CAI Law Reporter - July 2005 (Plain Text Version)

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Management Company May Be Held Liable Under Title VII

Lowe v. Wolin-Levin, Inc., No. 02 C 1476, U.S. Dist. Ct, N.D. Ill., July 13, 2004
Association Operations/Federal Law and Legislation: Although technically not an employer, a management company may not escape liability under Title VII.

East Point Condominium Association ("association") employed Wolin-Levin to manage the affairs of East Point Condominiums. Leonard Lowe, a custodian at the condominium, was fired for insubordination, including repeated spitting and loud gossip around the condominium. Lowe sued both the management company and the association (although the association was later dismissed as a defendant), asserting violations of Title VII of the Civil Rights Act of 1964 ("Title VII").

The management company filed a motion for summary judgment stating that the management company had no liability under Title VII because it was not Lowe's direct employer. Lowe argued that the management company was a "joint employer" with the association because the management company possessed sufficient control over association employees.

The court set forth the following standards to determine whether a company is a joint employer: 1) supervision of employees' day-to-day activities; 2) authority to hire or fire employees; 3) promulgation of work rules and conditions of employment; 4) issuance of work assignments; and 5) issuance of operating instructions. Applying those standards, the court denied summary judgment for the management company. The court determined that because the management company's involvement in day-to-day control was extensive, it could be considered a de facto employer for purposes of Title VII liability.

Although condominium employees are technically employees of the association, the management company in this case was responsible for hiring, supervising, and firing employees. Therefore, the courts stated that any reasonable jury could find the management company a joint employer. The management company wielded sufficient control over Lowe's employment to have controlled his hiring and firing. The court noted that the management company did not have to be Lowe's direct employer to wield enough control to have liability under Title VII.

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Mobile Home Permitted in Subdivision

Grassy Mountain Ranch Owners' Association v. Gagnon, 98 P.3d 307 (Mont. 2004)
Covenants Enforcement: A mobile home was allowed in a subdivision that otherwise prohibited such homes because the covenants contained an exception to the prohibition.

Ron Gagnon owned a lot within the Grassy Mountain Ranch-Phase II Subdivision. Gagnon subsequently purchased a manufactured home and placed it on a permanent foundation on his lot within the subdivision. Both Gagnon and the Grassy Mountain Ranch Owners' Association ("association") stipulated that the home was a "manufactured home" as defined in Montana statutes.

The association sued Gagnon, asserting that the manufactured home was a violation of the restrictive covenants. The association referred to two provisions in the covenants to support its position. The first provision defines a "mobile home" as:

A detached residential dwelling unit [that is] manufactured at a factory, is not in accordance with the standards of the Uniform Building Code, and is designed for transportation on its own chassis to a building site for occupation as a dwelling with or without a permanent foundation.

The second provision cited by the association prohibits mobile homes but not pre-built homes on permanent foundations that meet certain federal specifications.

Prior to suing Gagnon, the association notified him that the manufactured home violated the subdivision's covenants. Gagnon also had actual and constructive notice of the covenants prior to his purchase of his lot.  The trial court ruled in favor of the association and required Gagnon to remove his manufactured home from the subdivision.

On appeal, Gagnon asserted the following arguments: 1) the covenants permitted the manufactured home; 2) in the alternative, the covenants were ambiguous; and 3) the association waived its right to enforce the covenants against Gagnon. The Montana Supreme Court ruled that the covenants permitted the manufactured home and declined to address Gagnon's other arguments. While Montana law states that a "manufactured home" is a "mobile home," the second sentence of Section 5.14 of the association’s covenants stated that certain manufactured homes were permissible, as long as certain terms were met. Such homes had to be on a permanent foundation and meet federal standards. The court noted that if the drafters had intended to prohibit manufactured homes, including homes that met federal specifications and that were placed on permanent foundations, there would have been no need to include the exception in Section 5.14.

Because of the exception, and because Gagnon's home met the conditions, it was permitted. The case was reversed and remanded in accordance with the Supreme Court's decision.

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Association Has the Authority to Turn Off Water for Nonpayment of Assessments

Parker v. Chimneywood Homeowners' Association, Inc., 866 So. 2d 289 (La. App. 2003)
Assessments: An association can discontinue water service when bylaws give the association such a right in the event of nonpayment by the resident.

Paula Parker owned a unit in Chimneywood, a condominium community. Her monthly assessment was $226, but at one point she paid only $149. She indicated that the $149 included payment for water services, but that she refused to pay a $27 recreation fee and a $50 special assessment. When the amount of Parker's past-due assessments exceeded $500, the Chimneywood Homeowners' Association, Inc. ("association") terminated Parker's water service. 

Parker, Pauline Reese Collins, and Ahmad Parker sued the association, the board of directors, and its president, seeking a temporary restraining order ("TRO") against the association. The trial court granted the TRO and effectively prohibited the association from stopping the supply of water to Parker's unit.  When the association did not renew water service to the unit, Parker and the others filed a motion for contempt with the court. The association, however, filed a motion to dissolve the TRO and requested sanctions against Parker. The trial court ruled in favor of the association, denying the motion for contempt, dissolving the TRO, and sanctioning Parker in the amount of $5,000. The court found that it was unreasonable for Parker to exercise the extraordinary measure of a TRO when she clearly knew that the evidence was counter to her position.      

On appeal, Parker contended that she was denied the opportunity to adequately demonstrate irreparable injury. The court determined that while appeals are not permitted for a TRO, they are permitted for a motion for preliminary injunction. However, the court noted that Parker failed to demonstrate any irreparable harm or injury. According to the language in its bylaws, the association is authorized to terminate water service in the event that "the unit owner is delinquent in payment of any dues, fees, special assessment or other obligation, including late fees and other charges in excess of five hundred dollars ($500.00) alleged due to the Association."

Before the association could disconnect service, it was required by its bylaws to deliver notice and grant a hearing for delinquent residents. According to the facts in the case, the association delivered proper notice to Parker of her failure to pay the fees. Parker stated that she sent a letter requesting a hearing, but there was no evidence in the case record that the letter was sent. Additionally, Parker was president of the association at the time, and the court noted that she must have been well aware of the rules regarding interruption of services. In her deposition, Parker assented to this point.      

The appeals court affirmed the decision of the trial court, stating that Parker failed to demonstrate any irreparable harm and that, as a resident of Chimneywood, Parker had agreed to pay the assessments. By not paying the assessments, Parker had breached her agreement with the association. As a past president of the association, the court also stated that she likely knew the consequences of failing to pay the assessments. The court also upheld the sanctions issued by the trial court, agreeing that Parker had frivolously requested a TRO.

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Adjacent Owner Burdened by Implied Easement of Encroachment

Bedfordor Limited Partnership v. Forgione, No. 271340, Mass. Land Ct., December 12, 2003
Developmental Rights: An adjacent owner who purchased property from the developer of a condominium was burdened by an implied easement for encroachments that provided secondary access to the condominiums.

Bedfordor Limited Partnership ("Bedfordor") sued several unit owners in Forty-Three Kingston Street Condominium seeking removal of a fire balcony, air-conditioning units, and condensers for the various condominiums, which encroached onto the land it owned but which were necessary to provide the secondary means of access to the condominiums. After reviewing the necessity and the history of the development, the court determined that an easement by implication existed, thereby burdening the property of Bedfordor.

In ruling that an easement by implication existed, the court took into consideration that both parties -- Bedfordor and the condominium owners -- received their property from a common grantor, the original developer of the condominium. Bedfordor subsequently appealed.

The appeals court looked to the test created in Flax v. Smith (20 Mass. App. Ct. 149 [1985]). Under the Flax test, an easement is implied if the property was under common ownership "when use of one part of the land was made for the benefit of another part up until the time of the severance of ownership, and when the use of one part is both reasonably ascertainable and reasonably necessary for the enjoyment of the other part."

In reviewing these aspects of the Flax test, the court found that the two properties met these conditions. First, both properties were derived from a common grantor. The condominium was created in 1981, and the encroachments were part of the condominium's common property. Several years later, the owners of the condominium units deeded the portion now owned by Bedfordor to the developer. This property went through several owners until it was conveyed to Befordor, thereby meeting the first prong of the Flax test.  

The second and third prongs of the test are used to determine the parties' intent to create an easement when ownership of the parcels was severed. The court examined the terms of the original conveyance and the circumstances surrounding it. The circumstances surrounding the development of the condominium meet the final two prongs of the test, the court determined, and the encroachments were necessary for the use of the owners.      

Although the owners could have provided a replacement for the secondary access at a cost of $300,000, the court determined that cost is an allowable factor in determining reasonable necessity. More importantly, when the condominium was created, the developer intended for the fire balcony to provide the necessary secondary means of access, meaning it was reasonable to presume that the intent of the parties was to have this secondary means of access. Even after removing Bedfordor's property from the condominium, no one took steps to remove the encroachments.

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Park Constructed on Common Area Is Nuisance and Must Be Removed

Dialynas v. Pelican Hill Community, No. G032122, Ca. App. Ct., Jan. 31, 2005
Covenants Enforcement/Architectural Control/Powers of the Association: A community association acted in bad faith when it constructed a park on common area that was previously an ornamental slope.

Pelican Hill is an association in Orange County, CA, and is part of the larger Newport Coast development. Several governing documents apply to Newport Coast and Pelican Hill, including the Declaration of Covenants, Conditions, and Restrictions for Pelican Hill Community Association, the Bylaws of Pelican Hill Community Association, and the Pelican Hill Design Guidelines. Lot BB is designated in the association's governing documents as a "Community Slope." The Irvine Company developed the common areas within Pelican Hill and sold undeveloped private lots to individual homeowners for development.

Chris and Sheri Dialynas, and Jerome Turner and Margaret Oung (husband and wife), owned homes adjacent to Lot BB. When they bought their lots, the slope was planted with eucalyptus and pine trees, acacia and other shrubs, and a rough, tall ground cover. The vegetation made Lot BB difficult to access by pedestrians and animals. Each owner chose a lot near Lot BB at least in part because it was not located near a park.   

In 1996, Dr. Lipman, a member of the board of directors and chairman of the landscape committee, conceived a plan to convert a portion of Lot BB into a park. He held preliminary discussions with owners closest to the proposed project but misrepresented the scope of the proposed changes, indicating to them that the project entailed only minor aesthetic changes, mainly to the ground cover. Although some of the neighboring homeowners had no objection to minor aesthetic changes, they were opposed to any changes that would alter the use of the area. These facts were evident in letters written to the board by homeowners in August 1997.  

Dr. Lipman then sought the support of the Irvine Company. He indicated to a company representative that he had the support of community members for the project, that homeowners living near the project area were in favor of the idea, and that no one in the community objected to the project. He told the company that the board intended to create a grassy area for aesthetic purposes only, and that Lot BB would not be used as a park. He reported this to the other board members. 

The Irvine Company agreed to hire a landscape architect to draw up the project plans and contributed $40,150.25 to the project. A representative of the company testified at trial that the Irvine Company would not have agreed to contribute to the project if it had known that some of the neighboring homeowners objected, or that the project was to be promoted as a park.   

The Irvine Company's plans did not include walking paths, park benches, bike racks, or children's playground equipment. The plans were submitted to the association's five-member architectural control committee ("ACC") for approval in February 1997. Only two members were homeowners; the other three were employees of the Irvine Company. Neither of the homeowners was present at the meeting when the plans were reviewed, but the committee nevertheless approved the plans.

In July 1997, the board hired Pacific Environmental Landscaping to complete the project for a total cost of $57,259.59. The board chose not to have the members vote on the project before it began. Before work on the project started, Dr. Lipman altered the plans, adding a walking path and park benches, and instructing the landscaper to flatten the area as much as possible to accommodate a children's playground. 

Immediately after the landscaper began work on the revised plans, nearby homeowners objected. The homeowners said not only that they were personally opposed to the project, but also that the project violated the Pelican Hill governing documents. In August, five of the nearby homeowners sent a letter to the board stating that they had not approved any plan to establish a park close or adjacent to their lots. They also stated that they were surprised that the project commenced without their approval. The board initially indicated a willingness to consider and accommodate the homeowners' objections, and asked the landscaper to temporarily stop work on the project.   

The homeowners, at their own expense, hired a landscape architect to draw up alternative plans, but the board would not agree to any of their proposals, nor did it propose any other alternatives. At its September 1997 meeting, the board amended the design guidelines to allow for the use of grass as an aesthetic feature in common areas. The homeowner members of the ACC attended to discuss their opposition. Although the homeowners were allowed to voice their objections at the open session, the board moved its discussion into an executive session, where none of the homeowners were allowed to be present.   

At the October board meeting, other homeowners brought up their concerns about the project. The board again moved the discussion into executive session. During this session, the board instructed the landscaping company to plant grass seed in the project area. They assured the objecting homeowners that the purpose of the seeding was only to stabilize the soil for the coming rainy season, and that they intended to address the homeowners' concerns.   

Members of the ACC were present at the executive session and learned the true scope of the project and the homeowners' objections. In November, the ACC withdrew its approval of the plans and unanimously endorsed an alternative plan compatible with the landscaping throughout the community that accommodated the concerns of all involved. Despite the assurances the board gave that it would work in good faith to reach a compromise, it did not make any changes to the plan. It was undisputed at trial that the board never sought the approval of the homeowners with respect to any aspect of the project. 

As a result of the conversion, nearby homeowners faced annoyances that did not occur prior to the construction of the park, including children driving motorized scooters, noises and voices from baseball and football games and other activities in the park, and people chipping golf balls that endangered nearby vehicles and passersby. The homeowners sued the association. 

The trial court concluded that the association exceeded its authority and failed to comply with the community's governing documents. It determined that the board acted in bad faith and not in the interest of the association's members, without conducting any reasonable investigation before proceeding with the project. The court ordered the association to restore the area to its former state, and awarded reimbursement to the homeowners for all attorney's fees, including expert witness costs. The association appealed. 

The appeals court summarized its opinion by stating that the association had decided to transform the ornamental slope on Lot BB into a park and, through a series of omissions and outright misrepresentations, avoided informing homeowners or any other interested parties of its true intentions. The court found that the trial record indicated that the board pursued Dr. Lipman's personal agenda without regard to the best interests of the association’s members. The court further found that the association substantially distorted the facts of the case as well as the trial court's decision in its appellate brief. The court determined that 67 percent of the "Eligible Mortgage Holders" and 67 percent of the voting power of the association had to be obtained before amending any material provision of the governing documents, including any provision of the documents governing rights to use the common area. The association was unable to point to any provision in the declaration that gave it the power to unilaterally undertake the alterations it made to Lot BB.  

The appeals court concluded that the association's conduct was not merely negligent or mistakenly well-intended, but instead was checkered with misrepresentations, misleading statements, and obstruction. The court upheld the trial court's decision. The court affirmed the trial court's judgment but reversed the costs award, remanding the case with directions to the trial court to determine a reasonable fee award in favor of the homeowners, which excluded an award for any costs precluded by California’s Code of Civil Procedure.

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Assessment Increase Improperly Applied to Declarant's Successor

Redmond-Pacific Associates General Partnership and Swan Lake Association General Partnership v. Sixty-01 Association of Apartment Owners, No. 51634-5-I, Wash. App. Ct., October 18, 2004
Developmental Rights/Assessments: An assessment increase was applied improperly to a declarant's successors because the declaration capped increases during the developer's control and sale period.

Redmond-Pacific Associates General Partnership ("Redmond-Pacific") and Swan Lake Association General Partnership ("Swan Lake"), owners of condominium units governed by the Sixty-01 Association of Apartment Owners ("association"), sued the association after it raised monthly assessments by as much as 90 percent. Redmond-Pacific and Swan Lake claimed that the condominium declaration included an assessment cap that prevented such increases as long as the declarant was the original owner of a unit that was for sale. Both Redmond-Pacific and Swan Lake claimed to be successors to the declarant, thereby precluding the assessment increase.       

The trial court dismissed the claims and ordered Redmond-Pacific and Swan Lake to pay $344,690. Again claiming that they were the "declarant," both Redmond-Pacific and Swan Lake appealed the decision. The appeals court first examined the terms of the declaration, which stated:

During such time as Declarant continues to be the original owner of an apartment in the condominium and its offering it for sale, no budget shall be adopted or special assessment imposed that will cause the total assessments against any apartment in any month to be more than 10 percent greater than the total assessments against the apartment for the same month of the preceding calendar year.

Finding that Redmond-Pacific and Swan Lake met the declaration definition of "declarant" as a successor, the court determined that the prohibition on assessment increases greater than 10 percent might apply.       

The court determined that the condominium was created in 1978, after several partners formed Sixty-01 Associates ("Sixty-01") to convert a large apartment complex to a condominium. In 1982, Sixty-01 turned over control of the condominium to the association. Two years later, Sixty-01 formed Redmond-Pacific, using the same partners as were in Sixty-01. The managing partner for Sixty-01 continued as the managing partner for Redmond-Pacific, and Sixty-01 transferred all of its assets and liabilities, except for 155 condominium units, to Redmond-Pacific.       

Due to the transfer, Redmond-Pacific became the owner of 22 units, and it still owns two of these original units. After several transactions between the main partner in Sixty-01 and in Redmond-Pacific, the reserved 155 units were transferred to Swan Lake to continue the renovation, leasing, management, and sale of the remaining units.       

The court next examined the condominium declaration for the definition of "declarant." Finding that the declaration defined it as the original declarant or any of its successors or assigns, the court determined that the declaration did not preclude the existence of more than one assignee or successor to the declarant. In the court's view, Redmond-Pacific and Swan-Lake were successors to the declarant.      

Although the court determined that Redmond-Pacific was a successor to the declarant, the court ruled that it was not entitled to the assessment cap. After testimony from several real-estate agents in connection with Redmond-Pacific, the court determined that Redmond-Pacific was not continually offering the units for sale, and, therefore, the assessment cap did not apply to its units. In addition, since the declaration provides that the prevailing party in an action to collect delinquent assessments is entitled to reasonable attorneys' fees, the court granted the association's motion for attorneys' fees in defending its lien against Redmond-Pacific.

After determining that there could be successive successors, the court reversed the summary judgment against Swan Lake but could not go so far as to state that Swan Lake was a declarant under the declaration. Under previous decisions, Washington courts have ruled that a declarant includes an owner who reserves or succeeds to any special declarant right, including sales, marketing, and improvements. While these decisions focused on the succession of rights, the secondary concern was the succession of the declarant's responsibilities and burdens. Since it was not clear whether Swan Lake was obligated to exercise any declarant responsibilities, the court was unwilling to declare Swan Lake as a declarant.

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Association failed to notify owner prior to accelerating assessments

McKenna v. Camino Real Village Association, Inc., 29 Fla. L. Weekly D 1681 (2004)
Assessments: An association failed to comply with provisions of a declaration and bylaws requiring it to notify an owner who was in default in the payment of assessments prior to acceleration.

Cheryl McKenna owns a condominium unit in Camino Real Village. All unit owners are members of the Camino Real Village Association, Inc. ("association"). In August 2002, the association sent a letter to McKenna stating that 1) she owed money for past-due assessments, plus interest, late fees, and attorney's fees and costs; 2) the association filed a claim of lien against her property, and included a copy of the claim of lien; and 3) if the association did not receive payment by Oct. 1, 2002, the association would sue to foreclose the lien. The claim of lien included accelerated assessments for the months of September through December 2002. The declaration and the association's bylaws allow acceleration of assessments if a unit owner is in default and is given proper notice prior to any acceleration of assessments.

The association sued McKenna for unpaid assessments. At trial, McKenna denied owing the amounts and asserted several affirmative defenses. The trial court granted the association's motion for summary judgment, and McKenna appealed. On appeal, McKenna claimed that she established a genuine issue of material fact at trial with her affirmative defenses. Her defenses were that she did not owe the amounts listed in the claim of lien, and that the association had failed to comply with the declaration's and bylaws' procedural requirements, including providing prior notice to McKenna of the acceleration. The association filed an affidavit with the court regarding the amounts due, but it did not address McKenna's allegations regarding improper notice

The appeals court looked to another Florida case in which a similar situation occurred. In Berg v. Bridle Path Homeowners Association, 809 So. 2d 32 (Fla. Dist. Ct. App. 2002), an association sued an owner, seeking to foreclose assessment liens. The owner asserted that the liens were improper due to the failure of the association to comply with certain requirements of the association and bylaws. The trial court in the case had ruled that Berg failed to "prove her defenses by the greater weight of the evidence," and ruled in favor of the association. 

The appeals court in McKenna’s case reversed, stating that the trial court should have placed the burden on the association to prove its entitlement to judgment since the owner specifically denied a particular element of the claim. The appeals court then applied the Berg reasoning to this case, ruling that the association had the burden to prove it complied with the requirements of the declaration and bylaws once McKenna filed the affirmative defenses.

The claim of lien, filed on Aug. 29, 2002, listed the July and August assessments as delinquent; however, only the July assessment was more than 30 days delinquent at the time the claim of lien was filed. The only delinquent assessment that could form the basis for acceleration was the 78-cent July assessment. Also, the association did not provide any evidence to establish that it gave McKenna written notice of acceleration. 

The appeals court reversed the trial court's entry of final summary judgment and remanded the case to the trial court.

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