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.

Developer Transfers Ownership of Subdivision Roads to County Despite Rejecting Responsibility

Aftem Lake Developments, Inc. v. Riverview Homeowners Association, No. 20190221 (N.D. Jan. 29, 2020)

Gerald Aftem and Aftem Lake Developments, Inc. (collectively, Aftem) developed the Arrowhead Point, Bridgeview, and Riverview Estates subdivisions in Mountrail County, N.D. (collectively, the subdivisions). Riverview Homeowners Association (association) was established to govern the subdivisions.

The plat for each subdivision stated that the roads and public rights-of-way were dedicated to the public. Aftem submitted the plats to the Mountrail County Commission for approval. The commission approved the plats on the condition that the county would not assume maintenance responsibility for the roads within the subdivisions.

In 2015, the association built a water utility system (water system) to serve the subdivisions, and portions of the water system were located underneath the subdivision roads. Aftem sued the association for trespass and negligence, asserting that it owned the subdivision roads and that the association did not have permission to run the water lines underneath them. Aftem claimed that the roads were not public because the county refused to accept responsibility for them. The association contended that the county's approval of the plats divested Aftem of ownership in the roads.

The trial court determined that Aftem had no ownership interest in the roads and granted summary judgment (judgment without a trial based on undisputed facts) in favor of the association. Aftem appealed.

North Dakota statutes require that a subdivision plat describe the subdivision streets, include a dedication signed by the landowner and acknowledged by a notary public, include a certification by a registered surveyor, be approved by the governmental authority with jurisdiction over the subdivision, and be recorded. Once this is done, the statutes provide that every grant to the public marked or noted as such on the plat is a sufficient conveyance to transfer title in the land to the governmental authority to be held in trust for the benefit of the public for the uses and purposes set forth on the plat.

The appeals court found that all of the statutory requirements were met to transfer ownership of the roads to the county. In addition, there was nothing on the plats to indicate that the county approved them on the condition that it would not be responsible for road maintenance. Since the case only involved ownership of the roads and the county was not made a party to the lawsuit, the appeals court did not need to decide who was responsible for road maintenance.

Accordingly, the trial court's judgment was affirmed.

Lot Owner Loses Ownership of Land After Denying It Was Part of His Lot

Bowdish v. Decarufel, No. 52227-6-II (Wash. Ct. App. Jan. 7, 2020)

In 1976, Thomas and Charlene Bowdish (the Bowdishes) purchased lots 9 and 10 in the Seamount Estates subdivision in Jefferson County, Wash., from Gordon Pettit. In 1988, the Bowdishes purchased lot 11 from Mr. Pettit. Mr. Pettit continued to own the adjacent lot 12.

The subdivision plat depicted an access easement from Cirque Drive, the main subdivision road, that ran across lots 5 through 11 and terminated at the corner of lot 12, which provided access to lots 5 through 12. The protective covenants of Seamount Estates (covenants) stated that the owners of lots 5 through 12 were responsible for the upkeep of the access easement. Mr. Pettit did not use the access easement to access lot 12, but used a gravel driveway that crossed a small portion of lot 11 and connected directly to Cirque Drive.

The covenants also established a five-foot utility easement on either side of the common boundary line of each lot (the utility easements). In 2001, the Bowdishes installed a fence beginning at a survey stake and continuing down the side of lot 11 next to lot 12. The fence blocked a paved driveway apron that could have provided access to lot 12 from the access easement.

In 2003, Roger and Jeannette Ricker (the Rickers), through the R & J Family Trust, purchased lot 12 from Mrs. Pettit after Mr. Pettit's death. Mr. Bowdish showed Mr. Ricker the survey stake and claimed it marked the corner of lot 12. He acknowledged that the fence completely blocked the paved driveway apron approaching lot 12, but stated that there was no easement in that area. Mr. Ricker accepted Mr. Bowdish's representations, and the Rickers continued to use the gravel driveway to access their lot. After installing the fence, the Bowdishes did not use or maintain any portion of the property west of the fence (the disputed area).

In 2007, the Rickers removed a mobile home located on lot 12 and began building a new home, which was completed in 2010. The Rickers sited the new house and located the garage on the property based on the gravel driveway being the only access point to lot 12. During construction, the Rickers excavated the disputed area and accidentally covered up a survey stake marking the boundary line between lots 11 and 12 in the process. The Rickers also constructed a patio lined with manor block walls that was partially located within the disputed area. The Bowdishes never objected to the excavation or construction work.

In 2014, the Bowdishes obtained a survey in preparation for clear-cutting lot 11. The survey revealed that the corner of lot 11 was actually 42 inches west of the fence. After receiving the survey, the Bowdishes began coming onto and damaging lot 12 and the disputed area. They moved manor blocks; spray painted the Rickers' patio, landscaping, and manor block walls; killed landscaping with Roundup; and damaged the Rickers' fence and street number sign.

In 2015, the Bowdishes obtained a second survey that showed that a portion of the Rickers' patio and manor block walls was located in the disputed area. The Bowdishes removed their fence and placed a large pile of rocks on the boundary line, which blocked the Rickers' access from the gravel driveway.

In 2016, the Bowdishes sued Karen Decarufel, as trustee of the R & J Family Trust, and the Rickers to quiet title (definitively establish property ownership), for damages, and for injunctive relief (requiring a party to take or refrain from taking action). The Bowdishes claimed that the Rickers trespassed on lot 11 and interfered with their easement.

The Rickers counterclaimed, asserting that they had acquired ownership of the disputed area through adverse possession (method of acquiring property by satisfying statutory criteria) or had acquired an easement across lot 11 for access from the gravel driveway. They also claimed the Bowdishes trespassed on and damaged their property.

The trial court ruled in the Rickers' favor. It found that the Rickers had gained ownership of the disputed area through adverse possession and had acquired an easement in the portion of lot 11 containing the gravel driveway. The Rickers and the Pettits had used the disputed area and the gravel driveway in a manner adverse to the Bowdishes' ownership for the required statutory periods.

The trial court further stated that the Bowdishes were liable to the Rickers for trespassing and causing damage to the Rickers' property, but the Rickers were also liable to the Bowdishes for covering up the survey stake. The trial court confirmed that the Rickers had rights in the access easement as provided by the covenants, but it concluded that the Bowdishes did not have rights in the utility easements because those were reserved to the developer. The Bowdishes appealed.

The appeals court determined that the doctrine of equitable estoppel barred the Bowdishes from claiming rights in the disputed area. Mr. Bowdish told Mr. Ricker that the fence marked the boundary line between the lots and denied lot 12 having access to the access easement. The Rickers relied on those statements when locating the new house, the garage, and the patio, and they would be harmed if they were forced to tear out the patio.

The trial court also correctly determined that the Rickers had an implied easement over lot 11 to access lot 12 via the gravel driveway. Mr. Pettit used the gravel driveway to access lot 12 both before and after he sold lot 11 to the Bowdishes. There also was some degree of necessity to use the driveway to access lot 12 because the Bowdishes' fence blocked lot 12's access to the access easement. Lot 12 was also granted rights in the access easement by the covenants.

Further, lot owners were not granted rights in the utility easements because the covenants stated that the easements were "reserved" rather than "granted." Had the developer intended to give the easements to someone other than himself, he would have used the term "granted" or similar language to denote giving rather than retaining.

Accordingly, the trial court's judgment was affirmed.

Owner Does Not Have to Obtain Unanimous Consent to Vary Plans for Reconstructed Home

DeCaminada v. Hammond, No. 345847 (Mich. Ct. App. Feb. 18, 2020)

Timbers of Oakland Lake Association (association) governed the Oakland Lake condominium in Oakland County, Mich. The condominium units were lots consisting of land only. Unit owners built their own detached single-family homes within their condominium lots.

Bruce and Joyce Hammond (the Hammonds) owned a lot in the condominium. Joseph and Carol DeCaminada (the DeCaminadas) owned the neighboring lot. In 2015, the Hammonds' home was destroyed by fire. The Hammonds obtained design approval for the construction of a new home on the lot from both the association and the township. The proposed plans met the condominium master deed's requirements for home construction—the structure was located within the building envelope designated on the condominium plot plan, and it had the appropriate number of bedrooms. However, the new home was larger than the original home and about 30 feet closer to the DeCaminadas' home.

The DeCaminadas sued the Hammonds and the association, asserting that the DeCaminadas violated the condominium governing documents. The DeCaminadas claimed that alteration of the structure required the unanimous consent of all lot owners. They also asserted that the Hammonds' new landscaping included large rocks and a staircase located too close to the boundary line between the two lots. The Hammonds did not seek approval from the association prior to installing the landscaping, but they did obtain approval after the installation.

Article V of the association's bylaws stated that, if any part of the lot premises were damaged, the lot owner had to restore the lot and the improvements in accordance with the provisions of Article VI. Article V also provided that any reconstruction or repair shall be substantially in accordance with the master deed and the original plans and specifications for the damaged improvements unless the lot owners unanimously decided otherwise. Article VI set forth various restrictions and prohibited any owner from making alterations, modifications, or changes in any lot without the express written approval of the association's board of directors (board).

The DeCamindas argued that the Hammonds had to either substantially build the same home as the one that was destroyed or build something different, but only if they received the unanimous approval of all lot owners. There was no dispute that the Hammonds did not receive approval of any lot owners, only the board. The DeCamindas sought for parts of the new home to be rebuilt so as to conform more closely to the original home's footprint.

The Hammonds contended that they were only required to rebuild in accordance with the requirements of the master deed and the community's original plans and specifications, but not the home's original construction plans. The Hammonds asserted that the only approvals they needed were from the association and the township. The trial court granted summary judgment (judgment without a trial based on undisputed facts) in favor of the Hammonds. The DeCaminadas appealed.

The appeals court determined that when read in the context of the master deed and the bylaws as a whole, the phrase "original plans and specifications" meant those created by the developer, which were found in various places. For example, the master deed imposed square footage requirements and prohibited homes with more than four bedrooms. The condominium plot plan also established the boundary lines of the lots and the building envelopes within each lot. The developer's original plans did not encompass the construction plans for individual homes. It was undisputed that the Hammonds' second home satisfied the community plans and specifications, as originally established by the developer. As long as the reconstructed home satisfied those plans and specifications, the condominium's original purpose and the owners' reasonable expectations based on that purpose were preserved.

The appeals court stated that the DeCaminadas were essentially asking that an owner be treated differently depending upon whether the owner was building the first or second home on the lot. An owner building the initial home needed only the approval of the association and the township. Other owners had no approval rights over the initial construction. The appeals court found nothing in the governing documents to support an interpretation that the requirements for approval of a replacement home had to meet different construction standards.

The appeals court also found that the Hammonds did not breach the bylaws when they installed landscaping before obtaining the association's approval. The bylaws required only the association's approval, but not approval prior to the landscaping installation. It was undisputed that the Hammonds did obtain the association's approval in writing after the landscaping was installed. There also was no evidence that the Hammonds' landscaping encroached on the DeCaminadas' property or otherwise violated the governing documents.

Accordingly, the trial court's judgment was affirmed.

Lot Owner Cannot Create Easement Over Own Property

Fitzpatrick v. Kent, No. 46797 (Idaho Feb. 21, 2020)

Dennis and Tracy Fitzpatrick (the Fitzpatricks) bought two adjacent lots (Lots 1 and 2) in the Widgeon Lakes Estates Subdivision in Ada County, Idaho. Widgeon Lakes Estates Subdivision Homeowner's Association (association) governed the community.

The Fitzpatricks installed landscaping and an irrigation system near a pond on Lot 2. They also constructed a fence over portions of both lots. The Fitzpatricks recorded an easement agreement stating that an easement was granted for the use, benefit, and enjoyment of, and the right to maintain, repair, and improve the pond and the property surrounding the pond (easement area). The Fitzpatricks were identified as both the grantor and grantee of the easement.

The Fitzpatricks listed Lot 2 for sale. The listing indicated that the property had a recorded easement on the north side and that the new owner would be allowed to view but the fencing and pond would remain attached to and maintained by the adjacent lot owner.

The Fitzpatricks entered into a contract to sell Lot 2 to Alan and Sherry Kent (the Kents). The contract stated that the Kents were aware of a recorded easement on the north side of the property. The listing agent told the Kents that the easement area was controlled by and maintained as part of Lot 1. The association's president also told the Kents that they had to comply with the terms of the easement agreement. The deed conveying Lot 2 to the Kents stated that the property was transferred subject to all easements.

About a year after closing on the sale, the Fitzpatricks and the Kents began disagreeing about the easement agreement. The Kents allegedly began making modifications to the easement area, including modifying the existing irrigation system. The Fitzpatricks sent the Kents a cease and desist letter. The Fitzpatricks also replaced the irrigation system and landscaping allegedly removed by the Kents.

The Kents objected to the Fitzpatricks' modifications to the easement area and asserted that the easement agreement was unenforceable. The Kents threatened to remove the fence on Lot 2 and undo the Fitzpatricks' modifications.

The Fitzpatricks sued the Kents, seeking to confirm their rights in the easement area, to prohibit the Kents from interfering with the Fitzpatricks' easement rights, and damages for the cost of installing a new irrigation system. The Kents counterclaimed, seeking a determination that the easement agreement was void and unenforceable and damages for the Fitzpatricks' continued trespass on Lot 2.

The trial court granted summary judgment (judgment without a trial based on undisputed facts) in favor of the Kents with respect to the validity of the easement agreement. The trial court determined that the easement agreement was void and that Lot 2 was free and clear of any claim or interest of the Fitzpatricks. The Fitzpatricks appealed.

The trial court found that the easement agreement was invalid under the merger doctrine, which provides that when the property burdened by an easement and the property benefitted by such easement come into common ownership, the need for the easement is destroyed and the easement is extinguished. Even though Lots 1 and 2 were under common ownership at the time the Fitzpatricks attempted to create the easement, the appeals court held that the merger doctrine still applied because an easement is defined as a right in another person's property.

A basic principle of easements is that a party cannot have an easement in its own property, and the fact that the party might own more than one parcel does not change that principle. If the easement was created prior to the owner owning both the benefitted and the burdened properties, the easement would be extinguished by merger upon both parcels coming into common ownership. In the case of the owner owning both parcels at the time the owner attempts to create the easement, the attempted easement is never validly created and is void from the outset.

The Fitzpatricks argued that an intent exception to the merger doctrine should be recognized. Some other states have recognized an exception to the merger doctrine where the landowner did not intend for the easement to be extinguished. The appeals court refused to recognize any exception because established Idaho law did not acknowledge any exceptions to the rule. The Fitzpatricks insisted that the easement agreement created not only an express easement but also an easement by reservation, a restrictive covenant, and an equitable servitude on Lot 2. However, the Fitzpatricks supported these arguments only with their own conclusory statements and could not provide any legal authority.

The Fitzpatricks further urged that Lot 2 should be burdened by the easement because the Kents had actual notice of the easement agreement. The appeals court stated that, if the easement agreement was void from the outset, the Kents had notice only of a void document. The recordation of the void document in the public records was not sufficient to reinvigorate an easement that was never validity created.

Accordingly, the trial court's judgment was affirmed.

Lot Owners Argue Over Dock Rights Granted in Century-old Covenants

Kraus v. Link, No. 347044 (Mich. Ct. App. Jan. 30, 2020)

In 1985, William and Barbara Kraus (the Krauses) purchased Lot 24 in the Idlemere Park Subdivision in Novi, Mich. The subdivision, platted in 1917, was next to Walled Lake. The plat showed Lakeside Drive running along the lakeshore separating four elongated lakeside lots (lakeside property) from the developable residential lots (backlots). The subdivision was made subject to restrictive covenants (covenants).

In 1924, the lakeside property was subdivided and replatted into 29 residential lots with lake frontage (lakeside lots) and Outlots A through G. The outlots were lots with lake frontage located where the streets serving the backlots intersected and terminated at Lakeside Drive. Lot 24 was a lakeside lot next to Outlot F.

Michael and Leanne Link, Wesley Leckenby, Terry Osmun, and Daphne Smith (collectively, the defendants) owned backlots. In 2015, the defendants erected and used a dock for mooring boats at Outlot F. They also used Outlot F for picnics, sunbathing, bonfires, and similar activities. The Krauses demanded that the defendants stop using Outlot F and remove the dock. The defendants responded that the covenants gave them the right to use Outlot F for such activities.

The Krauses sued the defendants, seeking a declaratory judgment (judicial determination of the parties' legal rights). The defendants countersued for a declaratory judgment and injunctive relief (requiring a party to take or refrain from taking certain action).

The covenants provided that all subdivision lot owners had a perpetual right-of-way or easement over the portions of the lakeside property immediately in front of and in line with the backlot streets to the lake, which would later be identified as the outlots. The covenants stated that the backlot owners were to give their best efforts and aid in keeping the outlots in a clean and orderly condition and free from trash and debris. The covenants stated that the developer would construct docks on the outlots for use by all lot owners, and the lot owners were to keep the docks in proper repair at their own expense. The lot owners also were responsible for the appearance of the shoreline along the outlots and keeping the weeds and rushes cut.

The defendants admitted that they constructed a dock and used Outlot F for purposes other than access to the lake, but they argued that the covenants granted them riparian rights (rights associated with land adjacent to navigable waters). Persons who have a possessory or ownership interest in riparian land (land abutting navigable water) have the right to erect and maintain docks and to anchor boats permanently off the shore. However, other persons who are granted access rights to the water have only a right to use the water surface in a reasonable manner for water-related activities such as boating, fishing, swimming, and temporarily anchoring boats (but not overnight or permanent mooring of boats).

The Krauses acknowledged that the defendants had an easement to access the lake, but argued that the use rights were very limited. The trial court ruled that the defendants had an easement for access to the lake and for water-related activities only. The trial court determined that the defendants could install a deck at the outlot for daily use but not for overnight boat mooring. The defendants appealed.

The appeals court determined that the docks at the outlots were dedicated for the use by both the backlot and the lakeside lot owners, but the covenants did not include limitations on use of the docks or specifically mention the mooring of boats. The defendants argued that they had riparian rights in the outlots since the covenants gave them the right to install, maintain, and use docks at the outlots, which only a riparian owner can do. The appeals court found that the covenants granted the backlot owners more than mere access rights over the outlots. However, the covenants did not grant the backlot owners an ownership or possessory interest in the outlots, so they did not have full riparian rights.

The appeals court found the covenants' dock provision was ambiguous since it treated the lot owners as having something between nonriparian and riparian rights but did not specify the scope of permissible uses by the lot owners. Reading the dock provision in the context of the entire document did not provide any additional information to aid in interpreting the dock provision.

Where the wording of an easement is ambiguous, a court may consider evidence beyond the document to determine the easement's scope. In particular, the court should strive to give effect to the ascertainable intent of the document's drafter. Both sides failed to provide any evidence of the developer's intent regarding the use of outlots by backlot owners. They also did not provide evidence of the lot owners' conduct and understanding in the nearly 100 years since the covenants were recorded.

As such, there was insufficient evidence for the trial court to rule in favor of either party. The appeals court reversed the trial court's judgment. The case was remanded with instruction for the trial court to consider the historical use of the outlots and docks since the subdivision's inception.

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Association Liable for Denying Existence of an Access Easement Over Subdivision Roads for the Benefit of Adjacent Subdivision

Kroesen v. Shenandoah Homeowners Association, Inc., No. 18CA1592 (Colo. Ct. App. Feb. 20, 2020)

Shenandoah Limited (developer) owned a 993-acre parcel of land (parcel) in La Plata County, Colo. In 1989, the developer created the Shenandoah subdivision in a portion of the parcel. Shenandoah Homeowners Association, Inc. (association) was established to govern Shenandoah.

The developer recorded a declaration (Shenandoah declaration) and plats for Shenandoah (Shenandoah plats). The Shenandoah plats showed Colonial Drive and Blue Ridge Road (collectively, the roads). Portions of the roads followed the boundary of Shenandoah with the remainder of the parcel (parcel remainder).

The Shenandoah plats created an access easement in the roads (easement 1) dedicated to the developer and the association for the use of the developer and the owners of lots in the "original property." The Shenandoah plats stated that easement 1 consisted of general common elements for the use and benefit of the developer, the owners of lots in Shenandoah, and adjacent subdivisions. None of the Shenandoah plats described the "adjacent subdivisions" with any specificity.

In 1994, the developer created the Highlands subdivision in the parcel remainder. The developer recorded a plat (Highlands plat) that created new tracts, including Tracts A and B, within Highlands. Tract A was adjacent to Shenandoah and abutted Blue Ridge Road.

The Highlands plat stated that the developer owned the roads and that normal access for Tract A would be via the roads to a county road. The board of directors (board) of Shenandoah association approved an easement over Blue Ridge Road to benefit Tract A (easement 2). No document was recorded in the public records to reflect the board's approval of easement 2. The developer sold Tracts A and B to a third party. The third party recorded a plat consolidating Tracts A and B into a single tract identified as Tract AB.

In 1999, Ronald and Patricia Kroesen (the Kroesens) purchased Tract AB from the third party for $160,000. In 2015, the Kroesens signed a contract to sell Tract AB for $188,500. However, before the closing of the sale occurred, Ronald Burris, the association's president, told the Kroesens' real estate agent that the owner of Tract AB had no right to use the roads. The prospective purchaser refused to close on the sale after learning it may not have access over the roads.

The Kroesens sued the association and Burris, seeking a declaratory judgment (judicial determination of the parties' legal rights) that the owner of Tract AB has an easement over the roads, an injunction (order prohibiting or mandating certain action) prohibiting the association from interfering with their access over the roads, an award of expenses from the lost sale of Tract AB, lost profits for intentional interference with the sale contract, and damages for the slander of their title to Tract AB through the assertion that Tract AB did not have access over the roads.

The trial court granted summary judgment (judgment without a trial based on undisputed facts) in favor of the Kroesens on their declaratory judgment claim. It determined that the Shenandoah plats were sufficient to establish an easement over the roads for the benefit of Tract AB. The trial court awarded the Kroesens damages for intentional interference with their sale contract. Damages were calculated based on about five years of maintenance expenses for Tract AB. The trial court declined to award the Kroesens lost profits because the evidence showed that the market value of Tract AB was at least $188,500. The association appealed the declaratory judgment outcome, and the Kroesens appealed the denial of lost profits to them.

The association argued that the isolated, generic reference in the Shenandoah plats to the roads being for the benefit of adjacent subdivisions was not sufficient to place Shenandoah lot purchasers on notice of any easement's existence. It contended that a valid easement required notice to good faith purchasers of the nature and extent of the easement.

No particular wording is required to create an easement, but the language must still describe the easement, the burdened property, and the benefitted property with reasonable certainty. The appeals court found that the Shenandoah declaration described the roads, noted that the roads were for ingress and egress, and described easement 1 with reasonable certainty.

The Shenandoah plats also provided reasonable certainty as to the identity of the burdened property—Shenandoah, where the roads were located. The appeals court also determined that the reference in the Shenandoah plats to adjacent subdivisions was sufficient to describe the benefitted property, Highlands, and specifically the property in Highlands that abutted one of the roads. This language was sufficient to put Shenandoah lot purchasers on notice of easement 1.

The association also contended that the developer did not comply with the requirements of the Colorado Common Interest Ownership Act (act) to create an easement. In particular, the Highlands plat was the only document expressly referencing an easement for the benefit of Tract AB, and it was not referenced in the title documents for the Shenandoah lots.

In the Shenandoah declaration, the developer reserved a right to establish a nonexclusive easement and right-of-way over all or any portion of Shenandoah. The act required that each subdivision map show a legally sufficient description of all easements serving or burdening any portion of the community unless such information was contained in the declaration or a plat.

The appeals court determined that the developer was not required to expressly reference easement 1 in each plat. Rather, the act's requirements were satisfied if all of the information was contained in some combination of the plat, declaration, or map. It was of no consequence that the Highlands plat did not appear in a title search for Shenandoah lots because the title search would reveal the Shenandoah declaration and Shenandoah plats, which established easement 1.

It also was appropriate to not award the Kroesens lost profits because the Kroesens had already listed Tract AB for sale at a price higher than the terminated contract, and there was no evidence of a decline in market value. The Kroesens were not entitled to a double recovery.

Accordingly, the trial court's judgment was affirmed.

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Statute of Limitations Barred Successor Owner from Complaining About Construction Completed Years Earlier

Muffoletto v. Towers, No. 1850, Sept. Term 2017 (Md. Ct. Spec. App. Jan. 31, 2020)

The Council of Unit Owners of Cambridge Landing Townhouse Condominium (association) governed Cambridge Landing in Dorchester County, Md. The waterfront condominium was developed by Chas E. Brohawn & Bros. Inc. (developer) and included boat slips.

The 1982 condominium site plan (site plan) submitted to the Army Corps of Engineers (ACOE) for approval indicated that slips 32 and 33 would be 14 feet and 7 inches wide with mooring piles separating the two slips. The marine-related construction was completed in 1982. The contractor indicated that the pilings were installed according to the approved site plan, but an aerial photo taken by the ACOE indicated that slip 32 was 19 feet wide and slip 33 was 13 feet wide, for a combined width of 32 feet.

In 1983, Michael and Susan Dickinson (the Dickinsons) purchased Unit 312-B and acquired a license to use slip 33. The following week, John Tieder purchased Unit 311-A and acquired a license to use slip 32. The slip widths were not indicated in the licenses or the unit purchase documents.

In 1996, the developer granted all riparian rights (rights associated with land adjacent to navigable water) to the association, subject to the prior slip licenses issued by the developer. In 1999, the association adopted a policy requiring a unit owner who had made any changes to the mooring piles to return the pilings to their "original" location when the unit was sold.

In 2000, Tieder sold his unit to Donna Towers. The Dickinsons sold their unit to Lloyd Godfrey, who sold it to Daniel Muffoletto in 2004. Neither the Dickinsons nor Tieder made any changes to the slip pilings in connection with the sale of their units. The license issued to Towers for slip 32 referenced the slip shown on the site plan and stated that the use of the slip was "as now constructed."

Shortly after Muffoletto bought the unit, he tried to get his boat in the slip and discovered the difference in the widths of the two slips. In 2016, Muffoletto sued Towers and the association, seeking a declaratory judgment (judicial determination of the parties' legal rights) that slips 32 and 33 were intended and initially constructed to be equal widths of 16 feet. He demanded that the piles be moved to deliver a 16-foot wide slip to him.

All of the original parties were dead, but an employee of the developer testified that the pilings were never moved and that slip 33 was always 13-feet wide. Tieder's son testified that his father and the developer's principal were close friends, and he remembered going with his father to mark where his father wanted the pilings moved to accommodate his boat.

The trial court determined that the possible movement of the pilings was not a material fact because they were placed in their current position no later than June 1984. So, any action related to the pilings' present location had to have been brought no later than July 1987, or else it was barred by the three-year statute of limitations.

Muffoletto claimed he did not discover until July 2014 that the original piles may have created slips of equal width, and he filed suit within three years after such date. The trial court determined that Muffoletto was on inquiry notice about the slip's width because he knew shortly after he purchased the unit that slip 33 was narrower than slip 32. He also was aware of the association's policy about moving pilings back to their original location by at least 2010. The trial court granted summary judgment (judgment without a trial based on undisputed facts) in favor of Towers and the association. Muffoletto appealed.

Neither the association's 1999 policy concerning moving pilings back to their "original location" upon sale nor the minutes of the meeting at which the policy was adopted indicated whether "original" meant as first constructed or as located when the association acquired riparian rights in 1996. However, the appeals court stated that the interpretation did not matter with respect to the statute of limitations. Even if it meant that Tieder was required to relocate the pilings when he sold the unit to Towers in 2000, the appeals court was not persuaded that the association's failure to enforce any such requirement would extend the statute of limitations beyond 2003.

The appeals court noted that riparian rights include a bundle of rights that turn on the physical relationship of a body of water to the land abutting it. Riparian rights include the rights of access to the water and to build a wharf, pier, or dock into the water. Thus, the association acquired the boat slips and related construction when it acquired the riparian rights in 1996. Since acquiring them, the association issued and reissued licenses for slips 32 and 33 "as constructed." As such, Muffoletto knew or should have known about the difference in the slip widths when he purchased the unit and licensed the slip in its present configuration. Yet, he took no action until 12 years later, which is the type of delay the statute of limitations is designed to prevent.

Accordingly, the trial court's judgment was affirmed.

Loans Made to Associations by Director-controlled Company Were Invalid

Sister Initiative, LLC v. Broughton Maintenance Association, Inc., No. 02-19-00102-CV (Tex. App. Feb. 13, 2020)

David and Susan Bagwell (the Bagwells) developed the Old Grove, Broughton, and Whittier Heights subdivisions in Tarrant County, Texas. Old Grove Maintenance Association, Inc., Broughton Maintenance Association, Inc., and Whittier Heights Maintenance Association, Inc. (collectively, the associations) were established to govern the respective subdivisions.

During the development period, the Bagwells controlled the boards of directors (boards) of the associations and served as directors on the boards along with Dale Crane, a longtime friend and business associate. The Bagwells also owned and operated Evermore Corporation (Evermore), a property management company. Acting through the boards, the associations retained Evermore to provide maintenance, accounting, and financial services to the associations.

After the recession began in 2008, the Bagwells claimed that "assessments had dried up," and the associations needed additional income to pay their bills. The boards authorized David to seek out lenders to make loans to the associations. David said that outside lenders could not be located, so he turned to Crane's company, Stonegate, and Sister Initiative, LLC (Sister Initiative) for loans. The two members of Sister Initiative were the Bagwells' daughters, and Susan was its manager. Between September and December 2010, the associations arranged a series of loans from Stonegate and Sister Initiative.

In August 2011, the Bagwells and Crane lost their positions on the boards after lot sale thresholds were met. Sister Initiative and Stonegate sued the associations to recover the unpaid loan amounts. The associations counterclaimed against Sister Initiative and Stonegate and brought additional claims against the Bagwells and Crane, alleging, among other things, breach of fiduciary duty, aiding and abetting, and civil conspiracy.

The trial court held that the loans from Sister Initiative were invalid and unenforceable because they were not properly authorized. The trial court determined that the Bagwells used the loans as a means of funneling money to themselves while leaving the associations liable for the loans' repayment. The associations were granted damages for the amounts each association had paid on the Sister Initiative loans. The Bagwells and Sister Initiative (collectively, appellants) appealed.

The appeals court determined that the Sister Initiative loans had to be approved in accordance with requirements of the Texas Business Organizations Code (code) for self-dealing transactions. Under the code, a self-dealing transaction includes any contract or transaction between the association and any entity in which one or more of the association's officers, directors, or members is (1) a managerial official or member, or (2) has a financial interest. Susan was deemed an interested director because she served as director of the associations and as Sister Initiative's manager.

The appellants asserted that the loans fell within the code's "safe-harbor" provisions. The code provides that an otherwise valid contract or transaction is not void or voidable due to the participation of an interested director if: (a) the material facts as to the relation or interest with respect to the contract or transaction are disclosed to or known by the board, and the board in good faith and with ordinary care authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors (first safe-harbor provision); or (b) the contract or transaction is fair to the association when the contract or transaction is authorized, approved, or ratified by the board (second safe-harbor provision).

Each board signed a consent dated June 1, 2010, indicating that the association was in financial trouble, it had obtained legal advice that borrowing was authorized by the association's governing documents, and that David, as president of the association, was authorized to borrow funds and execute promissory notes on the association's behalf based on standard loan documentation with such terms and conditions as the president may determine.

The associations challenged the authenticity of the consents, asserting that they were backdated. Although the consents indicated that the associations had obtained legal advice concerning borrowing on or before June 1, the associations' attorney was not engaged or provided advice until the end of September. The appeals court determined that, even if the consents were authentic, they still did not meet the requirements for the safe-harbor provisions.

The appeals court held that the code's multiple references to "the contract” and "the transaction” established that the board's duty was to authorize a particular transaction or contract. The board may not simply give blanket preauthorization for a generic class of transactions, such as "loans," to show that a particular loan was authorized. There was no evidence that the boards approved the specific loans or loan terms.

Further, at the time the consents were signed, neither the material facts of the loan agreement, the lender's identity, nor Susan's relationship with the lender were known. Therefore, the boards did not have the information necessary to make a decision about the particular transaction, nor did the boards have the ability to make a decision exercising the good faith and ordinary care as required to qualify for the first safe-harbor provision. The boards signed additional consents on August 1, 2011 ratifying all prior actions undertaken by the boards prior to such date. However, such ratifications still did not qualify as valid authorization for the first safe-harbor provision because they did not ratify any particular transaction.

The appellants insisted that the loans were fair to the associations and qualified for protection under the second safe-harbor provision. However, the trial court found that the appellants failed to provide credible evidence that the loans were fair to the associations at the time they were made. There was no evidence that David contacted or applied for loans with any traditional lenders or banks. The loans had short terms at high interest rates, which the appellants claimed were justified due to the high risk of the associations' default.

The appellants argued that voiding the loans was not the appropriate remedy because it allowed the associations to keep the money borrowed without repayment, but there was no credible evidence that the borrowed funds were used for the associations' benefit. Evermore's accountant testified that the associations owed money to vendors, but the primary vendor allegedly owed money was Evermore. The accountant's credibility was also called into question because the accountant worked for a number of the Bagwells' family businesses.

The Bagwells failed to provide an accounting for how the associations' money was spent while they were on the boards, and they did not produce credible evidence that the associations benefitted from the expenditure of the loan funds. The trial court found that as soon as money was transferred from Sister Initiative or Stonegate into the associations' accounts, the money was almost immediately removed by the Bagwells to further the Bagwells' personal and business interests.

The appeals court affirmed the trial court's judgment.