November 2011
In This Issue:
Association Must Account for Special Assessment Funds
Owner Can’t Sue Contractor for Additional Repairs
Statute of Limitations Doesn't Bar Harassment Claim
HUD Sues Association for Violating Fair Housing Act
Association’s Lien Trumps Unrecorded Federal Tax Lien
Owner Must Honor Settlement Terms or Return Money
Association Allowed Attorney’s Fees in Foreclosure Case
Association Can’t Recover Attorney’s Fees
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Association Must Account for Special Assessment Funds

The 1849 Condominiums Association, Inc. v. Bruner, No. 2:09-CV-3339-JAM-EFB, U.S. Dist. Ct., E. Dist. Calif., Feb. 17, 2011

Assessments/Covenants Enforcement: A California court refused to dismiss claims against a homeowners association that arose from alleged mismanagement of special assessment funds for a condominium renovation project.

The 1849 Condominiums Association, Inc. (association) is a condominium development in Mammoth Lakes, Calif. In December 2007, the association submitted a renovation project to the unit owners for approval that included remodeling and repairing the buildings in Phase 1 and 2. The estimated cost and special assessment to the unit owners was $9,500,000. The owners approved the project and the special assessment.

Geoffrey Bruner—who owns unit 306 in the development—sued the association, alleging that it did not complete the renovation project as promised because it failed to construct several components of the project that were unlawfully tabled, changed or removed. He charged that the association did not seek competing construction bids to reduce the project’s overall cost and argued that the renovation did not comply with the declaration. Additionally, he claimed that the association failed to properly allocate the special assessment among the unit owners in accordance with the condominium governing documents. The association moved to dismiss the claims on grounds that Bruner failed to present sufficient evidence to support his allegations.

Although the court dismissed five of Bruner’s claims—including breach of contract, violation of the governing documents and his request for injunctive relief—it denied the association’s motion to dismiss the 11 remaining claims, which included: selective enforcement of the governing documents; breach of covenant of good faith; exceeding the scope of its authority under the declaration; acting negligently by violating the Davis-Stirling Common Interest Development Act; committing constructive fraud; and breaching its fiduciary duty by failing to disclose material facts about the renovation project to unit owners. The court refused to dismiss Bruner’s claims of negligence and unjust enrichment. Further, the court determined that Bruner adequately alleged grounds to maintain his claim seeking access to the association’s books and other documents pertaining to the special assessment and renovation project.

Bruner argued that he was entitled to attorney’s fees based on a provision in the declaration that states that attorney’s fees are awarded to the prevailing party in an action intended to enforce the declaration. The association argued that his complaint failed to state a claim for breach of the governing documents. However, because the court allowed his other claims related to declaration enforcement to stand, it denied the association’s motion for dismissal.

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

Owner Can’t Sue Contractor for Additional Repairs

Boyd v. Hunter Pointe Condominium Association, No. 294811, Mich. App. Ct., Feb. 15, 2011

Risks and Liabilities/Warranties/Contracts: A Michigan appeals court affirmed that a condominium owner waived her right to pursue a remedy against a contractor who repaired fire damage to her unit because she agreed to accept payment from the association’s insurance company as payment in full for the repairs.

Eloise Boyd owns a condominium unit in Hunter Pointe Condominium and is a member of Hunter Pointe Condominium Association (association). In 2003, her unit was substantially damaged by fire. The unit was insured by State Farm Fire and Casualty Company in a policy held by the association. The association’s bylaws provide that members are required to appoint the association attorney-in-fact to negotiate insurance settlements. State Farm disbursed the insurance proceeds for Boyd’s damaged unit to the association.

Belfor Inrecon was hired by the association to perform the necessary repairs to Boyd’s unit. Boyd did not contract with Belfor to perform the repairs. The association was to oversee Belfor to ensure that the work was completed. Belfor completed numerous repairs, and Boyd received a certificate of occupancy in July 2004. She expressed her dissatisfaction with the quality and extent of the repairs. She alleged that Belfor received money for repairs it did not complete, causing her to pay for additional upgrades with her own money. State Farm indicated in a letter to the association that Belfor would “work with” Boyd to pay her what was owed for the upgrades she completed herself. Boyd had a building contractor evaluate the work done by Belfor, who provided a list of additional repairs he believed were still necessary.

In October 2004, the parties had a meeting to discuss Boyd’s complaints. The meeting resulted in an agreement that provided in relevant part:

Mrs. Boyd will be paid in full when she receives [her] check from State Farm. This is in total payment. No funds are due to Mrs. Boyd from Belfor. Belfor will finish the following items: Supply 1 remote garage door openers, Drywall touch ups, Handles on garage door, Repair holes in garage walls—no paint.

The agreement was signed by Boyd and a representative of Belfor.

Boyd subsequently sued the association, State Farm and Belfor, alleging that Belfor breached its standard warranty for workmanship. She further alleged that Belfor agreed to make additional improvements after the fire restoration was complete, but that those improvements were never completed.

Belfor filed a motion for summary disposition, asserting that Boyd’s claim could not stand because the October 2004 agreement, signed by Boyd, settled all claims. In addition, no contract existed between Belfor and Boyd. Therefore, Boyd had no standing to pursue an implied warranty claim.

The trial court reasoned that the October 2004 document constituted a waiver and explicitly provided that Boyd would not pursue any funds from Belfor. The court granted Belfor’s motion for summary judgment and Boyd appealed.

In her appeal, Boyd argued that the trial court erred in concluding that she abandoned her right to seek further funds or repairs from Belfor. The appeals court reviewed the trial court’s contractual interpretation of the October 2004 agreement. Boyd argued that the October 2004 agreement was latently ambiguous because extrinsic evidence (facts or information not embodied in a written agreement) demonstrated that the agreement was only intended to be a supplemental list to the list of repairs she previously provided to Belfor. The trial concluded that because the agreement was facially unambiguous, no extrinsic evidence was permitted to demonstrate intent.

The appeals court examined the lists of repairs Boyd claimed were being supplemented. Its analysis revealed that her characterization of the October 2004 agreement was without merit. The court found that the improvements listed in the agreement also appeared on a list previously provided to Belfor; therefore, the agreement could not be read as a supplemental agreement, so its meaning was not ambiguous.

The appeals court held that the trial court correctly concluded that the October 2004 agreement unambiguously provided that Belfor did not owe Boyd any funds and that Belfor was responsible for conducting a very limited number of repairs. While Boyd argued that the repairs were not properly completed, her complaint did not seek relief on that ground. Rather, she sought damages for Belfor’s alleged failure to properly complete all the necessary repairs detailed in the original list. It was evident to the court that Boyd contractually agreed that Belfor was not required to make the vast majority of the repairs on that list or make any payments to her. Consequently, the trial court properly granted summary disposition to Belfor.

The trial court’s ruling was affirmed.

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

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Statute of Limitations Doesn't Bar Harassment Claim

Canonier v. Mahogany Run Condominium Association, Inc., No. ST-09-CV-390, Virgin Islands Super. Ct., Feb. 7, 2011

Association Operations/State and Local Legislation and Regulations: A Virgin Islands court ruled that a security guard’s lawsuit against a homeowners association for sexual harassment was not barred by the two-year statute of limitations on tort actions.

Mahogany Run Condominium is located in St. Thomas, VI. In May 2006, Mahogany Run Condominium Association, Inc. (association) employed Monica Canonier as a security guard. Matthew Prosper was her direct supervisor. She resigned her position in August 2006, stating that she was subjected to unwelcomed sexual advances by Prosper, and the association failed to address his improper conduct. Within days of her resignation, she filed a complaint with the Virgin Islands Civil Rights Commission, which as of Nov. 17, 2011, has not taken any final action on her complaint.

In August 2009, Canonier sued the association, seeking damages for emotional distress, loss of sleep and concentration and other physical symptoms. She asserted in her complaint that Prosper’s conduct created a hostile work environment for her. The association filed a motion to dismiss the complaint on grounds that her claims were time-barred by the two-year statute of limitations on tort actions, and the complaint failed to state a claim upon which relief (compensation) could be granted because the state Civil Rights Statute (statute), which created the claim, did not provide for a private cause of action (the grounds that entitle a plaintiff to bring a suit).

Based on the language and history of the statute and applicable case law, the court concluded that the state legislature intended to create a private cause of action for sexual harassment. The court held that the statute declares sexual harassment is a form of discrimination and provides for remedies “in addition to those established under other [code] sections.” The statute further provides for individual civil liability “[f]or a sum equal to double the amount of damages” or “not less than $5,000 at the discretion of the court . . .” Furthermore, the statute provides that the court shall order “the employer to hire, promote or reinstate the employee in his job and to cease the act in question.” The court held that Canonier was a member of the class the statute was intended to protect, and applying legislative intent to create a private cause of action would be consistent with that legislative purpose. Therefore, the court denied the association’s motion to dismiss this count of the lawsuit.

Canonier’s complaint also asserted a claim for assault and battery against Prosper and the association. The association argued this claim was also time-barred. The court concluded that this claim fell under the principles of equitable tolling, in which a statute of limitations is not applicable if, despite the plaintiff’s due diligence, the plaintiff is unable to discover or report injury until after the limitation period has expired. The court ruled in Canonier’s favor on this issue because she had filed her complaint in a timely manner with the Civil Rights Commission and believed that the case had to be presented to the commission, which has not taken a final action as of Nov. 17, 2011, before it could be filed with the court.

Finally, the court noted that a defendant is liable for battery if he acts with an intent to commit harmful or offensive contact with another or inflicts imminent apprehension of such contact, and the offensive contact directly or indirectly results. When Canonier filed her complaint with the commission, she claimed that Prosper had made offensive advances towards her on Aug. 19, 2006, including touching her private parts, rubbing her back and trying to kiss her. She also stated that if the dispute could not be resolved by the commission, she intended to pursue a remedy in the courts. The association did not assert prejudice due to the time lapse between filing the complaint with the commission and filing the lawsuit; therefore, the court tolled the statute of limitations and denied the association’s motion to dismiss this count as well.

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

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HUD Sues Association for Violating Fair Housing Act

U.S. Department of Housing and Urban Development v. Fox Point at Redstone Association, Inc., HUD ALJ No. 08-11-0181-8

Federal Law and Legislation/Covenants Enforcement: The U.S. Department of Housing and Urban Development (HUD) charged a Utah homeowners association with violating the Fair Housing Act because its pet policy discriminated against a Gulf War veteran who required a medical service animal.

Fox Point at Redstone Association, Inc. (association) is a multi-family condominium development in Park City, Utah. In May 2010, a Gulf War veteran (complainant) rented a condominium unit in the association from Brad and Julie Ward-Carter (owners) and brought his emotional support animal to the property. The association has a 10-step written policy for processing requests for medical service animals, as well as a pet policy that prohibits “outside pets” and requires a one-time $150 registration fee for pets and proof of liability coverage of at least $100,000. The pet policy contains the following language:

Nothing in this policy shall preclude the ownership and possession of an animal which is required as, or which qualifies as a ‘service animal’ as allowed by the Federal Fair Housing Act; provided however that the association shall be entitled to require satisfactory evidence of the eligibility and need for any such animal and the association may require that the service animal otherwise qualify where it is reasonable to do so, with other provisions of this policy.

The association informed the owners that the complainant had a dog in the unit, and the owners notified the complainant that he needed to remove the dog or be subject to possible eviction. The complainant responded that the dog was considered an emotional support animal under the Fair Housing Act (act), not a pet, and the association was required by the act to make an exception to its pet policy.

The association informed the complainant he would have to provide medical documentation to support his request to keep the dog, fill out a registration form, obtain insurance and pay the pet registration fee. He provided a copy of his doctor’s prescription, which stated he was a Gulf War veteran under his care, and the dog was therapeutic for him. He later filled out the association’s registration form and signed a lease addendum, but he refused to pay the pet registration fee.

Subsequently, he provided a letter to the manager from his psychotherapist that identified him as a person with a disability and outlined the limitations he faced as a consequence of his disability. The letter stated that the emotional support animal helped to alleviate his limitations and enhanced his ability to fully use and enjoy the subject property. The complainant requested that the therapist’s letter not be shared with the association’s board of directors, who were his neighbors. The association threatened enforcement action to obtain the letter on the basis that the complainant had not provided sufficient evidence of his disability or need for the animal.

The association fined the owners $150 in July 2010 because the complainant’s dog was present in their unit. The owners demanded payment from the complainant, but he refused on the grounds that the dog was not a pet but a medical service animal and legally exempt from the fee. The association proceeded to fine the owners $50 on Aug. 23, 2010, $75 on Sept. 15, 2010; and $100 on Sept. 16, 2010, stating each time in a letter that the fines were assessed because the owners, despite previous warnings, were still allowing the complainant to keep an animal at the subject property.

The complainant’s lease on the unit expired Sept. 10, 2010. The owners told the complainant they were willing to extend the lease if he paid the pet registration fee and $200 in fines assessed against them by the association. He declined the conditional offer and moved out of the unit. The owners deducted the $150 pet fee from his security deposit. After the complainant moved out, the association waived all fines and fees assessed against the owners except for the $150 that was taken out of complainant’s security deposit.

The complainant filed a verified complaint with HUD, alleging the association’s discriminatory housing practices violated the act. The Assistant Secretary for Fair Housing and Equal Opportunity determined that reasonable cause exists to support his complaint, and HUD issued this charge of discrimination.

The charge seeks (1) a declaration that the association’s policies violate the act; (2) an injunction prohibiting the association and its representatives from discriminating against any person because of disability in any aspect of the rental, sale, use or enjoyment of a dwelling in the development; (3) an award of damages suffered by the complainant for inconvenience and economic loss caused by the association’s discriminatory conduct; and (4) assessment of a fine in the amount of $16,000 against the association, the management company and the individual manager.

The charge will be heard by a U.S. administrative law judge unless one of the parties elects to have the case heard in federal district court.

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

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Association’s Lien Trumps Unrecorded Federal Tax Lien

Mira Owners Association v. Lawrence, No. C10-630RAJ, U.S. Dist. Ct., W. Dist. Wash., Feb. 16, 2011

Assessments/Covenants Enforcement: A Washington district court held that a condominium owners association’s lien was superior to a federal tax lien up to the date when the tax lien was officially recorded, at which time the tax lien became superior to the association’s lien for assessments.

Jeff Lawrence owns a condominium unit in Mira Owners Association (association), which is located in Kirkland, Wash. He became delinquent on assessments and other obligations to the association, and the association subsequently sued him in November 2008 to foreclose its lien on his unit. Lawrence also failed to pay federal income tax in March 2008. The Internal Revenue Service (IRS) recorded a notice of a federal tax lien in the amount of $21,011.80 on Jan. 16, 2009. The parties filed motions for summary judgment.

Although Lawrence did not oppose the association’s request for a foreclosure decree, he argued that, based on the amount the association sought for both a personal judgment and a lien against the unit for the unpaid assessments, it was seeking double recovery. However, the Washington Condominium Act provides for both a lien against a unit for unpaid assessments and a judgment against the unit owner individually. Further, the court noted that the condominium declaration provided that its remedies for delinquent assessments are cumulative and may be pursued in any order or concurrently. Therefore, the association would not obtain double recovery because the remedies were cumulative.

The IRS did not oppose the association’s motion to foreclose, but argued that the tax lien was superior to the association’s lien. Washington law provides that condominium associations have a lien for unpaid assessments from the time the assessment was due. The lien need not be recorded to be perfected. The association’s lien is superior to all liens except “liens for real property taxes and other governmental assessments or charges against the unit.”

Lawrence was delinquent from Nov. 1, 2008, to Nov. 15, 2010. The association conceded that its lien was inferior to the federal tax lien for amounts accrued after Jan. 16, 2009 (the date the federal tax lien was recorded), but insisted it had a superior lien for money that was owed prior to the date the tax lien was recorded.  

A tax lien arises automatically when the tax amount is assessed and has priority over most other liens, even if it is not recorded. The United States argued that the tax lien arose when the underlying tax was assessed in March 2008, before Lawrence became delinquent on his payments to the association.

The court found that the IRS’s position was consistent with the general rule that tax liens attach at the time the tax is assessed, but noted there was an exception to the rule that pertained to security interests: “When the holder of a security interest also claims an interest in the property subject to a federal tax lien, the federal lien is deemed to have attached when the IRS files a notice of the tax lien with the proper authority, rather than when the delinquent tax was first assessed.”

The court ruled that the association was the security interest holder; that its lien for unpaid assessments was superior to the federal tax lien for amounts owed before the tax lien was recorded on Jan. 16, 2009; and that the United States lien was superior to the association’s lien for amounts accruing after the recording date, Jan. 16, 2009. The court awarded both parties a personal judgment and a judgment against the condominium unit for post-petition and non-dischargeable assessments, late charges, title report, interest, and attorney’s fees and costs.

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

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Owner Must Honor Settlement Terms or Return Money

Snug Harbor Condominium Council v. Sullivan, No. 5915-CC, Del. Chancery Ct., Feb. 7, 2011

Contracts: A Delaware chancery court granted a motion for specific performance to enforce a settlement agreement between a condominium council and a homeowner that required the homeowner to consent to certain amendments of the governing documents in exchange for monetary payment.

Snug Harbor Condominium Council (council) and its homeowners had a dispute over whether the council or homeowners were financially responsible for the replacement of doors and windows on the units. One of the unit owners, Dorothy Sullivan, filed a suit against the council to get its members to amend the condominium’s declaration so that it was clear who was responsible for the doors and windows. Both parties entered into a settlement agreement and mutual release (an agreement by both parties to drop all present and future claims against each other) to resolve the lawsuit filed in Delaware Superior Court. The court ordered a settlement between the parties in the matter.

In accordance with the agreement, the council sent Sullivan a check for $28,391.70. The council president signed the agreement on Aug. 18, 2010, and Sullivan signed the agreement on Aug. 20, 2010. Under the terms of the agreement, the council’s attorney was to draft amendments to the condominium governing documents and provide them to Sullivan for approval within 15 days of the effective agreement date.

A title search delayed the drafting of the amendments. The council’s attorney sent Sullivan the drafts on Sept. 15, 2010. More than two weeks later, Sullivan advised the council that she would not approve the amendments because they were prepared more than 15 days from the effective agreement date. Her position was that she was not required to approve the amendments, even though she had accepted full payment from the council as part of the settlement.

The council sued Sullivan for specific performance of the agreement (a court order that requires a party to execute a contract according to the precise terms agreed upon) and moved for summary judgment. Sullivan argued that the proposed amendments were not approved by all the unit owners, and thus, a condition of the settlement agreement was not satisfied.

The court held that her argument failed for two reasons: First, the amendments did not alter the percentage interest of the unit owners; thus, they were not subject to unanimous approval of the owners. Second, nothing in the settlement agreement granted Sullivan the unilateral right to withhold her consent to the amendments based on an alleged deficiency in approval from other unit owners.

Sullivan contended that the dealings between the parties made it clear that time was of the essence in performing the agreement and that the council’s failure to provide the draft amendments within the 15-day time limit excused her from her obligations. The court considered her contention frivolous, since it had not been either party’s intent to make time of the essence with respect to any aspect of the settlement. Additionally, nothing in the agreement provided that failure to comply by a certain date would result in forfeiture. The court noted that Sullivan’s position was in no way diminished or prejudiced because of the delay in receiving the drafts.

Delaware law favors voluntary settlement of contested lawsuits. When parties agree to settle a lawsuit, a binding contract is created that is interpreted by using principles of contract interpretation. In this case, the parties reached an agreement under which the council was required to pay Sullivan a sum of money, which it paid in full. Likewise, Sullivan agreed to consent to amending the condominium documents to resolve the underlying dispute, as well as to eliminate future ambiguity about whether the council or unit owners were financially responsible for replacing windows and doors in individual units. Nothing in the agreement made time of the essence, and nothing in the agreement indicated that a failure to comply with a certain deadline would excuse either party from full performance.

For these reasons, the court granted the council’s motion to enforce the settlement agreement and granted its request for attorney’s fees in connection with the enforcement action.

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

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Association Allowed Attorney’s Fees in Foreclosure Case

South Bay Lake Homeowners Association, Inc. v. Wells Fargo Bank, N.A., No. 2D10-148, Fla. App. Ct., Feb. 18, 2011

Attorney’s Fees/Association Operations: A Florida appeals court awarded attorney’s fees to a homeowners association that prevailed in a foreclosure suit, finding the lender lacked standing to bring the action.

Kosta and Ljubica Jankovski purchased a home in Hillsborough County, Fla. In 2009, the lender, Wells Fargo, N.A., foreclosed on the unit, naming the Jankovskis and South Bay Lakes Homeowners Association, Inc. (“association”) as parties. The complaint stated the action was filed “by virtue of an assignment of record.”

The complaint itself did not contain a legal description but alleged a recorded mortgage and modification that identified the property. The mortgage, recorded in 2006, contained a legal description identifying the property as Lot 6, Block 7, Valhalla Phase 3-4. However, the mortgage was later amended to identify the property as Lot 60, Block 2, South Bay Lakes, Unit #2. The notice of lis pendens (a notice that states a suit regarding the title of real property is pending) recorded by Wells Fargo identified the property by the original legal description contained in the mortgage. The association governs the property described in the amended mortgage, but not the property described in the original mortgage and the lis pendens.

The Jankovskis filed a letter with the court claiming they disputed the amount owed and were trying to resolve the matter with a servicing company. The association’s answer (the first responsive pleading filed by the defendant) claimed Wells Fargo lacked standing to bring the action and pointed out the improper legal description on the lis pendens. The association filed requests for admissions (a set of questions or statements the opposing party must affirm or deny in writing prior to trial), stating that the bank did not have an assignment of mortgage in its possession; that it did not have evidence that one was ever recorded; and that the bank possessed no documentary evidence that it was an equitable owner of the note and mortgage. Wells Fargo did not respond.

The association filed a motion for summary judgment based on the bank’s failure to respond to the requests for admissions. Counsel for the association filed an affidavit in Hillsborough County, stating he had searched the public records and had not found an assignment of mortgage. The affidavit also stated that the legal description contained in the lis pendens was not the encumbered property (property in which someone other than the owner also has rights to the estate, such as a mortgage holder). Wells Fargo did not appear at the hearing, and the court dismissed the entire foreclosure action without leave to amend (the right to amend pleadings once at any time before a responsive pleading is served).

Thereafter, the association, as the prevailing party, filed a motion for attorney’s fees. The trial court denied the motion, reasoning that some lender was entitled to file an action to foreclose on the property, and, therefore, the association was not entitled to attorney’s fees. The association appealed.

The appeals court observed that the owners were the prevailing party by virtue of the association’s efforts. By contrast, the owners would have been entitled to recover fees in the case if the association’s attorney had represented them.

It was undisputed that Wells Fargo pursued the action without a legal basis to support its case. Nothing in the record suggested that the bank took any steps to confirm that it had the legal right to file suit. In essence, it relied on the association’s attorney to perform the legal research and title examination that the bank's attorneys should have performed.

Although the bank’s failure to respond to the association’s requests for admissions was not automatic grounds for an award of attorney’s fees to the association, the court noted that the bank never attempted to explain why it filed suit and had no reason to believe it had standing to do so. Further, it did not seek relief from its admissions or pursue a rehearing of the judgment entered at the hearing it declined to attend.

Wells Fargo tried to justify the improper filing as due to the large volume of foreclosure cases currently in the judicial system. While the court agreed the volume was great, Wells Fargo was not relieved of the obligation to file pleadings that were adequately supported by reasonable investigation. If anything, the volume of cases and their obvious detrimental effect on the legal system should have been a factor holding the Wells Fargo attorneys to a higher degree of professionalism.

The court concluded that, at a minimum, the association established a prima facie case (a case in which the facts are believed to be true unless disproved) and that Wells Fargo should have known it did not have standing to bring the lawsuit before the association filed its motion for attorney’s fees. The court found that the trial court abused its discretion by declining to award attorney’s fees to the association under the circumstances. Its ruling was reversed and remanded for further proceedings.

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

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Association Can’t Recover Attorney’s Fees

Taylor v. Harbour Pointe Homeowners Association, No. 09-CV-257-JTC, U.S. Dist. Ct., W. Dist. N.Y., May 6, 2011

Federal Law and Legislation/Attorney’s Fees: A New York district court refused to exercise its discretion to award attorney’s fees to an association that prevailed in a discrimination suit because the association was unable to demonstrate successfully that the litigation was frivolous, unreasonable or without foundation.

Suzanne Taylor sued Harbour Pointe Homeowners Association, alleging disability discrimination under the Fair Housing Act (act) and New York common law. The association moved for summary judgment, and the court granted the motion, dismissing the action in its entirety. The association filed a motion for an award of attorney’s fees pursuant to the act.  

The act provides that attorney’s fees are available both to prevailing plaintiffs and to prevailing defendants, at the court’s discretion. The general rule in the U.S. legal system is that each party pays its own litigation expenses. However, the court noted that while fees are regularly awarded to prevailing plaintiffs who obtain some significant measure of relief, defendants in civil rights cases rarely recover attorney’s fees.

This is because of the different purposes served by the fee-shifting statutes depending upon whether the plaintiff or defendant prevails. Citing Murphy v. Board of Education of Rochester City School District, 420 F. Supp. 2d 131, (2006), the court observed that “awards to prevailing plaintiffs are more common, both because a successful civil rights plaintiff has vindicated an important federal policy and, conversely, because the defendant in such a case has violated federal law.” On the other hand, an award of attorney’s fees to a prevailing defendant can also have the effect of shielding defendants from frivolous litigation.

However, the court cautioned the importance of not concluding that an action is unreasonable or without foundation if a plaintiff does not ultimately prevail due to the chilling effect on plaintiffs seeking redress for grievances under the act.

Considering these criteria, this court concluded that the burden of establishing that a claim was frivolous, unreasonable or groundless lay squarely with the defendant. Under the circumstances presented in this case, the court also found that the association failed to meet its burden. The court, therefore, declined to exercise its discretion to award attorney’s fees 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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