July 2011
In This Issue:
Association Can't Recover for Damage Excluded by Policy
Covenant Does Not Prohibit Keeping Pet Birds
Association Entitled to Unpaid Assessments
Pet Policy May Violate Fair Housing Act
Owner Failed to Show Association Violated Covenants
Subcontractors Not Liable for Construction Defects
Owners Entitled to Display Religious Symbols
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Association Can't Recover for Damage Excluded by Policy

Amitie One Condominium Association v. Nationwide Property & Casualty Insurance Company, No. 1:07-CV-1756, U. S. Dist. Ct., M. Dist. Pa., Dec. 7, 2010

Risks and Liabilities: A Pennsylvania court ruled that a homeowners association’s insurance claim for property damage caused by subsidence of the underlying soil fell within the underwriter’s policy exclusion for direct losses caused by “earth movement.”

Amitie One Condominium Association (association) is a homeowners association insured by Nationwide Property & Casualty Insurance Company. The property suffered damage from subsidence of the underlying soil. The association sought to recover the costs under the Nationwide policy. Nationwide denied the claim, asserting that direct losses caused by “earth movement” were excluded. The policy did, however, cover direct loss resulting from “sinkhole collapse.”

The parties disputed whether the damage to the condominium resulted from “sinkhole collapse” or “earth movement.” “Sinkhole collapse” is defined in the policy as, “the sudden sinking or collapse of land into underground empty spaces created by the action of water on limestone or dolomite.”  

The association sued Nationwide, alleging breach of contract and bad faith and sought a ruling that Nationwide owed coverage under the policy. The motion was referred to the magistrate judge. The judge’s report recommended a finding in Nationwide’s favor, concluding that the policy excluded coverage for the condominium damage. The association objected to the judge’s report and recommendations.

The trial court concluded, however, that summary judgment in Nationwide’s favor was warranted. The court held that Nationwide had established an applicable exception to coverage, namely “earth movement.” The court observed that “sinkhole collapse” was defined in the policy as, “the sudden sinking or collapse of land into underground empty spaces …,” and there was no dispute that the sinking or collapse of the association property was not sudden. The court found the magistrate judge’s report and recommendation well reasoned in this respect, and the court adopted that reasoning. Further, the court found that the judge’s report thoroughly addressed the association’s remaining objections. Therefore, it adopted the magistrate judge’s recommendations and granted summary judgment in favor of Nationwide.

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

Covenant Does Not Prohibit Keeping Pet Birds

Breakwater Cove Condominium Association v. Chin, No. A-1420-09T3, N.J. Super. Ct., App. Div., Dec. 2, 2010

Covenants Enforcement: In an unpublished opinion, a New Jersey appeals court reversed a trial court ruling in favor of a condominium association that sought to prohibit unit owners from keeping birds as pets.

Breakwater Cove is a residential condominium in Monmouth Beach, N.J., that is subject to restrictive covenants contained in the master deed, which is enforced by Breakwater Cove Condominium Association (association).

In 1993, Mary Chin purchased a unit in Breakwater Cove. She kept two birds, a parrot and another bird, in the unit beginning in 2004. In 2005 she was informed by the owners association that she was violating the master deed by keeping the birds in her unit and permitting them to chatter, whistle and annoy other residents. Paragraph 11(c) of the master deed provides:

No bird, reptile or animal of any kind shall be raised, bred or kept in any unit or anywhere else upon the property except that dogs, cats or other household pets are permitted, not to exceed two in the aggregate, provided that they are not kept, bred or maintained for any commercial purpose, are housed within the unit and abide by all applicable rules and regulations. No outside dog pens, runs or yards shall be permitted.

Based on this provision, the association commenced alternative dispute resolution. However, when informal mediation was unsuccessful, the association sued Chin for the violation. Chin asserted counterclaims, seeking to dismiss the complaint or, alternatively, a stay pending arbitration and a declaration that birds were not prohibited pets within the meaning of the master deed.

The parties agreed to non-binding arbitration before a judge. The judge decided in favor of the association, finding that parrots did not qualify under the master deed’s exception for “household pets” because the restriction prohibited all birds. After hearing testimony that the birds made noises heard by other residents, the judge found that the birds constituted a nuisance.

When Chin rejected the judge’s findings, the parties stipulated to summary judgment by the court on the issue of interpreting the restriction, which, if resolved in favor of the association, would render the remaining nuisance claim moot and permit final judgment.

The court entered judgment in favor of the association for $37,337.91, for arbitrator’s and expert’s fees and fines for Chin’s noncompliance from April to September 2008. Chin appealed.

The appeals court noted that the rules of contract interpretation do not allow an intention disguised by an ambiguity to bind a purchaser when he or she has not been notified of the restriction because it’s unclear. A term is ambiguous if it is reasonably susceptible to at least two meanings.

The court found the master deed was readily susceptible to Chin’s interpretation: The court observed that the subjects of the prohibition were “birds, reptiles, and animals of any kind,” and the exception was for “dogs, cats or other household pets.” The court held that the provision could be considered an exception to the prohibition against any of the animals listed in the first clause, if those animals qualified as household pets. The court held that the language in this paragraph was not sufficiently clear to provide fair notice of the restriction; therefore, the court reversed the judgment entered by the trial court.

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

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Association Entitled to Unpaid Assessments

Canterbury Woods Homeowners Association v. Hernandez, No. G042649, Calif. App. Ct., Dec. 16, 2010

Assessments/Covenants Enforcement: A California appeals court ruled that a breach of fiduciary duty by an association board member did not relieve a former property owner from his obligation to pay common area assessments.

Canterbury Woods consists of 18 lots, each containing one fourplex and three common areas. A declaration of covenants, codes and restrictions was filed shortly after the subdivision was platted that delegated common area maintenance responsibility to Canterbury Woods Homeowners Association (association).

Peter Starflinger was a shareholder in the company that originally purchased all 18 lots. He also was an association board member from 1998 until 2001 and from 2004 through the time of this lawsuit. The developer retained common area fee ownership, and the association paid $7,500 a month for an option to purchase the property in the future. Starflinger later obtained title to 15 lots in the subdivision and sold ownership interests in the buildings on those lots to investors. The remaining three lots were purchased by Edwina Thoma.

In 2001, in order to make improvements to the common areas, Starflinger bought the common areas, and the association agreed to pay him a fee to lease them. At the time, Starflinger and Thoma comprised the association board. The proposed lease agreement was presented at a building owner’s meeting, including Starflinger, Thoma and four other investors. The option and lease agreements obligated the association to pay Starflinger $8,750 a month for the right to purchase the common areas at a later time and the right to construct improvements on the lots in the meantime. The transaction was approved by the attendees. As of November 21, 2001, the association dues were $1,200 a month.

In 2002, Joaquin Hernandez purchased two lots that were in foreclosure and rented the units out. He received a preliminary title report showing the buildings were subject to restrictive covenants, and he later received a copy of the declaration. Sometime after tenants began to occupy his buildings, the association contacted Hernandez, notifying him that he owed common area assessments in the amount of $1,200 for each building.  

Hernandez did not pay the assessments and instructed his tenants not to use the common areas. In 2002, he sold one of his buildings, and in 2003, he sold the other. Because the association never filed a lien for the unpaid assessments, he was able to sell the properties without paying the outstanding assessments to the association.

Subsequently, the association sued Hernandez to recover $53,000 in assessments, late fees, interest and attorneys fees. Hernandez asserted a number of reasons why the association was not entitled to collect the assessments, but the reasons did not include a claim against Starflinger for breach of fiduciary duty.

Nonetheless, the trial court found that Starflinger breached his fiduciary duty as an association board member by acquiring the common area lots and charging the association rent under the lease/option agreements. The court ruled that the lease was illusory, and the assessments levied for payments on the lease were invalid. The court calculated $15,597.99 as the appropriate amount due from Hernandez. The association appealed.

The association did not challenge the trial court’s factual findings, but its application of the law. It claimed the trial court erroneously found that a breach of fiduciary duty by a board member was a defense to an action to collect unpaid assessments.

Hernandez knew there was an association and that the property was subject to the declaration. The trial court relied on whether the lease between Starflinger and the association was valid. The appeals court determined that, even if the transaction was illusory and a breach of Starflinger’s fiduciary duty, such a breach did not constitute a defense to an individual owner’s obligation to pay assessments. Furthermore, Hernandez was not an owner at the time of the transaction.

The appeals court found that regardless of the validity of a homeowner’s dispute with an association, refusing to pay assessments was not a valid remedy. Further, the court averred that a homeowner cannot, as Hernandez attempted to do, argue that paying some portion of an assessment is illegitimate because an underlying transaction by the association was too costly, as long as the costs were actually incurred. The court found no evidence that the association exceeded its legal authority by entering into the lease transaction. Therefore, it concluded the trial court erred by failing to award the association full assessments due during Hernandez’s ownership.

The trial court’s judgment was reversed and the matter remanded for recalculation of damages due to the association.

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

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Pet Policy May Violate Fair Housing Act

Casagmo Condominium Association v. Venegas, No. DBCV094010514S, Conn. Super. Ct., Aug. 31, 2010

Covenants Enforcement/Federal Law and Legislation: A Connecticut court denied summary judgment to a condominium association that sought an injunction to enforce its “no pet” policy, finding there were issues of material fact as to whether the association was bound under the Fair Housing Amendments Act of 1988.

Casagmo Condominium is located in Ridgefield, Conn. Casagmo Condominium Association Phase II, Inc. (association) manages the condominium and enforces the governing documents. In May 2008, Gianina Venegas purchased a unit in Casagmo. Before closing, she was notified that the association’s bylaws prohibited raising, breeding or keeping domestic animals in any unit.

Despite knowing about the bylaws, Venegas immediately began keeping a dog in her unit. She appeared before the board of directors at a violation hearing and explained that she suffered from a mental illness and was prescribed animal assistance. After several weeks of deliberation, the board notified her she would be fined $100 a month, increasing by $25 each month thereafter if she continued to keep the dog. She refused to pay the fines and kept her dog.

The association sued Venegas, seeking a permanent injunction prohibiting her from keeping the dog in her unit. She entered a special defense in which she provided documentation specifying her illness and letters from neighbors stating the dog was not a nuisance or a threat.

The association moved for summary judgment, arguing there was no genuine issue of material fact. The association alleged that Venegas violated Casagmo’s bylaws by keeping a dog in her unit and refusing to pay the fine. It argued that Venegas either directly admitted the material allegations in the complaint or failed to respond to them at all. The association further argued that the dog was not a service animal and was not exempt from the bylaws prohibiting domestic animals in the condominium. Venegas alleged that under the Fair Housing Amendments Act of 1988 (act), she and her dog were exempt from the bylaws pet restrictions.

The act applies to any recipient of federal funds. It defines a handicapped person as one who has a physical or mental impairment that substantially limits one or more life activities. The act prohibits various types of discrimination, including “a refusal to make reasonable accommodations in rules, policies, practices or services, when such accommodations may be necessary to afford such person equal opportunity to use and enjoy a dwelling.” However, the need for accommodation must arise out of the person’s handicap and not be a function of personal preference or convenience.

The court denied the association’s motion for summary judgment, finding that Venegas raised several issues of material fact, including whether the association received federal funding that would require it to abide by the act, and whether Venegas qualified as a handicapped person as defined in the act. The association claimed the dog was not a service animal, but Venegas provided an affidavit and letters from social workers that created an issue of fact as to whether she was handicapped. Lastly, there was an issue as to what, if any, reasonable efforts the association made to accommodate Venegas. The court, therefore, sustained Venegas’ objection to 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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Owner Failed to Show Association Violated Covenants

Hendrix v. Eagle Neck Homeowners Association, Inc., Nos. A11A0621, A11A0622, Ga. App. Ct., June 8, 2011

Covenants Enforcement: A Georgia appeals court affirmed an order in favor of a homeowners association, finding that the plaintiff homeowner failed to show that the association allowed commercial use of the subdivision’s private airstrip.

Thomas Hendrix owns property in Eagle Neck Homeowners’ Association, Inc. He sued the association, claiming it violated the Declaration of Covenants, Conditions and Restrictions by allowing commercial use of the subdivision’s private airstrip and allowing homeowners to drill private wells.

The trial court ruled in the association’s favor, granting summary judgment against Hendrix’s attempt to stop commercial airstrip use, but the court denied the association’s motion regarding Hendrix’s claim that the association violated the restriction against drilling private wells. Both parties appealed.

In his appeal, Hendrix alleged that the association allowed a lot owner, who also owned a hunting and fishing club adjacent to the property, to fly in club customers for profit and commercial purposes. The trial court held that Hendrix was not entitled to injunctive relief because he showed no evidence the airstrip was used for commercial purposes; accordingly, there was nothing to stop. His evidence at trial and on appeal was a hunting and fishing club advertisement describing an airstrip that provided guests with “the ability to fly in and fly out,” and a letter from the association to nonresident airstrip users trying to raise money by leasing landing rights.

The association submitted undisputed evidence that, although it had sent out such letters, it had abandoned that practice three years earlier. Furthermore, as soon as the association became aware of the advertisement, it sent a letter informing the club that it could not use the airstrip. Hendrix admitted he had no information that the association was still trying to collect airstrip fees, and he did not know if the airstrip was currently being used by club customers.

The appeals court noted that courts cannot restrain that which has already been done and it appeared from the record that the acts complained of by Hendrix were fully resolved and moot. Accordingly, the court concluded that the trial court did not err in its determination that Hendrix provided no evidence to show that he was entitled to injunctive relief and properly granted summary judgment to the association.

The court did not address the association’s cross-appeal on the issue of private wells, explaining that the court was limited to considering only those issues in the trial record.

The court affirmed the trial court’s ruling in its entirety.

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

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Subcontractors Not Liable for Construction Defects

Port Imperial Condominium Association, Inc. v. K. Hovnanian Port Imperial Urban Renewal, Inc., No. A-1013-10T1, N.J. Super. Ct., App. Div., March 29, 2011

Risks and Liabilities: A New Jersey appeals court upheld a ruling that a condominium association was barred from recovering damages for defective construction by the state’s statute of repose.

Port Imperial is a 445-unit residential condominium located along the banks of the Hudson River in Guttenberg, N.J., and West New York that was developed by K. Hovnanian Port Imperial Urban Renewal, Inc. (developer). Project construction spanned several years from 1996 until its completion in 2002. The developer hired subcontractors to design the site. As a result of unsuitable soil conditions, a ground-improvement plan was implemented that included installing wick drains.

When the project was completed, the developer turned over control and maintenance to Port Imperial Condominium Association (association). During the transition process, the association hired an engineering company to evaluate the property for any construction defects. The engineer reported numerous defects, including cracked foundations and problems with some units’ roofs and windows.

Subsequently, the association sued the developer and its design professionals for numerous claims, including negligence, breach of contract, breach of express and implied warranties and fraud.

During the ensuing trial discovery, the association hired a geotechnical expert who submitted two reports, one in 2008 and the other in 2009, indicating that improper design and implementation of the ground-improvement plan were causing the soil to settle under the units, resulting in damage to the buildings. The 2009 report attributed the settling specifically to defective surcharging and wick-drain installation. As a result, the expert recommended that the units closest to the Hudson River be supported with pile foundations and concluded that demolishing and reconstructing  the units was the only practical way to install those foundations.

The trial court granted summary judgment to the subcontractors based on the statute of repose, N.J.S.A. § 2A:14-11, which precludes certain claims that arise when a property improvement turns out to be defective or unsafe more than 10 years after construction is finished, regardless of when the injury occurred or what caused it.

The statute’s legislative intent was to decrease builders’ and contractors’ potential exposure to liability. The appeals court interpreted “improvement to real property” to incorporate “structural improvements that are required for the structure to actually function as intended.” The statute of repose applies when those improvements result in a defective and unsafe condition that is hazardous to the well being and safety of people or property.

Unlike the statute of limitations, the statute of repose does not bar legal remedy but rather prevents the claim altogether. Generally, the 10-year time limit commences when the initial construction is substantially complete. However, if the design or construction are completed before the certificate of occupancy is issued, and the contractor has nothing further to do in the project, the start date for statute-of-repose purposes is the date the contractor completed its part of the work.

The association argued that because an “unsafe” condition did not exist at the condominium complex, the statute of repose did not apply. The appeals court rejected the association’s contention that ongoing building settlement merely created expensive and inconvenient repairs. The court found that the nature of the allegations and the supporting evidence substantiated the finding that the subcontractor’s improvements caused both functional impairment, with consequential economic losses, and a hazardous condition that qualified the subcontractors for protection under the statute. The court, therefore, affirmed the trial court ruling.

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

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Owners Entitled to Display Religious Symbols

Shoreline Towers Condominium Association v. Gassman, Nos. 1-08-2438, 1-09-2180, Ill. App. Ct., Sept. 30, 2010

Association Operations/State and Local Legislation and Regulations: An Illinois appeals court affirmed a ruling dismissing a condominium association’s suit against a unit owner for defamation, civil conspiracy and malicious prosecution, finding the owner’s actions were protected under the State’s Citizen Participation Act.

Debra Gassman owned a unit in Shoreline Towers Condominium Association in Chicago, Ill. A dispute arose between the association and Gassman, who is Jewish, when she affixed a mezuzah to her doorpost. A mezuzah is a small box that houses a scroll of parchment inscribed with passages from the Torah.

The association interpreted a condominium rule that prohibits residents from placing personal objects in the common areas, including hallways and doorways, to preclude her display of the mezuzah. The association repeatedly removed the mezuzah from the Gassman’s doorpost, in response, she filed several lawsuits alleging religious discrimination.

She also filed a religious discrimination complaint with the Office of the Attorney General of the State of Illinois, which was closed when the association revised its rules to allow one religious symbol per unit door. In addition, she filed religious discrimination complaints with the City of Chicago and the U.S. District Court for the Northern District of Illinois. Subsequently, the City of Chicago passed an amendment to its Fair Housing Ordinance prohibiting condominium associations from interfering with the religious observances of building tenants, and the State of Illinois enacted a law preventing condominium boards from interfering with the religious practices of building tenants, including “the attachment of religiously mandated objects to the front-door area of a condominium unit.”

In 2007, the association sued Gassman for harassment, defamation, civil conspiracy and malicious prosecution, seeking an injunction. The association alleged that Gassman waged a campaign of harassment against the association and used her position as an attorney in the public defender’s office to conspire with members of the Cook County Sheriff’s Department and the Chicago Police Department to further her agenda.

Gassman moved to dismiss the association’s claims based on the Citizen Participation Act (act), also known as the Illinois Anti-Strategic Lawsuits Against Public Participation Act (Anti-SLAPP). The statute was enacted to protect citizens’ and organizations’ constitutional right to be involved and participate freely in government. Gassman argued that amending the Chicago Fair Housing Ordinance and enacting the Illinois law prohibiting condominium boards from interfering with religious practices of tenants resulted, in part, from her actions challenging the association’s conduct.

The trial court found that the association’s suit was, in fact, a SLAPP suit. The court dismissed the association’s claims against Gassman, and the association appealed.

The appeals court upheld the trial court’s order, determining that SLAPP suits are “lawsuits brought to silence public outcry regarding issues of significant public concern.” The act aims to protect defendants from suits that harass citizens for exercising constitutional rights, such as the right to petition the government.

The court noted that the act applies to any claim that is based on, relates to, or is in response to conduct that furthers an individual’s rights of petition, speech, association or to otherwise participate in government. The act provides that the court shall grant a motion to dismiss, “unless the court finds that a party has produced clear and convincing evidence that a person’s conduct is not immunized from liability by the act.” Moreover, the court noted that the association’s arguments lacked merit when viewed in conjunction with the legislative changes made, in part, in response to her claims.

The association argued that the trial court erred by applying the act retroactively, stating that its complaint was filed in March 2007 and the act did not become effective until August 2007. The court, however, being cognizant of the legislature’s mandate to apply the act liberally to “effectuate its purposes and intent fully,” found that the act was procedural in nature and applied to the association’s lawsuit.

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

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