October 2019
In This Issue:
Recent Cases in Community Association Law
Court Examines Definitions and Grammar to Arrive at Meaning of Restrictive Covenant
Public Park, Gardens, and Drainage Facilities Did Not Violate Residential Restrictive Covenant
Board Did Not Defame an Owner by Speaking Truthfully
Jury Must Determine the Meaning of Decades-old Deed Restrictions
California Law Does Not Permit Continuing Association Lien
Association Policy Prohibiting Section 8 Renters Did Not Violate the Fair Housing Act
Board's Decision Must be Judged Based on Information Available at the Time
Association Acquired Trademark Rights in the Project Name
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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.

Court Examines Definitions and Grammar to Arrive at Meaning of Restrictive Covenant

Beach Towing Services, Inc. v. Sunset Land Associates, LLC, Nos. 3D18-1837, 3D18-2168 (Fla. Dist. Ct. App. Aug. 28, 2019)

Use Restrictions: The Court of Appeal of Florida held that a restrictive covenant prohibiting the property from being used for a garage or tow truck company did not prohibit the construction of a garage structure. The covenant only prohibited use of the property for the operation of a business enterprise that involved the mechanical operation or repair of vehicles.

In 2014, Sunset Land Associates, LLC (Sunset) acquired three parcels of land in Miami Beach, Fla. The property was subject to a restrictive covenant placed in a 2003 deed by an earlier owner. The covenant provided that the property could not be used as a "parking lot, storage yard facility or for a garage or tow truck company."

Sunset intended to improve the property and wanted to be able to include a parking garage as part of its development. Beach Towing Services, Inc. and other neighboring property owners (collectively, defendants) took the position that construction of a parking garage would violate the covenant. Sunset filed suit, seeking a determination about the covenant's meaning.

The parties did not dispute that the term "parking lot" in the covenant meant a surface parking lot. The only dispute involved the meaning of the term "garage." Sunset argued that the word "garage" was linked to "company" and that, when read in context, the covenant prohibited using the property for a garage company. Sunset contended that the garage restriction prohibited a business where vehicles are mechanically repaired, rebuilt, or constructed for compensation. The defendants insisted that the covenant prohibited a parking garage.

The trial court granted partial summary judgment (judgment without a trial based on undisputed facts) in Sunset's favor. The defendants appealed.

The appeals court noted that the dictionary provided two possible definitions for "garage": (1) a building or indoor space in which to park or keep a motor vehicle; and (2) a commercial establishment where cars are repaired, serviced, or parked. In addition, the City of Miami Beach Code contained three different definitions for the term: an accessory building designed or used for parking for the main structure, a commercial building used primarily for indoor parking of vehicles for compensation, and premises where vehicles are repaired, built, or constructed for compensation.

A fundamental rule when interpreting covenants is to interpret terms in a manner as to give them a meaning consistent with the apparent object of the parties' agreement. The goal is to arrive at a reasonable interpretation of the entire agreement; a single term must not be read in isolation. In addition, the word "or" is a disjunctive participle that marks an alteration. When there is a straightforward parallel interpretation that involves all nouns or verbs in a series, a prepositive or postpositive modifier normally applies to the entire series. Lastly, words that are grouped in a list should be given related meanings. For example, in a list of construction materials, the word "nails" would not be understood to mean fingernails.

The appeals court emphasized the separate use of the prepositions "as" and "for": The property "will not be used as a parking lot, storage yard facility or for a garage or tow truck company." This indicated a distinction between "parking lot, storage yard facility" and "garage or tow truck company." The appeals court found that the term "as" prohibited physical structures.

However, the term "for" clearly and unambiguously referred to business activities. If the covenant meant to prohibit the physical structure of a garage, the term "garage" would have been included under the "as" list of prohibited structures. Therefore, the appeals court considered the term "garage" only with relation to "tow truck company." The appeals court read the term "company" to modify both "garage" and "tow truck." Thus, the appeals court held that the property could not be used for the operation of a garage company or a tow truck company.

Since a tow truck company is a business enterprise involved with the mechanical operations of vehicles, a garage company must be interpreted in a similar light. The appeals court held that the covenant prohibited using the property for a business enterprise that involves the mechanical operation or repair of vehicles. As such, the covenant did not prohibit the type of parking garage that Sunset proposed to construct.

The appeals court further stated that, even if it were to find the term "garage" was ambiguous because it was susceptible to more than one meaning, the covenant must be construed against the party seeking to enforce it. Also, restrictive covenants must be strictly interpreted in favor of the free and unrestricted use of the property. So, the defendants could not prevail under either theory.

Accordingly, the trial court's judgment was affirmed.

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Public Park, Gardens, and Drainage Facilities Did Not Violate Residential Restrictive Covenant

Coyne v. Grigg Family, LLC, No. 35825-9-III (Wash. Ct. App. Jul. 9, 2019)

Use Restrictions: The Court of Appeals of Washington held that subdivision restrictive covenants designating lots as residential prohibited using a lot for a hardware store, but a public park, gardens, and drainage facilities were consistent with residential use.

Grigg Family, LLC (Grigg) purchased lots 1 and 29 in the Canal Heights subdivision in West Richland, Wash. The City of West Richland (city) purchased lot 28 in the subdivision. In 2013, the city rezoned lots 1, 28, and 29 from low-density residential to commercial-general.

Grigg purchased the lots with the intention of building a hardware store and parking lot. The city used its lot for stormwater drainage, a public park, and a community garden. The city rented garden plots in the community garden to the general public for a $10 fee, which allowed permit holders to grow their own plants.

Edward Coyne and other lot owners in Canal Heights (collectively, the owners) sued the city and Grigg, claiming the Canal Heights restrictive covenants (covenants) prohibited commercial uses on lots. The covenants stated that all lots, except for lot 30, shall be known and described as residential lots. The covenants further prohibited any noxious or offensive trade or activity from being carried upon any lot or anything being done on a lot that may be a nuisance to the remaining lots.

The trial court determined that neither the city's use nor Grigg's proposed use of the lots was permissible under the covenants. It granted summary judgment (judgment without a trial based on undisputed facts) in favor of the owners. The city and Grigg appealed.

The appeals court found that the covenants were clearly intended to preserve the residential nature of the lots, and all lots were meant to be residential except for lot 30, which was expressly exempted from the restriction. Thus, the covenants must be interpreted to require that all lots in the subdivision, except for lot 30, be fairly described as residential. Both the city and Grigg claimed their proposed uses did not undermine the residential nature of the lots.

Grigg claimed that its lots would still qualify as residential even after the construction of a hardware store and parking lot because they would be capable of supporting future residential structures, should the store and parking lot be torn down. The appeals court found that Grigg's proposed interpretation would be contrary to the collective interests of the owners, who purchased residential lots with an expectation of enjoying a residential neighborhood.

The covenants contained size and septic tank restrictions for residential structures, but no restrictions were stated for commercial structures. The appeals court determined that the most logical conclusion was that commercial structures were not permitted, except on lot 30. Accordingly, Grigg's proposed use was not permitted.

However, the appeals court found that the city's uses did not violate the covenants because nonresidential structures were not constructed on its lot. In addition, the drainage, park, and garden uses were consistent with a residential character designation because residential yards often contain drainage areas, open space, and gardens. Although the city charged a fee for use of the community garden, the appeals court held that such a fact alone was insufficient to convert the nature of the lot's use to commercial.

Accordingly, the trial court's grant of summary judgment against Grigg was affirmed. However, the summary judgment grant against the city was reversed, and the case was remanded with instructions for the trial court to enter summary judgment in the city's favor.

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Board Did Not Defame an Owner by Speaking Truthfully

Goldstein v. Villas on Travis Condominium Owners' Association, Inc., No. 03-19-00012-CV (Tex. App. Aug. 29, 2019)

Association Operations: The Court of Appeal of Texas held that an association board did not defame an owner by explaining its position after the owner publicly accused the board of various wrongdoings. The court determined that none of the board's statements about the owner were false.

Villas on Travis Condominium Owners' Association, Inc. (association) governed a condominium in Travis County, Texas. Carole Goldstein moved into the condominium in January 2016. She soon spearheaded an effort to fire the association's management company, Octus, Inc. As a result, the association became embroiled in litigation with the company (the Octus suit).

Goldstein's efforts also led to the resignation of the association's entire board of directors (board). The appointment of a new board became the subject of a second lawsuit. Goldstein was among the new board members and became intimately involved in both lawsuits, often assisting the association's attorney. Goldstein was licensed to practice law in Pennsylvania but not in Texas.

In March 2017, Goldstein resigned from the board, but she continued to try to stay involved in the litigation. She asked the board to send monthly litigation updates to the entire community and threatened to do so if the board did not. Goldstein repeatedly emphasized to the board that they needed her help in directing the litigation because, as nonlawyers, they lacked the expertise needed to manage the lawsuits. She made numerous recommendations about how to deal with witnesses and evidence.

Goldstein told two board members that she would provide litigation support for $200 per hour, suggesting that it would save the association legal fees to have her assistance. In 2018, Goldstein demanded information about the Octus suit and insisted she be allowed to attend a deposition. Goldstein indicated that absent a full and timely response from the board, she would inform the community of the board's reluctance to proceed appropriately in the case.

True to her word, Goldstein sent an email to all owners stating her opinions "as a lawyer." The email accused the board of inaction, paying excessive legal fees, and being "cloaked behind a false narrative" that it would breach confidentiality to provide information to Goldstein. The email asked the community to request that the board follow her advice.

The next day, the board sent a letter to all owners explaining the board's position. Goldstein responded by suing the association and the board for libel (defamation expressed in print or writing). The association asserted that the Texas Citizens Participation Act (TCPA) protected it from suit. The trial court agreed and dismissed the case. Goldstein appealed.

The TCPA protects persons who speak on matters of public concern from retaliatory lawsuits that seek to intimidate or silence them. Goldstein did not dispute that the TCPA applied, so to prevent her claims from being dismissed, Goldstein had to establish by clear and convincing evidence that she would be entitled to a ruling in her favor with respect to each of her claims if the board presented no further evidence in rebuttal.

To prove defamation, Goldstein had to show that the board's statements were false. The appeals court held that Goldstein did not meet this burden. Goldstein complained that the board's letter stated that Goldstein held information "hostage to her personal desires" and intended to profit from the association in violation of its ethics policy. The board believed a 2013 ethics policy prohibited it from paying Goldstein because she had gained special knowledge of the Octus suit through her service as a board member.

The appeals court found that Goldstein spent months attempting to persuade the board of her uniquely thorough knowledge of both the law and the facts, gained through her service to the community. She described herself as "the one person who had direct and detailed knowledge about this entire matter," but she would not further assist with the lawsuit without compensation.

The board's letter acknowledged that Goldstein had offered to assist in the litigation for a fee but stated that she could not practice law in Texas. Goldstein argued that she could practice law in the state because an attorney licensed in another state is permitted to apply for temporary permission to practice in Texas. However, the bar rules state that such permission may be granted only to an attorney who resides outside of Texas. Since Goldstein resided in Texas, the appeals court held that she was indeed prohibited from practicing law there.

The letter stated that Goldstein's past time with legal counsel was part of what had led to the high legal fees. Goldstein acknowledged that she was the impetus behind the manager's termination and the board's resignation, which resulted in the two lawsuits and caused the legal expenses. She admitted that the lawsuits were never going to be quick or inexpensive.

The board's letter also stated that Goldstein had not submitted a proposal describing exactly what she planned to do and that the board had grave concerns that the relationship with Goldstein would not be harmonious. In an email to the association's president, Goldstein specifically declined to provide a written proposal. She viewed the request as an affront, likening it to asking Meryl Streep to audition for a high school performance.

Lastly, Goldstein claimed it was false that she could compromise the board's confidentiality because she might publicize any disagreement with the board. However, she threatened the board in two separate emails that she would inform the entire community should the board not adequately respond, and she did exactly that.

Accordingly, the trial court's judgment was affirmed.

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Jury Must Determine the Meaning of Decades-old Deed Restrictions

Gourmet's Delight Mushrooms, LP v. Keating, Nos. 3413 EDA 2018, 3436 EDA 2018 (Pa. Super. Ct. Aug. 16, 2019)

Use Restrictions: The Superior Court of Pennsylvania ruled that a 1950s deed restriction must be interpreted within the context of that era, but a jury must determine the deed restriction's application since there was competing evidence as to terminology meaning.

Gourmet's Delight Mushrooms, LP (Gourmet) owned a mushroom-growing business in London Grove Township, Pa. Gourmet purchased two parcels of land in neighboring Franklin Township, which abutted its London Grove property for the purpose of expanding its mushroom operations. The Franklin properties were subject to deed restrictions imposed in the 1950s prohibiting any mushroom house from being erected or maintained upon the property.

In 2017, Gourmet sued Paul Keating and 27 other neighboring property owners (collectively, the neighbors), seeking a determination that the deed restrictions did not apply to the mushroom composting facility it proposed to construct on the Franklin property. Gourmet asserted that, in the 1950s, the term "mushroom house" had a clearly established meaning—a long and narrow block building with no windows. Gourmet argued that the restriction was a building restriction, not a use restriction, and that its proposed composting facility could not violate the restriction.

The neighbors argued that the term "mushroom house" in the 1950s was meant to encompass the entire mushroom operation, including the preparation of mushroom compost essential to growing mushrooms. The neighbors sought a determination that the deed restrictions prohibited all mushroom-growing uses, including composting.

The first three steps in growing mushrooms involve different phases of composting, during which a strong ammonia odor is released. Composting entails changing the nutrients found in starter ingredients into compounds that are selective for mushrooms. This produces a food source most suited for mushroom growth to the exclusion of competing fungi and bacteria.

In the 1950s, a typical mushroom farm consisted of mushroom houses, an open composting yard, and storage areas. Phase one composting usually began immediately behind the mushroom house or under an open shed. At the end of phase one, the compost was moved into the mushroom house to begin phase two composting. Gourmet proposed conducting its phase one composting outdoors on a wharf, a cement slab. It insisted that its facilities on the Franklin property would not involve any mushroom growing, only the wharf, storage of raw materials, and areas designated for spray irrigation of stormwater.

By contrast, the neighbors argued that the purpose of the mushroom house restriction was to prevent a mushroom operation in close proximity to residential properties due to odors, sanitation issues, water runoff, pests and insects, and the potential devaluation of residential properties.

The trial court determined that a mushroom house was a thing, not a process, and that Gourmet's proposed composting wharf was not a mushroom house. As such, it found that the deed restrictions did not prohibit Gourmet's proposed mushroom operations on the Franklin property. The trial court granted summary judgment (judgment without a trial based on undisputed facts) in Gourmet's favor. The neighbors appealed.

A motion for summary judgment may be granted only where there are no genuine issues of material fact, and the moving party is entitled to judgment as a matter of law. In ruling on such motion, the trial judge may resolve legal but not factual questions. Any question concerning a material fact must be resolved by a fact-finder (jury or judge) following a trial during which competing evidence and facts may be presented.

The appeals court concluded that the neighbors presented sufficient evidence by which a reasonable fact-finder could conclude that the term "mushroom house" was used in the 1950s as a term of art to describe both the indoor facility, where five of the six phases of mushroom growing took place, as well as the outdoor space beside the building where the composting began. A fact-finder could reasonably determine that the indoor mushroom facility could not be separated from the outdoor one, and any structure built to grow mushrooms could be considered a "mushroom house," regardless of its construction style.

There was also some evidence indicating that Gourmet's proposed composting facility would include a designated area for mushroom growing. As such, the appeals court determined there was sufficient uncertainty as to both the meaning of the mushroom house prohibition as well as Gourmet's intended uses that the case should have proceeded to trial.

Accordingly, the appeals court affirmed the denial of summary judgment to the neighbors but reversed the summary judgment grant to Gourmet. The case was remanded for further proceedings.

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California Law Does Not Permit Continuing Association Lien

Highland Greens Homeowners Association of Buena Park v. de Guillen, BAP Nos. CC-18-1248-LSTa, CC-18-1242-LSTa (B.A.P. 9th Cir. Aug. 26, 2019)

Assessments: The U.S. Bankruptcy Appellate Panel for the Ninth Circuit held that the California Davis-Stirling Common Interest Development Act does not permit an association lien notice to operate as a continuing lien securing delinquent amounts accruing after the notice was recorded.

Highland Greens Homeowners Association of Buena Park (association) governed the Highland Greens condominium in Buena Park, Calif. Maria de Guillen (de Guillen) owned a unit in the condominium and became delinquent to the association.

In 2008, the association recorded a lien notice (2008 notice) against de Guillen's unit. In 2011, the association amended the 2008 notice to update the amount due. Both the 2008 notice and the amendment stated that the lien included unpaid assessments and charges accruing after the date of the notice.

In 2012, the association filed a collection action against de Guillen, and the association obtained a default judgment (judgment against a party who failed to defend against a claim) for foreclosure and a money judgment in the total amount of $21,398 (consisting of principal, attorneys' fees, and collection costs). The money judgment was recorded against the unit (judgment lien), but the association never completed the foreclosure process.

In 2018, de Guillen filed for bankruptcy protection. The association filed a proof of claim for $64,137, which it asserted was secured by the unit, plus interest. The amount claimed by the association consisted of the judgment lien, interest on the judgment, and amounts due by de Guillen after the 2012 judgment (post-judgment assessments, late charges, interest, and attorneys' fees and costs).

Ms. de Guillen objected to the association's claim, arguing that most of the claim should be reclassified as unsecured because the association did not comply with the procedures required under the Davis-Stirling Common Interest Development Act (act) to create a secured lien. She also asserted that the association's claim should not include future assessments because she was current on all assessments due after the bankruptcy petition was filed.

The association responded that the 2008 notice complied with all procedural requirements under the act and that the assessment lien was a continuing lien, such that assessments that became delinquent after the 2008 notice was recorded were automatically included in the amount secured by the lien. The bankruptcy court ruled that there was no continuing lien based on the 2008 notice and that the association's only secured interest in the unit was based on the judgment lien. The bankruptcy court allowed the total amount of the association's claim but reclassified it as a secured claim for $29,970 (judgment lien plus interest) and an unsecured claim for $34,166. The association appealed.

The act does not expressly address the issue of an association's right to a continuing lien, and the California Supreme Court has not ruled on the precise issue. Two federal courts have opined that the act does not permit a recorded association lien to become a continuing lien. The analysis is further complicated by the fact that different California courts of appeal have differed significantly in their conclusions as to the policy effected by the act: Is the act's purpose to facilitate the expeditious collection of association assessments or to safeguard the notice rights of owners?

The act provides that a lien on the owner's unit shall be effective from and after the association records a lien notice stating the amounts due in the county records. The lien notice must include an itemized statement showing the delinquent assessments and related fees and costs owing at the time of the notice, and a copy of the statement must be mailed to the owner. The California courts have held that the act's procedural requirements must be strictly interpreted.

The appeals court determined that adding future assessments to an existing lien would be inconsistent with the act's requirement that the unpaid amounts be specifically set forth in the notice and in an attached accounting. The act permits the community governing documents to create a right to a continuing lien, but the Highland Greens governing documents did not create such a right.

The association argued that, since the act explicitly provides that the lien may include collection costs, this allowed subsequent delinquent assessments to be added to the existing lien without requiring a new lien notice. However, the specific provision relied upon by the association applied only to liens for less than $1,800. The appeals court found that this supported the conclusion that the existing lien excluded rather than included delinquent amounts accruing subsequent to the lien notice.

Community Associations Institute (CAI) filed an amicus curiae brief in the case in which a person not a party to a lawsuit, but with a strong interest in or views on the subject matter of the suit, may petition the court to file a brief, ostensibly on behalf of a party, but usually to suggest a rationale consistent with its own views. CAI urged the appeals court to rule in favor of a continuing lien, arguing to do otherwise would negatively impact all California associations and their members.

The appeals court was unpersuaded, finding that it could not ignore the fact that the act reflects the legislature's intent to impose and rigorously enforce its procedural requirements to protect the interests of the homeowner. The appeals court acknowledged that it may be a burden for an association to have to file successive liens, but that is an issue to raise with the legislature, not the courts.

Accordingly, the bankruptcy court's ruling in favor of de Guillen was affirmed.

CAI files amicus curiae (friend of the court) briefs to inform courts about important legal and policy issues in cases relevant to community associations. If your association, municipality, or state is faced with a poorly formulated legal opinion, consider submitting a request for an amicus brief. Contact Phoebe E. Neseth, Esq., at pneseth@caionline.org​ with any questions.

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Association Policy Prohibiting Section 8 Renters Did Not Violate the Fair Housing Act

The Inclusive Communities Project, Inc. v. Heartland Community Association, Inc., No. 3:18-CV-01898-L (N.D. Tex. Aug. 7, 2019)

Federal Law and Legislation: The U.S. District Court for the Northern District of Texas held that an association did not violate the Fair Housing Act in adopting a rental policy prohibiting renting to persons using subsidized housing programs, even though most of the persons in the area using such programs were minorities.

Heartland Community Association, Inc. (association) governed the Heartland community in Kaufman County, Texas. In March 2018, the association adopted a rental policy (policy) establishing minimum criteria by which any owner desiring to rent a unit must qualify tenants. The policy prohibited renting to sex offenders and persons with a history of evictions. It also prohibited using a rental unit for a publicly financed or subsidized housing program, such as Section 8 housing.

The Inclusive Communities Project, Inc. (ICP) is a nonprofit organization that assists households in seeking access to housing in predominantly non-minority locations in the Dallas metropolitan area. ICP's clients are predominantly Black or African American, and some of them participate in the Section 8 Housing Choice Voucher Program (Section 8) administered by the Dallas Housing Authority (DHA).

ICP sued the association, asserting that the policy constituted race discrimination and violated the Fair Housing Act (FHA) under its disparate impact and disparate treatment standards. ICP contended that all 96 families renting in Heartland at the time of the policy's adoption using a Section 8 voucher were Black or African American. ICP alleged that the policy caused the exclusion of the current voucher group by expressly limiting the terms by which an existing lease could be renewed. The policy also prohibited renting to future Section 8 voucher families once the current tenants moved out.

ICP claimed the policy had a disparate impact on the 96 Black or African American families then renting using Section 8 vouchers compared to the White non-Hispanic renters who did not use Section 8 vouchers, and thus, would not be adversely affected by the policy. ICP asserted that the policy also had a disparate impact on the general Black or African American population because a high percentage of the people on DHA's Section 8 voucher waiting list were Black or African American. ICP contended that, as of May 2018, 84.34% of the families on the waiting list were Black or African American, while only 2.4% were White. Thus, the policy would have a far greater impact on Black or African American families.

ICP also alleged that the association had a racially discriminatory intent in adopting the policy. ICP claimed the association first began to consider the policy only after the number of Section 8 Black or African American families in Heartland jumped from 0 in 2013 to 72 in 2017. ICP maintained that, while this increase did not substantially affect the overall racial makeup of Heartland, it was a significant increase in the number of Black renters.

The association argued that the policy was racially neutral and applied to all Section 8 voucher recipients regardless of race. The association further complained that ICP assumed, without providing proof, that racial motivations must have been the reason for the policy.

In another case involving ICP, the U.S. Supreme Court held that FHA encompassed disparate-impact claims in order to prevent segregated housing patterns that might otherwise result from covert and illicit stereotyping. [See Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc., 135 S. Ct. 2507 (Jun. 25, 2015), reported in the August 2015 edition of Law Reporter]. However, the Supreme Court stated that a disparate impact claim based on a statistical disparity must fail if the plaintiff cannot point to a policy of the defendant causing the disparity. This robust causality requirement protects a defendant from being held liable for racial disparities it did not create.

The district court found that ICP failed to meet the causation requirement necessary to sustain its disparate impact claim. ICP relied solely on statistics that current and future Black or African American rental applicants would be disproportionately affected. However, ICP did not allege or show that the policy caused the racial makeup of the current Heartland renters using Section 8 vouchers or caused the racial makeup of DHA's Section 8 voucher waiting list. ICP insisted that the policy would perpetuate racial segregation, but the district court pointed out that the statistical racial disparities relied upon by ICP preexisted the policy.

ICP's second FHA claim required showing the association had a discriminatory intent in adopting the policy. The district court held that ICP failed to sufficiently allege a racially discriminatory motive by the association. The district court noted that ICP did not request to amend its pleadings to allege additional facts. As such, the district court inferred that ICP had already put forth its best case and did not have additional facts to offer.

Accordingly, the district court dismissed the case with prejudice, which precludes ICP from filing another case based on the same set of facts.

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Board's Decision Must be Judged Based on Information Available at the Time

Miller v. Homeland Property Owners Association, Inc., No. 4D18-1647 (Fla. Dist. Ct. App. Jul. 31, 2019)

Association Operations: The Court of Appeal of Florida held that an association board's decision was protected by the business judgment rule because the board acted reasonably based upon information available to the board at the time the decision was made, and information provided after the fact would not overturn the board's earlier decision.

Homeland Property Owners Association, Inc. (association) governed a community in Palm Beach County, Fla. Mark Llano (Llano) and Ewell Miller (Miller) owned homes in the community.

The community declaration of covenants, conditions, and restrictions (declaration) required owners to obtain approval from the architectural review board (ARB) prior to commencing any construction on the home. In February 2012, Llano submitted plans to the ARB to add a garage to his home, and the ARB approved the plans. More than a year later, during unrelated legal proceedings between the association and other owners, the association learned that Llano's completed garage differed from the ARB-approved plans.

In January 2014, the association notified Llano that he was in violation of the declaration because he did not obtain approval of his construction. The primary concerns were the garage height and whether it had a flat roof. The declaration restricted the maximum height of buildings to 32 feet and prohibited flat roofs. Llano submitted a new application with the as-built plans for the garage, which indicated the roof was a modified, gambrel truss shape (barn-style roof).

Llano provided the association with a letter from an engineering and construction company (engineering company) stating that the garage height was the maximum height allowed by the declaration, as measured using the methodology specified by the Palm Beach County building code. The engineering company explained that the garage roof resembled a gambrel roof similar to a barn with a small, flat walkway at the top. However, the engineering company emphasized that Llano's roof was not considered a flat roof, which is typically flat from one end to the other. Llano also submitted a copy of an April 2014 email from a Palm Beach County building official to Llano's general contractor, confirming the method used to measure the roof's height.

After reviewing the information Llano provided, the association's attorney recommended that the association's board of directors (board) approve Llano's garage, and the board did so. Later that year, Miller sued the association for its failure to enforce the declaration's requirements against various owners. In particular, Miller alleged that Llano altered his home without the required ARB approval and that the garage violated the declaration's height limit and prohibition against flat roofs. Miller sought injunctive relief (requiring a party to take or refrain from taking certain action) to compel the association to enforce the declaration's provisions against Llano. Llano was joined as a party with respect to the claims concerning his home.

The association argued that enforcement of the declaration was discretionary, not mandatory, and that the board reasonably exercised its business judgment when deciding to approve Llano's garage based upon the information presented to the board and the advice of its counsel. The association contended that the board's decisions were protected by the business judgment rule. The trial court agreed and granted summary judgment (judgment without a trial based on undisputed fact) in favor of Llano. The trial court also ruled in favor of the association with respect to the claims involving the garage, but it did not grant judgment in the association's favor since other unrelated claims remained pending against the association. Miller appealed.

When applying the business judgment rule, the test is: (1) whether the association had the statutory or contractual authority to perform the relevant action; and (2) if so, whether the board acted reasonably. Courts must defer to a board's decision if the decision is within the scope of the board's authority, and it is not arbitrary, capricious, or in bad faith.

Miller argued there were factual questions concerning whether the roof height or style violated the declaration, which barred the trial court from granting summary judgment. Miller submitted an affidavit from another engineer, who described the roof as a mansard shape with two distinct roof planes and an upper roof plane that was nearly horizontal and exceeded the height limit. Miller also alleged that Llano's general contractor cut deals with the county in order to get the garage approved and that such bad information improperly influenced the board.

The appeals court stated that the board's exercise of its discretion must be evaluated based upon the information made available to the board at the time the decision was made, not information that comes to light years after the board action. The appeals court determined that the board acted reasonably based upon the information available to it at the time. To overcome a motion for summary judgment, Miller was required to do more than rely on mere supposition. Miller offered no evidence of improper influence on the board or any bad faith by the board. In addition, the fact that another expert later arrived at a different opinion concerning the roof could not overturn a decision the board had already made.

Accordingly, the grant of summary judgment in Llano's favor was affirmed.

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Association Acquired Trademark Rights in the Project Name

Ritter v. Farrow, 2019 WI App. 46 (Wis. Ct. App. Jul. 30, 2019)

Association Operations: The Court of Appeals of Wisconsin held that a resort owner transferred the trademark rights in the resort name to the association when the property was converted to a condominium.

In 1986, Ted and Carolyn Ritter (the Ritters) purchased a lakefront resort in St. Germain, Wisc., which they began operating under the name "Bibs Resort." The resort included 11 cottages, which the Ritters rented to the public, as well as a house in which the Ritters lived.

In 1998, the Ritters converted the resort into the Bibs Resort Condominium. The declaration of condominium (declaration) established 13 condominium units consisting of the 11 cottages, the Ritters' house, and a tavern building. The Ritters also formed Bibs Resort Condominium Inc. (association) as the condominium association.

Over the next few years, the Ritters sold four of the cottage units and continued to rent all of the cottages under the Bibs Resort name. The Ritters formed Bibs Resort, Inc. (management company) as a separate rental management company. The management company entered into rental management agreements (management agreement) with each of the new owners authorizing it to rent the owner's unit to the public. The management agreement referred to the unit as being part of Bibs Resort. The Ritters also permitted the owners to place the Bibs Resort logo on their unit doors.

In 2006, the Ritters agreed to sell the management company and some of the property to Tony and Arlyce Farrow (the Farrows). The contract specified that the Ritters were selling to the Farrows the management company, its management agreements, inventory, two of the units, and "all tangible and intangible personal property and rights in personal property owned by" the Ritters.

After the sale was completed, the Ritters and the Farrows jointly reported the business transfer to Wisconsin's Division of Unemployment Insurance. On the state form, the parties checked a box indicating that a total transfer of the Ritters' vacation resort management business was made to the Farrows. The Ritters' goodwill in the business was listed among the assets transferred.

The Ritters and the Farrows also jointly submitted a request to the Wisconsin Department of Revenue regarding a business name change. They requested that the management company name be changed to Ritter Enterprises, Inc. but that the Farrows would like to use Bibs Resort as a trade name since they would be handling advertising, reservations, and payments under that name. The letter indicated that the Ritters were amenable to that change.

The Ritters retained seven units, which the management company continued to rent to the public. However, by 2008, the relationship between the Ritters and the Farrows had soured. The Ritters canceled the management agreement and resumed renting their units themselves. The other unit owners also terminated their management agreements.

In 2010, the Farrows sued the Ritters, claiming trademark infringement for the Ritters' continued use of the name "Bibs Resort." The association intervened in the case, claiming an interest in the name. The association argued that, even if Bibs Resort were a trade name, the association's prior and continued use of the name barred the Farrows' exclusive use of the name.

The Farrows argued that they acquired the trademark by purchasing the goodwill in the management company. The trial court determined that "Bibs Resort" was a trade name entitled to trademark protection but that the name became part of the association when the condominium was formed. It also held that each unit owner held rights in the name as part of its association membership. As such, the Ritters no longer had exclusive ownership of the name at the time of the sale to the Farrows.

The Farrows appealed, arguing that under the Wisconsin Condominium Ownership Act, the only property that could be submitted to the condominium was real property. The appeals court explained that trademark rights cannot exist independent of the business goodwill to which they are associated. The goodwill represents the qualities that attract customers to a business. If the party purporting to own a trademark no longer controls the goodwill associated with the business, the trademark no longer serves as an identifier of a particular source of a good, service, business, or enterprise. Trademarks are protected only to the extent that they give customers information about the origin or quality of products.

The appeals court held that the Ritters necessarily transferred control of the property's marketing, advertising, and general renting authority to the association as part of the condominium conversion. While the Ritters retained authority to make the association's decisions until the sale to the Farrows, their authority was derived from their ownership of a majority of the units. As such, it was the association that permitted owners to rent their units under the Bibs Resort name and to use the logo.

The Ritters' conduct indicates that they understood the goodwill transferred to the Farrows was associated only with the management services provided to the association and the owners, not to the resort name. The Ritters' decision to include the Bibs Resort name in the condominium's and association's name is consistent with an intent to transfer the goodwill associated with the name to the association. Thus, the trademark rights were transferred to the association at the time of the condominium conversion.

If the Bibs Resort name were separated from the resort property it had come to represent for 12 years, then the name would no longer serve its purpose to identify and distinguish the resort property for potential renters, and it would not be entitled to trademark protection. The Ritters also could not have sold an exclusive right to provide management and maintenance services for the resort property. The declaration gave the association the right to maintain the property, and the management agreements gave each owner the right to terminate it at any time.

Accordingly, the trial court's judgment was affirmed.

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