June 2011
In This Issue:
Association Can't Refuse Disabled Owner’s Use of Golf Cart
Board Has Right to Foreclose on Lien for Unpaid Charges
Board of Managers Election at Unnoticed Meeting Invalid
Developer Can’t Add Association to Existing Association
Mold in Unit Does Not Support Personal Injury Claim
Objection to Zoning Relief Request Must Be Raised to Board
Association Liable for Damages Caused by Renovation
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This issue of Law Reporter is sponsored by CAI Press.

Association Can't Refuse Disabled Owner’s Use of Golf Cart

Alley v. Les Chateaux Condominium Association, Inc., No. 8:10-cv-760-T-33TGW, U. S. Dist. Ct., M. Dist. Fla., Nov. 16, 2010

Federal Law and Legislation/Association Operations: A homeowners association violated the Florida and federal Fair Housing Acts by denying a handicapped resident the use of a golf cart to increase her mobility.

Phyllis Alley suffers from a paralyzed diaphragm and a thyroid disorder that impede her ability to walk significant distances without shortness of breath. She qualifies for and uses a disabled person parking permit.  

In 2004, Alley moved with her husband to Les Chateaux Condominiums in Tampa, Fla. Les Chateaux is a multi-acre campus with facilities located significant distances from each other. When the Alleys purchased their unit, Phyllis Alley was required to participate in an interview with the association’s board of directors. At the interview, the board approved her request to use a golf cart on the premises and asked her to obtain a doctor’s note, which she provided to the board in a timely manner .

Alley used her golf cart at Les Chateaux without complaint or incident until October 2008, when she received a letter from the newly elected president of the board requesting updated medical documentation. The letter threatened that the board would remove her golf cart at her expense if the requested medical report was not received within 30 days. Despite the fact that there was no rule that prohibited the use of golf carts on the premises, Alley provided the board with the medical report, but the board never responded to her request to use her golf cart. Subsequently, she became the target of harassment and threats from the association.

In early 2009, Alley filed a complaint with the Pinellas County Office of Human Rights, which has the power to investigate complaints of housing discrimination. Her complaint alleged discrimination based on disability. After an investigation, the agency issued a determination of reasonable cause and charge of discrimination against the association and its board of directors for violation of the Fair Housing Act.

Alley sued the association and the board of directors for violation of the Florida and federal Fair Housing Acts, seeking injunctive and declaratory relief and retaliation. The association and board of directors filed motions to dismiss.

At the hearing on the motions, the association did not dispute that during her interview, she requested permission to use a golf cart on the premises. Alley presented facts to support the claim that the golf cart was an accommodation necessary to afford her the opportunity to enjoy her dwelling. She stated that the golf cart enabled her to use the various facilities on the campus. In addition, she asserted that her unit at Les Chateaux was her dwelling, which the association also did not dispute.

The court analyzed Alley’s claims under both the Florida and federal Fair Housing Act. For purposes of the act, a person is handicapped if he or she has (a) a physical or mental impairment that substantially limits one or more of that person’s major life activities; (b) a record of such impairment; or (c) is regarded as having such impairment.

Alley requested preliminary and permanent injunctions requiring the association to make reasonable accommodation for her disability by allowing her to use the golf cart without threats or interference, and the court granted the injunction. 

She sought further relief in the form of a declaration that she would be permitted to use her golf cart as a reasonable accommodation of her disability and asserted a retaliation claim.

In addressing her claim for retaliation, the court noted that Section 3617 of the act states that, “It shall be unlawful to coerce, intimidate, threaten or interfere with any person in the exercise of enjoyment of, or on account of his having exercised or enjoyed . . . any right granted or protected by . . . this title.” Very few courts have addressed the particulars of a retaliation claim; however, the court pointed out that a showing of intentional discrimination is an essential element of a claim of retaliation. Alley stated that she engaged in a protected activity when she filed the complaint for violation of the act. She suffered adverse reactions to her filing the complaint when the association sent her a letter, under the false name of “Condo Helpers,” criticizing, maligning and slandering her and her husband. Her complaint was specifically referenced in the letter. The court concluded that she successfully stated a cause of action for retaliation.

The court denied the association's motions to dismiss.

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

Board Has Right to Foreclose on Lien for Unpaid Charges

Board of Managers of 50 Pine Street Condominium v. Miodownik, No. 110020/09, N.Y. Supr. Ct., Oct. 26, 2010

Assessments: A New York trial court denied a motion to dismiss a foreclosure action for unpaid common charges on the grounds that the condominium board lacked personal jurisdiction because proof of proper service was prima facie evidence that the board had standing to bring the action.

Hela Miodownik owned a unit in 50 Pine Street Condominium, a residential complex located in New York City. The board of managers of 50 Pine Street Condominium sued Miodownik to foreclose its lien due to unpaid common charges. Miodownik moved to dismiss the complaint on grounds that the board lacked standing to bring the action because its members were elected in contravention of the condominium’s bylaws and also lacked personal jurisdiction over her due to improper service.

In support of her argument, Miodownik submitted her own sworn affidavit, stating simply, “I was never personally served.” The affidavit of service attached to the board’s opposition motion indicated that service of the summons, complaint and notice of pendency was delivered to Miodownik and left in a noticable area via conspicuous-place service at 50 Pine Street, Unit 3S, New York, NY 10005, on Aug. 6, 2009, at 7:11 a.m. Subsequently, on Aug. 20, 2009, a copy of the summons and complaint were sent to her by first class mail at the same address in an envelope marked “personal & confidential.” The board then filed the affidavit of service with the New York County Clerks Office on Aug. 24, 2009. Accordingly, Miodownik had 30 days from Oct. 3, 2009, to appear, answer or move with respect to the complaint.

A second affidavit of service indicated that the summons and complaint were served to Miodownik by conspicuous-place service at the same address on Sept. 24, 2009, at 7:18 p.m., after prior attempts noted in the first affidavit of service failed and additional attempts at personal service made on Aug. 31, 2009, at 9:07 p.m. and Sept. 12, 2009, at 7:40 a.m. also failed. Another summons and complaint were sent to her on Oct. 1, 2009, by first class mail in an envelope also marked “personal & confidential.” The board filed the affidavit in the New York County Clerk’s Office on Oct. 5, 2009, and service was completed 10 days later. Miodownik then had until Nov. 15, 2009, to appear, answer or move with respect to the complaint.

The sworn affidavits of service constituted prima facie evidence of proper service, indicating that the process server used due diligence in attempting to serve Miodownik personally. Miodownik’s conclusory and unsubstantiated denial of service was insufficient in the eyes of the court to rebut the prima facie proof of proper service. Accordingly, her motion seeking dismissal of the complaint for lack of personal jurisdiction was denied.

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

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Board of Managers Election at Unnoticed Meeting Invalid

Board of Managers of Park Regent Condominium v. Park Regent Associates, No. 2009-04227, N.Y. Supr. Ct., App. Div., March 30, 2010

Association Operations: A New York appeals court affirmed an order declaring that the election of members to the board of managers of a condominium at an unnoticed meeting was invalid.

David Doo sued several former and current members of the board of managers of Park Regent Condominium. The development is a mixed-use condominium located in Flushing, N.Y., that includes residential, commercial and professional units, as well as a garage.

On June 26, 2006, certain unit owners conducted an annual meeting of the members whereby they purported to elect a new board of managers. Shortly thereafter, the board of managers that was in place prior to that meeting sued for a declaratory judgment that the meeting was invalid, and the individual defendants were not elected to the board on that date. Doo owns a unit in the condominium and sued the board to recover damages from board members, individually and in the capacities as members of the board, for various acts of alleged misconduct, fraud and breach of fiduciary duty.

The trial court granted declaratory judgment, ruling that the meeting held June 26, 2006, was invalid due to the absence of an official meeting notice, and the individual defendants were not duly elected to the board on that date. The court issued a permanent injunction preventing the individual defendants from acting as members of the board. The defendants appealed.

The appeals court concluded that the trial court properly granted summary judgment and permanent injunction.

Meanwhile, in January 2009, Doo moved for leave to amend the complaint to add a new cause of action to recover attorney’s fees and expenses in prosecuting the lawsuit, alleging that the condominium bylaws authorized the recovery of such fees and expenses. The court granted his motion.

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

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Developer Can’t Add Association to Existing Association

Breakwater Village Condominium Association, Inc. v. Breakwater Village, Inc., No. WC/08-0017, R.I. Super. Ct., Nov. 23, 2010

Developmental Rights: The Rhode Island Condominium Act prohibits the addition of a small association to a larger, existing association absent a merger or the creation of a master association.

Breakwater Village is a condominium in Narragansett, R.I., that consists of 172 units and is governed by Breakwater Village Condominium Association. The declaration of condominium for Breakwater Village contains a reservation of rights to develop that allowed the developer, Breakwater Village, Inc., to develop a parcel of land designated as Lot 1.

The town’s zoning board granted Breakwater a special use permit to allow 36 seasonal campsites to be developed on Lot 1. As a result, Breakwater decided to develop Lot 1 as One Offshore Road Condominium. The reservation of rights to develop in the Breakwater Village declaration allowed Breakwater to make the Breakwater Village association part of a larger condominium subject to a master association; however, it did not provide that a smaller condominium association could be inserted into the Breakwater Village association.

Breakwater acted on its development rights by executing the ninth amendment to its declaration. The amendment sought to incorporate One Offshore Road Condominium Association, Inc., into the Breakwater Village association. The purpose of the ninth amendment, aside from allowing Breakwater to exercise its development rights, was to reaffirm various financial obligations of the two associations.

Subsequently, Breakwater Village association sued Breakwater and One Offshore for a declaration that the ninth amendment was unlawful, invalid and of no force or effect and that Breakwater created One Offshore unlawfully.

Breakwater filed a motion for summary judgment, asserting that it acted in accordance with statutory requirements when it exercised its development rights by adding Lot 1 to Breakwater Village and then subdividing the unit to create One Offshore Road Condominium. Breakwater Village association filed a cross motion for summary judgment.

The parties principally contested Breakwater’s ability to add to Breakwater Village association a smaller condominium association and whether the individual unit owners of One Offshore association were indispensable parties to resolution of the issues.

Breakwater argued that the individual unit owners of One Offshore association were indispensable parties to the action, and nullifying the ninth amendment and declaring One Offshore association invalid would interfere with the ownership interests of the individual unit owners.

Conversely, the Breakwater Village association argued that individual unit owners of One Offshore association were not indispensable parties because Breakwater Village association was not asking the court to declare that One Offshore association was unlawful; rather, it sought a declaration that the ninth amendment did not create or establish One Offshore association. Breakwater Village association argued that the developer created One Offshore association separately, and the ninth amendment sought to add that distinct entity to Breakwater Village association. As such, no individual property rights would be affected by a declaration that the ninth amendment was invalid, such that the individual unit owners of One Offshore association were not indispensable parties to the action.

Under the amendment, One Offshore association was responsible for maintenance of the common areas and common elements of One Offshore Road Condominium. As these financial and maintenance responsibilities were the only matters affected by voiding the amendment, and they did not affect title to the individual units, One Offshore association, not the individual unit owners, was the proper party to the action.

The court granted the motion for summary judgment filed by Breakwater Village association and denied the cross motion filed by Breakwater and One Offshore association, finding that the individual unit owners of One Offshore association were not indispensable parties to the action. The court also found that Breakwater’s attempt through the ninth amendment to add One Offshore association to Breakwater Village association, absent a merger or the creation of a master association, violated the Rhode Island Condominium Act, which specifically limited that arrangement to a master association and the merger or consolidation of condominiums.

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

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Mold in Unit Does Not Support Personal Injury Claim

Caldwell v. Two Columbus Avenue Condominium, No. 123568/02, N.Y. Supr. Ct., Oct. 22, 2010

Developer Liability/Risks and Liabilities: A New York court dismissed personal injury claims against a condominium association arising from an owner’s claim that she suffered allergic reactions from mold that formed in her unit because of a leak caused by faulty construction.

Clara and John Caldwell own a condominium unit at Two Columbus Avenue in New York City. The building contains both commercial and residential units. Shortly after the Caldwells moved into their unit in June 1999, they complained of water leaks. In 2002, feeling that the leaks were not sufficiently addressed by the association, they sued the association, the residential board, the condominium board, the sponsor (Two Columbus Associates, LLC) and New York Urban Property Management Corporation and Urban Associate, LLC, the managing agents. The defendants, in turn, brought third-party actions against numerous entities that were allegedly responsible for the design and construction of the building, as well as for the manufacture and installation of the unit’s windows.

The Caldwells alleged that the construction defects in the building resulted in substantial water damage to their unit and personal property, loss of quiet enjoyment and personal injury to Clara Caldwell, as well as loss of consortium (the right of husband and wife to the other's companionship). 

Two Columbus Associates, New York Urban Property Management and Urban Associate moved to dismiss the personal injury and loss of consortium claims, arguing that no causation existed between Caldwell’s illness and the mold contamination in the unit. The Caldwells alleged that samples taken in their unit revealed the presence of mold, which caused Clara Caldwell to develop hypersensitivity to mold and symptoms that required medical attention. The defendants submitted the expert testimony of a doctor who specialized in the treatment and diagnosis of allergy and asthma, and found no evidence that Clara Caldwell was allergic or hypersensitive to mold. He testified that no medical standards existed concerning the quantity of mold present at a given location and its potential clinical significance on human exposure.

In response, the Caldwells submitted unsworn reports by Clara Caldwell’s personal physicians stating they found evidence of respiratory symptoms related to exposure to musty environments; however, they found no evidence that mold in the condominium unit caused her symptoms. The court determined that the defendants established a prima facie case to support their motion and dismissed the personal injury and loss of consortium claims. The court pointed out that the Caldwells’ unsworn, unaffirmed medical reports—based primarily on speculative statements—were not in admissible form and failed to raise triable issues of material fact.

The Caldwells' also claimed the managing agents, New York Urban Property Management and Urban, had been negligent and also caused the Caldwells private nuisance and had negligently misrepresented them due to the lack of actions in addressing the water damage. However, on April 22, 1999, Urban replaced New York Urban Property Management as managing agent. Because of this, New York Urban Property Management moved to dismiss the Caldwells’ claims since it was no longer the managing agent, and the court granted the motion.

The Caldwells still sued Urban. They alleged that at various times after they moved into the unit, Urban falsely told them the water leak would be addressed, and they reasonably relied on those statements to their detriment. Urban moved to dismiss the claims, arguing it owed no duty of care to the Caldwells and that the Caldwells didn’t have standing to bring a claim for damages that arose from their interest in the condominium common elements. The court observed that New York’s governing statute, Real Property Law § 339-dd, did not preclude an individual unit owner from suing the sponsor or the board of managers for wrongs to the unit owner’s individual unit because such action would enforce a right unique to the individual owner. Therefore, the Caldwells had standing to sue to recover for damages to their own unit.

Urban asserted that it had contracted with the condominium board to maintain and operate the building and to keep its common elements in good repair. Its contractual duty of care was to the condominium board and not to individual unit owners. Urban argued that the management agreement did not provide that the parties intended to confer a direct benefit on the unit owners. Furthermore, pursuant to New York case law, a managing agent acting on behalf of a disclosed principal is not liable to a third party for nonfeasance, but only for affirmative acts of negligence or other wrongdoing.

The Caldwells opposed Urban’s motion with a general assertion that nothing in Urban’s authority under the management agreement precluded direct responsibility for inspection, maintenance, remediation and roof repair. Urban responded that, under the terms of the management agreement, it did not have complete authority to undertake repairs or alterations that involved an expenditure of more than $2,500 other than emergency repairs or repairs made pursuant to governmental notice or order. In addition, Urban provided testimony of the sponsor’s director of construction, who stated that Urban had no responsibility for addressing the Caldwell’s water infiltration complaints.

The court concluded that the Caldwells failed to show they were an intended beneficiary of the management agreement, that Urban had carried out any affirmative acts of negligence or that it possessed complete and exclusive control of the building. In fact, Urban had undertaken work to remedy the leaks. Because of  this, the court dismissed the Caldwells’ claim against Urban for private nuisance because they made no allegation that Urban’s conduct was intentional or that Urban engaged in abnormally dangerous conduct or activities. To the extent that the claim was based on reckless negligence, the court dismissed it as duplicative.

To prevail on their negligent misrepresentation claim, the Caldwells had to demonstrate a special relationship with Urban that would impose a duty on Urban to impart correct information to them, that the information was incorrect and they had reasonably relied on the information. Urban argued that its relationship with the Caldwells was an ordinary business relationship in which a buyer and a seller negotiated an arms-length transaction for purchase of a condominium unit, and was not a special relationship approaching that of privity (a releationship between two parties who both have a legal interest vested in the same property or right). The court determined that the Caldwells failed to establish that a special relationship existed with Urban on which a negligent misrepresentation claim could be based.

The Caldwells also had claims against the association, the condominium board and the residential board for breach of contract, private nuisance, negligence and negligent misrepresentation. The defendants moved for the court to dismiss all claims.

The association defendants submitted affidavits to the court of two residential board members, one who served from 1999 through 2001, and the other who served from 2000 to the present. The affidavits stated that when the residential board was first elected in 1999, three members of the board were employees of the sponsor, Two Columbus Associates. In December 1999, when the sponsor sold all its shares in the condominium, a special election was held, and five residential unit owners were elected to the board.

According to the affidavits, from the time the building was first occupied, there were complaints from numerous unit owners, including the Caldwells, related to the original building construction, not to routine maintenance. The residential board sets policy for the well-being of the entire condominium community, not just individual owners, and it concluded that the sponsor’s construction team, some of whom were still actively working on the building, should correct the construction defects that were causing the water infiltration. The sponsor had set aside only a modest amount of money in the capital reserve fund. The affidavit indicated that the board president encouraged individual unit owners, including the Caldwells, to pressure the sponsor to correct their various complaints. Frustrated with the sponsor’s failure to remedy the construction-related problems, the residential board hired an independent engineering firm to provide a detailed report about the condition of the building and presented the report at the annual meeting of unit owners for discussion. The association also hired a separate engineer to inspect the building and provide a report. This engineer concluded that the leaks in the building arose from the original design and construction of the building (not routine maintenance and repair problems) and should be corrected by the sponsor and its construction team.

Finally, the association hired legal counsel to advise the board about possible termination of the management agreement with Urban and possible recourse against the sponsor. Subsequently, the board continued its policy of pursuing Two Columbus Associates to correct the construction defects. As part of that approach, in August 2003 the board authorized its attorney to seek the assistance of the New York State Attorney General’s office, which regulates condominiums, in pursuing the sponsor for remedial work to correct the construction deficiencies. The association also authorized its attorney to file an action against Two Columbus Associates and to pursue a tolling agreement (an agreement to waive the right to claim that litigation be dismissed due to the expiration of a statute of limitations), which they did.

The association defendants argued that they did not ignore the Caldwells’ complaints, but rather, made a judgment that the best way to approach the construction-related problems, including those of the Caldwells, was to pressure Two Columbus Associates to perform the remedial work with the original contractors. The board argued that under New York legal principles, the court was obliged to apply the business judgment rule to its decisions. The business judgment rule provides that judicial inquiry into the decisions of a condominium board of directors is prohibited where the decisions are made in good faith and the board exercises honest judgment in lawful and legitimate furtherance of the association’s purposes.

Though the Caldwells did not allege that the board decisions were taken in bad faith, they nonetheless argued that the board made a poor decision on how to respond to the leaks and failed in its duty to cure the defects. The board conceded that the business judgment rule would apply to the initial decision by the condominium defendants that the leaks resulted from construction defects and should be remedied by Two Columbus Associates. The Caldwells also agreed that leaks that occurred in their unit during 2000 and again in 2005 were the result of defects in the design and/or construction of the building. Nonetheless, they argued that the decisions of the condominium defendants that Two Columbus Associates, rather than the association, should be responsible for the remedial work to correct the leaks should not be covered by the business judgment rule.

The court did not see how the business judgment rule could apply to the 1999 decision that Two Columbus Associates was responsible for repairing the leaks but not to later decisions that Two Columbus Associates should remain responsible for performing the remedial work. The court concluded that the Caldwells were, in essence, arguing that because Two Columbus Associates was not initially successful in fixing the leaks, the association’s decision to continue to pursue Two Columbus Associates for a remedy was not protected by the business judgment rule. The court observed that the condominium defendants’ decisions regarding performance of maintenance and repairs were within the scope of their authority and shielded them from judicial review under the business judgment rule. The court granted their motion to dismiss these three causes of action.

With respect to their claim against the condominium defendants for negligent misrepresentation, the Caldwells alleged that the association falsely represented that the water infiltration in their unit and the resulting property damage would be addressed and resolved and the water leak would be corrected.However, Urban was hired by Two Columbus Associates under a three-year contract, to be managing agent for the condominium and to provide services to the condominium board. Thus, it was not clear to the court whether Urban was the agent of Two Columbus Associates or the association. None of the individuals identified by the Caldwells were members of the residential board, and the Caldwells did not allege that any misrepresentations were made by members of the board. Thus, the statements could not be a basis for a direct cause of action for negligent misrepresentation.

The association argued that because Urban was hired by the sponsor to provide services to the residential board, the unit owners were not parties to the contract and there was no special relationship between Urban and the unit owners. Statements indicating that efforts were being made to correct the problems could more accurately be characterized as statements of reassurance than statements of fact, to the extent they were statements of future intentions rather than statements of existing fact. The court found that the statements were not sufficient to support the Caldwells’ claim of negligent misrepresentation.The court subsequently concluded that the Caldwells failed to demonstrate any privity-like relationship existed between themselves and Urban and dismissed this claim also.

Finally, the Caldwells’ filed a complaint against the sponsor, Two Columbus Associates, which contained five causes of action: breach of contract, breach of fiduciary duty, private nuisance, negligence, and negligent misrepresentation. Two Columbus Associates moved to dismiss the complaint and any cross claims that arose from the Caldwells' complaint. The breach of contract and breach of fiduciary claims were dismissed in an earlier ruling.

Two Columbus Associates argued against the negligence claim and sought to dismiss it on the basis that (1) the offering plan and purchase agreement expressly prohibited recovery for the damages alleged; (2) the negligence claim duplicated of the contract claim because the Caldwells could not show a duty of care independent of the Two Columbus Associates’ obligations under the contract; and (3) even if the sponsor had a separate duty of care to the Caldwells, under New York law, damages are limited to the cost of repair or replacement of damaged or defective property.

Two Columbus Associates contended that the offering plan and purchase agreement expressly excluded damages for defects not specified in the inspection statement. Even assuming some leaks may not have developed until after the Caldwells took possession of their unit, the court concluded that the limitation would, at best, apply to a claim based on contract, not one that alleged negligence. Regardless of whether Two Columbus Associates had a duty to undertake repairs after the closing, it did undertake the duty to make the repairs. Thus, the court concluded that it was required to act with due care, and the negligence claim, was not dismissed.

The Caldwells also alleged that after they moved into their unit, they were falsely assured that the leaks in the unit would be fixed, that they were not fixed, that they relied on those representations and remained in the unit, suffering damages as a result. Because the court found no special privity-like relationship between Two Columbus Associates and the Caldwells, it dismissed this claim for negligent misrepresentation.

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

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Objection to Zoning Relief Request Must Be Raised to Board

Quincy Park Condominium Unit Owners’ Association v. District of Columbia Board of Zoning Adjustment, No. 09-AA-70, D.C. App. Ct., Sept. 30, 2010

Municipal Relations: An appeals court affirmed the order of the District of Columbia’s zoning board denying a rehearing and reconsideration of its decision to grant a special exception to a developer who planned to enlarge a downtown hotel.

In 2006, Morrison-Clark Limited Partnership I and Morrison-Clark LP planned to enlarge the Morrison-Clark Hotel in downtown Washington, D.C. The plans for the project necessitated expanding the hotel into adjacent property formerly owned by the Chinese Community Church. The rear wall of the new structure would be three feet from the south wall of the Quincy Park condominium building.

To proceed with its plans, Morrison-Clark needed to obtain zoning variances and a special exception from the city’s Board of Zoning Adjustment. Before applying for the variances, Morrison-Clark presented its plans to the local Advisory Neighborhood Commission (ANC), including a site map and floor plans indicating the project would extend to the property line. The plans did not depict the adjacent buildings, however, or make evident how close the hotel’s new annex would come to the Quincy Park condominium. The ANC unanimously approved the project and voted to recommend the zoning board grant Morrison-Clark’s application for zoning relief.

In 2007, Morrison-Clark applied to the zoning board for a use variance, variances from rear-yard setback, nonconforming structure requirements and a special exception from roof structure setback requirements. A public hearing was scheduled, and two months before the date of the hearing, Morrison-Clack mailed notice of the hearing to all interested parties, including the ANC and all owners of property located within 200 feet of the project. This included notice to Quincy Park Condominium Unit Owners’ Association rather than each one of the 99 unit owners at the condominium, pursuant to D.C. regulation. Morrison-Clark also posted notice of the hearing on its property.

After receiving revised plans for the hotel project, the ANC again voted to support Morrison-Clark’s application for zoning relief. ANC sent the zoning board a report explaining its recommendation, which did not raise any issues or concerns. Two weeks before the hearing, Morrison-Clark sent the ANC a copy of its pre-hearing report. No one representing either the ANC or the association attended the hearing. The only Quincy Park resident present stated that she had learned of the hearing from the notice posted on Morrison-Clark’s property and was uncertain whether any other unit owners were aware of the hearing.

The resident expressed concern that the law permitted notice to be mailed to a condominium association rather than directly to each individual unit owner. She further stated she was not necessarily opposed to the project, but was concerned about the impact it would have on Quincy Park residents, such as loss of light and airflow on the south side of the condominium building due to the proximity of the new structure. These concerns were considered at the hearing, and the ANC’s support for Morrison-Clark’s application for zoning relief was noted. Ultimately, the board members were impressed with the merits of the project and satisfied that it would have no substantial detrimental impact on its neighbors. At the end of the hearing, the zoning board approved Morrison-Clark’s request for zoning relief.

A member of the Quincy Park board of directors attended the next regularly scheduled meeting of the ANC and requested that the ANC rescind its approval of the project because the hearing had revealed that the new structure would be unacceptably close to the Quincy Park building. The ANC voted to withdraw its prior approval, and the next week submitted a motion to the board requesting a rehearing and reconsideration of Morrison-Clark’s application for zoning relief. The ANC argued that the facts presented in its initial review were substantially different from those revealed by Morrison-Clark at the hearing. It claimed that it had been misled because the plans it reviewed did not depict the proximity of the proposed construction to the Quincy Park condominium building. In addition, the ANC charged that the evidence presented at the hearing contradicted statements made by Morrison-Clark to the ANC, including the developer’s assurances that the condominium owners had been informed of its plans. The motion stated that, “Had the ANC been made aware of the actual relationship of the construction to, and its impact upon, the adjoining property . . . when the ANC considered this application, it is virtually certain that it would have determined that the applicant failed to meet the statutory requirements for the requested variances, rather than advising the BZA to grant the application as it did.”

The board denied the ANC’s request for a rehearing, finding that it had proffered no evidence that could not have been presented at the original hearing. However, the board agreed to reconsider the application, without taking new evidence, at a special public meeting. At the meeting, the board reassessed the issues raised in the ANC’s motion, including the proximity of the new structure to the Quincy Park building and the adequacy of the notice given to condominium unit owners. While acknowledging an obligation to accord “great weight” to the ANC’s belated concerns, the board declined to change its decision and denied the motion for reconsideration. Subsequently, the association filed a petition for review by the appeals court.

In its appeal, the association presented two main claims: (1) by denying the ANC’s request for a rehearing on Morrison-Clark’s application for zoning relief, the board breached its statutory obligation to give “great weight” to the ANC’s issues and concerns; and (2) the board rule allowing notice of the hearing on the application to be mailed to the association rather than the individual unit owners was unconstitutional on its face, as it deprived unit owners of due process and equal protection of the laws.

Although the association did not participate in the proceedings before the board, it had standing to represent its members’ interests and was not estopped from presenting these claims. The court, however, rejected the claims on their merits.

The court noted that when an application for a special exception or a variance is submitted to the board, the ANC for the affected neighborhood is entitled to be notified so that it may consider the application and advise the board in writing of its position. The issues and concerns raised shall be given “great weight” during the board’s deliberations. The association argued that this statutory requirement obligated the board to grant ANC’s motion for rehearing; however, the court disagreed.

The court’s position was that, as the phrase “during the deliberations” indicated, the statute contemplated that the ANC’s opinion will be heard and considered as part of the board’s deliberative process, not after that process has been completed. Accordingly, the board’s rules of practice and procedure require ANC to submit a written report before the hearing at which the deliberations will take place. The only timely report submitted to the board in the case was the ANC’s letter supporting Morrison-Clark’s application. The association did not deny that the board attached “great weight” to the letter during its deliberations.

The court concluded that the ANC’s motion for rehearing obviously was too late to be considered during the board’s deliberations. It was not written advice contemplated by the statute or by the board’s rules and, therefore, the board was under no statutory obligation to give it “great weight” in reconsidering the decision it had made. That the ANC claimed that it had been misled by Morrison-Clark in its initial review of the project made no difference to the court’s conclusion. The court pointed to the board’s rule that provided for such contingencies:

In the event the ANC submits its report on the basis of understandings, agreements or meetings with the appellant or applicant that later are modified by the appellant or applicant, the designated ANC representative may comment orally concerning the specific inconsistencies. No other new matters may be presented orally by the designated ANC representative.

By failing to send a representative to the original hearing, the ANC lost the opportunity provided by this rule to comment on the alleged differences between Morrison-Clark’s actual application and the ANC’s understanding of the project’s impact. By holding a public meeting on the ANC’s post-hearing motion, the board allowed the ANC to be heard to the same extent as if it had appeared at the original hearing. Whether or not it was obliged by law to do so, the board undertook to give “great weight” to each of the issues and concerns belatedly raised by the ANC. The board’s rules further provide that “[n]o request for rehearing shall be considered by the board unless new evidence is submitted that could not reasonably have been presented at the original hearing.” The ANC did not satisfy this condition.

In considering the association’s challenges to the constitutionality of the notice procedure, the court determined that notice to the unit owners’ association was constitutionally sufficient because the association’s officers are owners’ fiduciaries, and thus, it was reasonable to rely on those officers to inform the owners of the hearing. The court found that even though the notice rule treats unit owners in buildings with 25 or more units differently than owners in buildings with fewer units (who are entitled to individual notice), the distinction is rationally related to a legitimate governmental interest and hence does not deprive the former group of equal protection of the laws.

Under District of Columbia condominium law, the “self-government of the condominium” is in the hands of the unit owners’ association. The association has broad powers to protect its members’ property interests, including the power to intervene in administrative proceedings on behalf of the unit owners “on any matter that affects the condominium.” Given the duties of loyalty and care imposed by law on a fiduciary, it was reasonable to rely on the association to inform its members when it was notified of the application before the board for a variance that could affect the value of the unit owners’ property.

The association’s equal protection challenge did not fare better. The association argued that the notice rule arbitrarily discriminated against unit owners in condominiums with 25 or more dwelling units. Since the rule did not discriminate against members of a suspect class such as race, the court assumed it to be valid. The exception for condominiums with 25 or more units serves two legitimate functions: ensuring that notice is provided to individual unit owners without fail; and reducing administrative costs.

The court held that the board did not violate its statutory obligation to accord “great weight” to the issues and concerns properly raised by the ANC with respect to Morrison-Clark’s application for zoning relief, and the board’s rule permitting notice to be mailed to condominium associations rather than directly to each individual unit owner if there are more than 25 units in the condominium was not unconstitutional on its face. Accordingly, the court dismissed the petition for review and affirmed the board’s order denying rehearing and reconsideration of its decision to grant Morrison-Clark’s application for zoning relief.

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

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Association Liable for Damages Caused by Renovation

Telford v. Sagewood Homeowners Association, Inc., E048483, Calif. App. Ct., Nov. 16, 2010

Architectural Control/Use Restrictions: A California appeals court found that a homeowners association breached its fiduciary duty to its membership by approving construction of improvements that violated architectural guidelines and failing to monitor the construction process.

Ted Telford and William Hubbard live in a condominium governed by Sagewood Homeowners Association. The owner of two neighboring units, Daniel Lass, sought approval from the association to combine his units into a single unit. The plans he submitted included converting a carport into a closed garage and converting approximately 1,000 square feet of common area to his personal use.

Lass submitted his architectural variance request and preliminary plans to the association in December 2005. The architectural committee reviewed the request and deemed that approval depended on submission of final construction plans, proof of notification and discussion of the project with Lass’s neighbors, including Telford and Hubbard.

At a meeting of the board of directors, the association granted Lass conditional approval of the project. The conditions included board approval of the final construction drawings and city building permits; deposit of a $5,000 performance bond; development of a procedure for notifying neighboring unit owners of the project’s approval, construction start date and subsequent interruption in utility service; execution of a maintenance and hold harmless agreement prior to the start date; and a requirement that the common area to be converted be appraised and the sale of the property be submitted to a vote of the association membership, requiring approval of at least 67 percent of the unit owners.

None of these conditions were met prior to construction, and the association did not verify that the conditions had been met. Rather than having the common area appraised and the question of its sale voted upon by the membership, the association simply “gifted” the property to Lass.

In April 2006, the association adopted architectural improvement guidelines. The guidelines were implemented to clarify the approval process for improvements set forth in the declaration of covenants, conditions and restrictions. The board of directors held a special meeting to consider Lass’s project. At the meeting, Lass and the association agreed to a request by Telford and Hubbard that no work audible outside Lass’s units be conducted before 8 a.m. or after 5 p.m. during the week or on weekends. Lass assured Telford and Hubbard that the project would take no more than six months to complete.

The project, however, took two years to complete, during which time Telford and Hubbard were subjected to noise, fumes, dust and inconvenience of the construction, not only between 8 a.m. and 5 p.m. on weekdays, but during evening hours, weekends and some holidays.

Telford and Hubbard informed the association on numerous occasions of the disruption caused by the project, but the association failed to intervene. The completed project also varied materially from the preliminary plans that were conditionally approved by the association. The association never granted final approval of the project, nor did it verify whether Lass obtained a city permit.

In May 2007, Telford and Hubbard sued Lass and the association for damages incurred as a result of the ongoing construction on Lass’s units. They sued Lass on theories of public and private nuisance, intentional and negligent infliction of emotional distress and negligence in the manner in which Lass conducted the construction project. They sued the association for negligence, alleging the association failed to adequately evaluate the proposed project for compliance with the governing documents, including provisions prohibiting actions that unreasonably interfered with an owner’s right to quiet enjoyment, endangered the health of another resident, unreasonably annoyed or disturbed other residents or amounted to nuisance. They alleged that approval of Lass’s project was negligent, unreasonable, arbitrary and in bad faith, and that it resulted from a close personal relationship between Lass and one or more board members. They also sued the association for breach of fiduciary duty, based on the same facts alleged under the negligence cause of action.

In October 2008, Telford and Hubbard amended their complaint to add Ed Dietrich as a defendant, who was president of the association’s board of directors at the time. Although the factual allegations were somewhat different, their theories of liability were essentially the same. They alleged that Dietrich improperly put his personal and business relationship with Lass above his duty to the homeowners by approving Lass’s project and failing to control the project.

Dietrich and the association demurred, contending that claims in the complaint failed to state causes of action. The trial court sustained the demurrer (a written plea to dismiss the claim) without leave to amend and entered orders to dismiss the suit. Telford and Hubbard appealed.

The appeals court observed that the causes of action for negligence, breach of the governing documents and breach of fiduciary duty were all based on the same premise: that the association had a duty to the unit owners to act in good faith and with reasonable prudence in approving Lass’s construction project, and that it had a duty to ensure that Lass carried out the project in a manner that complied with the governing documents and its agreements with Telford and Hubbard.

Dietrich and the association contended that the association had sole discretion to determine whether to approve Lass’s project, that it had no duty to monitor the project once it was approved and that it had sole discretion to determine how or whether to enforce the governing documents. The court pointed out that, although discretionary decisions of the board of directors of a homeowners association with respect to maintenance of the property and its other functions are granted deference under the business judgment rule, deference is accorded only if the association acts upon reasonable investigation in good faith with regard for the best interests of the association and its members.

Telford and Hubbard alleged that the association failed to enforce various provisions of the governing documents. California’s civil code provides that covenants and restrictions contained in the declarations of common interest developments are enforceable as equitable servitudes (an agreement of rights one party has to property that is owned by another property) and will be to the benefit of all owners of interests in the development. Unless the declaration states otherwise, the servitudes may be enforced by any owner or by the association or by both. Consequently, when an association fails or refuses to enforce the covenants, a homeowner can sue the association for damages and an injunction to compel the association to enforce the covenants. The appeals court, therefore, determined that Telford and Hubbard had the right to compel the association to enforce the governing documents or to seek damages for the association’s failure to do so.

The appeals court found that Telford and Hubbard adequately alleged that the association acted negligently or in bad faith by failing to require Lass to comply with the governing documents, which afforded homeowners protection from nuisance arising from a home improvement project. The court noted that the association’s failure to monitor for compliance with the plans and architectural guidelines or to investigate complaints about the project’s non-compliance was a breach of the association’s duty under the guidelines. Further, the covenants prohibit activities that interfere with owners’ quiet enjoyment of their properties and provide remedies for breach of the governing documents. Because the association stands in a fiduciary relationship with member homeowners, Telford and Hubbard stated a cause of action for breach of fiduciary duty as well.

However, the governing documents did not require the association to take legal action to enjoin Lass’s conduct. Rather, the guidelines provide that remedies for violations of the guidelines be “pursued to the fullest extent permitted” by the covenants and the law. The remedies include, but are not limited to, violation letters, a hearing before the board, legal action and fines and assessment of costs of removal of the offending improvement. Similarly, the declaration provides that failure to comply with the governing documents, “shall be grounds for an action to recover sums due for damages or for injunctive relief, or for any other remedy permitted by law or permitted by the terms of this declaration,” but does not mandate any particular remedy.

The court found that Telford and Hubbard adequately alleged that the association acted in bad faith in approving Lass’s project. The association was correct that a homeowners association has broad discretion to grant or withhold approval of proposed improvements if such discretion is granted in the declaration. However, it is a settled rule of law that associations must exercise their authority to approve construction of improvements in conformity with the declaration, and they must do so in good faith, consistent with their fiduciary obligations to the homeowners.

The covenants and guidelines required the association to exercise discretion in deciding whether to approve a project and whether any conditions be imposed upon the project. Telford and Hubbard’s allegation that the association did not act in good faith in approving Lass’s project and in failing to require Lass to comply with the conditions imposed on the project because of his special relationship with Dietrich was sufficient to allege a cause of action of breach of the governing documents. Dietrich and the association argued that the declaration expressly exempted the association and the directors from liability for damage resulting from the approval of any construction plans or the performance of any work whether or not pursuant to approved plans. The court could not reconcile this exculpatory clause with the association’s fiduciary duty to property owners.

The court observed that the law generally views attempts to secure insulation from one’s own negligence or willful misconduct with disfavor. Furthermore, it is the express statutory policy of California that “[a]ll contracts that have for their object, directly or indirectly, to exempt anyone from the responsibility for his own fraud or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.” The court stressed that this public policy applies with added force when the exculpatory provision purports to immunize persons charged with fiduciary duty from the consequences of betraying their trusts. The court concluded that the exculpatory clause did not relieve the association from liability for breach of its fiduciary duties because the board occupied a particularly elevated position of trust due to its quasi-governmental status and the services it performs.

The court also determined that the demurrer (written plea to dismiss the claim) could not be sustained based on the failure by Telford and Hubbard to show that acts and omissions of Dietrich and the association were a substantial factor in causing their damages. Dietrich and the association contended that even if all plaintiffs’ allegations were true, their complaint still failed to show that their action or inaction was a substantial factor in damages suffered by Telford and Hubbard. The court noted that if the association had not approved Lass’s project, Telford and Hubbard would not have suffered the harm they alleged. Consequently, even though it was the project that caused their injuries, the court could not determine as a matter of law that the association’s alleged conduct was not a substantial factor. Dietrich and the association contended that damages for emotional distress are not available for breach of contract. The court however, pointed out that damages for emotional stress are available for the tort of breach of fiduciary duty.

Telford and Hubbard alleged that the association breached its duties to the homeowners when it permitted Lass to convert a common area to his own personal use without first obtaining the approval of 67 percent of the membership in conformity with the Davis-Sterling Act. The association pointed out in its demurrer that the act did not become effective until July 1, 2006, after the date that the association approved Lass’s project. In any event, the bylaws allow the association, by a majority vote of the board, to “[g]rant easements to owners with a value of more than 5 percent of the budgeted gross expenses of the association for that fiscal year.” According to a document before the court, the board voted to grant Lass two easements, neither of which had a value in excess of 5 percent of the association’s budgeted gross expenses for that fiscal year. However, if, as Telford and Hubbard argued, the board voted to submit the question of granting the easements to a vote of the membership and conditioned its approval on approval by 67 percent of the membership, their complaint adequately alleged that the association breached its fiduciary obligations by failing in bad faith to obtain membership approval prior to granting the easements.

The court concluded that the demurrer was properly sustained because, although the complaint alleged in passing that Dietrich had a duty to act in the best interest of the association, the main charge of the complaint was that Dietrich breached his fiduciary duty of good faith and fair dealing by placing his friendship and financial relationship with Lass above his duty to the homeowners.

A director of a homeowners association owes a duty of due care and undivided loyalty to the association, not to the individual homeowners. Accordingly, Dietrich was not liable for damages suffered by Telford and Hubbard on a theory of breach of fiduciary duty.

The court affirmed the trial court’s dismissal of Dietrich and reversed in part with directions to allow Telford and Hubbard 30 days to amend their complaint. The court awarded costs of the appeal to Telford and Hubbard.

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

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