. The order stated:

Because the court has already determined that the plaintiff has a valid cause of action that is not barred by the statute of limitations and that the defendant is in violation of the covenants and other provisions of the HOA, many of the allegations contained in the counterclaim fail as a result of that determination.

. . . The court finds that the Federal Fair Housing Act, 42 U.S.C. Section 3601, et seq.., and the Colorado Fair Housing Act, C.R.S. Section 24-34-501, et seq., contain no requirement of religious accommodation.

. . . The defendant's access to housing has not been violated. As such, the actions of the plaintiff do not violate the Fair Housing Act and are not discriminatory in nature. . .

Weatherspoon contended that the state court lacked jurisdiction to adjudicate the federal claims asserted in the present action. However, the association pointed out that the Fair Housing Act allows for state and federal courts to exercise concurrent jurisdiction over claims of housing discrimination.

The court concluded that the association established there was prior litigation, and the parties were the same. However, the association failed to establish the remaining two elements of res judicata: that the claims in the prior action were the same and that Weatherspoon had a full and fair opportunity to litigate the current claims.

The state court did not make any particular findings with regard to Weatherspoon's claims of race or disability discrimination or retaliation under the Fair Housing Act, or in any other capacity. Therefore, the claims in the prior action were distinct from those asserted in this action.

That being said, the court added that it was undisputed that Larimer County court was presented with and made conclusive factual findings regarding many of the issues that underlay Weatherspoon's claims in the current case. Therefore, the court found the doctrine of collateral estoppel applied to the court's factual findings. Although collateral estoppel is similar to res judicata, it operates to preclude parties from relitigating issues, not claims, that were previously presented and determined.

The issue of whether the association was selectively enforcing its rules against Weatherspoon was key to the association's request for an injunction, and the Larimer County court squarely addressed the issue of selective enforcement in its ruling. The federal court further found that Weatherspoon had a full and fair opportunity to litigate the selective enforcement issue because the state court conclusively adjudicated the question as part of its ruling, and the doctrine of collateral estoppel precluded Weatherspoon from relitigating the issue in the federal proceeding.

Once the court had accepted the state court's finding that Weatherspoon was not subjected to selective enforcement by the association, the major predicate of her discrimination and retaliation claims evaporated. If she was treated the same as others, she could not have been discriminated against because of her race or disability, nor retaliated against. Thus, the federal court ruled that, although the association was not entitled to summary judgment by operation of res judicata, the doctrine of collateral estoppel, nevertheless, prevented her from establishing the very facts on which her discrimination and retaliation claims were premised. Similarly, the collateral estoppel doctrine disposed of her First Amendment claim.

Accordingly, the court granted the association's motion for summary judgment.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Association Can Enforce Agreement to Sell Parkland

Whitetail Homeowners Association, Inc. v. Gountanis, No. DV-03-80 Mont. Dist. Ct., July 20, 2010

Contracts: A Montana court ruled that a homeowners association had standing to enforce a letter agreement, whereby the owner of a tract of parkland promised to sell the tract to a legally incorporated future association comprised of the subdivision's lot owners.

Whitetail Acres is a subdivision that has been located in Red Lodge, Mont In 1996, approximately one acre of parkland within the subdivision was sold at a tax sale. The buyer transferred his interest in the tract to John Gauntanis, who also owned a lot in Whitetail Acres. As part of consideration for the transfer, Gauntanis executed a letter of understanding promising to convey the tract to a lawfully organized homeowners association comprised of property owners within Whitetail Acres for the amount he paid for the property plus reasonable interest and his costs to acquire the property. At the time the letter was executed, no association of property owners existed.

In 2001, Whitetail Homeowners Association, Inc. was incorporated as a Montana domestic nonprofit corporation. In 2003, Gountanis filed a plat seeking to add the tract of parkland to his own lot. He indicated his intent to fence off a portion of the tract, denying access to other homeowners in the subdivision. The association tendered payment for the tract to induce him to sell it as provided in the terms of the letter of understanding. By tendering payment, the association purported to accept the offer under the terms of the letter. Gountanis rejected the offer, and the association sued to enforce the agreement.

Gountanis filed a motion for summary judgment, seeking declaratory judgment and claiming a prescriptive easement. The association opposed the motion. Gountanis argued that the association lacked standing to enforce the letter under the Montana Declaratory Judgment Act because the covenants did not provide for the creation of a homeowners association. The association sought full enforcement of agreement as an intended third-party beneficiary under its terms.

The court noted that to establish the existence of a contract for the benefit of a third party, a showing must be made that it was the intention of the parties to benefit the third party. An intended beneficiary is a party that has a recognized right to performance in order to effectuate the intention of the parties, and the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.

The Montana Supreme court has held that, "[a] promise in a contract creates a duty in the promissor to any intended beneficiary to perform the promise, and the intended beneficiary may enforce the duty.” Accordingly, the court found that the clear and unambiguous language of the letter, offered as part of consideration for the sale, unmistakably provided a clear expression of the parties' intent to convey a future interest in the parkland for the benefit of an unspecified homeowners association. The fact that the intended beneficiary was unspecified was immaterial to the question of enforcement rights, and any member of a class for whose benefit a contract is intended may enforce it.

The terms of the letter expressly promised performance as long as the association was lawfully incorporated and comprised of property owners within Whitetail Acres subdivision. The court concluded that the uncontroverted facts established that Whitetail Homeowners Association, Inc. was lawfully incorporated and its members were owners of lots within Whitetail Acres. Thus, the association met all the class requirements of an intended third-party beneficiary under the express terms of the letter of understanding. The court, therefore, denied summary judgment for Gountanis on this issue.

The association also asserted a claim for prescriptive easement. Gountanis sought summary judgment on this claim, arguing that the covenants did not provide for the creation of the association, and therefore the association did not have standing to maintain a prescriptive easement claim. Montana law provides that an owner of an estate in a dominant tenement or the occupant of the tenement may maintain an action for enforcement of an easement.

The undisputed facts showed, however, that the association neither owned nor occupied any property within the subdivision, and therefore, the association lacked standing to enforce an easement claim, even though the members, in their individual capacities might meet the threshold. The court granted Gountanis' motion for summary judgment on this claim.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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