January 2019
In This Issue:
Recent Cases in Community Association Law
Association President Not Authorized to Instruct Lawyer to File Lawsuit
Association Rule Violated Declaration
Anti-SLAPP Statute Does Not Protect Board From its Own Wrongdoing
Broad Waiver Bars Owner's Claims Related to Construction Activities
Owner's Vineyard Did Not Constitute a Commercial Activity
Short-Term Rentals Violated Residential Use Restriction
Owner Not Required to be Association Member
Disciplinary Hearing Conducted by Club Satisfied Due Process Requirements
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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 illustrations 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. In addition, the College of Community Association Lawyers prepares a case law update annually. Summaries of these cases along with their references, case numbers, dates, and other data are available online.

Association President Not Authorized to Instruct Lawyer to File Lawsuit

Candle Meadow Homeowners Association v. Jackson, No. 05-17-01227-CV (Tex. Ct. App. Nov. 27, 2018)

Powers of the Association:  The Court of Appeals of Texas upheld the dismissal of an association's lawsuit because the president had authorized the lawsuit without authority from the board of directors.

Candle Meadows Homeowners Association (association) governed the Candle Meadows community in Dallas County, Texas.  In October 2013, Iva Hughes, Morgan Sims, Lynn Poole, Glenn Brown, and Nicole Nelson were elected to the association's board of directors (board).  Morgan Sims later resigned and was replaced by Michael Osborne.  Hughes was elected as president.

In 2014, the board became concerned that former board members Saidrick Jackson, William Freemon, and Cedric Dodd (collectively, former directors) had improperly used association funds.  The board voted to hire an attorney to investigate whether there was proper documentation to support the former directors' use of association funds.

In April 2015, Hughes told the attorney the board had voted to sue the former directors.  The attorney filed the lawsuit against the former directors, asserting claims for breach of fiduciary duty, conversion, and fraud.

The former directors moved to require the attorney to show his authority to act on the association's behalf.  All of the directors other than Hughes testified the board never voted to authorize the lawsuit.  They all agreed the board had discussed potential claims against the former directors, but Nelson testified that Hughes had stopped communicating with the other directors at the time the suit was filed.  The directors were made aware of the suit after it was filed, and several directors participated in a conference with the attorney to find out what the case was about.  At no point did the board or any of the directors instruct the attorney to dismiss the case.

Hughes, on the other hand, testified that the board voted to proceed with the lawsuit at a board meeting at which all directors were present.  However, there were no minutes of any meeting reflecting such, and the issue was not listed on the published agenda for any meeting.  Hughes could not produce any notes of such meeting, but she argued she was not required to keep notes, and the secretary was the one responsible for producing meeting minutes.

The trial court concluded the suit was filed without authority, and the case was dismissed.  The association appealed.

Generally, a corporation officer may not authorize litigation on the corporation's behalf without a delegation of authority from the board.  There was no evidence the board delegated to Hughes the power to authorize the attorney to file suit.  In fact, three of the directors, constituting a majority of the board, testified they never voted to authorize the suit.

In addition, the Texas Residential Property Owners Protection Act (act) requires that all board meetings be open to all association members.  The members are generally entitled to notice of the general subject of each meeting, including any matter to be brought up for deliberation in executive session.  The act also requires the board to keep minutes of each meeting.

The association argued the board ratified Hughes' conduct by never instructing the attorney to dismiss the case.  After learning all of the material facts, a corporate board may ratify a corporate act or contract which it could have initially authorized.  However, there was no evidence the board ever ratified Hughes' action.  There was no record of any vote taken or evidence of any other procedure by which the board could expressly ratify the action.

The association contended the board ratified Hughes' conduct by acquiescence because the board members received periodic litigation updates and never instructed the attorney to dismiss the case.  However, ratification by any means is effective only when all of the material facts have been disclosed to the board.  There was no evidence the material facts were disclosed to the board either in the attorney conference or in the litigation updates.  As such, the trial court did not abuse its discretion by finding that the association failed to show the board ratified Hughes' instruction to file suit.

Accordingly, the trial court's judgment was affirmed.

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Association Rule Violated Declaration

Charterhouse Associates, Ltd., Inc. v. Valencia Reserve Homeowners Association, Inc., No. 4D17-2640 (Fla. Dist. Ct. App. Nov. 28, 2018)

Powers of the Association:  The Court of Appeal of Florida held that an association exceeded its authority by prohibiting personal trainers in the community fitness center where the declaration granted use rights to owners and their invitees.

Valencia Reserve Homeowners Association, Inc. (association) governed the Valencia Reserve community in Palm Beach County, Florida.  Charterhouse Associates, Ltd., Inc. (Charterhouse) owned a home in the community, which was occupied by Kenneth and Gail Browne. 

The association operated a fitness center within the community.  The Brownes occasionally hired a personal trainer to work with them at the fitness center, and the trainer was present only when invited by the Brownes.  The association later granted Total Heath Systems the exclusive right to provide fitness services in the fitness center.  The association also adopted a rule prohibiting private trainers, instructors, physical therapists, and massage therapists from working in the fitness center.

Charterhouse and the Brownes (collectively, the Brownes) sued the association, alleging the association's actions breached their rights under the Valencia Reserve declaration of covenants (declaration).  The declaration granted each owner and the owner's family members, guests, tenants, agents or invitees, a permanent, perpetual, nonexclusive easement for enjoyment in and use of the association's property, subject to the association's right to establish uniform rules pertaining to the property's use.

The association argued the trainer was a licensee who could be excluded from the association's property.  The Brownes asserted the trainer was an invitee permitted to enter the fitness center according to the declaration's plain language.

The trial court determined the trainer was a licensee if he was paid by the Brownes and an invitee if he was not paid.  It found that unpaid invitees were welcome under the declaration, but business operators were not.  The trial court granted partial summary judgment (judgment without a trial based on undisputed facts) in the association's favor.  The Brownes appealed.

The appeals court found the trial court incorrectly focused on the fact that the trainer was paid for his services when the proper focus should have been on whether he was invited to the property.  Florida courts have recognized that both commercial visitors and social guests can be invited to the property, so a licensee can be either invited or uninvited. 

An invited licensee is a business visitor invited to enter or remain on the property for a purpose directly or indirectly connected with business dealings with the property's owner or occupier.  An uninvited licensee is a person who comes onto the premises solely for his or her own convenience without invitation either expressed or reasonably implied.

The appeals court determined that when a homeowner used the fitness center and invited a third party along, whether for companionship or personal guidance, they were using the property for a recreational purpose consistent with the declaration.  Since the activity being engaged in remained the same whether the companion was a friend or a paid personal trainer, the trainer was an invitee.  The trainer was only on the property at the express invitation of the Brownes, and he did not attempt to solicit business from other residents.  The trainer never remained in the fitness center solely for his own convenience or entered at any time without the Brownes.

The association argued the personal trainer exclusion was a reasonable rule enacted pursuant to authority granted in the declaration.  Regardless of the association's intent, the appeals court found the rule violated an express provision in the declaration allowing owners and their invitees to use the fitness center.  As such, the association exceeded its authority by adopting the rule, so the reasonableness of the rule could not be considered.

Accordingly, the trial court's judgment was reversed, and the case was remanded for further proceedings.

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Anti-SLAPP Statute Does Not Protect Board From its Own Wrongdoing

Chemers v. Quail Hill Community Association, No. G055175 (Cal. Ct. App. Nov. 15, 2018)

Association Operations:  The Court of Appeal of California held that an association board's actions to remove a director from the board, deny access to records, and amend its bylaws were not in furtherance of the right of free speech or petition as to be protected by California's anti-SLAPP statute.

Quail Hill Community Association (association) governed a planned community in Irvine, California.  Evan Chemers owned a home in the community.

Chemers was elected to the association's board of directors (board) in 2010.  Another director resigned in 2015, and Chemers thought the owners should be allowed to elect a successor at a special meeting.  The board disagreed with that approach and appointed Himansha Surti to fill the vacancy.

Tensions developed between Chemers and the board, and in particular between Chemers and Surti.  Surti made some negative statements about Chemers' performance on the board and also posted comments on the community's social media site that were critical of Chemers.  Chemers and Surti "exchanged words" at a board meeting.

In December 2015, the board established a special committee to investigate the actions of three directors.  The association's attorney sent Chemers a cease and desist notice, stating that Chemers' conduct was disruptive and alleging that Chemers made disparaging and offensive statements to other directors at a board meeting. 

Chemers and the board engaged in a series of retorts.  Chemers sent out email newsletters to the community addressing various board decisions.  The board responded by mailing letters to all owners challenging the accuracy of the newsletters and implying the committee was formed solely for the purpose of investigating Chemers' conduct.  Chemers requested to inspect various association records, but the board refused.

In July 2016, the board voted to remove Chemers from the board because he allegedly did not meet the residency requirement.  Chemers was not afforded the opportunity to present evidence of his residency in the community. 

In October 2016, Chemers sued the association and the other directors (collectively, defendants).  The defendants moved to dismiss the complaint as a strategic lawsuit against public participation (SLAPP) under California's anti-SLAPP statute.  The trial court granted the motion with respect to some of Chemers' claims but denied the motion for other claims.  Chemers appealed.

A claim may be dismissed as under the anti-SLAPP statute if it arose from the defendant's act in furtherance of the right of petition or free speech under the U.S. or California constitutions in connection with a public issue.  Not only must the defendant's act form the basis of the claim, but the act itself must have been in furtherance of the right of petition or free speech.

First, the defendant must make a threshold showing that the challenged claim arose from protected activity.  Then to keep the claim from being dismissed, the plaintiff must demonstrate the complaint is both legally sufficient and supported by sufficient facts to sustain a favorable judgment.  The plaintiff is given the benefit of the doubt and its claims treated as true when making this evaluation.

Chemers claimed the association breached its bylaws and applicable statutes by failing to provide him with access to records and notice of hearing.  The association claimed its notices to Chemers constituted free speech.  However, the appeals court determined the claims were not based on the board's speech itself but on the board's failure to comply with the bylaws and statutes, which actions were not based on protected activity.

Chemers sought a determination that the board had wrongfully removed him from the board.  He alleged the residency requirement had not been enforced in a fair and non-arbitrary manner because Surti also did not meet the residency requirement and he was actually a resident when the board vote took place.  Chemers further argued the board did not utilize its established criteria for enforcing residency or follow proper voting procedures in conducting the removal vote.  The appeals court held that the board's decision to remove Chemers from the board did not constitute protected speech.

Chemers claimed the board amended the bylaws to establish term limits for directors without following proper procedure and sought to invalidate the amendment.  The appeals court determined the amendment claim did not arise out of protected activity.

The association argued that all of the claims arose out of protected speech because they all had a connection to litigation – whether to prepare for litigation, to attempt to avoid it, or to minimize the extent of it.  The appeals court rejected such a broad interpretation of the anti-SLAPP statute.

However, the appeals court determined Chemers failed to show a probability of prevailing with respect to his breach of fiduciary duty and negligence claims.  Chemers claimed the association breached a duty to him by taking sides in a dispute between directors, but he did not show the board owed him a duty or how the board took sides.  He did not show that Surti did not also get a cease and desist letter or that the investigation into potential director wrongdoing was targeted at him.  Chemers did not show that the board's letters to him or the creation of a special committee were arbitrary or done in bad faith.  As such, there was not sufficient evidence Chemers was likely to prevail on these claims.

Accordingly, the trial court's judgment was reversed.  The trial court was directed to grant the anti-SLAPP motion with respect to the claims for breach of fiduciary duty and negligence but to deny the motion with respect to the claims regarding breaches of the governing documents and applicable statutes, improper removal from the board, and the invalidity of the bylaws amendment.

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Broad Waiver Bars Owner's Claims Related to Construction Activities

Commerce and Industry Insurance Company v. Unlimited Construction Services, Inc., No. 16-00594 JAO-RLP (D. Haw. Dec. 6, 2018)

Risks and Liabilities:  The United States District Court for the District of Hawaii held that a community charter disclosure and waiver concerning construction activities precluded an owner's claims about excessive dirt and dust.

In 2008, Philip and Fia Richmond purchased a lot in the Kukui'ula community in Koloa on the Island of Kauai in Hawaii.  In 2013, they moved in when construction of their home was completed. 

About a year later, the Richmonds began noticing heavy amounts of red dirt accumulating in their home.  Their housekeeper, who previously worked about 8 to 10 hours a week, had to start working every day to clean the dirt accumulation.  There were multiple construction projects underway near their property, and the Richmonds stated there were "piles and piles of dirt" on the construction sites for weeks and months on end.  The Richmonds said the dirt was often left uncovered, and the dust fences on the construction sites were too low to contain the dirt. 

The Richmonds found there was no way to keep the dirt out of their property.  In addition to requiring constant cleaning, the red dirt stained outdoor tiles and furniture and damaged the pool filtration system.  The Richmonds filed a claim with their insurance company, Commerce and Industry Insurance Company (CIIC). 

CIIC paid the Richmonds more than $817,769 as a result of red dirt damage to the property.  CIIC then filed a subrogation action against the community developer and multiple construction companies with nearby construction projects, including Unlimited Construction Services, Inc. (Unlimited), asserting claims on the Richmonds' behalf for negligence, trespass, and private nuisance. 

Unlimited moved for summary judgment (judgment without a trial based on undisputed facts), arguing the Richmonds' claims were precluded by the disclosures and waivers contained in the Community Charter for Kukui'ula (charter).  The Richmonds' deed specified that the lot was subject to the charter. 

The charter disclosed that community development would likely extend over many years and that construction activity within and adjacent to the community may result in the transmission, discharge, or emission of surface water, runoff, smoke, noise, dust, odors, noxious vapors, chemicals, vibrations, and other annoyances.  It also stated that the construction activities may include blasting, excavation, and other activities which may cause windblown dust and other nuisances typically associated with such activities.

The charter further provided that, by acceptance of a lot deed or by using any portion of the community, each owner, occupant and user agreed that:  (1) such construction activities are not nuisances or noxious or offensive activities; and (2) neither the developer nor its affiliates, agents, contractors, subcontractors, licensees, designees or assigns would be liable for any losses, damages, or injuries arising from or related to the construction activities. 

The Richmonds argued there was no evidence that Unlimited qualified as a construction company designated by the developer, but the court found that was the only reasonable inference.  The Richmonds stated they did not understand the charter or that it meant they were waiving their rights.  However, the Richmonds accepted the deed expressly stating the conveyance was subject to the charter's terms.  The general rule is that a party who consents to a contract is bound by the contract's terms and cannot complain that he has not read it or did not know what it contained.  Moreover, the Richmonds were represented by an attorney throughout the purchase and closing process.

The court held that the Richmonds expressly consented to any trespass or nuisance caused by construction when they accepted the deed.  Since the disclosure and waiver described the types of construction activities the Richmonds complained about, there was no evidence that Unlimited's conduct when beyond the scope of consent defined in the charter.

The Richmonds also waived their claims related to construction activities by agreeing to be bound by the charter's terms.  A waiver of a negligence claim can be found void if it (1) violates the law, (2) is contrary to a substantial public interest, or (3) was gained through an inequality of bargaining power.  The court saw no evidence that would render the waiver void under these criteria.

Unlimited also argued the charter waiver provision constituted an express assumption of risk and precluded the Richmonds' claims.  While the defense of assumption of risk is usually applied to cases involving recreational activities, the court concluded the defense was available in negligence cases based on a property contract.  As such, the court held that the Richmonds expressly waived and assumed the risk of all losses, damages, and injuries arising from the construction activities.

Accordingly, summary judgment was granted in favor of Unlimited with respect to the trespass, nuisance, and negligence claims.

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Owner's Vineyard Did Not Constitute a Commercial Activity

Eith v. Ketelhut, No. B272028 (Cal. Ct. App. Dec. 17, 2018)

Covenants Enforcement:  The Court of Appeal of California (appeals court) held that growing grapes on a residential lot did not constitute a commercial activity in violation of the declaration, even though the grapes were used to make wine for sale to the public, because there was no negative impact on the community's residential character.

Los Robles Hills Estates Homeowners Association (association) governed Los Robles Hills Estates in Thousand Oaks, California.  In 2003, Jeffrey and Marcella Ketelhut purchased a 1.75-acre lot in the community.  The declaration of covenants, conditions and restrictions for Los Robles Hills Estates (declaration) prohibited using a lot for any purpose (including any business or commercial activity) other than for a residence for a single family.

In 2005, the Ketelhuts submitted a landscaping plan for approval to the association's architectural committee.  The plan showed three separate vineyards on the lot for growing three different kinds of grapes.  The plan did not indicate the number of grape vines that would be planted or disclose that the Ketelhuts intended to harvest the grapes to make wine to sell.  The committee approved the plan, and the Ketelhuts planted 600 plants.

The first harvest was in 2008.  The Ketelhuts invited family, friends, and neighbors to participate in harvesting the grapes, which took about an hour-and-a-half.  After the grapes were harvested, they were transported to a facility in Camarillo, where wine was produced and bottled.  The bottled wine was stored in a storage facility in Malibu.  The Ketelhuts considered a good harvest to yield 720 bottles of wine, but they had a great year in 2009, when 1,584 bottles were produced.

The Ketelhuts obtained a Thousand Oaks business license and a state license permitting only internet alcohol sales.  Initially, both licenses indicated the business was located at their home in the community, but they changed the business address to a Camarillo address in 2012.  The Ketelhuts advertised and sold the wine through the internet.  The wine was not shipped from their home. 

The Ketelhuts did park a truck with their company logo on the property, but it was kept covered while on the property.  In 2011, a newspaper ran an article about the Ketelhuts' "winery" which said the Ketelhuts hosted wine tastings by appointment in their home tasting room, but the Ketelhuts denied they hosted any wine tastings on the property.

Some other owners complained about the vineyard, and the association's board of directors (board) investigated the matter.  It interviewed other owners and conducted a meeting open to all owners at which the Ketelhuts answered questions. 

The board determined the Ketelhuts were not violating the declaration's commercial activity prohibition.  It concluded the Ketelhuts were simply growing fruit on the property as part of their landscape plan in the same way other owners had fruit trees.  The board did not believe that what the Ketelhuts did with the fruit they produced on the property was prohibited unless it had some negative impact on or disrupted the community, such as producing traffic. 

Fellow owners Felipa and Jeffrey Eith sued the Ketelhuts, the association, and the board (collectively, the defendants), seeking a determination that the declaration prohibited the Ketelhuts from operating their vineyard "business" on their lot.  The trial court granted judgment in the defendants' favor, finding that the board used its best judgment and acted in a reasonable manner under the circumstances.  The Eiths appealed.

The Supreme Court of California (supreme court) previously adopted a rule of judicial deference by which courts should defer to certain discretionary decisions of a duly constituted association board of directors.  The supreme court reasoned that an association board was often in a better position than the courts to make the detailed and peculiar decisions necessary for the community's operation. 

Most courts have broadly applied the judicial deference rule, and the appeals court emphasized that it is a rule of deference to the reasoned decision-making of a board concerning the community's operation.  However, the deference rule does not apply to a board's interpretation of the declaration, which is a legal question that must be decided by the courts.

Nonetheless, the appeals court found the board correctly interpreted the declaration's prohibition of business and commercial activity, and it found the prohibition did not encompass activity that had no effect on the community's residential character.  The appeals court determined the board made a reasonable decision after conducting an investigation in good faith and with regard for the community's best interests.  No advertising signs were posted on the property, and there was no retail traffic in the community.

The appeals court recognized that the growing of grapes was an integral part of the winemaking business, but it cautioned against construing the declaration as prohibiting any business activity whatsoever irrespective of its effect on the community's residential character as such could lead to absurd results.  The appeals court likened the Ketelhuts' activity to the now common practice of working from home where there is no outward appearance of business activity and stated it would be absurd to construe the declaration as prohibiting such harmless conduct.

Accordingly, the trial court's judgment was affirmed.

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Short-Term Rentals Violated Residential Use Restriction

Hensley v. Gadd, 560 S.W.3d 516 (Ky. Nov. 18, 2018)

Covenants Enforcement:  The Supreme Court of Kentucky held that short-term rentals constituted a commercial use in violation of a residential use only restriction.

Keith Gadd and his company, JHT Properties, LLC (collectively, Gadd), owned two lots in the Woodlawn Estates Subdivision.  The 15-lot subdivision was developed by Don Hensley along Lake Herrington in Garrard County, Kentucky. 

The Woodlawn Estates deed of restrictions (restrictions) designated Lot 1 as a commercial lot and allowed various commercial uses on the lot, specifically including hotel use.  All other lots, including Gadd's lots, were designated as single family residential lots for residential use only.  A residential lot could contain a single residential structure, which was to be designed for and occupied by one family.

The restrictions further prohibited any trade, business or profession of any kind from being carried out upon any residential lot, and nothing could be done on the lot which might become an annoyance or nuisance to the neighborhood.  No signs could be placed on a residential lot except for one sign advertising the lot for sale or rent.

Gadd used the lots about three months out of the year and for nightly and weekly vacation rentals the rest of the time. 

Hensley sued Gadd, claiming Gadd's short-term rentals constituted a commercial use and nuisance in violation of the restrictions.  There were complaints from other residents about Gadd's renters, including excessive noise, vehicles parked on the street, damage to the community golf course, and foul odors caused by possible overuse of the septic tank.  Gadd counterclaimed against Hensley for harassment.

Hensley admitted the restrictions did not state a minimum rental term, but his intention was for the community to be made up of permanent residents.  He asserted the motel-like atmosphere created by Gadd's rentals was inconsistent with the neighborhood.

The trial court concluded the short-term rentals constituted a business use in violation of the restrictions and ordered Gadd to cease conducting short-term rentals.  It also dismissed Gadd's harassment claim against Hensley.

Gadd appealed to the Court of Appeals of Kentucky (court of appeals) (reported in May 2017 Law Reporter).  The court of appeals determined that the restrictions were ambiguous because rentals were clearly permitted given the sign restriction's reference to "for rent" signs, but the restrictions stated no time limit on rentals.  The court of appeals concluded the ambiguity had to be construed in favor of the free use of the property.  It reversed the trial court's judgment with respect to the rental activity but affirmed the dismissal of Gadd's harassment claim.

Gadd appealed to the Supreme Court of Kentucky (supreme court).  The supreme court found the restrictions unambiguously prohibited short-term rentals.  The commercial lot restriction specifically defined hotel use as non-residential.  The Kentucky statutes defined "hotel" as offering overnight accommodations to the public. 

By contrast, the residential lot restriction was far more limited in that it permitted residential use only, and only one single-family residence per lot.  The supreme court found that "residence" was defined in the dictionary and commonly understood to mean a dwelling place of a single person or single-family unit.  Also, "reside" commonly meant to dwell permanently or continuously; to occupy a place as one's legal domicile.

The supreme court concluded the nightly or weekly renters could not be considered "residents" or the use by such persons as constituting "residential."  Instead, Gadd's use met the statutory definition of a hotel.  Indeed, Gadd registered as a hotel with the state and was collecting the transient use tax on his rentals.

The trial court recognized that Gadd's transient renters were not motivated to be considerate to the neighbors or the surrounding property.  As such, the residential use restriction bore a rational relation to restrictions' contemplation of a quiet, well-maintained subdivision with sustained property values.

The court of appeals placed too much emphasis on residential activities such as eating, sleeping, reading, and watching television.  The supreme court found these to be inapplicable in the present case because those activities could just as well occur in a hotel on the commercial lot.

The supreme court rejected Gadd's assertion that no business activity occurred on the lots because the advertising and financial transactions were conducted through the internet or telephone from outside the subdivision.  Instead, the supreme court stated the short-term rental occupancy was the business activity being carried on upon the lots.

Gadd argued the residential use restriction had been waived because other residents operated businesses from their homes.  Waiver of a restrictive covenant occurs when a change in the neighborhood's character which was intended to be created by the covenants prevents their enforcement because it is no longer possible to accomplish the purpose intended by the covenants.  Gadd offered no proof that other residents' uses were impacting the neighborhood.

Finally, there was no evidence anyone in the neighborhood intended to harass Gadd.  All of Hensley's and the other residents' communications with Gadd were appropriate given their concerns, and all were directed toward the proper enforcement of the restrictions.

Accordingly, the decision of the court of appeals with respect to the short-term rentals was reversed, but its decision concerning Gadd's harassment claim was affirmed.

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Owner Not Required to be Association Member

Lake Milton Estate Property Owners Association, Inc. v. Hufford, No. 17 MA 0163 (Ohio Ct. App. Nov. 30, 2018)

Powers of the Association:  The Court of Appeals of Ohio (appeals court) held that a lot owner was not required to be a member of an association because nothing in the owner's chain of title referenced an association.

William Hufford owned a vacant lot in Lake Milton, Ohio.  In 2017, Lake Milton Estate Property Owners Association, Inc. (association) and six neighboring property owners (collectively, neighbors) sued Hufford, asserting he failed to pay association dues and violated the Association's rules by placing a porta-potty, shed, trailer, and outhouse on the lot.  Hufford denied he was obligated to pay dues to the association or bound by the association's rules. 

Hufford's lot was part of a subdivision originally platted in 1924.  In 1952, I.J. Denmark, the then-subdivision owner, recorded a declaration of restrictions (declaration) concerning setbacks, building restrictions, and water/sewer lines against the property.  The declaration specified that, in the event Denmark constructed a water main to supply water to the lot, a $150 assessment was due to Denmark. 

The declaration contained other building and use restrictions, including prohibiting trailers and temporary living quarters.  It also required the lot owner to install a septic tank for sewage and prohibited privy vaults and cesspools.  Neither the 1924 plat nor the declaration mentioned a homeowners association or planned community.

The association asserted that restrictions in deeds for lots sold after 1952 referenced the association, and Hufford should be bound by those restrictions since he purchased the lot in 2006.  The association also urged that all lot owners were on notice of the association's existence due to the community signage.  The signs read "Lake Milton Estates, Inc. Members Only No Trespassing" and "Private Lake Milton Estates Inc. Property Owners and Authorized Vehicles Only."

Hufford argued that other owners' deeds were irrelevant since his deed did not reference the association.  He insisted the two signs did not create an association membership obligation.  Hufford further contended the association was not properly organized since it never registered with the Ohio Secretary of State and did not record its bylaws against the property.

After concluding that no documentation in Hufford's chain of title referenced the association, the trial court granted summary judgment (judgment without a trial based on undisputed facts) in Hufford's favor.  The association and the neighbors appealed.

The appeals court found no evidence Hufford's lot was part of an association.  The Ohio Planned Community Law (act) went into effect in September 2010.  Existing homeowners associations were required to record their bylaws in the county land records within 180 days after the act's effective date, and associations adopting bylaws after the effective were required to record them within 90 days after adoption.  There was no evidence the association's bylaws were ever recorded or that any bylaws were in effect until years after Hufford purchased.

The appeals court also found the association's contention that community signage put owners on notice about the association to be completely contrary the act's recording requirements.  Further, there was nothing in the signage that even mentioned the association, and there was no documentation that connected the association to Lake Milton Estates, Inc.

Even if the declaration provisions were sufficient to put lot purchasers on notice that a planned community was intended, there was nothing to indicate the association was ever legally formed.  The appeals court stated that the legal formation of an association required more than drafting documents that were never recorded in the land records or filed with the secretary of state.

Accordingly, the trial court's judgment was affirmed.

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Disciplinary Hearing Conducted by Club Satisfied Due Process Requirements

Master v. Country Club of Landfall, No. COA18-215 (N.C. Ct. App. Dec. 18, 2018)

Documents:  The Court of Appeals of North Carolina (appeals court) held that, although a voluntary club's bylaws established a hearing process for disciplinary proceedings, nothing required a hearing before an impartial tribunal.

Country Club of Landfall (club) operated a private, voluntary golf club within the Landfall community in New Hanover County, North Carolina.  Michael and Virginia Master (Masters) acquired a family membership in the club. 

In the fall of 2014, the club's board of directors (board) decided to make significant changes to the bylaws which Mr. Master opposed.  Over a six-week period until the proposed changes were ultimately defeated, Mr. Master sent a series of emails to other club members, arguing the proposed changes were unethical and immoral.

Several members complained to the club about the emails, and the matter was referred to the club's rules and members committee (R&M committee).  The R&M committee concluded the emails contained nasty, mean-spirited and inflammatory language that was calculated to create confrontation and turmoil among members.  The committee believed Master's references in the emails to Hitler, Barabbas, Jesus, and slavery were insulting and inappropriate.

The committee unanimous recommended that Master's membership be terminated.  Based on this recommendation, the club president convened a hearing panel and appointed the members.  Mr. Master was notified that a hearing would take place on April 15, 2015.  He requested that the hearing be rescheduled, and it was moved to May 25th.  However, the club later informed Mr. Master by mail and email that the hearing had to be rescheduled again to May 8th

Master did not attend the hearing, but his attorney did attend.  The attorney did not present any evidence or complain about the hearing; he only argued for suspension of privileges rather than termination of membership.  The hearing panel voted to terminate the Masters' family membership. 

The Masters sued the club for breach of contract and declaratory judgment (judicial determination of the parties' legal rights).  The trial court granted summary judgment (judgment without a trial based on undisputed facts) in the club's favor, and the Masters appealed.  The Masters argued the club failed to follow its own internal rules and provide them with adequate notice and an opportunity to be heard before an impartial panel. 

Courts generally will not interfere with the internal affairs of a voluntary membership club.  A court will become involved only where a plaintiff alleges facts showing a club decision was inconsistent with due process or the organization engaged in arbitrariness, fraud or collusion.  The Masters did not allege the club's decision was arbitrary, fraudulent or collusive, so the appeals court's review was limited to determining whether the club's decision was inconsistent with due process.

The club rules established a disciplinary procedure.  The R&M committee was to investigate any complaint against a member and make a recommendation to the board.  If the committee recommended a severe sanction, such as membership termination, the president was to convene a hearing panel comprised of members of the board and the R&M committee.  The rules further provided that the hearing panel was to determine any sanction to be imposed by a vote of at least 60 percent of the panel members, and the hearing panel's decision was to be final.

Although the North Carolina Nonprofit Corporation Act provides that no person's membership in a nonprofit corporation may be terminated except in a manner that is fair and reasonable and carried out in good faith, a hearing is not required unless specified in the organization's governing documents.  The club documents did guarantee the Masters an opportunity to be heard, but they did not contemplate that an impartial or third-party tribunal would determine internal disciplinary matters.

The appeals court determined the club satisfied the notice and hearing requirements set forth in the club documents.  Although Mr. Master claimed he received notice of the rescheduled hearing only three days in advance, he was represented by counsel at the hearing and afforded the opportunity to present evidence.  As such, the appeals court could not conclude Mr. Master received inadequate notice. 

Moreover, the bylaws provided that, when spouses jointly held a family membership, the action of either spouse with respect to the membership was binding on the other.  As such, the club was not required to separately notify Mrs. Master concerning her husband's alleged violations and hearing date. 

Accordingly, the trial court's judgment was affirmed.

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