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.

Board Lacked Authority to Alter Condominium Termination Plan Terms

All Seasons Condominium Association, Inc. v. Patrician Hotel, LLC, 44 Fla. L. Weekly D 1036, Nos. 3D17-132, 3D17-130 (Fla. Dist. Ct. App. Apr. 24, 2019)

All Seasons Condominium Association, Inc. (association) governed the All Seasons Condominium in Miami Beach, Fla. In October 2010, the association's board of directors (board) voted to sell the 106-unit condominium to Simon Nemni for about $7.3 million.

The association entered into a purchase agreement (master agreement) with Nemni, which obligated the board to obtain either a supplemental purchase agreement signed by every unit owner agreeing to sell his or her unit and condominium interest (owner contract) or a court order approving a condominium termination plan (collectively, sale approval). If the sale approval was not obtained within 120 days, the master agreement automatically terminated. The owner contract incorporated the master agreement by reference.

In December 2010, Nemni asked the association for a 60-day extension of the inspection period and a modification to the closing date. The association's president emailed the association's attorney, stating that the board had informally agreed to the extension but needed to make it official at a board meeting the following week. The board and Nemni treated the email exchange as an amendment to the master agreement and considered the deadline for obtaining sale approval to be extended to April 2011. In April 2011, the board approved an addendum to the master agreement that extended the sale approval deadline for five periods of 60 days each (extension period), for a total possible extension of 300 days.

In August 2011, Nemni assigned his rights in the master agreement to Patrician Hotel, LLC (Patrician). Patrician contracted to sell its interest to All Seasons Suites, LLC (All Seasons) after it closed on the condominium purchase, with the result being that Nemni was to achieve a profit of over $3 million.

In December 2011, the board notified Nemni that it would not exercise the final extension period and was terminating the master agreement because it was unable to obtain owner contracts from all owners. The board returned Nemni's earnest money deposit.

In January 2012, Patrician filed an action for specific performance (to require exact performance of a contract according to the precise terms agreed upon) and for damages against the association and certain unit owners. The trial court determined that the owner contract operated as a general proxy, giving the board the authority to take all actions reasonably necessary to effectuate a closing under the master agreement. It entered judgment for specific performance and damages in Patrician's favor. The trial court also held the association and its president liable for tortious interference with an advantageous business relationship. The association and the president appealed.

The primary question on appeal was whether unit owners, through the owner contract, gave the board and the president the power to take all action reasonably necessary to effectuate a closing, including agreeing to one or more extension periods. Without such authority, the master agreement and the owner contracts automatically terminated in February 2011, when sale approval was not obtained. At that time, only 67 of the 106 owners had signed owner contracts.

Patrician argued that the owner contracts operated as general proxy, giving the board actual authority to bind the owners to the master agreement addendum. However, the Florida Condominium Act provides that owners in a residential condominium may not vote by general proxy but only by limited proxies substantially conforming to a state-approved limited proxy form. The owner contract's proxy language bore no resemblance to the state-approved proxy form, so it was not a valid proxy.

Patrician asserted that the owner contract established an agency relationship giving the board and the president actual and apparent authority to act on the owner's behalf for all purposes related to the master agreement. The appeals court acknowledged that the owner contract gave certain limited authority to the board to act on the owner's behalf for actions the board deemed necessary to consummate the transaction, but it did not express the owner's intent to grant the president and the board authority to take any action to effectuate a closing.

Patrician insisted the exchange of emails was effective to extend the owner contract deadlines, but the owner contract did not delegate any authority to the president, only to the board. In addition, both the owner contract and the master agreement specifically stated that no amendment was valid unless in writing and signed by all of the parties thereto. This amendment language would be rendered meaningless if the president by himself could alter the document's terms.

Moreover, the owner contract did not qualify as a general power of attorney. A power of attorney must be strictly interpreted to grant only those powers which are specified in the document. The owner contract did not authorize the board or the president to modify the deal's essential terms.

Finally, there was no basis for Nemni to reasonably believe the president had apparent authority to extend the deadlines. An agent may be presumed to have apparent authority to act for a principal only where the principal makes a representation that is reasonably relied upon by a third party and the third party changes a position in reliance on the representation. To accept this theory would mean that the president had the unilateral power to alter the deal's essential terms, including reducing the sale price, which the appeals court found to be an unreasonable outcome.

The owner contract clearly provided that any modification had to be in writing, signed by all of the parties. The purported extensions were not in writing or signed by the owners, so they were never incorporated into the owner contracts. As such, the owner contracts and the master agreement automatically terminated in February 2011, when the sale approval was not obtained.

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

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Association Attorney Liable for Sloppy Debt Collection Notices

Beane v. RPW Legal Services, PLLC, No. C18-704 RAJ (W.D. Wash. May 6, 2019)

Marysville Estates Property Owners’ Association (association) governed a subdivision in Tulalip, Wash. Kimberly Beane owned a home within the subdivision.

In 2017, the association hired Robert Williamson and his law firm, RPW Legal Services, PLLC (firm), to pursue a collection action against Beane. In May 2017, Williamson filed suit alleging that Beane owed $2,180 for unpaid assessments from 2005 through June 2017, plus late fees and interest. Beane disputed the amount owed. In September, Williamson sent Beane a letter titled "Assessment Collection," stating that the total amount due was $902 (since the association could not collect debts more than six years old), but the letter warned that the amount would increase as the case proceeded.

On Oct. 9, Williamson again wrote to Beane regarding the "Assessment Collection" to respond to Beane's request for verification of the debt. The letter included copies of annual association invoices from 2014 to 2017 along with a copy of Beane's account spreadsheet. The last page of the correspondence included a debt validation notice, which stated that the balance due was "approximately $3,000." The October letter also disclosed that the communication pertained to the collection of a debt and that Beane had 30 days to dispute the validity of the debt.

Beane offered to pay $600 to settle the case, but the offer was rejected by the association. On Oct. 24, Williamson filed a motion for summary judgment (judgment without a trial based on undisputed facts), asserting that the balance due was $910. He requested a judgment in this amount plus attorney’s fees. He mailed Beane a copy of the motion along with a cover letter. The letter did not contain any other information on the exact amount of the debt or Beane's ability to dispute the debt.

In May 2018, Beane sued Williamson and the firm (collectively, defendants), alleging three violations of the Federal Fair Debt Collection Practices Act (FDCPA). First, she argued the defendants violated FDCPA by sending an initial communication in an attempt to collect a debt without disclosing that they were debt collectors. Second, she asserted the defendants failed to timely provide validation of the debt by giving an uncertain balance statement. Third, she claimed that filing a motion for summary judgment within the 30-day period for contesting the debt stated in the Oct. 9 letter overshadowed her ability to contest the debt within this time frame.

The defendants asserted that Beane did not have any actual injuries since she did not quantify them; she alleged only personal humiliation, embarrassment, mental anguish, and severe emotional distress. One of the FDCPA's purposes is to ensure that consumers receive certain types of information and warnings, including a warning in the initial communication from the debt collector that it is an attempt to collect a debt and any information obtained will be used for that purpose. The failure to receive such warning is sufficient for a FDCPA claim, and no quantifiable injury is required.

However, Beane was required to identify a cognizable injury with respect to the timeliness of Williamson's communication. FDCPA requires that the debt collector provide certain information in either the initial communication with the consumer or in another written notice sent within five days of the first communication. The October debt validation notice was sent more than five days after the initial September letter, but Beane did not articulate how she was harmed by the three-week delay. She did not claim she would have done anything differently had the notice been received within the required five-day period.

The court also could not find that Beane had a cognizable injury with respect to her argument concerning the timing of the motion for summary judgment. She claimed the motion deprived her of the time to digest the documents and decide whether to settle the case rather than undergo the stress of dealing with the motion in court. However, at that point, Beane was already in settlement discussions with Williamson, so the court could not see how she was prejudiced.

The court found that Beane had a cognizable injury with respect to the "uncertain" balance statement. The defendants did not consistently state the precise amount of the debt and did not adequately inform Beane of her rights to contest the debt. The failure to provide the exact debt amount likely did prejudice Beane's ability to make an intelligent decision on whether to settle the debt and for what amount. The defendants also never responded to Beane's request for clarification of the amount due, which exacerbated the confusion.

Accordingly, the court granted summary judgment in the defendants' favor with respect to Beane's timeliness arguments, but it granted summary judgment in Beane's favor with respect to her claims regarding the failure to provide required warnings and failure to state the debt amount.

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Association Can't Blame Insurance Broker for Failing to Heed Broker's Advice

Bijou Villa Condominium Association, Inc. v. E.A. King, Inc., No. A-4234-17T3 (N.J. Super. Ct. App. Div. May 1, 2019)

Bijou Villa Condominium Association, Inc. (association) governed a two-building, 70-unit condominium located next to the Shark River in Neptune, N.J. Ed and Kathy King owned a unit in the condominium from 1984 to 1998.

Ed served as the association's president from 1987 to 1993, and Kathy was president from 1993 to 1996. Kathy also served as the association's de facto property manager during this period. In 2003, Kathy went to work for Access Property Management (Access), where she was assigned to serve as the association's community manager until 2007. Another Access employee managed the property until 2014.

Ed was a licensed insurance broker through his company, E.A. King, Inc. (agency). He and Kathy were the only two directors of the agency, but Kathy was not a licensed insurance broker and did not have an active role in the agency. Ed handled the association's flood insurance policies from 1986 until 2013.

In 2004, Ed wrote to Kathy, as the property manager, advising that the flood insurance coverage of $250,000 per building was not nearly enough to cover serious flood damage and indicating that higher limits were available at an additional cost. He also explained that the association could face serious co-insurance penalties for being underinsured. Kathy provided the letter to the association's board of directors (board) and explained how co-insurance penalties worked. She also offered to have Ed come to a meeting to explain the issue further, but the board did not take her up on the offer or follow up with Ed.

In 2006, a board member asked about the adequacy of the flood insurance. Ed responded that each building was insured for $3 million in general property insurance but only for $250,000 under the flood insurance policy. The standard for flood insurance was 80% of the replacement cost. Thus, the association should carry about $2.4 million in flood coverage. He advised that the association could face a severe co-insurance penalty for being so significantly underinsured. Kathy provided Ed's letter to the board, and the board agreed to gradually increase the coverage due to budget constraints. In 2007, the coverage was increased to $1 million per building.

In 2008, Ed again notified the association that the coverage was insufficient. After the 2008 renewal, the board stopped going through Ed and dealt directly with the insurance carrier by using its renewal forms. In 2010, the board increased the coverage to $1.21 million per building.

In October 2012, the building sustained significant flooding damage during Superstorm Sandy. The association filed a claim with the flood insurer, which found that both buildings were underinsured. The buildings were valued at about $3.6 million and $3.8 million, but they were only insured for $1.2 million each. Since each building should have been insured for $3 million, the association was subjected to a large co-insurance penalty, and its claim payout was reduced by $450,000.

The association sued Ed and the agency (collectively, the defendants), alleging the defendants had a duty to fully inform the association of its flood insurance options to ensure that it had adequate flood insurance. The association alleged the defendants' failure to conduct themselves with the requisite standard of care required of licensed insurance professionals caused damage to the association. It also asserted that the defendants owed the association a heightened duty of care, due to a "special relationship" based on Ed and Kathy's ownership of a unit and their service as presidents or community managers.

The trial court found that Ed notified the board of the inadequacy of the insurance, and he was not required to repeat his warnings every year with each renewal. The trial court also determined that Kathy could not be held to the standard of an insurance broker since she was not licensed as such and did not serve in such a role. In addition, Kathy's position as a director of the agency did not impose a professional duty on her to act as the association's insurance agent. The trial court granted summary judgment (judgment without a trial based on undisputed facts) in the defendants' favor, and the association appealed.

The association insisted that Kathy's role as a director of the agency made her the agency's "on-site" agent for the association. When the board informed Kathy it wanted to increase the insurance coverage, the association argued Kathy should have known she needed to get the maximum coverage available.

The appeals court disagreed, finding that Kathy's interactions with the board with regard to insurance were solely in her capacity as a community manager. She was not an insurance broker and never procured insurance for the association. There was also evidence that Kathy passed on Ed's notices about insufficient coverage to the board. Moreover, when Kathy was replaced as manager by another Access employee, that employee performed the same duties as Kathy.

Further, there was no evidence that the board asked Kathy or her successor to obtain the maximum flood coverage. Rather, the manager presented the board with the insurance quotes each year prior to renewal. She also provided the board with copies of the insurance policies once renewed, and there was no suggestion that the manager failed to get the amount of coverage requested by the board.

A special relationship may be recognized when an insurance broker assumes duties that invite the insured's detrimental reliance and trust beyond those typically associated with the agent-insured relationship. However, the evidence demonstrated nothing more than the traditional agent-insured relationship between the association and its broker. In fact, the association stopped using the defendants for its insurance needs in 2008 and dealt directly with the insurance company. Thus, the board could blame only itself for underinsuring the condominium.

Accordingly, the trial court's judgment was affirmed.

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Sex-Segregated Swim Schedule Violated the Fair Housing Act

Curto v. A Country Place Condominium Association, Inc., 921 F.3d 405 (3^rd Cir. Apr. 22, 2019)

A Country Place Condominium Association, Inc. (association) governed an age-restricted (55-and-over) condominium in Lakewood, N.J. A large number of the condominium residents were Orthodox Jewish. In 2011, the association adopted rules for pool use establishing certain hours when only members of a single sex were allowed to swim. This was done to accommodate the Orthodox principle of tznuis, or modesty, according to which it was improper for men and women to see each other in a state of undress (including in bathing suits).

When the swim rules were first adopted, there were only a few hours set aside during the week for sex-segregated swimming. However, by 2016, the number of Orthodox Jewish residents had grown to about two-thirds, and there was pressure for the association's board of directors (board) to increase the amount of segregated swimming. The board adopted a new swim schedule that set aside 32.5 hours each week for men's swim, when women were prohibited from using the pool; 33.5 hours were reserved for women's swim, when men were prohibited; and 25 hours were open to both sexes.

Some residents found the new schedule too restrictive. Saturday was left open for mixed-gender swimming since it was presumed that Orthodox Jews would not go swimming on the Jewish Sabbath. During the other six days of the week, only 12 hours were available for integrated swimming. Most of the evening hours, except for Saturday, were set aside for men.

Marie Curto owned a unit at A Country Place and wanted to go swimming with her family. Steve and Diana Lusardi also owned a unit and wanted to swim together. Ms. Lusardi had suffered two strokes, which left her physically disabled, and she wanted to engage in swim therapy with her husband. Both Curto and the Lusardis used the pool in violation of the posted schedule and were fined $50 each by the board. Mr. Lusardi explained why he wanted to use the pool with his wife and challenged the pool schedule, but the board would not budge on the schedule or the fines.

Curto and the Lusardis (collectively, the plaintiffs) sued the association, alleging violations of the federal Fair Housing Act (FHA) and New Jersey discrimination laws. The trial court found that there was no discrimination since the gender-segregated schedule applied to men and women equally, and it granted summary judgment (judgment without a trial based on undisputed facts) in the association's favor. The plaintiffs appealed.

The association argued that the pool schedule was not discriminatory since it was not motivated by malice toward either sex. The appeals court stated that the schedule could still have a discriminatory effect without a malicious intent. The association claimed that the schedule was not discriminatory because it reserved roughly equal time for men and women. The appeals court disagreed, finding that the schedule discriminated in its allotment of different times to men and women in addition to employing sex as criteria in fixing the schedule.

The schedule permitted women to swim only 3.5 hours on weeknights compared to 16.5 hours for men. In addition, Fridays from 4 p.m. onward were reserved for men only because an assumption was made that women would be home preparing for the Jewish Sabbath during that time.

The appeals court found that the schedule appeared to reflect assumptions about the traditional roles of men and women, with the result being that women working regular office-hour jobs had little access to the pool on weekdays. The appeals court determined that the inequitable features of the schedule had the effect of being discriminatory against women under the FHA, despite the roughly equal aggregate swimming time allotted to each sex.

The plaintiffs argued that any schedule of sex-segregated swimming would violate the FHA, urging that it was akin to the "separate but equal" framework rejected by the U.S. Supreme Court in Brown v. Board of Education. The appeals court declined to consider the plaintiffs' argument (and its potentially far-reaching implications) because it was only necessary to conclude the existing pool schedule was discriminatory.

Accordingly, the appeals court reversed and remanded the case for the trial court to enter summary judgment in the plaintiffs' favor.

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Association Foreclosure Upheld Despite Name Errors

In re Gold Strike Heights Homeowners Association, No. 2:18-cv-00973-JAM (E.D. Cal. May 1, 2019)

Westwind Development, Inc. (developer) developed the Gold Strike Heights Subdivision in Calaveras County, Calif. The developer established Gold Strike Heights Association (original association) to govern the subdivision. For the first two years of operation, the developer's principal was the sole member of the association's board of directors (board).

In 2004, Indian Village, LLC (Indian Village) purchased 31 of the 49 lots in the subdivision. Don Lee and Indian Village's principal, Mark Weiner, were put on the board as a condition of Indian Village's lot acquisition. Around 2007, it was discovered that the original association had been suspended by the California Secretary of State for failure to file required annual reports and pay annual franchise tax fees. Instead of getting the original association reinstated, Lee incorporated a new entity, Gold Strike Heights Homeowners Association (new association), to serve as the homeowners association for the subdivision.

The subdivision's declaration of covenants, conditions, and restrictions was amended to provide that the new association was the successor to the original association and to substitute the new name. Thereafter, the board used the original association's and the new association's names interchangeably.

In 2010, Lee and Weiner were ousted from the board when the lot owners elected a board comprised of residents only. Indian Village sued to overturn the election, and the residents countered with their own lawsuits. The parties mediated their disputes and reached an agreement whereby residents would be the only board members for three years in exchange for Indian Village receiving a reduction in assessments levied by the new association.

However, the next year, Indian Village refused to pay any assessments because it disapproved of the new association's management. Community Assessment Recovery Services (CARS), on behalf of the new association, recorded a lien against Indian Village's lots, but the lienholder was identified as the original association. In 2014, CARS held a nonjudicial sale to foreclose the liens and bid on the new association's behalf in the name of the original association. CARS then recorded trustee's deeds conveying the lots from Indian Village to the new association.

In 2015, Indian Village sued for wrongful foreclosure, seeking to set aside the trustee's deeds. The new association then filed a Chapter 7 bankruptcy petition, and all claims were transferred to the bankruptcy court. The bankruptcy court ruled in the new association's favor and held that it properly owned the lots. The bankruptcy court determined that the parties understood who was the foreclosing party and that Indian Village did not suffer any prejudice on account of the missing word in the new association's name. In fact, it was Indian Village's representatives who chose a name for the new association that was nearly identical to the original association. It was also these representatives who continued to use the original association's name while they were on the board, even though the original association had ceased operations.

Indian Village appealed, asserting that the new association could not own the lots because it did not hold any liens on the lots and never bid in the foreclosure sale. The appeals court determined that there was no confusion by Indian Village that it owed assessments to the new association and that the new association could file a lien against Indian Village's lots if it did not pay. When Indian Village received demand letters from CARS attempting to collect on behalf of the original association, Indian Village knew to which entity it owed money.

Indian Village complained that the foreclosure violated the California Davis-Stirling Common Interest Development Act (act). The appeals court noted that, while the act required the name of the trustor conducting the foreclosure, it did not require the name of the beneficiary. The notices to Indian Village properly identified CARS as the trustor, so a typographical error in the name of the new association, as the beneficiary, did not impact compliance with the act.

The appeals court concluded that a reasonable person would not have been confused about who was seeking to foreclose on the property, and there was no genuine confusion by Indian Village. Moreover, Indian Village could not show how it was prejudiced by the error in the name. The appeals court stated that Indian Village could not rely on an immaterial typographical error to avoid the consequences of its choice not to pay assessments that it knew were owed.

Accordingly, the bankruptcy court's judgment was affirmed.

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Losing Party Cannot be Forced to Pay Prevailing Party's Excessive Legal Fees

Richburg v. Carmel at the California Club Property Owners Association, No. 18-21944-CV-WILLIAMS/TORRES (S.D. Fla. May 1, 2019)

Carmel at the California Club Property Owners Association (association) governed a Florida subdivision. Corey Richburg was a member of the association.

In 2018, Richburg sued the association and its attorneys, claiming violations of the federal Fair Debt Collection Practices Act (FDCPA) and the Florida Consumer Collection Practices Act. The parties reached a settlement and agreed that Richburg was the prevailing party. However, they did not agree on the amount of attorney’s fees and costs that were to be awarded to Richburg as the prevailing party, which was to be determined by the trial court.

Richburg filed an application seeking $47,000 in attorney’s fees and costs. Both the hourly rate and the number of hours charged by the attorney must be reasonable. The applicant has the burden of establishing the reasonableness of the fees.

A reasonable hourly rate is the prevailing market rate in the relevant legal community for similar services provided by lawyers of comparable skills, experience, and reputation. Evidence may be submitted of charges by other lawyers under similar circumstances. The court itself is also considered an expert on what constitutes a reasonable hourly rate.

The plaintiff was represented by two attorneys. One was a solo practitioner with 36 years of experience and an hourly rate of $375. The second was a lawyer with 10 years of experience in community association law and five years of experience litigating FDCPA cases with an hourly rate of $325.

The court found both rates too high because the billing records indicated that both attorneys spent a considerable amount of time on tasks customarily assigned to junior-level attorneys. FDCPA does not require the losing party to pay premium rates for tasks that would be unreasonable to bill a client. The court determined that a "blended" rate of $250 per hour was appropriate for this type of case.

In addition, a court must exclude from the fee calculation any hours that seem excessive, redundant, or otherwise unnecessary. In order to undertake this analysis, a fee applicant must produce meticulous records that reveal how the hours billed were allotted to specific tasks. Lumping together multiple tasks into a single entry of time or "block billing" does not allow the court to properly analyze whether the time spent was appropriate for the task. In fact, the Eleventh Circuit Court of Appeals has approved utilizing an across-the-board reduction for block-billed time entries. The court found 17 block-billed entries included in Richburg's fee application and determined that a 30% reduction was an appropriate cut for the block-billed entries.

The court also deleted redundant tasks billed by both attorneys. While there is nothing inherently unreasonable about having multiple attorneys, compensation may be awarded by the court only if the attorneys are not unreasonably doing the same work and are being compensated for the distinct contribution of each lawyer. The court found redundancies where both attorneys met with the client, discussed settlement with opposing counsel, strategized about next steps, attended mediation, and reviewed pleadings.

The court further reduced time spent by the lawyers on what appeared to be clerical tasks, including the calendaring of deadlines, reviewing routine court orders, preparing routine document requests, and standard docket review. Attorneys should not receive full compensation at their standard hourly rates for legal services for performing services that should have been delegated to non-lawyers. The court concluded that Richburg was entitled to $24,935 based on the number of hours the court deemed reasonable times the blended hourly rate.

Richburg also asked for reimbursement of $2,625 in fees paid to an expert witness who provided an affidavit attesting to the reasonableness of the attorney’s fees sought. The court stated that only the types of fees enumerated in the FDCPA were recoverable. FDCPA allows expert witness fees, but only at $40 per day. It appeared that the expert witness worked on the file for only a single day, so the most Richburg could recover for the expert's fee was $40.

The court granted attorney’s fees, costs, and expert witness fees to Richburg in the total amount of $24,975.

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Owner Gets No Help in Paying Attorney’s Fees to Defend Lawsuit by Neighbor

Shah v. Ross, No. B286783 (Cal. Ct. App. Apr. 25, 2019)

In 1981, Michael and Phyllis Ross (the Rosses) purchased a home in the Mount Olympus subdivision in Los Angeles County, Calif. In July 2015, Furhan Shah purchased the home across the street and uphill from the Rosses. Less than a month later, Shah sued the Rosses, alleging that trees on the Ross property violated the Mount Olympus declaration of restrictions (declaration).

The declaration prohibited trees and other obstructions having a height of more than 10 feet above the finished graded ground that would deprive any owner within a 500-foot radius of a view, unless approved in writing by the developer. The trial court found that hundreds of trees in Mount Olympus were taller than 10 feet and routinely obstructed portions of neighbors’ views.

The trial court determined that the 10-foot height restriction was unenforceable because to institute uniform enforcement would wreak havoc on the community and drastically lower property values. In addition, the trial court found that the eight trees at issue blocked, at most, about 5% of the 270-degree view out of Shah's master bedroom. The trial court ruled in the Rosses' favor on all of Shah's claims, but it denied the Rosses' application for attorney’s fees. The Rosses appealed.

The Rosses claimed that, as the prevailing party, they were entitled to recover their attorney’s fees under the declaration and California law. The declaration provided that, in any proceeding by the developer to enforce the declaration, the losing party shall pay the winning party's attorney’s fees. The Rosses argued that the developer's rights extended to enforcement proceedings by individual owners. The Rosses also asserted that they were entitled to public interest attorney’s fees for having conferred a significant benefit on a large class of persons—that is, that it would be unreasonable to enforce the 10-foot height restriction throughout Mount Olympus.

The appeals court determined that, although the declaration expressly permitted both the developer and the individual owners to enforce the declaration's provisions, it created a right only for the developer to recover attorney’s fees. Any interpretation extending the developer's rights to the owners would violate fundamental contract interpretation rules by rendering meaningless the reference to the developer in the attorney fee provision.

The California Civil Code provides that, where a contract specifically provides for attorney’s fees to be awarded to either party or the party prevailing in a contract enforcement action, then the prevailing party is entitled to recover its reasonable attorney’s fees and costs. The appeals court determined the statute was designed to establish an equal remedy when a contract made the recovery of attorney’s fees available to only one party in order to prevent oppression.

The appeals court found the statute inapplicable in the present suit because the declaration's attorney fee provision was not one-sided or oppressive. The declaration granted attorney’s fees to the party prevailing in any enforcement action involving the developer, or the association as the developer's successor. However, the declaration made no provision for any attorney’s fees in actions between owners that did not involve the developer, so it could not be viewed as one-sided or oppressive.

A California public interest statute also allows attorney’s fees to be recovered for actions resulting in the enforcement of an important right affecting the public interest, where a significant benefit is conferred on the general public or a large class of persons and the necessity and financial burden of a private enforcement action were such as to make the award appropriate. Under this statute, fees may be awarded for defending an action primarily to advance a public interest, but may not be awarded where the essence and fundamental outcome of the defense was to advance the defendant's personal interests.

The trial court denied attorney’s fees to the Rosses because it found that any public benefit associated with the lawsuit defense was merely incidental to the Rosses' personal goals. Shah had limited his enforcement claim to only eight trees on the Rosses' property. He was not seeking widespread enforcement that would affect other Mount Olympus owners. Thus, the Rosses' defense was primarily to avoid having to cut their own trees, not to protect their neighbors' trees.

As a result, the general rule in the U.S. regarding attorney’s fees applied, whereby each party to the lawsuit was responsible for its own attorney’s fees. Accordingly, the trial court's judgment was affirmed.

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Board Cannot Correct Assessment Errors Made in Prior Years

Sunnyside Resort Condominium Association, Inc. v. Beckman, No. 341116 (Mich. Ct. App. Apr. 23, 2019)

In 2004, Robert Delich developed the Sunnyside Condominium in Gogebic County, Mich. The master deed established 14 units. Cabins were located on units 1–8, houses were on units 9–10, and units 11–14 were vacant lots. The master deed referred to the vacant lots as incomplete units, although each incomplete unit was still assigned a percentage of value relative to other units.

In 2006, units 11 and 13 were sold to Beckman Holdings, Inc. (BHI) and Meinke Construction, Inc. (MCI) collectively. Neil Beckman owned BHI. Beckman and Delich agreed that the incomplete units would not be assessed by Sunnyside Resort Condominium Association, Inc. (association).

From 2007 until 2011, Beckman served on the association's board of directors (board) and as its president. Although questions regarding the propriety of not charging assessments to all units were regularly raised at board meetings during Beckman's tenure, the four-person board unanimously approved annual budgets that did not provide for units 11 and 13 to be assessed.

In 2011, Beckman was not re-elected to the board, but the board still unanimously adopted a budget that did not assess units 11 and 13. In 2012, the association's attorney advised that units 11 and 13 should be assessed according to the percentage values stated in the master deed.

The association levied assessments on units 11 and 13 for the years 2006–2012. When BHI and MCI refused to pay, the association filed suit against BHI, MCI, and Beckman individually (collectively, the defendants). In addition to demanding payment for past-due assessments, the association claimed Beckman breached his fiduciary duty to the association by refusing to assess units in which he had a financial interest.

The defendants counterclaimed against the association, demanding that the association indemnify Beckman for his defense in the lawsuit. The trial court held that units 11 and 13 were required to pay assessments, but it determined the current board improperly attempted to alter the decisions of past boards not to levy assessments for those years. MCI and BHI were ordered to pay assessments from 2012 onward, totaling $5,062 but not for prior years.

The trial court found that Beckman could not have breached any fiduciary duty to the association because the budgets were always unanimously approved by the other three board members. It also determined that the association's bylaws obligated it to indemnify Beckman and awarded him $2,735. The trial court further awarded attorney’s fees and costs to the defendants. The association appealed.

The bylaws authorized regular assessments and two types of special assessments. The appeals court determined that the regular assessments must be pursuant to the annual budget adopted for the coming year, although the budget could include provisions for paying deficiencies from the previous year. Thus, the regular assessment mechanism did provide authority for the board to determine that the defendants did not pay their fair share of earlier budgets.

The bylaws authorized special assessments against all units for capital improvements or additions to the common elements costing more than $2,000. The catch-up assessments levied against MCI and BHI clearly did not fit this category. The bylaws also allowed the board to levy a special assessment for any other appropriate purpose, provided the special assessment is approved by more than two-thirds of the owners. The owners neither voted on nor approved a special assessment against units 11 and 13 to cure prior errors.

However, a portion of the assessments claimed by the association was for attorney’s fees incurred in the litigation, and such fees were included in the 2014 annual budget adopted by the board. The appeals court determined that MCI and BHI were responsible for a share of such fees in the same manner as other unit owners.

The association argued that, as president, Beckman exercised control over assessment invoicing and knowingly invoiced assessments in a manner benefitting units in which he held a financial interest. However, the bylaws charged the board, not the president, with the responsibility for allocating the common expenses and assessing the units. The appeals court determined there was nothing Beckman could have done as president with respect to the assessment errors that would have caused damages to the association.

The association also alleged that Beckman breached his duty as a director in voting for the inappropriate budgets. However, the budgets were always unanimously approved by all four directors and would have passed by a majority vote even without Beckman's vote.

The association insisted that it was inappropriate to indemnify Beckman because the bylaws did not require indemnity where a director is adjudged guilty of willful and wanton misconduct, gross negligence in the performance of his duties, or to have not acted in good faith. The trial court determined that Beckman did not act willfully, wantonly, grossly negligent, or in bad faith.

The trial court noted that, since all board members were required to be or represent unit owners, the decision to levy assessments was never made by truly disinterested directors since they all had some financial interest in the decision. Both Delich and Beckman testified that they believed the master deed and bylaws did not require incomplete units to pay assessments. Further, there was no evidence that Beckman's misunderstanding about the incomplete units' financial obligations was in bad faith or grossly negligent. For six years, the other three directors agreed to the misunderstanding, even though they were undoubtedly paying more than their fair share of the budget.

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

Editor’s note: CAI filed an amicus brief in support of the association in this case.

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