April 2021
In This Issue:
Recent Cases in Community Association Law
Association Liable for Not Handling Violation Correctly
Association Assessment Could Not Include Trash Fees
Owner With Coveted View Has No Grounds to Object to New Construction
Access Easement on Common Area Plat Did Not Create Public Access Rights
Maryland Contract Lien Act Prohibits Continuing Liens
Housing Cooperative Not Liable for Black Ice on Sidewalk
Association's Abandonment of Obsolete Drainage Pipe Did Not Harm Owner
Association Did Not Acquire Trademark Rights in Project Name
Quick Links:
Contact Law Reporter
Visit Our Home Page
View Archives
View Credits
CAI College of Community Association Lawyers
printer friendly

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, CAI’s College of Community Association Lawyers prepares a case law update annually. Case law summaries along with their references, case numbers, dates, and other data are available online.

Association Liable for Not Handling Violation Correctly

Bragdon v. Bayshore Property Owners Association, Inc., C.A. No. 2018-0159-JTL (Del. Ch. Mar. 11, 2021)

Association Operations: The Court of Chancery of Delaware held that an association was liable for an owner's attorneys' fees and costs under the Delaware Uniform Common Interest Ownership Act. The association failed to give required violation notices, did not follow its published fine schedule, and treated an owner differently than similarly situated owners.

Bayshore Property Owners Association, Inc. (association) governed a townhome community in Millsboro, Del. Michael Bragdon owned a unit in the community, which he made available for rent.

In October 2017, Bragdon's tenant signed up for satellite television service. The community’s architectural guidelines provided that the satellite dish and its mounting equipment could only be attached to the rear fascia board of the townhome and not on the roof. The guidelines made the owner responsible for the cost of repairing any damage to the townhome resulting from a satellite dish's installation or removal.

On Oct. 10, Bragdon applied for approval to install a satellite dish on the home, and the request was approved by the association. The satellite company sent an installer to mount the dish. Bragdon inspected the work and discovered that the dish had been installed on the roof. He had the installer relocate the dish from the roof to the fascia, but the installer left the mounting bracket on the roof.

On Oct. 16, Bragdon received a letter from the association's manager stating that he was in violation of the architectural guidelines by having a satellite dish on the roof. Should the dish not be removed within 30 days, the letter warned that the association would remove it at the owner's expense. Bragdon contacted the manager and was told that the violation was already cured since the dish had been removed.

The association claimed that it sent another notice on Dec.11 stating that a violation remained, since the dish not been removed completely and the mounting bracket was still on the roof. It stated that a $100 fine had been levied for the violation. Also, if the bracket was not removed and the association notified of such in writing within 30 days, the association would remove the bracket at the owner's expense.

The association claimed that it sent a second letter, also dated Dec. 11, notifying Bragdon of a second $100 fine. Bragdon contended that he never received either of the fine notices and suggested that the letters were fraudulently created after the fact. An invoice sent to Bragdon on Jan. 1, 2018, included only one charge for regular dues and did not include any fines.

Bragdon received a letter dated Jan. 18, stating that it was the third attempt to notify him that the dish had not been removed completely. It stated that a second $100 fine was being levied and that the association would have the mounting bracket removed at the owner's expense.

The association sent Bragdon three more invoices, all dated Jan. 18. Each one showed a "new" fine of escalating amounts ($50, $100, and $200); none of the invoices included the fines shown on the other invoices. Thus, it looked like the association levied three fines of varying amounts on the same day. The fines also deviated from the association's published schedule of fines for architectural violations. According to the schedule, a warning notice was issued for a first violation, a second violation resulted in a written warning plus a $50 fine, and a $100 fine was charged for all additional violations.

On Jan. 31, the association had a contractor remove the bracket at the cost of $195, which was invoiced to Bragdon on Feb. 9. There was rooftop mounting equipment left on 11 other units after other owners had removed improperly installed satellite dishes, but the association did not fine any other owner or hire a contractor to remove any other equipment.

Bragdon disputed the charges, which the board of directors (board) considered at a hearing. The board was not persuaded by Bragdon's objections but did ask the manager to review the violation notices. The association published the minutes of the hearing on its public website, even though it had never made hearing minutes public before.

The manager admitted that the fines were incorrect, and the $200 fine was reduced to $100. However, the association added a new $150 fine dated Dec. 11, 2017, for failure to submit an architectural application. It also noted that the fines were delinquent and imposed a late fee.

In March 2018, Bragdon sued the association, seeking a determination that the fines violated the governing documents and asking that the hearing minutes be removed from the website. The parties proceeded with the litigation process for two years by requesting admissions and evidence from each other. In at least two instances, the association provided evasive answers and falsely denied statements that it knew to be true. In August 2020, the association removed the minutes from the website and deleted all fines from Bragdon's account. It asked the court to dismiss the case, but Bragdon sought to recover his attorneys' fees and expenses.

The Delaware Uniform Common Interest Ownership Act (act) provides that, if any person subject to the act fails to comply with any of the act's provisions or any provision of the declaration or bylaws, any person adversely affected by such failure has a claim for appropriate relief. In an appropriate case, the court may award court costs and reasonable attorneys' fees.

The community's declaration of covenants, conditions, and restrictions (declaration) provided that, except in an emergency, the association may not undertake maintenance or repair of a unit without giving the owner notice of the action required and an opportunity to take such action. The court determined that Bragdon was not in violation with regard to the satellite dish when the first violation notice was received, since he had already removed the dish by the association’s own admission. The first time the mounting bracket was mentioned was in the Jan. 18 notice. This letter provided the notice of the action that was required of Bragdon, but it did not give him an opportunity to take the action prior to levying fines. Therefore, the association clearly violated the declaration.

Also, each fine notice violated the published fine schedule. Moreover, the association treated Bragdon differently from all other owners with rooftop equipment and had never published minutes of any hearing. The court found that Bragdon was clearly adversely affected by the association's violations.

The court concluded that the association's conduct prior to litigation was arbitrary and capricious, and its conduct during litigation was unreasonable. Either was sufficient to award damages to Bragdon. Accordingly, the court awarded Bragdon $12,697 in fees and expenses and dismissed the case.

©2021 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

[ return to top ]

Association Assessment Could Not Include Trash Fees

Bridgecreek Condominium Association, Inc. v. Robinson, 2021-Ohio-1042, No. C-200059 (Ohio Ct. App. Mar. 31, 2021)

Assessments: The Court of Appeals of Ohio determined that an association could not charge owners fees for removing trash from their units because the condominium declaration authorized assessments only related to the common elements.

Bridgecreek Condominium Association, Inc. (association) governed a condominium in Hamilton County, Ohio. Doris Robinson owned a unit in the condominium.

Prior to 2016, each unit owner was responsible for trash removal for his or her unit. In 2016, the association implemented a community-wide trash program and contracted with a vendor to provide trash pickup services. To pay for the service, the association began charging owners an additional $11.50 per month fee in addition to the regular assessment.

Robinson regularly paid her assessments but began withholding the additional trash fee because she disagreed with the association's decision to start charging owners for the service. The association placed a lien on Robinson's unit for the delinquent amounts and filed suit to foreclose on the lien. In the lawsuit, the association alleged that Robinson owed past-due assessments and late fees under the declaration of condominium (declaration).

Robinson denied that she owed any past-due assessments and contended that the association lacked the authority to assess owners for trash removal. The trial court ruled in favor of the association and entered a foreclosure judgment. Robinson appealed.

The declaration authorized the association to levy assessments against owners to provide administration, maintenance, repair, replacement, and operation of the common elements. The declaration defined the common elements as all portions of the condominium property outside the individual units, and it included a nonexhaustive list of common elements. The declaration further provided that the association had control over all aspects of the method and manner by which trash, rubbish, garbage, and other materials were removed from the condominium and could select a contractor to be responsible for collection and removal.

The appeals court found that the association clearly had the authority to contract with a contractor for trash removal, but it noted that this was not the contested issue in the case. The precise issue was whether the association had the authority to charge owners for the contracted costs.

The declaration permitted the association to assess owners only for costs relating to the common elements. However, the trash costs were related to individual units. Each owner had his or her own trash, which was within and part of the unit and not shared with other owners. The appeals court determined that the declaration did not authorize the association to charge fees relating to trash in individual units. Moreover, the association's bylaws specifically stated that the shared expenses shall include trash services for the common elements but not the units.

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

©2021 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

[ return to top ]

Owner With Coveted View Has No Grounds to Object to New Construction

Clayton v. Bigelo, LLC, No. 21cv285-GPC(BLM) (S.D. Cal. Mar. 24, 2021)

Covenants Enforcement: The U.S. District Court for the Southern District of California held that a declaration did not impose a ban on two-story homes or include view protections for surrounding property.

In July 2019, Bigelo, LLC (Bigelo) purchased a lot in the 37-lot La Jolla Foothills Community in San Diego. The following month, Jonathan Clayton purchased a home in the community that sat on a bluff about 36 feet above Bigelo's property.

The community's 1962 declaration of restrictions (declaration) provided that no buildings shall be erected on any lot until plans and specifications were approved by a committee appointed by the developer. If the committee failed to approve the application, or if no committee was appointed, then this approval was not required, provided that the grading and landscaping had to conform to and be in harmony with similar structures in the community for any dwelling to be erected. The declaration further provided that no structure or building of more than one story in height shall be erected without prior approval from the committee.

No committee was ever established, and none existed at the time the owners purchased their properties. In November 2019, Bigelo applied to the City of San Diego for a building permit to construct a two-story home on the property. The city approved the application and issued the permit. A number of owners in the community sent letters to Bigelo objecting to a two-story home, but Bigelo began construction anyway.

In July 2020, Clayton's attorney sent Bigelo a cease-and-desist letter. Clayton also initiated the dispute resolution procedures under the Davis-Stirling Common Interest Development Act. Bigelo informed Clayton that it would not cease construction, and the home's foundation was laid in February 2021. Clayton applied to the court for a temporary restraining order to prohibit Bigelo from continuing with the construction of a two-story home, arguing that it violated the declaration.

The purpose of a temporary restraining order is to preserve the status quo before a hearing on a preliminary injunction (order prohibiting or mandating certain action) can be held. The temporary nature of the order is designed merely to prevent an irreparable loss of rights prior to a court being able to hear both sides and issuing a judgment. The party seeking a temporary restraining order must show the likelihood of success on the merits, the likelihood of irreparable harm in the absence of temporary relief, that equity tips the balance in the requesting party's favor, and that the order is in the public interest.

Clayton argued that the declaration prohibited two-story homes and that he was entitled to enforce the restriction, even though there were already nine two-story homes in the community. Bigelo asserted that the declaration did not impose an outright prohibition on two-story homes. Rather, if a committee was in existence, a two-story home could not be constructed without the committee's approval. Bigelo further contended that the declaration did not expressly protect views.

The court found that the declaration required committee approval only if a committee had been appointed. It found Clayton's reliance on the clause regarding two-story homes failed to give effect to the entire architectural restriction. The declaration contemplated a situation where the committee is never appointed. In that case, the only requirement is that the structure, grading, and landscaping conform to and are in harmony with similar structures in the community. Thus, the sole issue was whether Bigelo's proposed construction was in harmony with other homes. The court held that there was no absolute ban on two-story homes.

The California courts have consistently held that property owners do not have a right of access to air, light, and view over adjoining property, absent an express covenant for such. The court declined to read into the declaration's requirement for conformity with the neighborhood any view protection for other property.

Clayton insisted that monetary damages would not provide complete relief because it could never restore his coveted view. He argued that the two-story home would provide a direct line of sight into his master bedroom, bathroom, and hot tub area. Bigelo contended that Clayton's view would not be obstructed by the two-story home because Clayton's property was higher in elevation than Bigelo's. The court also held that Clayton had no right to privacy absent any express covenant. The court also found no evidence that the proposed two-story home would not be in harmony with other homes in the community.

Accordingly, the court denied Clayton's request for a temporary restraining order.

©2021 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

[ return to top ]

Access Easement on Common Area Plat Did Not Create Public Access Rights

Hovey v. Sand Dollar Shores Homeowner's Association, Inc., No. COA20-423 (N.C. Ct. App. Apr. 6, 2021)

Documents: The Court of Appeals of North Carolina held that the depiction of a beach access easement on a subdivision plat was insufficient to create a public access easement without additional language expressing an unmistakable intention.

Sand Dollar Shores Homeowner's Association, Inc. (association) governed the Sand Dollar Shores subdivision in the Town of Duck, Dare County, N.C. Established in 1981, the subdivision consisted of 42 lots along a street extending from a state highway and terminating in a double cul-de-sac near the Atlantic Ocean.

In addition to the lots and the subdivision street, the plat showed an 8-foot-wide pedestrian beach access easement (beach easement) running between two lots from the street to the beach. The plat included a certificate of dedication stating that the developer dedicated all roads, alleys, walks, parks, and other sites to public or private use as noted. The certification further stated that the subdivision streets and roads were dedicated to public use. The plat did not specifically identify the beach easement as being for public or private use.

The plat was signed by Dare County, certifying its acceptance of dedication of roads, easements, right of way, public parks, and other sites for public purposes as shown on the plat. The Town of Duck (town) was not incorporated until almost 20 years later and, therefore, was not involved in the dedication. Although the public is entitled to use the beach and ocean under state law, the town did not provide any public access to the beach. All of the oceanfront property in the town was privately owned before the town was ever incorporated.

The subdivision covenants provided that the beach easement was for the sole use of the subdivision owners and their guests and that use by anyone else was prohibited. The developer transferred the beach easement to the association, and the association assumed responsibility for owning and maintaining the beach easement.

In 2002, Robert and Tanya Hovey (the Hoveys) purchased a home across the highway from the subdivision. They used the home for short-term rentals and started a beach equipment rental business to serve their renters and other tourists. The Hoveys and their renters used the beach easement to reach the public beach.

In 2015, the association amended the covenants to provide that the beach easement was dedicated for use by association members only. In 2016, the association's attorney notified the Hoveys that they would be held liable if they and their tenants did not stop using the beach easement. After receiving the letter, the Hovey's rental management company canceled their management contract and refused to include their home in the company's rental program.

In 2019, Robert Hovey was arrested for trespassing on the beach easement. The Hoveys filed suit against the association and the town, requesting that the trial court declare the beach easement dedicated to the public. The Hoveys argued that the plat dedicated the beach easement for public use. The association contended that the plat note was insufficient to establish a public dedication. The town took no position as to the beach easement's status but agreed to be bound by the trial court's judgment. The trial court granted summary judgment (judgment without a trial based on undisputed facts) in the Hoveys' favor. The association appealed.

Dedication is the form of transfer by which a property owner grants use rights to the public in the owner's land. The owner's intent to dedicate an easement to the public must be clear and unmistakable. A public dedication also requires that a public authority accept the dedication. The public authority's acceptance is generally expressed by some official act, such as signing the dedication or adopting an ordinance or resolution. The public authority's acceptance also may be implied when the offered land has been used by the public and the authority has asserted control over the land for at least 20 years.

The appeals court determined that the plat notes did not show an unmistakable intent by the developer to dedicate the beach easement to the public. The plat first stated that roads, walks, parks, and other sites were dedicated to public or private use as noted. Thus, any dedication for either public or private use had to be noted. Only the streets and roads were noted as being for public use. The appeals court stated that, at best, the failure to specify whether the beach easement was offered for public or private dedication created an ambiguity in the plat.

Even if the plat were ambiguous, this ambiguity by itself did not support the required clear and unmistakable intent necessary for a public dedication. The appeals court recognized that its holding meant that the town lacked any public beach access. However, the lack of public beach access predated the town's incorporation, and the town had not sought to acquire private land to provide this access within the town limits. Further, such lack of public access within the town to the beach did not mean that the Hoveys were barred from using the beach. The Hoveys could drive to public access ways outside of the town limits or negotiate with a private property owner to acquire private access rights.

Accordingly, the trial court's judgment was reversed, and the case was remanded with instructions to enter summary judgment in the association's favor.

©2021 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

[ return to top ]

Maryland Contract Lien Act Prohibits Continuing Liens

In re Walker, Misc. No. 8, Sept. Term 2020 (Md. Ct. App. Mar. 30, 2021)

Assessments: The Court of Appeals of Maryland held that the Maryland Contract Lien Act did not permit an association's recorded lien to cover future assessments.

Long Reach Knolls Condominium, Inc. (association) governed a condominium in Columbia, Md. Denicia Walker purchased a condominium unit in 2000.

Walker repeatedly failed to pay assessments to the association. Between 2002 and 2014, the association recorded eight liens against the unit and obtained personal judgments against Walker in three lawsuits. In October 2015, the association notified Walker that it intended to record a ninth lien against the unit to secure $4,702 in unpaid assessments "plus all sums becoming due thereafter." Walker did not pay the amount due, so the association recorded the lien as stated in the notice and filed suit against Walker. The trial court entered a judgment in the amount of $13,933 against Walker, which covered assessments through December 2016.

In October 2018, Walker filed for Chapter 13 bankruptcy relief. The association filed a proof of claim asserting that it had a secured claim for $42,298, consisting of assessments, interest, and other amounts that became due after the ninth lien. Walker objected to the association's characterization of its claim as "secured," arguing that no lien had been recorded to perfect a lien for the debt.

The association contended that the ninth lien's statement about it securing all sums becoming due thereafter was sufficient to secure future amounts due (continuing lien). Walker asserted that the Maryland Contract Lien Act (act) barred a lien from securing debts accruing subsequent to the lien being filed. The bankruptcy court asked the Maryland Court of Appeals to answer the lien question (certified the question) since it involved a question of state law, and there was no Maryland case law that definitely resolved the debate.

The appeals court found nothing in the act that expressly prohibited or permitted continuing liens. The association argued that allowing continuing liens furthered public policy protections for associations because it would ensure that accruing debts by a delinquent owner were covered by a single lien. Requiring associations to record successive liens would subject associations to unnecessary time and expense and risk gaps in coverage.

Walker contended that the act's list of permitted liens was exhaustive and permitted only damages, costs, late charges, and attorneys' fees. She argued that the act covered these categories of debts only when they were actually due; future assessments were not due and may never become due by that owner. Walker further urged that continuing liens would contravene the act's purpose to ensure that debtors have the right to contest amounts allegedly due. Allowing a lien to automatically cover future amounts would violate the act's due process provisions.

The appeals court determined that the act's language that a lien may "only" secure the payment of damages, collection costs, late charges, and attorneys' fees clearly limited the lien's coverage to current assessment amounts only. The plain meaning of "damages" is unpaid sums due. Thus, the damages due by Walker would be only assessments that were already due. The act did not permit the lien to cover future damages (i.e., future assessments).

The act permits an association to foreclose on a lien against a unit only if the damages secured by the lien consist of delinquent assessments, interest, and reasonable costs and attorneys' fees directly related to the filing of the lien. The appeals court determined that referencing the lien's filing suggested that the recoverable fees and costs must cover only those directly related to that precise lien, not future costs.

While the appeals court noted that a continuing lien would make the process for securing delinquent assessments more expedient for associations, the process of filing successive liens did not seem too burdensome since the association had readily filed nine against Walker's unit. The appeals court further found the concept of a continuing lien to be at odds with the act's protections for debtors because it would deprive the debtor of the opportunity to contest specific amounts.

The appeals court answered the certified question by holding that the act did not permit continuing liens. The bankruptcy court will now proceed with the bankruptcy case and will determine the status of the association's liens based on the appeals court's ruling.

©2021 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

[ return to top ]

Housing Cooperative Not Liable for Black Ice on Sidewalk

Jeffrey-Moise v. Williamsburg Towne Houses Cooperative, Inc., No. 351813 (Mich. Ct. App. Feb. 18, 2021)

Risks and Liabilities: The Court of Appeals of Michigan held that a housing cooperative was not liable for a resident's injuries from slipping and falling on an icy common area sidewalk because the wintry conditions should have alerted the resident to the potential for black ice.

Williamsburg Towne Houses Cooperative, Inc. (co-op) operated a housing cooperative in St. Clair Shores, Mich. Cynthia Jeffrey-Moise (Jeffrey-Moise) was a member of the co-op, which gave her the right to lease one of the co-op's units pursuant to an occupancy agreement.

In January 2018 at 10 p.m., Jeffrey-Moise slipped and fell on the community walkway and severely injured her ankle. Jeffrey-Moise stated that she fell on black ice. She did not see any ice, and the sidewalk only appeared to be wet. Jeffrey-Moise's neighbor said that there was no noticeable ice or salt on the walkway, and it only looked like wet concrete. The co-op's maintenance records indicated that an employee removed snow from the co-op walkways earlier in the day and had applied deicer where needed.

Jeffrey-Moise sued the co-op, asserting that the co-op was liable for her injuries under negligence and premises liability theories. The trial court ruled that Jeffrey-Moise was not in possession and control of the common walkway, and the occupancy agreement created a landlord-tenant relationship between the parties. It determined that the Michigan landlord-tenant law applied, which requires that every landlord under a residential lease keep the leased premises in reasonable repair in compliance with applicable health and safety laws and that the leased premises and all common areas are fit for use.

The trial court determined that there was a question of material fact as to whether the condition upon which Jeffrey-Moise fell was open and obvious. Therefore, it denied the co-op's motion for summary judgment (judgment without a trial based on undisputed fact). The co-op appealed.

Michigan law differentiates between a claim of ordinary negligence and one based on a condition of the land. Jeffrey-Moise alleged that a condition of the co-op's property constituted a dangerous situation that gave rise to her injury. Since the claim was based on the co-op's duty as the property owner rather than a failure to conform to a particular standard of care, the appeals court determined that her claim was one of premises liability only, and the co-op was entitled to summary judgment on the ordinary negligence claim.

The co-op argued that Jeffrey-Moise could assert a premises liability claim only if she was injured while on the land of another. As a member of the co-op, Jeffrey-Moise was a co-owner of the property and not on the land of another when she fell. Jeffrey-Moise contended that she was an invitee because her membership in the co-op was a business relationship. As a co-op member, Jeffrey-Moise had a hybrid relationship with the co-op. She was a shareholder of the corporation that owned the property but also was a tenant of the corporation. The co-op membership did not give Jeffrey-Moise independent authority over the common areas typically enjoyed by an owner. The co-op retained control over the common area maintenance, including authority over snow and ice removal. The appeals court concluded that Jeffrey-Moise was on land of another when she fell.

To prove premises liability, Jeffrey-Moise had to show that the co-op owed her a duty and that it breached that duty. The duty a landowner owes to a person who enters the land varies depending on whether the visitor is classified as an invitee, a licensee, or a trespasser. The highest duty is owed to an invitee—to use reasonable care to protect the invitee from an unreasonable risk of harm posed by a dangerous condition on the premises. The owner breaches that duty when the owner knows or should know of a dangerous condition on the premises of which the invitee is unaware and fails to guard against or warn the invitee of the defect. The owner has no duty to remove or warn against open and obvious dangers.

The co-op argued that, even if Jeffrey-Moise were an invitee, the hazard presented by snow and ice was open and obvious, and it had no duty to warn or remove the hazard. The open and obvious doctrine is based on a strong public policy that people should take reasonable care for their own safety, and property owners should not be required to take extraordinary measures to keep people safe from reasonably anticipated risks. Michigan courts have long held that issues should be reasonably expected from using one's common knowledge of normal winter weather hazards.

Black ice has been deemed an open and obvious condition when there were sufficient other indicators of potentially hazardous conditions. Wintry conditions were clearly present at the time of Jeffrey-Moise's fall. It was January in Michigan, the temperature was 32 degrees, and snow had been falling throughout the day. Jeffrey-Moise could also see plenty of snow on the grass nearby. The appeals court held that these conditions were sufficient to warn an average person of the potential for ice. As such, the black ice was an open and obvious condition.

Although Jeffrey-Moise did lease a unit from the co-op, the appeals court was not convinced that the landlord-tenant law applied to this case since the parties' relationship was not that of a traditional landlord and tenant. However, even if the law did apply, Jeffrey-Moise did not show that the sidewalk was in a condition that rendered it unfit for its intended use.

Accordingly, the trial court's judgment was reversed. The case was remanded for entry of judgment in the co-op's favor.

©2021 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

[ return to top ]

Association's Abandonment of Obsolete Drainage Pipe Did Not Harm Owner

Ralph v. McLaughlin, No. 28015 (S.C. Mar. 17, 2021)

Powers of the Association: The Supreme Court of South Carolina found that a lot owner reasonably relied on an association's abandonment of a drainage easement and was not liable for more than nominal damages to the neighbor for removing the drainage pipe.

Seabrook Island Property Owners Association (association) governed a community in Charleston County, S.C. When the community was developed in the 1980s, the developer installed a corrugated metal pipe through the backyards of Lots 22 to 28 to facilitate drainage from a community road. The drainage pipe emptied into a water hazard on the neighboring golf course. The plat for Lots 22 to 28 noted the pipe as a 20-foot-wide drainage easement running under the lots, and the land between the drainage pipe and the golf course was labeled as "no-build area."

Over the years, the joints in the drainage pipe rotted, which allowed standing water from the lots to seep into the pipe and be carried away even though the drainage system was not designed to provide drainage for the lots. In 2002, a parallel drainage system of high-density plastic piping was installed on the golf course, which rendered the corrugated metal pipe on the lots obsolete. The association's board of directors (board) passed a resolution to give the easement area back to the lot owners with the understanding that the owners were responsible for paying all costs of removing the easement.

The owner of Lot 22 recorded a plat showing the easement as abandoned and stated that the "no-build area" designation was removed as a limitation to the construction of any structure on the lot. Paul and Susan McLaughlin (the McLaughlins) later purchased Lot 22. The McLaughlins obtained approval from the association for the design and location for the construction of a home on the lot.

Richard and Eugenia Ralph (the Ralphs) owned Lot 23 next door to the McLaughlins. When they learned that the McLaughlins planned to remove the old drainage pipe, the Ralphs expressed concern about the potential impact it could have on their lot's already poor ability to drain stormwater runoff. The association commissioned an engineering study of the old drainage pipe and the surrounding area. The study recommended against destroying the pipe because it still provided some benefit for Lots 22 to 28 by draining standing water from the backyards to some degree.

The board proposed that the owners of Lots 22 to 28 agree to establish a new easement and provide for the long-term care of the pipe. However, when the board learned that the golf course owner would have to grant an easement over the golf course in order to connect the old pipe to the new drainage system, the board informed the McLaughlins that they were responsible for negotiating any new easement with the golf course owner. The McLaughlins refused to take responsibility for negotiating with the golf course owner or to grant a new easement over their lot. The golf course owner also was not willing to grant a new easement.

The McLaughlins informed the neighbors that they had been patient for six years waiting for the easement issue to be resolved, but they did not want to put off building their home any longer. In reliance on the recorded abandonment of the easement, the McLaughlins removed the old metal pipe on Lot 22 and constructed a home in the former no-build area.

The Ralphs sued the McLaughlins, claiming that standing water increased on their lot after the drainage pipe was removed. The Ralphs asserted that the McLaughlins' actions had diminished the value of their property. The Ralphs asserted claims for trespass and intentional infliction of emotional distress. The McLaughlins filed a crossclaim against the association for indemnification, asserting their actions were taken in reasonable reliance upon the association's abandonment of the easement and representation that the pipe could be removed.

The Ralphs argued that the association's abandonment of the easement did not affect their ownership interest in the easement. They asserted that the McLaughlins trespassed on their easement rights by removing the pipe. The trial court found that the McLaughlins acted in reliance on the association's statements, so they could not be liable for punitive damages to the Ralphs. It granted summary judgment (judgment without a trial based on undisputed facts) on the punitive damages issue, but the trial court allowed a jury to decide the question as to whether a trespass had occurred.

The jury found in favor of the Ralphs but awarded only $1,000 in damages for the trespass. The trial court determined that the jury understood that at least nominal damages had to be awarded, but it also found there was ample evidence that the Ralphs really were not harmed because Mrs. Ralph testified that her property always had drainage problems even when the pipe was in place. The Ralphs appealed to the South Carolina Court of Appeals.

The appeals court held that the McLaughlins did not justifiably rely on the association's representations in removing the pipe, and the trial court improperly granted summary judgment to the McLaughlins on the punitive damages issue. The McLaughlins appealed to the South Carolina Supreme Court.

The supreme court found that the McLaughlins were more than reasonable in attempting to accommodate the Ralphs by discussing the matter for six years. It determined that the association represented multiple times that it had abandoned the easement, and the plats in the public record at the time of their purchase identified the easement as abandoned. The supreme court further stated that the McLaughlins had no legal obligation to grant a new easement to provide drainage for the Ralphs' lot or to negotiate for an easement over the golf course.

The Ralphs testified that their lot always had drainage problems, and the supreme court found no basis for overturning the jury's award of $1,000 in damages to the Ralphs. The supreme court also found no error in the trial court's judgment. Accordingly, the supreme court reversed the appeals court's judgment and reinstated the jury's verdict.

©2021 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

[ return to top ]

Association Did Not Acquire Trademark Rights in Project Name

Ritter v. Farrow, 2021 WI 14, No. 2018AP1518 (Wis. Feb. 23, 2021)

Association Operations: The Wisconsin Supreme Court held that a resort name and logo was associated with the resort management company rather than the real property of the resort, so the trademark rights in the resort name and logo did not transfer 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, Wis., 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 where the Ritters lived. The Ritters created a logo depicting a pair of red bib overalls with a handkerchief hanging out of the back pocket, and the name "Bibs Resort" was incorporated into the logo.

Utilizing the Bibs Resort name and logo (the marks), the Ritters provided resort management services to guests and patrons of the resort, including marketing the units, collecting payments, tracking expenses, maintaining and cleaning the grounds and units, operating the bar, and organizing recreational activities for guests such as picnics, waterskiing and fishing lessons, volleyball tournaments, and campfires.

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

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) to manage the rentals. The management company entered into rental management agreements with each owner desiring to rent its unit to the public. The management agreement referred to the unit as being part of Bibs Resort, and the marks were used on the 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' 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 with the management company.

In 2010, the Farrows sued the Ritters, claiming trademark infringement for the Ritters' continued use of the marks. The association intervened in the case, claiming an interest in the name. The association argued that, even if Bibs Resort was 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 marks 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 to the Wisconsin Court of Appeals, arguing that, under the Wisconsin Condominium Ownership Act (act), the only property that could be submitted to the condominium was real property. The appeals court in Ritter v. Farrow, 388 Wis. 2d 421, 933 N.W.2d 167 (Wis. Ct. App. 2019) (reported in the October 2019 issue of Law Reporter) 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 marks. The Ritters appealed to the Wisconsin Supreme Court.

The supreme court viewed the marks as representing the resort management services that the Ritters' business continuously provided from the resort's establishment in 1986. It found that the ongoing resort management services and goodwill became associated with the marks. By incorrectly linking the marks to the real property rather than the resort management services, the association misidentified the source of the goodwill underlying the marks. The act granted the association the power to acquire and hold real property, but the marks were intangible property. The declaration neither mentioned any transfer of intangible property to the association or contemplated any transfer of the business and goodwill associated with the marks to the association.

By contrast, the sale of the management company to the Farrows specifically stated that the goodwill and tangible and intangible property used in the business were being sold with the management company. Thus, well-settled trademark law dictated that the marks and their associated goodwill passed from the Ritters to the Farrows with the sale of the management company.

Accordingly, the appeals court's decision and the trial court's judgment were reversed. The case was remanded to the trial court for further proceedings.

©2021 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

[ return to top ]


6402 Arlington Blvd. | Suite 500 | Falls Church, VA  22042 | (888) 224-4321
This e-mail was sent to inform you of CAI products, services or events.
For more information, please visit www.caionline.org.
Change your e-mail address