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Recent Cases in Community Association Law
Law Reporter provides
a brief review of key court decisions throughout the U.S. each month. These
reviews give the reader an idea of the types of legal issues community
associations face and how the courts rule on them. Case reviews are for
information only and should not be applied to other situations. For further
information, full court rulings can usually be found online by copying the case
citation into your web browser.
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Rulemaking Power Does Not Equate to a Rulemaking Duty
Taticek v. Homefield Gardens Condominium Association,
No.
ED103852 (Mo. Ct. App. June 21, 2016)
Association
Operations: The Court of Appeals of Missouri ruled that the rulemaking power in
the declaration did not create a duty to create a rule; but, once a rule was
adopted, the association had a duty to enforce it.
Homefield
Gardens Condominium Association (association) governed the Homefield Gardens
Condominiums in O’Fallon, Mo. Roy H. Smith Real Estate Company (manager) was
hired by the association to manage the project.
In
2013, Mary Beth Taticek, a resident at Homefield Gardens, was attacked in the
common area by a pit bull owned by another resident. Taticek suffered serious
and permanent injuries. In addition to suing the pit bull’s owner, Taticek sued
the association and the manager (collectively, the defendants) for premises
liability and negligence, alleging that the defendants failed to enact and/or
enforce pet rules.
The
defendants moved for summary judgment (judgment without a trial based on
undisputed facts), arguing that they did not owe any duty to Taticek under any
of her liability theories. The trial court granted summary judgment to the
defendants, and Taticek appealed.
To
establish negligence, a plaintiff must prove the defendant had a duty to
protect the plaintiff from injury. Taticek offered three theories to show that
a duty existed: (1) that the declaration of condominium (declaration) imposed a
duty on the defendants to create and enforce rules for the safety of residents;
(2) that the association’s rules imposed a duty on the defendants to enforce
such rules; and (3) that the defendants undertook a duty to enforce the rules.
Specifically,
Taticek argued that the power granted to the association in the declaration to
adopt reasonable rules and regulations for the health, safety, comfort and
welfare of the unit owners created an obligation to actually create such rules.
The appeals court disagreed, finding that the declaration’s plain language gave
the association the power to enact rules but no corresponding duty to do so.
Strictly construing such language, the appeals court held that the association
did not have a duty to create any specific rule.
The
association’s rules provided that there would be regular inspections of
buildings and vehicles to ensure compliance with the rules. The appeals court
determined that this affirmative statement established a duty to enforce the
rules that were adopted.
One
of the pet rules limited the size of dogs to 25 pounds. The pit bull was over
25 pounds, but the association claimed it did not know about the dog. The
association argued that no duty to enforce the pet restriction would be
triggered until the association actually knew about the dog. The appeals court
found that these arguments were issues that must be considered in determining
whether the defendants acted reasonably, i.e.,
whether the defendants breached a duty. However, they were not to be considered
in determining whether a duty existed. Having found that the association had a
duty to enforce the rules, the appeals court held that the trial court erred in
granting summary judgment to the defendants.
The
appeals court cautioned that its decision should not be viewed as requiring or
even allowing associations to continually spy on residents. Rather, by adopting
a rule providing that the association would regularly inspect the common areas
to ensure compliance with the rules, the association was obligated to conduct
such regular inspections. A question remained as to whether the association had
reasonably conducted such inspections, and such unresolved factual dispute
precluded summary judgment.
The
association admitted that the rules were made, at least in part, for the
residents’ safety. As such, the appeals court found that the association
undertook to render services for the protection of the residents, and a jury
must determine whether the association exercised reasonable care in rendering such
services. Therefore, the trial court erred in granting summary judgment to the
defendants on this issue.
The
appeals court affirmed the summary judgment grant on the issue of whether the
defendants had a duty to adopt certain rules, but the summary judgment grant
was reversed on the issues of whether the association had a duty to enforce the
adopted rules and whether the association acted reasonably in enforcing such
rules. ©2016
Community Associations Institute. All rights reserved. Reproduction and redistribution
in any form is strictly prohibited.
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Laches Does Not Apply to Legal Claims
Association
of Apartment Owners of Royal Aloha v. Certified
Management, Inc., No.
CAAP-15-0000445 (Haw. Ct. App. June
30, 2016)
Covenants
Enforcement: The Intermediate Court of Appeals of Hawaii held that laches was a
defense only to equitable claims, not legal claims.
Association
of Apartment Owners of Royal Aloha (association) governed the Royal Aloha
Condominium, a mixed-use project on the Island of Oahu, Hawaii. Chaney Brooks
& Company, LLC (Chaney) was the association’s manager from 1995 to 2002,
and Certified Management, Inc. (Certified) managed the project from 2003 to
2010 (Certified and Chaney are collectively referred to as the managers).
Michael
David Bruser and Tokyo Joe’s Inc. (the C-1 owners) were the owners of
commercial unit C-1. Michael McCormack and two trusts related to McCormack (the
C-2 owners) were the owners of commercial unit C-2.
The
association paid the electric bills for the entire condominium. A sub-metering
system allowed the association to charge each unit based on actual consumption.
An engineering company read each unit’s sub-meter and prepared a utility
billing register (UBR), from which the manager determined each unit’s utility
costs and billed the unit owners accordingly.
In
April 2011, the association’s president allegedly discovered significant
utility billing errors. Specifically, from January 1998 to April 2010, the C-1
owners were not billed for utility charges, and the C-2 owners were
under-charged.
In
April 2012, the association sued the managers, claiming they were responsible
for the errors. The association also sued the C-1 and C-2 owners, alleging they
owed hundreds of thousands of dollars for unbilled and incorrectly billed
electricity charges.
The
trial court granted summary judgment (judgment without a trial based on
undisputed facts) to Certified based on the doctrine of laches. (Laches
is a legal concept meaning, in this case, that the association delayed far too
long to correct the billing errors retroactively.) The trial
court also granted partial summary judgment to the C-1 owners because neither
the association’s bylaws nor the Hawaii Condominium Property Act obligated them
to indemnify the association for electricity costs. The trial court further
announced that it would bar all association claims based on laches. The
association appealed.
The
association’s bylaws provided that all owners were obligated to pay utility
charges for their units and to indemnify the association against all such
charges. The appeals court agreed with the trial court that the bylaws’
indemnity obligation was not triggered until the owner was billed. However, the
appeals court did not rule that the owners had no liability for the unbilled or
incorrectly billed charges. Instead, the appeals court focused on the trial
court’s conclusion that laches prevented the association from recovering these
charges.
Laches
is based on “the equitable maxim that ‘equity aids the vigilant, not those who
slumber on their rights.’ ” The Hawaii Supreme Court has explained that it is
sometimes more important to society to promote diligence in pursuing claims
than to allow stale claims to be enforced.
The
main difference between laches and the statute of limitations is that the
statute of limitations establishes a clear time frame within which a claimant
must act, but laches does not establish a bright-line rule. Laches is a more
flexible standard that varies based on the facts of the case. Normally, a
claimant will be allowed to bring a claim any time before the statute of
limitations has run, but when extraordinary circumstances make it unfair to
pursue a claim, laches will shorten the time to bring a claim.
However,
laches is an equitable defense to equitable claims; it does not apply to legal
claims. (Legal claims are based on the law; equity claims are based on fairness
principles) The appeals court determined that, except for one, the
association’s claims were contractual and thus, were legal claims. The one
equitable claim sought declaratory judgment (judicial determination of the
parties’ legal rights) that the C-1 and C-2 owners breached their contractual
obligations. The appeals court held that including the declaratory judgment claim
did not change the nature of the association’s contractual claims. As such,
laches was not an available defense.
The
appeals court affirmed the trial court’s judgment as to the indemnification
claims but set aside the trial court’s remaining conclusions as well as the
summary judgment grant. The appeals court did not address whether the statute
of limitations prevented any of the claims since the trial court never decided
the issue. ©2016
Community Associations Institute. All rights reserved. Reproduction and
redistribution in any form is strictly prohibited.
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Fair Housing Act Requires Condominium to Accommodate Handicapped Parkers
Weiner v. Prairie Park Condominium Association Inc.,
No.
16 C 1889 (N.D. Ill. June 23, 2016)
Covenants
Enforcement; Federal Law and Legislation: The U.S. District Court for the
Northern District of Illinois allowed Fair Housing Act claims against an
association for not providing handicap parking to a handicapped owner where all
handicap spaces were assigned to other owners.
Prairie
Park Condominium Association Inc. (association) governed the Prairie Park
Condominium in Illinois. Morris and Thelma Weiner owned a unit in the project,
which included a parking space.
Sometime
after purchasing the unit, Mr. Weiner’s health declined, and he had mobility
problems. He obtained a handicap placard, allowing him to park in handicapped
parking spaces, but the Weiners’ parking space in the condominium was not a
handicap space. In June 2015, Mr. Weiner asked the association’s manager,
Advantage Management Company, for a handicap space. All of the handicap spaces
were assigned to units but were not necessarily being used by handicapped
persons.
The
Prairie Park Declaration of Condominium (declaration) provided that, if a
handicapped unit owner asked the association for a handicap space that was
already assigned to a non-handicapped owner, then the two owners would exchange
spaces. The declaration further provided that a deed reflecting the parking
exchange was to be recorded.
The
association and the manager told Mr. Weiner to confer with the owners of the
four handicap spaces, three of whom Mr. Weiner alleged were not handicapped.
The Weiners were unable to negotiate an exchange with any of them.
The
Weiners filed suit against the association and the manager (hereafter,
collectively referred to as the association), alleging that they took no action
to enforce the declaration’s parking provisions and did not provide alternative
handicap parking for Mr. Weiner. They asserted claims for breach of contract
and for violations of the Fair Housing Act (FHA) and the Illinois Condominium
Property Act. The Weiners also sued all four handicap-space owners, including
Pavel and Alena Basharimov. The association and the Basharimovs moved to dismiss
all claims against them.
The
Basharimovs argued that they were not liable under the FHA and that the parking
space transfer provision was unenforceable. The association argued that it
could not make an owner swap parking spaces with another owner.
The
FHA made it unlawful to discriminate against any person in the provision of
services or facilities in connection with a dwelling because of such person’s
handicap. Under the FHA, “discrimination” includes refusing to make reasonable
accommodations in rules, policies, practices or services that may be necessary
to afford a person equal opportunity to use and enjoy a dwelling.
When
considering a motion to dismiss, the court must take all of the plaintiff’s
factual allegations as true. Mr. Weiner alleged that the association knew he
had limited mobility and that he required a parking space close to the
building. The court held this was sufficient to trigger a duty by the
association to make a reasonable accommodation.
The
court determined that a fair reading of the FHA and the case law indicated that
a condominium must move beyond its existing handicap parking spaces if such spaces
are unavailable for use by handicapped residents. “In other words, condominium
[associations] are required to take additional action to ensure that
handicapped residents who require a handicap parking space or other reasonable
accommodation are, in fact, accommodated.” Therefore, the association’s motion
to dismiss the FHA claims was denied.
The
Basharimovs argued that they could not be forced to exchange their parking
space because they owned it in the same way they owned the unit. The
association argued that the declaration merely required it to facilitate
negotiations for exchanges; it did not grant the association the authority to
transfer an owner’s property or to force an owner to do so. A basic principle
of real property law is that one cannot transfer property that one does not
own.
The
court did not agree, finding that, while the association may not have been able
to effectuate a parking space transfer by itself, it had the authority to take
action against an owner for violating the declaration’s terms. As such, the
Weiners could pursue a breach of contract claim against the association for
failing to enforce the declaration.
The
declaration also allowed a unit owner to sue another unit owner to enforce the
declaration’s terms. Therefore, the Weiners could also pursue a breach of
contract claim against the Basharimovs for violating the declaration.
The
court dismissed the Weiners’ FHA claims that were unrelated to handicap
discrimination since there was no evidence of discrimination on the basis of
race, color, religion, sex, familial status or national origin. The
association’s and the Basharimovs’ motions to dismiss were denied in all other
respects. ©2016
Community Associations Institute. All rights reserved. Reproduction and
redistribution in any form is strictly prohibited.
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Free Use of Property Results from Ambiguous Restriction
Brentwood
Chase Community Association v. Truong,
No.
M2015-00192-COA-R3-CV (Tenn. Ct. App.
June 23, 2016)
Covenants
Enforcement: The Court of Appeals of Tennessee held that a descriptive term
before the first word of a series of restricted items applied to each item in
the series since such interpretation advanced the unrestricted use of the
property.
Brentwood
Chase Community Association (association) governed the Brentwood Chase
subdivision in Davidson County, Tenn., where Tiffany Curtiss owned a home. The
association sued Curtiss for allegedly conducting commercial activity and
parking a commercial trailer on her property in violation of the Declaration of
Brentwood Chase Community (declaration).
The
declaration prohibited conducting commercial, industrial, recreational or
professional activity, as defined by zoning ordinance, on a lot. The
declaration further provided that no person could “leave any non-operating
vehicle, trailer, boat, camper, commercial vehicle, any vehicle not currently
registered and licensed or any vehicle having invalid and expired state motor
vehicle inspection sticker” on a lot except in an enclosed garage.
Curtiss
kept a large commercial trailer on her lot which she used in her catering
business. She admitted to transferring food, platters and cleaning materials
from her home to the trailer. She would also clean and organize the trailer
while it was parked on the lot.
The
trial court granted partial summary judgment (judgment without a trial based on
undisputed facts) to the association, finding that Curtiss had violated the
commercial use restriction but not the vehicle restriction. The trial court
barred Curtiss from conducting commercial activities on her lot, and the
association was awarded $12,271 in attorney’s fees. Curtiss appealed.
Relying
on an earlier case that held that parking a commercial vehicle on a residential
lot did not constitute commercial use, Curtiss argued that her limited
activities did not amount to commercial use. The appeals court disagreed,
holding that the declaration prohibited any
commercial activity. Curtiss admitted that her activities involving the trailer
were part of managing her catering business. As such, the trial court correctly
entered summary judgment in the association’s favor on this claim.
The
trial court was also correct in finding that Curtiss did not violate the
vehicle restriction. Where a restrictive covenant can be reasonably interpreted
in more than one way, the courts must adopt the least-restrictive meaning. The
appeals court concluded that the vehicle restriction could be interpreted two
ways. The term “non-operating” could be read to apply only to the first item
listed or to every item listed.
Since
applying the term to every item listed would produce the least-restrictive
meaning, the appeals court held that only non-operating trailers were
prohibited by the declaration. Everyone agreed that Curtiss’ catering trailer was
operable, so there was no violation.
The
trial court’s judgment was affirmed in all respects. ©2016
Community Associations Institute. All rights reserved. Reproduction and
redistribution in any form is strictly prohibited.
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Fines Must Be Reasonable
Brown v. Spring Valley Homeowners Association, Inc.,
No.
2016-UP-343 (S.C. Ct. App. June 29,
2016)
Covenants
Enforcement: Evaluating an association’s fine structure under contract law, the
South Carolina Court of Appeals held that fines must be reasonably
proportionate to the damage caused by breaching a covenant to avoid being an
unenforceable penalty.
Coley
Brown owned a home in a Richland County, S.C., subdivision governed by Spring
Valley Homeowners Association, Inc. (association). The association levied a
$500 fine against Brown for placing a For Sale sign on his property, which
violated the subdivision’s restrictive covenants. When Brown did not pay the
fine, the association filed a lien against the property.
Brown
sued the association, challenging the restrictive covenant’s validity as well
as the association’s authority to levy the fine and file the lien. As a result,
the association removed the lien.
The
trial court granted summary judgment (judgment without a trial based on
undisputed facts) to the association, finding that the association had the
authority to impose the fine but not to lien the property. The trial court also
determined that the restrictive covenant prohibiting signs did not constitute
an invalid restraint on alienation and that the association did not slander
Brown’s title by filing the lien. Brown appealed.
Brown
argued that only the government has the authority to levy fines unless a
statute vests fining authority in another party and that no statute authorizes
homeowners associations to levy fines. The appeals court disagreed. The SC
Nonprofit Corporation Act allowed a nonprofit corporation to adopt bylaws
containing provisions for regulating and managing the corporation’s affairs
that were not inconsistent with the law or the corporation’s articles of
incorporation. The appeals court found no statute or case law prohibiting a
nonprofit corporation from fining its members, and fining also was not
prohibited by the association’s governing documents.
The
appeals court determined that an association may penalize its members for
violating the governing documents so long as the penalties are determined
according to some method to which the member has agreed, at least implicitly,
by joining the association. The member’s agreement with the association is
embodied in the association’s articles of incorporation or corporate
organizational document and bylaws.
While
Brown may not have expressly agreed to the bylaws or articles of incorporation,
the covenants binding Brown’s property specifically provided that, by accepting
the deed, the owner agreed to become a member of the association and to abide
by its bylaws and rules.
Brown
next argued that the fines were unenforceable contractual penalties because
they were not based on actual damages. The appeals court disagreed. Contract
law does not permit penalties to be charged against the party breaching the
contract.
However,
contracting parties may stipulate to the amount of liquidated damages owed in
the event of a breach, particularly where the amount of actual damages would be
difficult or impossible to ascertain. When the stipulated amount is plainly
disproportionate to the probable damage, the stipulation is an unenforceable
penalty.
The
appeals court found the fine structure in the association’s rules was
reasonable. Not only did it afford Brown at least 15 days to correct the
violation, it also stipulated a maximum fine. The board could impose a $100
weekly fine until the violation was corrected, up to a maximum of $1,500 per year
for a single violation.
The
appeals court held that the $1,500 maximum per year was not disproportionate to
the damage sustained by the association. The damages included primarily
attorney’s fees but also possible diminished homes values. The appeals court
also held that the sign restriction did not constitute an invalid restraint on
alienation.
However,
the appeals court found that the association’s act of filing a lien in the
public records constituted the publication of a false statement for purposes of
Brown’s slander of title claim. The covenants provided that unpaid assessments
constituted a lien on the lot, but there was no similar authority for unpaid
fines to constitute a lien. Thus, the association did not have the authority to
file a lien for unpaid fines.
Despite
finding that the association filed a false lien, the appeals court found that
an essential element of the slander of title claim was missing, i.e., Brown
could show no damages. Damages, including litigation expenses, may be recovered
only if publishing a false statement directly influences a third party’s
actions
In
particular, the claimant normally must show that a specific person was
influenced by the false publication and refused to make a purchase he or she
otherwise would have made. Since the association removed the lien, there was no
evidence the lien caused a third party to act.
Accordingly,
the trial court’s judgment was affirmed. ©2016
Community Associations Institute. All rights reserved. Reproduction and
redistribution in any form is strictly prohibited.
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Collection Letters Must Explain Additional Charges
Gomez v. Niemann & Heyer,
L.L.P., No. 1:16-CV-119 RP (W.D. Tex. June 24, 2016)
Federal Law and
Legislation: The U.S. District Court for the Western District of Texas denied a
debt collector’s motion to dismiss claims alleging violations of the Federal
and Texas Fair Debt Collection Practices Acts based on inconsistencies in the
collection letters and the failure to explain the debt.
Brookfield
Owners Association, Inc. (association) governed a subdivision in Pflugerville,
Tex. Michael and Nora Gomez owned a home in the community.
In
2012, the association fined the Gomezes $25 for having a portable basketball
goal in their driveway. The Gomezes failed to pay the fine, and the association
engaged Niemann & Heyer, L.L.P. (N&H) to pursue collection. By early
2013, the $25 fine had grown to a $2,500 debt including late charges and
attorney’s fees.
The
Gomezes presumably paid some of the debt because on August 25, 2015, N&H
sent the Gomezes a letter demanding $325.26 to bring their account current
through August 15th. The letter stated that the debt included assessments and
other amounts due to the association plus attorney’s fees incurred to date. The
letter also informed the Gomezes that failure to pay the debt within 30 days
might result in the association filing a lien, filing a lawsuit and/or
foreclosing its lien and selling the property. Further, the letter provided
that, if legal action became necessary, a minimum $2,500 attorney’s fee would
apply, and it was possible the final amount could be much higher.
The
Gomezes requested a payment plan. On September 18th, N&H sent a letter
proposing a plan for paying the debt over eight months. The letter stated that
the amount due as of August 15th was $414.44. The plan also included
an additional $168 for future assessments and other charges due during the
eight-month plan as well as a $200 administration fee, for a total due of
$782.44.
The
Gomezes filed suit against N&H, alleging negligent misrepresentation and
violations of the Federal Fair Debt Collection Practices Act (FDCPA) and the
Texas Fair Debt Collection Practices Act (TDCA). N&H moved to dismiss the
case.
The
FDCPA prohibits a debt collector from using unfair or unconscionable means to
collect a debt. Examples of impermissible conduct include collecting interest,
fees, charges or other expenses incidental to the principal obligation unless
these are expressly authorized by statute or the agreement creating the debt
obligation.
When
examining whether a collection letter violates the FDCPA, the letter must be
viewed from the perspective of an unsophisticated or a least sophisticated
consumer. The unsophisticated consumer is presumed to be inexperienced in
dealing with creditors, but this does not mean the debtor has to be treated as
stupid or illiterate. Rather, it is an objective test of whether an
unsophisticated consumer would perceive the letter as deceptive, misleading or
unfair.
While
the Fifth Circuit has yet to elaborate on this standard, other circuits have
applied a materiality threshold. Thus, a collection communication may be false
in a strict technical sense, but the false statement is not considered a FDCPA
violation unless it could have actually misled an unsophisticated consumer. A
statement is material if it influences a consumer’s decision or confuses the
consumer.
N&H
argued that the failure to itemize the debt was not material and, thus, not a
FDCPA violation. The court determined that itemization would be immaterial when
there was no dispute concerning the debt—the debt total was undisputed, the
debtor was aware of the debt’s origin and the debtor did not challenge the
accrued interest or fees.
However,
it is unfair to give a false impression or to hide the true nature of a debt.
Debt collectors must clearly and fairly communicate information about the
amount due, including how the total was calculated if it includes add-on
expenses such as attorney’s fees or collection costs.
N&H’s
letters failed to state the basis for the fine or assessment on which penalties
may have been applied, how much of the total was attorney’s fees, and what
additional add-on charges or fees were included. Under these circumstances, an
unsophisticated consumer would find it difficult to discern whether a debt was
valid. In addition, the balance due, as of August 15, listed in the payment
plan letter was greater than the amount listed in the first letter. The
increase was not explained.
N&H
argued that the second letter was simply a discussion of the payment plan and
not a representation of the amount or character of a debt regulated by the
FDCPA. The court was unconvinced because the letter clearly stated an amount
due.
N&H
asserted that the TDCA did not regulate the payment plan letter since the
Gomezes did not request a payment plan within the time allowed by law. The
court disagreed, finding that the TDCA provided scenarios in which an
association may choose not to offer a payment plan. However, once the
association decided to offer a payment plan, the statute’s debt provisions
applied. In particular, an association may not charge additional penalties as
part of a payment plan.
N&H’s
motion to dismiss was granted in part and denied in part. ©2016
Community Associations Institute. All rights reserved. Reproduction and
redistribution in any form is strictly prohibited.
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Restrictive Covenants Must Be Interpreted Under Contract Law to Give Effect to Covenants’ Purpose
Fort
Pierce Industrial Park Phases II, III & IV Owners Association v. Shakespeare, No. 20140137 (Utah
June 22, 2016)
Powers of the
Association, Covenants Enforcement: The Supreme Court of Utah held that
restrictive covenants are not disfavored and should not be strictly construed;
instead, they should be interpreted in the same manner as a contract.
Fort
Pierce Industrial Park Phases II, III & IV Owners Association (association)
governed the Fort Pierce Industrial Park in St. George, Utah. Gloria and Thomas
Shakespeare owned a lot on River Road in the park.
The
park’s Declaration of Covenants, Conditions, and Restrictions (declaration)
specified that the park was intended to be an attractive development that was
“a cut above the norm.” Accordingly, the declaration required owners to obtain
approval from the association’s board of trustees (board) before constructing
buildings or other structures on a lot.
The
declaration gave the board wide latitude to consider the structure’s
suitability, location, appearance and harmony with the surroundings. The
declaration also specified that River Road property might be subject to
heightened standards due to its highly visible location. In addition, the
board’s written consent was required to operate more than two businesses
simultaneously on a lot.
In
2008, a cell phone company approached the association about constructing a cell
tower in the park. The company inquired about a River Road location, but the
board would only approve a different location that was more hidden from view.
In
2009, the Shakespeares applied to the association for approval to construct a
cell tower on their lot. The board denied the request because it wanted to
limit the number of cell towers to the minimum needed to serve the community
for aesthetic reasons and because there were already two businesses operating
on the lot. Nonetheless, the Shakespeares constructed the tower.
In
2010, the association filed suit against the Shakespeares for breach of the
declaration. The Shakespeares counterclaimed for damages and injunctive relief
(requirement to take or refrain from taking certain action).
The
trial court applied the common law presumption that restrictive covenants are
disfavored and should be strictly construed in favor of free and unrestricted
property use. Applying this standard, the trial court determined that the
association had no authority to limit the number of cell towers in the park.
The
trial court also believed that the board’s preference for a non-River Road
location for cell towers was the dominant factor in denying the application.
Thus, while it found the board acted in good faith, the trial court determined
the board’s denial of the tower was unreasonable and arbitrary. The trial court
granted partial summary judgment (judgment without a trial based on undisputed facts)
to the Shakespeares and awarded the Shakespeares half of their attorneys’ fees.
They were denied full attorney’s fees due to their deliberate violation of the
declaration by constructing the tower without permission. The association
appealed.
The
appeals court held that the trial court erred in presuming that restrictive
covenants were disfavored. To the contrary, the appeals court found that
restrictive covenants played a valuable role in modern land development and in
establishing and enforcing community development plans, even for a commercial
development like the park. Further, the appeals court held that restrictive
covenants in Utah are to be interpreted under the same rules applied to
contract interpretation.
Generally,
unambiguous covenants should be enforced as written. Any interpretation should
give effect to the parties’ intent, as ascertained from the document’s language
or from the circumstances surrounding the document’s creation, to carry out the
document’s purpose.
Applying
this standard, the appeals court held that the declaration clearly provided the
board with sufficient authority and discretion to deny the Shakespeares’
application. The declaration allowed the board to consider the need for an
additional cell tower, the tower’s aesthetic impact and the two-business limit.
The appeals court found this broad interpretation was further supported by the
declaration’s express statement that the declaration’s provisions “shall be
liberally construed to effect all of their intended purposes.”
The
declaration indicated that the board should be guided by the St. George
ordinances, which encouraged cell towers to share facilities where feasible
with up to three providers per tower. The board could consider the city’s
adopted preference, even though the city had already approved the Shakespeares’
plans.
The
parties also argued about how the business judgment rule should apply. The
trial court found the board’s denial of the Shakespeares’ application
unreasonable because it believed that aesthetics and the two-business rule were
simply “cover” for the denial. The appeals court found that the trial court
again applied the wrong standard. Courts are to presume the board acted
reasonably, and it is the plaintiff’s burden to overcome this presumption by
presenting evidence establishing reasonable doubt. The trial court erred by
requiring the association to prove the reasonableness of its action instead of
requiring the Shakespeares to prove the board’s unreasonableness.
In
summary, the appeals court reversed the trial court’s judgment because the
board’s denial was authorized by the declaration. The attorney’s fee award to
the Shakespeares was struck and the case remanded for a determination of the
attorney’s fees due to the association, as the prevailing party. ©2016
Community Associations Institute. All rights reserved. Reproduction and
redistribution in any form is strictly prohibited.
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Subrogation Waiver Does Not Apply to Tenants
Pacific
Indemnity Company v. Deming, No. 15-2386 (1st Cir. July 5, 2016)
Risks and
Liabilities: The First Circuit Court of Appeals held that a unit owner’s
insurance company could pursue another owner’s tenant for causing damage to the
unit, despite the declaration’s requirement that owner’s insurance policies
contain a subrogation waiver.
John
Deming rented Unit 1801 in the 1 Huntington Avenue Condominium in Boston, Mass.
In May 2013, Deming fell asleep after turning on the bathtub faucet. Water from
the overflowing bathtub leaked into the units below, causing significant
damage. Pacific Indemnity Company (Pacific) insured Unit 1601 below Deming’s
unit. Pacific paid $351,159 to Unit 1601’s owner (the insured) for damages
caused by the incident.
In
May 2014, Pacific brought a subrogation (succeeding to the rights of another)
claim against Deming to recover the losses. Pacific’s insurance policy with the
insureds specifically gave it the same rights to recover as the policy
holder—up to the amount Pacific paid. The general rule is that when an insurer
pays a claim, it is entitled to take the same legal actions against a third
party that the policy holder might have taken.
Deming
argued that the condominium documents prevented subrogation claims. The
declaration of trust (declaration) required each owner to carry insurance to
cover his or her own unit and personal liability coverage and that all such
policies contain subrogation waivers. Although the insured’s insurance policy
assigned rights to Pacific, it also provided that the insured could waive
recovery rights from another person for a covered loss in writing before the
loss occurred.
Deming
argued that, by purchasing a unit and agreeing to the declaration’s terms, the
insured obtained a policy that allowed subrogation to be waived. Pacific argued
that the policy’s waiver clause permitted the waiver but did not automatically
make it effective, and Deming could point to no document that actually waived
Pacific’s subrogation rights.
The
trial court found that, at best, the insured had breached the declaration’s
requirements by not obtaining a policy that waived subrogation rights. The
trial court further determined that allowing Pacific to recover from another
owner or tenant because its insured did not obtain the required insurance would
allow Pacific to benefit from the insured’s breach, creating an untenable
result and frustrating the declaration’s intent. Accordingly, the trial court
granted summary judgment (judgment without a trial based on undisputed facts)
to Deming. Pacific appealed.
The
appeals court focused on the fact that the declaration’s insurance provisions
did not specify the scope of the subrogation rights to be waived. By
comparison, the declaration specified the extent to which the condominium
association was to obtain subrogation waivers for the association’s insurance
policies. Specifically, the association’s insurance was to contain subrogation
waivers as to any claim against the association trustees and their agents and
employees as well as the unit owners and their respective employees, agents and
guests.
Viewing
the declaration’s insurance provisions as a whole, the appeals court concluded
that either the owner was required to waive subrogation against the same
parties as the association or some smaller list of parties. However, the appeals
court found nothing to suggest that tenants were among the parties for which
subrogation waiver was required.
Further,
the appeals court found that reading the declaration together with the
insured’s policy did not amount to actual waiver of subrogation. The appeals
court also did not view such result as “untenable,” as suggested by the trial
court. Rather, the appeals court found the result entirely consistent with the
declaration since the declaration never required or even suggested that subrogation
be waived for tenants.
Reversing the trial
court’s order, the appeals court held that Pacific was not subject to any
subrogation waiver and could pursue its claims against Deming.
©2016 Community Associations Institute. All rights reserved.
Reproduction and redistribution in any form is strictly prohibited.
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