February 2012
In This Issue:
Lot Reference in Plat Doesn’t Make It “Common Area”
Assessment Dispute To Be Resolved by Arbitration
Unit Buyer Entitled to Rescind Sales Contract
Board Can Levy Assessment without Owner Approval
Owners’ Plans for Outbuilding Approved by Default
Structure Violates Building and Use Restrictions
Owner Can't Sue Association for Negligent Maintenance
Service Contracts Don’t Violate Antitrust Laws
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Lot Reference in Plat Doesn’t Make It “Common Area”

Asbury Park, LLC v. Greenbriar Estate Homeowner’s Association, Inc., No. 37556, 2012 Opinion No. 14, Idaho Supr. Ct., Jan. 11, 2012

Developmental Rights: An Idaho appeals court affirmed the trial court’s decision to dismiss claims made by a homeowners association that stated the descriptions of a lot in the association’s recorded subdivision plat and in its declaration was evidence the developer had dedicated that lot as one of the association’s common areas.

In late 2004, Asbury Park, LLC developed Greenbriar Estates Subdivision, located in Nampa, Idaho. The City of Nampa seized and rezoned the parcel and approved the final plat (plan for an area of land) of the subdivision in 2005. Several months later, Asbury Park recorded the Declaration of Covenants, Conditions, and Restrictions for Greenbrier Estates Subdivision and filed articles of incorporation for Greenbriar Estates Homeowner’s Association, Inc. (association). Thereafter, Asbury Park conveyed lots to two builders that, in turn, sold lots to individual purchasers. 

The final recorded plat and declaration each provide that a storage facility—to be used by individual homeowners—was to be located on Lot 39 of the subdivision. Based on the declaration’s terms, the association believed that Asbury Park owned Lot 39 and subsequently paid rent to Asbury Park for the storage facility units.

In 2007, Asbury Park conveyed all common area to the association but retained Lot 39. At the time, Asbury Park had its surveyor record an affidavit indicating that the original plat had erroneously listed Lot 39 as common area owned by the association. The association discovered that Asbury Park lacked a certificate of occupancy (a government document stating a building meets the required building codes and is suitable for occupancy) for the storage units, and, consequently, believed that vacant units could not be legally occupied. The association ceased to pay rent for the unoccupied storage units. Soon thereafter, it came to light that the recorded plat, the declaration and the deeds contained conflicting language regarding ownership of Lot 39. 

The final subdivision plat shows Lot 39 as common area belonging to and maintained by the association. One section of the declaration lists Lot 39 as one of several lots that are common area, and another section states that Lot 39 is the intended location of the community storage facility to be privately owned and operated.

The association continued to charge homeowners storage fees but ceased paying rent to Asbury Park, relying on the language in the plat. 

Asbury Park sued the association, seeking damages for unpaid rent. The association counterclaimed, alleging common law dedication (that the land was given as a gift, and written proof does not have to be provided to make the gift legal) and fraudulent misrepresentation. Asbury Park moved for partial summary judgment (a determination made by a court without a full trial), seeking dismissal of the association’s counterclaims.

The trial court ruled in favor of Asbury Park, holding that the association’s common-law-dedication argument failed because the relevant documents could not be construed to demonstrate a clear and unequivocal intent to dedicate the property. The court also dismissed the association’s fraudulent misrepresentation claim on the grounds that, even if Asbury Park had misrepresented that the association owned Lot 39, the association had not relied on that misrepresentation, but rather, had relied on the declaration’s statement that Asbury Park owned the lot. The association appealed. 

On appeal, the association argued that the plat language was relevant to the substance of Asbury Park’s alleged offer; therefore, there was a genuine issue of material fact (a dispute over a material fact that is relevant to the outcome of the case). However, the appeals court concluded that “where the recorded instruments are inconsistent, there can be no clear and unequivocal intent to make an offer of dedication.”

The court affirmed the trial court’s grant of partial summary judgment to Asbury Park.

©2012 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

Assessment Dispute To Be Resolved by Arbitration

Bell Tower Condominium Association v. Haffert, No. A-3218-10T2, N. J. Super. Ct., App. Div., Jan. 12, 2012

Assessments/Association Operations/State and Local Legislation and Regulations: A New Jersey appeals court ruled that a dispute between a condominium unit owner and the association over the owner’s refusal to pay a special assessment is considered a housing-related dispute that must be submitted to arbitration.

Pat Haffert owns the largest unit in Bell Tower Condominium Association (association), a five-unit condominium located in Sea Isle, N.J. In May 2010, the association approved an $80,000 special assessment for repairs. Units 1, 2, 3, and 4 were each assessed $14,400, and Haffert’s unit, because it is substantially larger, was assessed $22,400.

When Haffert was notified about the special assessment, he informed the association he was withholding payment because he disagreed with the way the assessment decision had been made and he had concerns about the allocation of funds. The association notified Haffert that if he didn’t pay the special assessment by the following month, the association would sue to collect the amount due.

Haffert’s objections to the special assessment were, by his account: (1) the assessment was approved during the May 30, 2010 board meeting; a date  he had told the board would be inconvenient for him, a board member, to attend; (2) the stairway that served as an alternate exit from his unit in the event of fire was in substantial need of repair, yet it was removed as one of the projects being funded by the special assessment; (3) the association wrongly refused to pay for repairs to his storage shed, forcing him to pay $91 per month to rent off-site storage; (4) the required annual audit of the association’s financial records had not been conducted for years; and (5) association funds had been used to repair a leaking toilet in a unit, even though such a repair should have been the sole responsibility of the unit owner.

While Haffert and the association tried to come to an agreement without mediation, the parties failed to resolve the dispute; the association sued to collect the special assessment plus attorney’s fees and costs. Haffert counterclaimed, alleging the association had failed to adhere to the condominium governing documents and the applicable statutes concerning association governance, particularly with respect to financial management and accountability. He sought an order requiring arbitration (a dispute resolution process in which a neutral third party renders a binding decision) of the dispute. Haffert also sought to have the association remove the lien filed against his unit; refund any sums “illegally or improperly spent by the association for legal fees in connection with the action”; refund any surplus insurance proceeds; and reimburse him for the cost of renting the storage shed. Both parties moved for summary judgment (a decision by the court prior to a verdict because no material issue of fact exists).

The trial court held there was no genuine dispute about the validity of the special assessment or Haffert’s obligation to pay his share; it also specifically rejected Haffert’s assertion that the matter should be sent to arbitration rather than be resolved by litigation. The court granted the association’s motion for summary judgment. Haffert appealed.

The New Jersey Condominium Act (act) requires condominium associations to establish a “fair and efficient procedure for resolution of housing-related disputes,” between individual unit owners and the association or between unit owners “as an alternative to litigation.”

Haffert’s sole issue on appeal was that the trial court erred by refusing to allow the matter to be solved in arbitration. The association argued that, while the act required that all “housing-related disputes” be arbitrated, a refusal to pay a special assessment was not a “housing-related dispute.”

Although the term “housing-related dispute” is not defined in the act, the appeals court determined, in light of New Jersey’s strong public policy favoring arbitration and the legislature’s failure to impose limitations on an association’s or a unit owner’s right to resolve “housing-related disputes,” that the dispute between Haffert and the association was a housing-related dispute that should be addressed through arbitration or another form of alternative dispute resolution.

The trial court’s grant of summary judgment was reversed and the case sent back for dispute resolution or arbitration.

The court noted that Haffert’s counterclaim remained pending in the trial court but expressed no opinion on whether that too should be referred to arbitration.

©2012 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Unit Buyer Entitled to Rescind Sales Contract

Berkovich v. Vue-North Carolina, LLC, No. 3:10-cv-RJC-DSC, U.S. Dist. Ct., W. Dist. N.C., Oct. 24, 2011

Federal and State Legislation and Regulation: A North Carolina district court ruled that a condominium unit buyer was entitled to rescind the sales contract because the unit description contained in the contract wasn’t acceptable for recording in the jurisdiction’s land records, as required by the Interstate Land Sales Full Disclosure Act.

Lawrence V. Berkovich entered into an agreement with Vue-North Carolina, LLC to purchase a condominium unit in VUE Charlotte Condominium, located in Charlotte, N.C. In October 2010, Berkovich sued Vue-North, invoking the two-year window to annul a sales contract made available under the Interstate Land Sales Full Disclosure Act (act). The act grants a buyer the right to annul a purchase when the sales contract does not provide a legal description of the unit that is acceptable for recording.

North Carolina law requires that the legal description of a condominium unit include the name of the condominium, the condominium declaration’s recording data and the identifying number for the unit; or, it must otherwise comply with the general requirements of North Carolina law concerning the description of property. The declaration’s recording data information was left blank in Berkovich’s purchase agreement.

Pursuant to North Carolina law, before a condominium unit is created, the developer must record a declaration that legally establishes the condominium building and identifies all the units. The VUE Charlotte Condominium was not yet complete when Berkovich signed his purchase agreement, and Vue-North did not promise construction would be complete until December 2011. Thus, the unit sold to him had not yet come into legal or actual physical existence and no legal description could be recorded.

Vue-North acknowledged that the legal description was not yet recordable and that the unit purchased by Berkovich had not yet come into legal existence. However, it argued that it had provided Berkovich with the form of the legal description and considerable detailed information regarding the location of the unit, which should be enough.

The court determined that the plain text of the act provided otherwise. The contract’s legal description did not contain the condominium declaration’s recording information and did not otherwise comply with the general recording requirements of the laws of North Carolina. Therefore, the projected legal description was “not in a form acceptable for recording by the appropriate public official responsible for maintaining land records in the jurisdiction in which the lot is located.” 15 U.S.C. Section 1703(d)(1).

The court ruled in Berkovich’s favor, entering a judgment in the amount of his earnest money deposit and dismissed Vue-North’s counterclaim for specific performance of the sales contract.

©2012 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Board Can Levy Assessment without Owner Approval

Investors USA III, LLC v. The Links Condominium Association, Inc., No. CL-11-931, Va. Cir. Ct., Henrico County, July 12, 2011

Assessments/Powers of the Association: A Virginia circuit court ruled that a condominium association’s board of directors was authorized to levy a special assessment to repair defective balconies without seeking approval of a majority of unit owners.

The Links Condominium Association, Inc. (association) is located in Henrico County, Va. Under the Declaration of Condominium, the balconies are limited common elements, and the association’s board of directors has the authority to maintain, repair and replace the balconies. However, the unit owners must approve any alterations or improvements.

Because of structural defects, the balconies in The Links sustained significant water damage and became unsafe. Because the association’s reserve funds were inadequate, the association levied a special assessment to pay for the repairs.

The condominium bylaws provide that any proposed improvements or alterations to the condominium with a projected cost greater than $25,000 in a fiscal year require the approval of the majority of unit owners. However, any further assessments for unfunded and necessary repairs or maintenance can be adopted unilaterally by the board of directors. The special assessment for the proposed balcony repairs exceeded $25,000 and was never voted upon by the unit owners.

The condominium developer, Investors USA III, LLC, owns 88 units at The Links. Its obligation for the special assessment was approximately $300,000. In April 2011, Investors sued the association, seeking a temporary and permanent injunction (order to stop) of the assessment. Additionally, it sought a judicial declaration that the funding for the proposed work to the balconies was not for repairs but for improvements, which required the approval of a majority of unit owners.

The association presented uncontested evidence and testimony at trial that some of the building materials and plans were different from those initially installed. Investors argued that, because the plans for repair weren’t exactly the same as the current balcony design and because the plan called for building materials superior to what was currently in place, the work funded by the special assessment would be considered an improvement or alteration. Therefore, the assessment was unenforceable because it was not approved by a majority of the unit owners.

The association presented evidence and testimony making it clear that the balconies had always been defective: they were constructed of non pressure-treated wood when pressure-treated wood should have been used. The balconies could not support the weight loads calculated for their intended purpose and would be unsafe unless they were appropriately repaired or replaced. The association’s intent was to fund the repair and replacement of the defective balconies using pressure-treated wood. The association also intended to maintain the balconies original size and design, repairing only the inherent defects in the existing balconies.

The trial court found there was no question that the need for the repairs was caused by water damage stemming from defective design and construction. The court concluded that the work was authorized  in an effort to repair the leaking problems created by the defective workmanship. The balconies would be approximately the same size and perform the same function as the original balconies.

The condominium’s bylaws require that all repairs be done with “first class quality.” Therefore, it would not be logical to repair the balconies in a way that might result in the same condition that caused the problems. The court determined that the association’s actions were taken solely to repair and restore the balconies and prevent problems in the future. The suit was dismissed.

©2012 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Owners’ Plans for Outbuilding Approved by Default

Lisy v. Mayfair Estates Homeowners Association, Inc., No. 25392, Ohio App. Ct., Jan. 11, 2012

Covenants Enforcement/Architectural Control: An Ohio appeals court affirmed a trial court’s ruling that a homeowners association properly approved owners’ plans for an outbuilding by not expressly approving or denying the request within the seven-day period set forth in the declaration.

Todd and Staci Lisy own a lot in Mayfair Estates Homeowners Association, Inc. (association), a subdivision located in Uniontown, Ohio. The subdivision is subject to the Declaration of Easements, Covenants, and Restrictions for Mayfair Estates. The association’s bylaws contain outbuilding restrictions adopted by the board of directors in 1997.

In March 2009, the Lisys submitted plans for a structure to house their motor home. The motor home is 28 feet long and approximately 11 feet high and could not be housed in their garage. The following week, the association notified the Lisys by e-mail that their request had been tabled until a later date. On April 3, 2009, the board met again to consider the plans. On April 8, the association sent a letter to the Lisys informing them the board had rejected their proposed building because it was not in compliance with the declaration.

The Lisys sued the association, asking the court to make eight separate declarations. Specifically, the first count of their complaint requested the court declare that the board, in failing to approve or reject their plans within seven days, had approved the plans pursuant to the terms of the declaration. In their subsequent motion for summary judgment (a judgment rendered by the court prior to a verdict because no material issue of fact exists), the Lisys addressed the majority of the remaining proposed declarations.

The trial court granted the Lisys motion for summary judgment, holding that their plans were approved by default because the board did not expressly approve or deny the plans within the seven-day period set forth in the declaration. In its ruling, the court expressed concern with the declaration’s lack of clarity and specificity. It noted that while Section 5.6 of the declaration required garages to be a minimum size to house two full-size automobiles and to be attached to a dwelling, Section 5.11 stated that no recreational vehicle may be stored on a lot unless such vehicle is kept in a garage or suitable outbuilding.

While the Lisys did not specifically address each requested declaration in their complaint, the court concluded that its analysis contained sufficient resolution of all of the Lisys’ requests and defined the rights and obligations of the parties as to the first seven counts of the complaint, while rendering the eighth count—which alleged the board had no authority to amend the bylaws to include additional outbuilding restrictions—moot. The association appealed.

In its sole assignment of error, the association alleged that the trial court committed prejudicial error (an error made by a judge that warrants the reversal of a judgment) in granting summary judgment to the Lisys.

The association argued that the board made a decision by sending the Lisys an e-mail requesting more information and inviting them to make a presentation to the board. However, a review of the declaration established that there was no provision permitting the board to extend the seven-day time; rather the declaration states that “[f]ailure to give notice of its decision within said 7 days shall be deemed to be an approval of the plans and specifications submitted.”

The court held that the trial court correctly recognized that the declaration was not subject to interpretation and could not mean anything other than what was written. It clearly was the intent of the declaration to provide a consequence to the board if it failed to act.

Accordingly, the appeals court determined that the trial court properly concluded that the board approved the Lisy’s plans by not expressly approving or denying the plans within the seven-day period set forth in the declaration. The association’s assignment of error was overruled. To the extent that the trial court addressed any remaining requested declarations, which were rendered moot, the judgment was rescinded.

©2012 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Structure Violates Building and Use Restrictions

Newberry Estates Homeowners Association v. Cook, No. 295468, Mich. App. Ct., March 15, 2011

Architectural Control/Covenants Enforcement: A Michigan appeals court affirmed a ruling that required homeowners to remove an outbuilding from their property that violated the subdivision’s building and use restrictions.

Jeffrey and Theresa Cook own a lot in Newberry Estates, a subdivision in Westland, Mich. The subdivision is governed by Newberry Estates Homeowners Association (association), and the lots are subject to restrictive covenants that limit use to residential purposes and prohibit owners from erecting building other than single-family homes with attached garages. However, the subdivision’s building and use restrictions allow “[a]ccessory structures” of less than 200 square feet.

In June 2006, the Cooks submitted a request to the association to construct a 12- by 16-foot shed measuring 192 square feet on their lot. The association approved the request, “subject to the community’s governing documents.” After construction began, the association started receiving complaints from other homeowners about the structure because it was a two-story unit that blocked the neighbors’ views. After inspecting the structure, the association informed the Cooks it was not in compliance with the building and use restrictions and asked them to stop construction or otherwise comply with the restrictions. The Cooks refused.

The association sued the Cooks, asserting that the structure violated the declaration and the building and use restrictions. The association asked the court to order the Cooks to remove the structure. The Cooks denied they were in violation of the restrictions. Both parties filed motions for summary judgment (a judgment rendered by the court prior to a verdict because no material issue of fact exists).

The trial court found that the Cook’s two-story structure clearly violated the use restrictions and granted the association’s motion. The court ordered the Cooks to remove their outbuilding within 30 days. If they failed to remove the structure within 30 days, the court granted the association permission to reduce the size of the structure or remove it at the Cooks’ expense. The Cooks appealed.

The Cooks argued in their appeal that the structure was in compliance with the building and use restrictions and that the association was barred from claiming a breach of the restrictions since it had granted permission for the structure. They contended that the structure was a permitted “accessory structure” under section 14 of the building and use restriction, which provides:

No inoperative vehicles, commercial vehicles, house trailers or mobile trailers, boats or boat trailers shall be permitted to be parked or stored on any lot in said subdivision unless such vehicles are parked or stored in a garage on said lot which conforms to the requirements pertaining to the construction of garages as set forth above in paragraph 2. Accessory structures shall be permitted, but not greater than 200 square feet in size . . . [Emphasis added.]

The appeals court acknowledged that accessory structures smaller than 200 square feet were permitted under section 14, but only with respect to the type of vehicles set forth in section 14. The court determined, however, that the accessory structure must also comply with the other provisions of the building and use restrictions. Section 2 prohibits buildings other than one single-family dwelling on each lot, and section 6 prohibits temporary outbuildings.

The court concluded that the Cook’s structure was a building that was prohibited under section 2, rather than an “accessory structure” described in section 14. Although it was smaller than 200 square feet, it was two stories tall and, as evidenced by their neighbor’s affidavit and photographs, interfered with the neighbor’s enjoyment of her property. Moreover, there was no evidence that it was used to store vehicles as described in section 14.

The court affirmed the trial court’s decision.

©2012 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Owner Can't Sue Association for Negligent Maintenance

Schoolhouse Commons at Union Avenue Condominium Association v. CCTS Tax Liens I, LLC, No. A-3697-10T4, N. J. Super. Ct., App. Div., Jan.13, 2012

Risks and Liabilities/Association Operations: A New Jersey appeals court upheld a trial court’s finding that a unit owner could not sue a condominium association for negligence because the owner did not obtain personal property liability insurance as required by the association’s bylaws.

CCTS Tax Liens I, LLC owns a unit at Schoolhouse Commons at Union Avenue Condominium Association (association), a 15-unit condominium complex in Pennsauken, N.J. The association sued CCTS to collect unpaid assessments. CCTS filed a counterclaim against the association, alleging the association’s negligence in maintaining the common areas caused a water leak that damaged its unit, which in turn caused CCTS to lose income generated from the unit. CCTS sought an order requiring the association to repair the leak and for monetary damages.

While the suit was pending, the association repaired the leak as well as the damage to the unit caused by the leak. As a result, CCTS’s counterclaim was limited to a claim for money damages.

The association filed a motion for summary judgment (a judgment rendered by the court prior to a verdict because no material issue of fact exists) with respect to both its claim for unpaid assessments and CCTS’s counterclaim, which the court granted. The court awarded the association the total amount of unpaid assessments, attorney’s fees and costs. It dismissed CCTS’s counterclaim on the grounds that it was barred by a provision in the association’s bylaws requiring unit owners to obtain personal property insurance. CCTS appealed the dismissal of its counterclaim.

The respective rights and responsibilities of unit owners and condominium associations are governed by the New Jersey Condominium Act, the master deed creating the condominium and the condominium association’s bylaws. Whether CCTS could maintain an action against the association for neglecting to maintain the common elements was determined by the bylaws, which require the association and owners to obtain insurance. The bylaws also prohibit subrogation actions (when a third party, such as an insurance company, pays the aggrieved party for damages and subsequently sues the party responsible for the damages for the third parties’ losses).

Pursuant to Section 16.01 of the association’s bylaws, the association is obligated to maintain insurance on the “condominium property,” which includes not only the common areas but also the individual units. This section requires that coverage under the policy include water damage to the units but not damage to the unit owners’ personal property. Section 16.02(g) provides that the policy obtained by the association shall include a waiver of subrogation (relinquishing the right of a third party, such as an insurance company, to assume another party's legal right to collect a debt or damages) against the unit owners. Section 16.03 of the bylaws requires the unit owner to obtain insurance for personal property, which also includes a waiver of subrogation rights against the association. The court found that, because both policies were required to contain waivers of subrogation, the bylaws contemplate that there will be no litigation between unit owners and the association based on alleged property damage.

The court rejected CCTS’s argument that it was free to bring a negligence action against the association because the waiver of subrogation provision pertained only to the insurance company that paid the damage claim and did not bar a direct claim against the association. The court held CCTS cannot get around the rules set forth in the bylaws, which state that both parties would obtain insurance and, in the event the party filing the claim failed to acquire insurance, there would be no litigation over property damage.

The court also rejected CCTS’s argument that the ban on taking legal action against the association did not apply to its counterclaim because the property damage resulted in lost income. The court cited previous rulings that a party’s “rights to the use of its property and to the profits therefrom are property rights, and its right to recover damages for their impairment is an element of the damages recoverable because of the direct damage to its property.”

The court affirmed the trial court’s ruling that CCTS was barred from suing the association for monetary damages because CCTS did not have owners insurance to cover the damages, as stipulated in the bylaws.

©2012 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Service Contracts Don’t Violate Antitrust Laws

Smugglers Notch Homeowners’ Association, Inc. v. Smugglers Notch Management Company, Ltd., No. 09-3837-cv, U.S. App. Ct., 2nd Cir., March 15, 2011

Federal Law and Legislation/Contracts: A U.S. appeals court upheld a trial court’s dismissal of a homeowners association’s claims against a developer for violating antitrust laws because the association failed to show that the developer’s service contracts constituted an illegal tying arrangement.

Smugglers Notch Management Company, Ltd. and Smugglers Notch Water Company (collectively, management company) own and operate recreational facilities in a four-season resort in Cambridge, Vt. Smugglers Notch Homeowners’ Association, Inc. (association) manages a residential community in the resort area. Buyers are contractually required to enter into a service contract with the management company as a condition of ownership in the resort.

The association and 12 of its members sued the management company, alleging that the service contract requirement constitutes an illegal tying arrangement (when a buyer, in order to purchase the desired product, is obligated to buy an additional (tied) product) under the Sherman Antitrust Act and various state law claims. The management company moved to dismiss the claims, and the trial court granted the motion. The association appealed.

The management company offers three types of service contracts to homeowners: (1) property management services; (2) property management and social and recreational services; and (3) property management services, social and recreational services and rental management. The association and the management company negotiated the terms of these contracts in 1985. Since 2006, the parties have been engaged in new contract negotiations. The management company proposed three contract forms on July 22, 2008, and required homeowners to sign one of the agreements by September 15, 2008. The association then brought suit against the management company for alleged antitrust violations.

Section 1 of the Sherman Antitrust Act (act) prohibits “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations.” A tying arrangement violates Section 1 of the act if the seller has appreciable economic power in the tying product market, and the arrangement affects a substantial volume of commerce in the tied market.

The essential characteristic of an illegal tying arrangement lies in the seller’s exploitation of its control over the tying product to force the buyer into purchasing the tied product that it either did not want or might have preferred to purchase elsewhere. To state a tying claim, a party must sufficiently allege: (1) a tying and a tied product; (2) evidence of coercion by the seller; (3) that the seller has sufficient economic power in the tying product market to coerce acceptance of the tied product; (4) that the tying agreement has anti-competitive effects in the tied market; and (5) the seller is involved in a substantial amount of commerce in the tied market.

When evaluating the extent to which a defendant exercises power in the market, the relevant market must be defined. There are two components to the relevant market—the product market and the geographic market.

The association alleged that the product market was vacation property within or close to the resort. It then confined the geographic scope of the market as the immediate vicinity of the resort as well as the areas containing recreational facilities easily accessible from the resort. The association also alleged the resort’s vacation property was sufficiently unique to its product market because similar recreational facilities didn’t offer the same easy, year-round access as the resort and were poor substitutes.

The court noted that a product’s uniqueness “can provide sufficient market power to compel a buyer to purchase a product he would not purchase in a competitive market,” but uniqueness alone does not always sustain a tying claim. Instead, the relevant inquiry is “whether the seller has some advantage not shared by his competitors in the market for the tying product.”

The court was not persuaded that the alleged uniqueness of the resort’s vacation properties was sufficient to establish a relevant product market. First, the court noted that there were undoubtedly many other vacation properties located within or near ski areas. If the homeowners were dissatisfied with the management company’s policies, they could have purchased vacation property elsewhere.

Second, the court concluded that the homeowners were fully aware of the management company’s policies and the express requirement to enter into a service contract with the management company when they purchased the properties. The purchase contract also expressly provided that the service contracts could be terminated with notice by either party. As a result, purchasers knew that the management company retained significant power over their access to the recreational facilities. Because of this, the court affirmed the trial court’s decision to dismiss the association’s claim that the management company had violated antitrust laws.

©2012 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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