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.

Owners Can Bring Claims Against the Directors on the Association's Behalf for Exceeding Corporate Authority

Carmichael v. Tarantino Properties, Inc., No. 14-18-01086-CV (Tex. Ct. App. June 4, 2020)

Premier Towers, LP (developer) established a condominium regime covering all of a mixed-use building in Harris County, Texas, except for the retail portion of the building. Commerce Towers Condominium Association, Inc. (association) governed the condominium.

The developer had the right to appoint two directors to the association's board of directors (board) until 75% of the units had been sold. The developer appointed John Frese (Frese) and Larry Vickers (Vickers) to the board. The unit owners elected the third director, Barbara Carmichael (Carmichael). Frese, Vickers, and Anthony Tarantino (collectively, the managers) were officers of Tarantino Properties, Inc. (management company), which managed the condominium pursuant to a management agreement.

Carmichael and 10 other condominium unit owners (collectively, owners) sued the developer, the management company, and the managers on behalf of themselves and the association. Among the numerous allegations, the owners claimed that the managers breached their fiduciary duties by causing the association to enter into a joint use and reciprocal easement agreement with the developer, allowing the developer's retail space tenants to use the condominium common areas without having to share in the costs of maintaining and operating them.

The owners also claimed that the managers caused the association to pay the salaries and benefits of the management company's full-time employees, even though the employees worked only part time for the association. The managers failed to disclose that they personally profited from the management agreement and refused to allow the board to vote on renewing it.

The managers and the management company challenged the owners' derivative standing to assert claims on the association's behalf. A derivative action is a suit by a corporation shareholder or member to enforce the corporation's rights. The managers argued that the Texas Business Organizations Code (corporate code) does not give members of a nonprofit corporation, such as the association, the right to bring derivative claims on behalf of the corporation. The trial court agreed and dismissed all of the owners' claims. The owners appealed.

The corporate code includes three chapters—chapter 20 contains general provisions applicable to all corporations, chapter 21 applies only to for-profit corporations, and chapter 22 applies to nonprofit corporations. The managers asserted that chapter 21 gave shareholders of for-profit corporations derivative standing rights, but chapter 22 lacked a parallel provision conferring derivative standing on members of nonprofit corporations.

The appeals court noted, however, that chapter 20 provided that the corporation's members in a representative suit could bring claims against the corporation's officers or directors for exceeding the person's corporate authority. Thus, the owners did have derivative standing to bring claims on the association's behalf, but only with respect to claims against the managers for ultra vires actions (acting beyond one's legal power or authority).

The managers claimed that they did not commit any ultra vires acts. The association's articles of incorporation stated that the association's purpose was to provide for the maintenance and preservation of the condominium property and to promote the health and welfare of the condominium unit owners. The retail space was not included in the condominium property. Since the owners asserted that the managers spent association funds maintaining and benefiting non-condominium property, such action was potentially ultra vires.

The managers insisted that they had the power to exercise any of the powers that a nonprofit corporation could exercise under the corporate code, the Texas Uniform Condominium Act, and other Texas laws. The appeals court determined, however, that the corporate purpose stated in the articles of incorporation is the real measure of corporate authority and takes precedence over any enumeration of powers contained in the corporate documents.

In addition, the association's articles of incorporation allowed it to contract or transact business with affiliates of its directors and officers only after the interest of the affiliate is disclosed and the action is approved by a majority of the disinterested directors. The managers complained that the board would always be made up of interested directors so long as the developer retained the right to appoint directors.

The appeals court was unpersuaded, stating that the association could contract with an entity in which a director or officer appointed by the developer had a financial stake only if the contract was approved by a majority of the disinterested directors. Since Carmichael was the only disinterested director, the management agreement had to be approved by Carmichael.

The managers insisted that chapter 22 contained a safe-harbor provision providing that contracts between the nonprofit corporation and an affiliate of a director are not void despite the interested director's involvement if the contract is fair to the corporation at the time it was authorized. However, the provision requires that the material facts about the interested party's involvement be disclosed, which the managers did not do.

Even though the owners had derivative standing to assert claims against the managers with respect to alleged ultra vires actions, the owners did not have derivative standing to assert the remaining claims on the association's behalf because no other statute or common law established additional derivative rights. Accordingly, the trial court's judgment was affirmed in part and reversed in part, and the case was remanded for further proceedings.

Directors Personally Liable for Breaching Fiduciary Duties

Coley v. Eskaton, No. C084328 (Cal. Ct. App. June 11, 2020)

Eskaton developed Eskaton Village Grass Valley (the Village), a development designed for older adults in Northern California. The Village consisted of 130 detached "patio" homes, which were sold to individual owners, and a lodge that included 137 rental units. The common areas served both the patio homes and the lodge.

Eskaton Village-Grass Valley (EVGV), an Eskaton subsidiary, owned the lodge. Eskaton Properties Inc. (EPI), another Eskaton subsidiary, managed the Village's operations. Ronald Coley (Coley) owned a patio home.

The Village was subject to a declaration of covenants, conditions and restrictions (declaration). EVGV and the patio owners were members of Eskaton Village, Grass Valley Homeowners Association (association), and each unit was allocated one vote in the association. Thus, EVGV held a perpetual voting majority (137 votes for the lodge units compared to 130 votes held by patio owners).

Exercising its majority vote, EVGV continually elected employees of Eskaton, EVGV, or EPI (collectively, Eskaton entities) to hold three of five seats on the association's board of directors (board). The employees appointed by EVGV (EVGV directors), including Todd Murch (Murch) and Elizabeth Donovan (Donovan), were financially incentivized to operate the Village for EVGV's benefit.

Murch was chief executive officer and president of all the Eskaton entities. Donovan was chief operating officer of all the Eskaton entities. Both were paid by EPI and received bonuses and incentive compensation based on EPI's performance, which was based in part on EVGV's performance. Thus, the lower EVGV's expenses, the more compensation Murch and Donovan received.

For the first 10 years of operation, the association allocated 50% of the security costs to the patio homes and 50% to the lodge. In 2012, the board reallocated the security costs to charge 83.3% to the patio homes and 16.7% to the lodge. The EVGV directors all voted in favor of the reallocation; Coley and the other owner-elected director voted against the reallocation.

In November 2014, Coley and another patio owner sued the Eskaton entities, Murch, and Donovan (collectively, defendants). The association also was named as a nominal defendant (a party joined as a defendant, not because anything is demanded of it, but because the party's connection is such that the plaintiff's case would be defective without the party under litigation rules). Coley claimed various acts of misconduct by Murch and Donovan for the benefit of the Eskaton entities, including breaches of fiduciary duties to the association and its members.

The association initially charged assessments to cover the legal fees to all units but later charged the legal fees only to the patio homes. The association's attorney provided legal advice to the board, which Murch then shared with his personal attorney and the Eskaton entities' attorney.

The trial court determined that the EVGV directors had an irreconcilable conflict of interest because their compensation and advancement depended upon EVGV's financial success. It found that Murch and Donovan breached their fiduciary duties and violated the declaration when they voted to increase the patio owners' share of security expenses and by charging legal fees only to the patio owners. It also concluded that Murch breached his fiduciary duty when he disclosed the association's privileged communications to his lawyer to further his own interest rather than the association's interest.

The trial court awarded Coley $2,328 as reimbursement of illegal assessment charges. Coley asked that Murch and Donovan be held personally liable for their breaches, but the trial court stated that the Eskaton entities were liable for the damages caused by their employees within the scope of their employment. The trial court also awarded Coley $654,242 for attorneys' fees plus interest. Both sides appealed.

The defendants argued that the trial court misapplied the business judgment rule, which is a policy of deference to a board's decision-making. The appeals court explained that a director could not receive the benefit of the business judgment rule when acting under a material conflict of interest. This does not mean that no corporate decision involving a director conflict of interest is improper. The California Corporations Code provides that an interested director who casts a deciding vote on a transaction must show that the transaction was just and reasonable to the corporation at the time it was authorized.

Recognizing the potential for self-dealing, courts also have found that interested directors must satisfy the common law business judgment rule when they approve transactions in which they have a material financial interest distinct from the corporation's own interest. The common law rule requires interested directors to prove that the arrangement was reasonable, in good faith, and inherently fair to the corporation. The EVGV directors never proved these points, but instead argued that they did nothing worse than make honest mistakes.

The defendants asserted that the association was free to shift costs to the patio owners. The declaration required that assessments be fixed at a rate for all units as set forth in the budget initially approved by the California Department of Real Estate (DRE). The DRE-approved budget allocated 50% of the security costs to the patio homes. The appeals court determined that the assessment rate could not be changed by the board; only the assessment amount calculated based on this rate may vary from year to year.

The defendants contended that the board could establish separate budgets for "cost centers," which only the patio owners had to fund. The appeals court determined that the declaration only allowed cost centers to be established with respect to facility maintenance. Neither security for the entire Village nor legal fees fell within the sphere of such maintenance activities.

The defendants complained that the attorneys' fee award was grossly disproportionate to the damages awarded and, thus, inherently unfair. The appeals court stated that the disparity was not so great considering that all patio owners were due assessment refunds without having to spend additional legal fees.

The appeals court also stated that Murch and Donovan were personally liable for their breaches of fiduciary duty. If only their employer was liable, the directors would be absolved for abusing their positions.

Accordingly, the judgment was affirmed in part and reversed in part.

Court Declines to Reduce Approval Requirements for Amending Declaration

Diamondhead Country Club and Property Owners Association Inc. v. Committee for Contractual Covenants Compliance Inc., No. 2019-CA-01407-COA (Miss. Ct. App. June 9, 2020)

In 1970, Diamondhead Properties Inc. (DPI) began developing phase 1 of the Diamondhead community in Hancock County, Miss. It imposed a declaration of restrictions, conditions, easements, covenants, agreements, liens, and charges (declaration) on the property, which included use restrictions. The declaration also required payment of assessments to Diamondhead Country Club and Property Owners Association Inc. (association) for the upkeep of common areas. The declaration stated that it continued to burden the property for 50 years unless annulled earlier, amended, or modified with the consent of owners of 85% of the lots in phase 1.

For each successive phase, DPI imposed a declaration applicable to that phase containing similar provisions and with a similar 50-year term. Purcell Inc. (Purcell) succeeded DPI as the developer and continued development. It also imposed a similar declaration on each phase, although some of its declarations contained no term for expiration. By 2019, the entire Diamondhead community contained 6,949 properties, including detached homes, townhomes, and condominium units. Out of the 43 phase declarations, 37 required the consent of 85% of the phase lot owners for any amendment; the remainder required votes ranging from a majority to 75% of the owners.

In 2012, the City of Diamondhead was incorporated and took over some of the association's responsibilities, such as street maintenance. It also established zoning and general ordinances and formed a police department. At no time did the association ever attempt to amend any declaration.

In October 2018, three members of the association's board of directors (board), Bob Marthouse, Stewart Nutting, and Gary Becker (collectively, plaintiffs), sued the association through a "friendly" lawsuit, asking the trial court to declare that the 85% owner vote requirement in the declarations was unreasonable. They requested that the trial court set the voting requirement at 60% of those voting in person or by proxy at a meeting. The plaintiffs complained that, if the vote requirement were not reduced, the declarations would soon start expiring. If this occurred, the association would not be able to enforce the covenants and restrictions, rendering the association unable to fulfill its purpose of preserving Diamondhead and placing the entire community in jeopardy.

Several Diamondhead owners formed the Committee for Contractual Covenants Compliance Inc. (CCCI). CCCI and individual owners Patrick McCrossen and Joseph Floyd (collectively, intervenors) obtained the trial court's permission to intervene in the case. The intervenors acknowledged that the expiration of the declarations would cause a dramatic change to the association, but they urged that the declarations were unambiguous and should be enforced as written.

Attendance at annual association meetings averaged around 1,240 owners. If the trial court reduced the required vote as requested by the plaintiffs, it reasoned that about 744 owners would be able to affect the rights of nearly 7,000 owners and properties. The trial court stated that the developers envisioned an end to the declarations after 50 years, and an 85% vote requirement did not shock the conscience. The trial court rejected the plaintiffs' request. The association and the plaintiffs appealed.

The appeals court stated that even unambiguous restrictive covenants must be reasonable in order to be enforceable. The reasonableness standard requires a court to consider not only the rights of those challenging a provision, but also the rights of other owners who expect the status quo to be maintained in keeping with the overall plan and the covenants' intent. Covenants must be interpreted in light of the circumstances surrounding their creation, with the idea of carrying out the covenant's apparent purpose and intent.

The appeals court found that the flaw with the plaintiffs' argument was that the declarations were not drafted to protect the association's rights, but to protect the rights of property owners. The plaintiffs also provided nothing to support their claims that the community would be detrimentally affected. The appeals court agreed with the trial court that the amendment provision constituted a substantive right of all owners rather than the mere procedural provision claimed by the plaintiffs.

Further, the association's existence did not depend upon the declarations. The association was separately incorporated and owned the common areas. Moreover, the amendment provision was unchallenged for 46 years, and the association had never even asked the owners to consider an amendment.

Accordingly, the trial court's judgment was affirmed.

Insurer Can Sue Unit Owner’s Tenant for Damage Caused by Negligence

Erie Insurance Exchange v. Alba, 842 S.E.2d 195 (Va. May 28, 2020)

Chimney Hill Condominium Association (association) governed a condominium in Virginia Beach, Va. The association purchased an insurance policy from Erie Insurance Exchange (Erie) to cover the condominium property.

John Sailsman owned a unit in the condominium and leased it to Naomi Alba (Alba). In February 2015, a fire broke out in Alba's unit that caused extensive damage to the unit and other portions of the condominium. The fire was allegedly caused by Alba and her guest failing to properly dispose of cigarette remains.

Alba's lease made her responsible for her own conduct and the conduct of her guests, and she agreed to repair or replace any part of the unit that was deliberately or negligently destroyed, defaced, or damaged. The lease advised that only the unit itself was insured, and Alba was required to obtain renter's insurance to protect her personal property.

The lease obligated Alba to comply with the association's rules, and a copy of the rules was provided to Alba. The rules stated that the association carried a master insurance policy that covered damage to the building in the event of a fire, but the deductible would be charged to the owner from whose unit the claim originated.

Alba was also provided with a copy of the declaration of condominium (declaration), which obligated the association to purchase insurance for the benefit of the association, the owners, and their respective mortgagees, but owners were permitted to obtain other coverage for their units as they deemed advisable. The declaration further provided that the master insurance policy shall provide that the insurer waives its rights of subrogation (succeeding to the legal rights of another) as to any claims against the owners, the association, and their respective agents and guests.

The association's bylaws stated that each owner was liable for the cost of any repair or replacement rendered necessary by the negligent or careless act of the owner or its tenants, but only to the extent that such cost was not covered by proceeds from the association's insurance. The Erie insurance policy named each owner as an additional insured with respect to liability arising out of the ownership, maintenance, or repair of the common elements. The policy also waived any right of subrogation Erie may have against an owner.

Erie paid out $822,432 to repair the fire damage. Then, using subrogation to act in place of the association, Erie filed suit against Alba to recover the amounts paid. Erie alleged that Alba or her guest were responsible for the fire and liable for the damage under the condominium documents.

Alba asserted that Erie had waived the right to pursue subrogation claims. Erie asserted that Alba was not an additional insured or an owner, so the subrogation waiver did not bar its claim. The trial court granted judgment in Alba's favor, stating that a tenant can be relieved from negligence for fire damage if it was the intent of the parties that the tenant be released from such liability. The trial court determined that Alba obtained the same benefits conferred upon the unit owner by the condominium documents, including the subrogation waiver. Erie appealed.

The appeals court found that, although the declaration instructed the association on the insurance it was expected to obtain, the actual terms of the insurance coverage could be found only in the binding insurance agreement between the association and Erie. The appeals court determined that the insurance policy was clear and unambiguous. Erie waived its subrogation rights against owners, but no mention was made of tenants or other non-owner occupants. Therefore, the clear inference was that Erie did not intend to waive subrogation as to anyone other than the association and the owners. Alba, as neither an owner nor an association member, was not protected by Erie's subrogation waiver.

Alba argued that she should be considered an implied insured and protected from subrogation. However, there was no contractual relationship between the association and Alba that could have served as evidence of the mutual intention to vary Alba's common law obligations with respect to negligence. Also, the association could not unilaterally imply insurance coverage that did not actually exist in its insurance policy.

Further, the bylaws contemplated that individual owners would be responsible for any damages arising from a tenant's negligence that were not covered by the association's insurance. The appeals court found that the condominium documents reflected the association's expectation of maintaining a tenant's accountability. Finally, the lease was the only contract to which Alba was a party, and it did not disclaim Alba's liability for negligence.

Accordingly, the trial court's judgment was reversed, and the case was remanded for the claims against Alba to proceed to trial.

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Directors Can be Sued for Breach of Fiduciary Duty in Forcing a Bulk Sale of Condominium Units

Kai v. Board of Directors of Spring Hill Building 1 Condominium Association, Inc., 2020 IL App (2d) 190642, No. 2-19-0642 (Ill. App. Ct. June 3, 2020)

The Spring Hill condominium complex in Roselle, Ill., consisted of six buildings (numbered 1 through 6). Each building was governed by a condominium association that acted through a board of directors elected by the owners in that building. The five condominium associations were members of a master association governing the whole complex.

Over a few years, Mosaic Spring Hill, LLC (MSH) purchased a number of units in the complex. By October 2018, it owned all of the units in buildings 2 and 3; more than 75% of the units in buildings 4, 5, and 6; and a majority of the units in building 1. With its majority interest, MSH elected David Dresdner, Sherwood Blitstein, and Richard Blatt (collectively, the directors) to the boards of directors of all five condominium associations and the master association.

In late 2017, the directors decided to acquire the remaining units that MSH did not own through a forced bulk sale to Mosaic Beverly FMC, LLC (MB), an entity the directors also controlled. Under the Illinois Condominium Property Act (act), if at least 75% of the owners in an association vote in favor of a bulk sale of the units to a single buyer, the majority may force the sale. The owners voting against the sale (minority owners) are entitled to receive the value of their interests in the property, but they must sell their units as provided in a bulk sale contract. The act's provisions are intended to prevent holdout owners from blocking a sale favored by a majority of the owners.

In preparation for the sale, the directors approved the use of association funds to pay for the services of lawyers and appraisers. They suppressed dissent and blocked other potential bulk buyers from being considered. In June 2018, the directors notified all owners of a July 9 meeting in each building for the purpose of approving a bulk sale of all units. A copy of a sale contract (contract) identifying MB as the buyer was included in the notice. Under the proposed contract, each owner of a one-bedroom unit would receive $83,475, an amount substantially less than recent sales prices of comparable units.

The contract favored MB, MSH, and the directors in many respects. For example, MB retained the sole discretion to elect not to proceed with the sale, making the obligation to proceed one-sided. The contract also included a release of the directors from personal liability with respect to their positions on the boards.

The directors conducted only cursory meetings on July 9. When the directors realized they did not have the support of 75% of the owners in building 1, the building 1 meeting was immediately adjourned without any discussion or vote. At the meetings for buildings 4, 5, and 6, the directors did not allow any discussion of the contract or other matters, and the bulk sale was immediately approved since MSH owned 75% of the units.

Katie Kai and 26 other owners filed objections to the bulk sale as provided by the act. Maureen Jordan (Jordan) did not file an objection. In late July, the objecting owners and Jordan (collectively, plaintiffs) sued the directors, MB, the condominium associations, and the master association (collectively, defendants). The plaintiffs claimed breach of fiduciary duty, fraud, and civil conspiracy, and sought to block the sale and to rescind (cancel) the contract.

The defendants argued that the act provided the sole remedy available to minority owners and that no other claims could be pursued. The trial court agreed, but it said that the defendants had to comply with the act's appraisal process to protect the minority owners. In April 2019, the appraiser reported that the fair market value of a one-bedroom unit was either $105,000 or $115,000, depending on its condition. The trial court accepted the appraiser's report and dismissed all of the plaintiffs' claims. Jordan appealed.

The defendants asserted that the act's procedure for determining a fair market price for the units did not mention fiduciary duties, so no such duties nor claims for breach could apply to bulk condominium sales. The appeals court determined that the act did not express any intention to alter the common law fiduciary duties. Further, the act itself imposed a general fiduciary duty on the directors in managing the association.

The appeals court noted that where no self-dealing is involved, majority owners and minority owners have the same interest—to maximize the purchase price of all units. However, when both the buyer and the majority owners seek a lower sales price, the normal market controls are distorted. That distortion results in substantial unfairness when the minority owners cannot refuse to sell. In such case, having the ability to bring a claim for breach of fiduciary duty is especially important.

The appeals court stated that the directors' fiduciary duty obligated them to exercise the highest degree of honesty and good faith in their dealings and prohibited the pursuit of their personal interests at the expense of the other owners' interests. The directors claimed their actions were protected under the business judgment rule. The appeals court stated that the rule applied only absent evidence of bad faith, fraud, illegality, or gross overreaching. Since the plaintiffs alleged all of this behavior, the business judgment rule did not apply to the directors' decisions.

The defendants argued that it was too late to rescind (cancel) the contract because more than a year had passed since all of the unit sales had occurred. Many of the plaintiffs used the sales proceeds to purchase new homes elsewhere. The appeals court found that the passage of time, in this case, made rescission (cancellation) less equitable because it could upset the settled expectations of other plaintiffs (only Jordan had appealed). So, the appeals court declined to overrule the trial court's order with regard to rescission, but the other claims could proceed to trial. The appeals court noted that punitive damages were potentially available for a breach of fiduciary duty claim, and such damages might be appropriate where restoring the parties to their original positions is not possible or practical.

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

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Declaration Amendment by a Developer Must be Reasonable Under the Circumstances

Poovey v. Vista North Carolina Limited Partnership, 843 S.E.2d 336 (N.C. Ct. App. May 19, 2020)

Vista North Carolina Limited Partnership (developer) developed the Riverbend Highlands Subdivision in Rutherford County, N.C. The 573-lot subdivision was located in a heavily wooded, mountainous area, and most of the lots were vacant. In 2010, Chad and Angela Poovey (the Pooveys) purchased a lot.

The subdivision's declaration of covenants and restrictions limited the use of the lots to single-family residential use and prohibited conducting any business activities on a lot. In a section regarding utility easements, the declaration gave the developer the right to grant an easement to any public utility in the subdivision streets and in a 10-foot strip of land along the front of each lot and a 5-foot strip of land on each other lot line for the purpose of installing light, telephone poles, wires, water and gas pipes, drains, sewage lines, and other customary or usual items as the developer may deem necessary for the maintenance and repair of such utilities.

In 2015, the developer was approached by APC Towers, LLC (APC) about the possibility of constructing a wireless communications tower (tower) in the community to provide high-speed mobile broadband internet, phone, and related telecommunications services. The developer entered into a lease with APC, permitting APC to construct and operate a tower on the lot adjacent to the Pooveys' lot.

In March 2016, the developer amended the declaration's utility easement section to allow the developer to grant the same utility easement rights it could grant to a public utility to a private entity. The amendment also added a wireless communications tower to the list of possible utilities and provided that the residential use-only and no business-use restrictions would not apply to any lot to which the developer had granted a utility easement or utility leasehold interest.

In April 2016, the developer offered to exchange the Pooveys' still-vacant lot for another lot in the community or in another nearby subdivision being developed by the developer. The Pooveys rejected the offer. Construction began on the tower in May, the Pooveys filed suit against the developer and APC in June, and the tower was completed in July 2016. The tower base was approximately 33 feet in diameter. The tower pole was 195 feet high and 10 feet in diameter.

The developer argued that it had unlimited authority to amend the declaration since it still owned a majority of the lots. The developer also asserted that the tower constituted a public utility under the declaration's original terms, but it amended the declaration to include the term since such technologies did not exist when the declaration was originally recorded. The developer contended that the tower was simply an unmanned structure that transmitted wireless signals and data, and it did not change the community's residential nature.

The trial court granted partial judgment in the Pooveys' favor, finding that the amendment was unreasonable because it allowed the developer to have unlimited authority to remove the very essence and nature of the subdivision from any lot and to substantially interfere with an owner's actual residential use of a lot.

The developer then recorded a second amendment nullifying the first amendment and replacing the utility easement provisions. The new amendment provided that the developer could grant an easement or leasehold interest in one lot for the placement and construction of one wireless communications tower in order to improve wireless communications services to the subdivision. The amendment further stated that the construction of a monopole wireless communications tower on a single lot would not be considered a nuisance or to otherwise violate the declaration.

After the second amendment was recorded, the trial court granted summary judgment (judgment without a trial based on undisputed facts) in the developer's favor. The Pooveys appealed to the North Carolina Court of Appeals (appeals court), complaining that the tower obstructed the view from their lot and interfered with their plans to construct a home. They asserted that the tower was not a residential use, nor did it fit within the easement size limitations required by the original declaration.

The North Carolina Supreme Court (supreme court) previously held that a declaration provision authorizing a homeowners association to amend the declaration did not permit amendments of unlimited scope. Rather, every amendment must be reasonable in light of the parties' original intent. The supreme court noted the importance of considering the community's nature and character and the legitimate expectations of the lot buyers. The appeals court held that the same reasonableness standard applied to amendments by a developer during the developer control period.

The appeals court noted the narrow focus of the second amendment, which permitted only one lot to be used for a telecommunications tower. While narrow strips of land might have sufficed for subdivision's original utilities, the appeals court stated that some modern utilities required larger installations.

The appeals court determined that cellular phone service is now considered an essential service and even a public utility, since it provides the same service to the community as the original telephone and telegraph wires. It was undisputed that the mountainous subdivision had poor cellphone reception, and modern buyers considered broadband telephone and internet services to be essential utilities. In selecting the lot upon which to place the tower, the defendant and APS considered technical needs for the tower location as well as the need to avoid blocking lot views.

The appeals court further considered that the declaration did not promise that any lot would have an unobstructed view, but it did provide for utility service, including telephone service, for all lots. The declaration also provided for changes to be made to the utility services as needed from time to time to maintain and repair the utility services. Considering these facts, the appeals court determined that the second amendment was reasonable.

Accordingly, the trial court's judgment was affirmed.

Representative Voting Scheme Applies Except Where Declaration Makes a Clear Exception to the General Rule

Rivercrest Community Association, Inc. v. American Homes 4 Rent Properties One, LLC, 45 Fla. L. Weekly D 1339, No. 2D16-5301 (Fla. Dist. Ct. App. June 3, 2020)

Rivercrest Community Association, Inc. (association) governed the Rivercrest community in Hillsborough County, Fla. The association amended the declaration of covenants, conditions, and restrictions for Rivercrest (declaration) and restated the document (second amended declaration) such that it superseded the previous version of the declaration (first amended declaration).

The second amended declaration contained new regulations on leasing units that were significantly more restrictive than those in the first amended declaration. American Homes 4 Rent Properties One, LLC and other owners who owned homes in the community (collectively, the plaintiffs) that they wanted to lease asserted they were adversely affected by the changes in the second amended declaration. The plaintiffs sued the association, asserting that the second amended declaration was invalid because it was not properly approved.

The first amended declaration provided that it could be amended only by the affirmative vote or written consent of owners representing at least 67% of the lots. However, the voting rights section of the original declaration explained that the community was divided into neighborhoods, and the owners within each neighborhood were to elect a neighborhood representative to cast the votes of all owners in the neighborhood on association matters, except as otherwise specified in the first amended declaration or the association's bylaws.

Prior to any scheduled vote, the neighborhood representative was to poll the owners within the neighborhood. If an owner gave specific voting instructions, the neighborhood representative was required to cast that owner's vote as directed. For each lot for which no direction or conflicting direction was given, the neighborhood representative was entitled to cast the vote as he or she deemed appropriate.

There was no dispute that neighborhood representatives representing the owners of at least 67% of the lots voted in favor of the second amended declaration, but the plaintiffs argued that the first amended declaration unambiguously required the personal vote of owners representing at least 67% of the lots. The trial court agreed with the plaintiffs and granted partial summary judgment (judgment without a trial based on undisputed facts) in their favor. It declared the lease restrictions in the second amended declaration invalid and permanently barred enforcement of such restrictions. The association appealed.

The appeals court found that the first amended declaration clearly required the owners' votes to be exercised through their neighborhood representatives unless the first amended declaration or the bylaws specified otherwise. The appeals court stated that to "specify" something is to state it specifically, precisely, or in detail.

The association argued that, if the owners had the right to personally cast their own votes with respect to a proposed amendment, there should be language in the amendment section that clearly excepted the amendment process from the general rule that the votes of owners were to be cast by the neighborhood representatives. The appeals court found no such language in the amendment section. The first amended declaration merely required the affirmative vote or written consent of the requisite number of owners. The appeals court noted that an affirmative vote was simply a "yes" vote in favor of the amendment, and the amendment section said nothing about whether the vote must be cast personally by the owner or whether the neighborhood representative was to cast the votes of the owners it represented.

The appeals court stated that the plaintiffs' position could only be reached if additional language were incorporated into the amendment section, which the court was not permitted to do. The plaintiffs asserted that the original version of the declaration required that amendments be approved by the affirmative vote or written consent of the neighborhood representatives representing at least 75% of the total votes in the association. The plaintiffs insisted that the change from neighborhood representatives to owners in the first amended declaration showed an intentional decision to require the personal votes of owners for amendments rather than representative voting by neighborhood representatives. The appeals court disagreed, finding that the language of the first amended declaration was unambiguous.

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

Association Assessments Qualify as Consumer Debts Under the Florida Consumer Collection Practices Act

Williams v. Salt Springs Resort Association, Inc., 45 Fla. L. Weekly D 1437, No. 5D18-3913 (Fla. Dist. Ct. App. June 12, 2020)

Salt Springs Resort Condominium Association, Inc. (association) governed the Salt Springs Resort in Marion County, Fla. Latheresa Williams (Williams) owned a unit in the condominium.

The association claimed that Williams and other owners were delinquent in paying association assessments. The association publicly posted a list of over 100 names of owners, including Williams, who allegedly owed money to the association along with the amounts owed. Williams sued the association, asserting that the publication of a "deadbeat list" violated the Florida Consumer Collection Practices Act (FCCPA).

In Bryan v. Clayton, 698 So. 2d 1236 (Fla. Dist. Ct. App. 1997), the appeals court had previously ruled that association assessments were not consumer debts covered by the FCCPA. Based on this authority, the trial court was obligated to dismiss Williams' case. Williams appealed.

The FCCPA is designed to protect consumers much in the same way as its federal counterpart, the Fair Debt Collection Practices Act (FDCPA). While federal court opinions are not binding on state courts with respect to state law, the appeals court may consider federal court decisions when interpreting the FCCPA.

The FCCPA prohibits any person from publishing or posting a deadbeat list to enforce or attempt to enforce the collection of a "consumer debt." It defines "debt" as a consumer's obligation or alleged obligation to pay money arising out of a transaction in which the money, property, insurance, or services that are subject to the transaction are primarily for personal, family, or household purposes. A "consumer" is any natural person obligated or allegedly obligated to pay any debt.

At the time of the Bryan case, the appeal court's decision that association assessments did not qualify as consumer debts was in keeping with federal court opinions, but the federal courts later expanded their views about consumer debts. Shortly after Bryan, the Seventh Circuit Court of Appeals determined that a transaction creating an obligation to pay was all that was required to create a consumer debt under the FDCPA. It concluded that a condominium unit purchaser's obligation to pay association assessments "arose" at the time of the unit purchase, even if the timing and amount of particular assessments had yet to be determined.

Other federal district courts soon followed suit. In 2019, the First District Court of Appeal of Florida in Kelly v. Duggan, 282 S. 3d 969 (Fla. Dist. Ct. App. 2019), reached the same conclusion—that a condominium unit purchaser's obligation for association assessments arose at the time of purchase and, thus, qualified as consumer debts under the FCCPA.

Nonetheless, the appeals court still undertook its own analysis of the FCCPA's text. The appeals court examined the Florida Condominium Act (act), which requires that every condominium unit be subject to the condominium's declaration. The act also requires that the declaration include an obligation for unit owners to pay association assessments. Consulting the dictionary, the appeals court determined that "arising" meant to originate; to result or proceed. Also, "transact" meant to carry out or conduct (business or affairs).

Therefore, the appeals court agreed with its fellow courts that the obligation for association assessments originates when the unit purchaser acquires the unit. As such, the obligation to pay association assessments arises out of a consumer transaction to purchase the unit, and the ongoing obligation to pay assessments qualifies as a consumer debt under the FCCPA.

Accordingly, the appeals court rejected the principles of Bryan, reversed the trial court's dismissal of Williams' complaint, and remanded the case for further proceedings.

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