CAI Law Reporter - February 2008 (Plain Text Version)

View Graphical Version

Developer's Failure to Enforce Architectural Standards Ruled Constructional Fraud

Yeager v. McManama, No. 49A02-0607-CV-614, Ind. App. Ct., October 12, 2007

Developer Liability/Developmental Rights/Architectural Control/Covenants Enforcement:
An Indiana appeals court affirmed a trial court's ruling that a developer's failure, as sole member of the architectural review board, to enforce architectural standards to ensure equal and consistent values of high-end homes in an exclusive neighborhood constitutes gross negligence and contractual fraud.


Robert and John Yeager developed Murphy's Landing, a project located in Marion County, Ind. They executed and recorded the Declaration of Covenants and Restrictions of the Murphy's Landing Ownership, which contained specific language and attached a site plan depicting Emerald Highlands, a separately named neighborhood in Murphy's Landing.


In March 2001, David and Cheryl McManama and Jack and Christina Cottey sued the Yeagers and Marilyn Duran, their sales agent, alleging fraud, constructive fraud, or fraudulent concealment and breach of fiduciary duty on the part of the Yeagers because the McManamas and Cotteys had constructed expensive homes in Emerald Highlands having relied on representations from the Yeagers and Steven Morse, their approved builder, that the neighborhood would be developed as an exclusive "Hilton Head Island" community. At the Yeagers' request, Morse created the architectural design standards for Emerald Highlands. The Yeagers designated Morse as the exclusive builder for Emerald Highlands and gave him responsibility for lot sales and information. They authorized him to answer all inquiries from potential buyers.


When Christina Cottey asked Morse about building a very large, expensive home on a lot in Emerald Highlands, Morse told her that Emerald Highlands' homes would be exclusive and upscale, with an architectural review board to ensure that future homes built there would preserve and enhance the value of the homes. The Cotteys subsequently bought a lot and constructed a 6,000-square-foot home.


The McManamas also discussed their purchase of a lot in Emerald Highlands with Morse. After the McManamas gave Morse a deposit on their lot, the Yeagers terminated their relationship with Morse, and Morse told the McManamas to contact Duran regarding the purchase of their lot. The McManamas discussed the size and quality of homes for Emerald Highlands with Duran, expressing their desire to build a very large brick home. Duran assured them that future homes would be comparable in size and value to the home they proposed to build. The McManamas proceeded with the lot purchase and built a home that was approximately 5,000 square feet.


After the McManamas and Cotteys built their homes, the Yeagers approved the nearby construction of homes less than half the size of theirs. Although, as the developer, the Yeagers were aware of the duties of the architectural review board, they simply reviewed proposed construction plans of other lot owners and did not confirm that they complied with the minimum square footage specified in the architectural standards or to plans submitted by the builders. When homes were built that did not conform to the architectural standards, they failed to enforce compliance.


In January 2004, the Yeagers filed a motion for summary judgment arguing that they were entitled to judgment as a matter of law on the issues contained in the McManamas' complaint. They asserted that the doctrines of fraud and constructive fraud did not apply because the alleged statements regarding home construction in Emerald Highlands were "statements implicating future behavior"—that they were not statements of fact but "mere opinions." They claimed that the McManamas failed to show a "material misrepresentation of past or existing fact," and, therefore, could not state a claim for fraud. They further asserted that there was insufficient contact between them and the McManamas and Cotteys upon which to base a claim for constructive fraud or fiduciary duty. Finally, they argued that fraudulent concealment is "an equitable doctrine" that did not apply because there was not a statute of limitations defense in this case.


The McManamas answered the Yeagers' motion in March 2004, submitting a memorandum stating that, pursuant to the declaration, the homeowners association had complete control over management and operation of Murphy's Landing, and management was vested in its board of directors. The initial board of directors consisted solely of the Yeagers. The Yeagers were also the sole members of the architectural review board during the relevant time period.


The McManamas and Cotteys requested an order of partial summary judgment and submitted evidence from an expert quantifying the loss in value of their homes, $185,000 and $195,000, respectively. They argued that the Yeagers were charged by the declaration with sole control of the future development of Murphy's Landing and that they had a fiduciary duty to those who purchased lots in the subdivision. They argued that Morse was the agent of the developer in this regard. They further argued that during the post-sale period, they were entitled to performance by the Yeagers of "contractual duties" imposed by the declaration and that the Yeagers had breached those duties.


The trial court denied the Yeagers' motion, determining that the Yeagers owed the McManamas and Cotteys a "contractual and fiduciary duty"; that an agency relationship existed between Morse and both the McManamas and Cotteys; and that Morse and the Yeagers had a duty to deal fairly, honestly, and openly with them. The court, however, did not make a determination as to any breach of duty by the Yeagers.


Trial began in September 2005, and the court heard highly contested evidence from both sides over three days. The testimony by the McManamas and Cotteys was consistent with the evidence previously submitted by them. Christina Cottey testified that she had relied on a representation shown to her by Morse that a $400,000 model home built by him in Emerald Highlands was representative of the size and quality of homes that would be built there. David McManama also testified that he had met with Morse who showed him several homes, including the model home, that Morse indicated was representative of the homes to be built in Emerald Highlands. McManama also stated that Morse gave him promotional material stating that an architectural review board would maintain high standards in Emerald Highlands, "an exclusive custom home community of 60 home sites to insure consistent quality throughout the neighborhood."


After Morse advised him to deal with Duran, David McManama showed Duran plans of the home he proposed to build and specifically asked her whether homes of comparable size and architectural quality would be built around theirs. She assured him not to worry and that she would "take care of it." He iterated that he relied on the statements of Morse and Duran as well as the brochure and the homes showed to him by Morse, including the model home, as representative of homes to be built in Emerald Highlands when he contracted to purchase the lot on which he constructed a $470,000 home.


Further testimony at trial revealed that when the Cotteys' home was nearing completion in 1997, Christina Cottey noticed that substantially less expensive homes were being built in Emerald Highlands, some as small as 2,000 square feet and having an assessed value of $200,000. The McManamas also observed smaller homes being built around them after they completed their home in mid-1998. Evidence submitted at trial indicated that 10 of 59 homes built in Emerald Highlands with the approval of the architectural review board did not meet the minimum architectural standards set out in the declaration. In addition, 17 of the 59 homes had an assessed market valuation less than $250,000, approximately $150,000 less than the Cotteys' home and $80,000 less than the McManamas' home. Of those 17 homes with lesser valuations, 15 were constructed after the Cotteys purchased their lot and 13 were constructed after the McManamas purchased theirs.


The trial court ruled in favor of the McManamas and Cotteys, awarding them $202,878 and $244,474, respectively, in damages. The Yeagers appealed. On appeal, the Yeagers argued that the representations made by Morse and Duran were statements of future events and not past or existing facts that would support a claim of fraud. The court did not agree.


The court acknowledged that, generally, fraud may not be based on representations of future conduct; however, representations of future conduct may, in some instances, give rise to constructive fraud, particularly when a fiduciary relationship or duty is implied. The court considered Duran's and Morse's statements in light of the fact that the Yeagers were the sole owners and developers of the project. The Yeagers had drafted, executed, and recorded the declaration. The declaration charged the homeowners association with management of Murphy's Landing, and the Yeagers were the initial board of directors of the homeowners association.


The declaration also provided that the Yeagers were the sole members of the architectural review board, the entity charged with preserving and enhancing the values of real estate in Emerald Highlands. The Yeagers delegated to Morse the drafting of the architectural standards for the neighborhood, and the Yeagers adopted them. The Yeagers marketed the neighborhood as exclusive and upscale. Thus, the Yeagers were responsible for enforcing the standards for homes being constructed in Emerald Highlands. Considering these facts, the court found a material issue of fact as to whether the evidence of Duran's and Morse's representations were sufficient to support the McManamas' and Cotteys' claim for fraud or constructive fraud along with their claim for breach of fiduciary duty. 


The court found that the next issue raised by the Yeagers (concerning the doctrine of fraudulent concealment) was unclear and declined to address it. Finally, the court considered the Yeagers' argument that the trial court erred in denying their motion because statements made to the McManamas and Cotteys were opinions, not facts. They argued that expressions of opinion cannot be the basis for a fraudulent action. The court noted that the McManamas and Cotteys not only alleged fraud but also alleged constructive fraud and breach of fiduciary and contractual duties.


The appeals court found that the Yeagers' responsibilities as outlined in the declaration and architectural standards and the evidence presented by the McManamas and Cotteys pertaining to representations allegedly made by the Yeagers raised issues of disputed and material fact that could only be determined or resolved by trial.


Addressing the Yeagers' argument that the trial court's order of partial summary judgment in favor of the McManamas and Cotteys was in error, the appeals court first considered the Yeagers' assertion that Morse negotiated prices for the sale of lots in Emerald Highlands and was in exclusive control of whatever representations were made to potential home buyers. Therefore, he did not function as the developer's agent. The court disagreed. The court defined an agent as one who acts on behalf of another with their consent and subject to their control. The court determined that the representations made by Morse were governed by the declaration. Morse's representations about future development of the neighborhood were within the Yeagers' sole control as the sole members of the architectural review board. Indiana case law provides that "Placing an agent in a position to act and make representations which appear reasonable is sufficient to endow him with reasonable authority."


The Yeagers argued that, at best, the evidence established that a genuine material fact existed as to whether Morse had either actual or apparent authority to act on the Yeagers' behalf. The court found that if the evidence at trial failed to establish that Morse was the Yeagers' agent, the trial court had the power to so find in its final judgment.


Addressing the Yeagers' argument that the trial court erred in finding that they owed a fiduciary duty to the McManamas and Cotteys, the court noted that testimony at trial established that they were aware of and understood the fiduciary duties of the board of directors and the architectural review board. The Yeagers, however, argued that arms-length transactions preclude the existence of a fiduciary relationship to sustain constructive fraud.


The court found that separate contractual obligations contained in the declaration were owed by the Yeagers to McManama and Cottey. Thus, even if the transactions for the purchase of the lots were at arms length there was a special relationship by virtue of the declaration that could sustain a claim for constructive fraud. The finding that Morse was the developer's agent rendered the Yeagers' argument moot that they had no contact with Christina Cottey prior to construction of her home.


The Yeagers never argued that they did not owe any contractual duty pursuant to the provisions of the declaration; hence, the court found that the statement that the duty was both "fiduciary and contractual" could be seen as harmless error because the alternative was effectively conceded. Likewise, they did not challenge the trial court's ruling that they owed "a fiduciary duty to deal fairly, honestly and openly." Since the trial court's final judgment stated that the Yeagers owed McManama and Cottey a fiduciary duty and noted that the "existence of fiduciary duty" was not necessary for a finding of constructive fraud; it found that the Yeagers had "constructively defrauded" the McManamas and Cotteys. Therefore, any error in the trial court's initial finding that the Yeagers had a fiduciary duty to the McManamas and Cotteys in the context of considering their fraud/constructive fraud/fraudulent concealment claim was rendered harmless. The appeals court's conclusion in this regard also rendered irrelevant the Yeagers' argument that the evidence showed issues of material fact.


Constructive fraud arises by operation of law when there is a course of conduct which, if sanctioned by law, would secure an unconscionable advantage irrespective of the actual intent to defraud. It is inferred by law from the relationship of the parties and the circumstances which surround them.


The appeals court noted that the trial court made a substantial number of findings of fact that bear upon the theory of constructive fraud. Its findings reflected representations of Morse from the time of Christina Cottey's initial discussion with him; Morse's position as the exclusive builder for Emerald Highlands as well as his role as drafter of the architectural standards and knowledge of the Cotteys' construction plans, the existence of the declaration and its filing, representations of Morse to the McManamas and his knowledge of the size and quality of the home they proposed to build, Morse's representations to both Christina Cottey and the McManamas of existence of the architectural review board and its purpose; and Duran's representations and answers to the McManamas about Emerald Highlands construction.


The trial court concluded that the Yeagers made unqualified statements to the McManamas and Cotteys in order to induce them to purchase their respective lots and build their respective homes, and, thereby constructively defrauded them. The evidence established that the homes built at great expense by the McManamas and Cotteys had a lesser value than they would have had if located among homes of comparable size and value. The evidence also showed that the large high-value homes built by McManama and Cottey enhanced the Yeagers' marketing of the remainder of the community as they completed its development. The court found that the trial court's conclusion that the Yeagers constructively defrauded McManama and Cottey was supported by the findings.


The Yeagers made one final argument to the appeals court: pursuant to the declaration, they were shielded as directors from liability "except for their own individual willful misconduct, bad faith or gross negligence." They contended that the evidence did not support the trial court's conclusion that their failure to meet their obligations under the declaration was wholesale and willful, constituting bad faith and gross negligence. Therefore, the Yeagers maintained that the trial court's judgment of liability against them could not stand.


The appeals court disagreed, concluding that their argument was rhetorical because they did not challenge the trial court's findings. The appeals court stated that the evidence supporting the trial court's findings in this regard was virtually undisputed. The Yeagers failed to comply with the declaration's requirement of conducting association meetings or holding meetings as an architectural review board. Although the declaration provided that only the Yeagers constituted the architectural review board, one of them never participated in any of the board's decisions. Generally, only one acted as the board in approving proposed construction plans.


Except for approving screened porches, the board did not act to monitor or grant prior approval for alterations or improvements as required by the declaration. The court stated that the Yeagers were well aware that they had the authority to decline the approval of proposed homes that simply met the minimum square footage, but they reviewed plans solely for the purpose of monitoring minimum architectural standards. They never made independent efforts to verify information initially submitted in the builders' proposed plans or compliance with those plans during construction. They did not consider external design and home appearances in approving proposed plans but left those matters to the builders' discretion. Despite knowledge of violations, the architectural board took no action to force compliance and lastly, made no effort to examine external design, appearance, use and location of proposed plans to determine whether they would preserve and enhance values, as contemplated by the declaration.


Affirming the trial court's order, the appeals court concluded that the Yeagers' disregard for the duties established in the declaration was indeed "wholesale," and they were liable based upon their gross negligence in failing to fulfill their duties under the declaration.

©2008 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

Homeowners' Web Posting Not Protected Speech under Anti-SLAPP Law

Peters & Freedman LLP v. McMahon, No. G037871, Cal. App. Ct., October 30, 2007

Risks and Liabilities:
In an unpublished opinion, a California appeals court denied homeowners the opportunity to raise an anti-SLAPP suit based upon the homeowners' statements on their website regarding a law firm's services.

A California law firm, Peters & Freedman, LLP, asserted 64 causes of action against Elizabeth and Arnold McMahon based on 21 statements they posted on their website. Specifically, the law firm asserted three causes of actions (libel, libel per se, and invasion of privacy) for each of the 21 statements. The statements in dispute accused the law firm and its attorneys of committing illegal and unprofessional conduct while representing homeowners associations in different lawsuits. At trial, after the McMahons were denied a motion to file an anti-SLAPP motion, they appealed the case.

SLAPP is an acronym for "strategic lawsuit against public participation." The anti-SLAPP statute provides:

"…[a] cause of action against a person arising from any act of that person in furtherance of the person's right of petition or free speech under the United States or California Constitution in connection with a public issue shall be subject to a special motion to strike…."

The initial burden of proof is placed on the moving party. In this case, the McMahons bore the burden of establishing that the causes of action were based on protected free speech. To meet this burden, the McMahons had to show how the statements produced on their website fit into one of the four categories provided by statute. Since the statements were not made in a governmental proceeding or in connection with an issue being reviewed by a governmental body, the McMahons conceded those categories.

The McMahons argued that the posted comments regarded issues of public interest, but the appeals court disagreed. The McMahons cited three California cases that they said illustrated issues of public interest. The McMahons first argued that the law firm was an entity in the public eye. The court rejected that notion based on the fact that just because the law firm represented more than 500 homeowner associations, lobbied for homeowners, and occasionally made public appearances that did not merit enough attention to be considered the "public eye." The court additionally noted that most "public eye" cases involved a "nationally known figure" or nationally broadcast television show.

Second, the McMahons contended that the statements posted on their website that precipitated the claim involved conduct that could affect large numbers of people beyond the direct participants. The court noted that the question in this case was whether the statements they made could affect large numbers of people. Again, the court dismissed this category because the McMahons failed to explain how the posted criticisms of the law firm could affect anyone other than the law firm except by appealing to the public's general interest in attorneys and court proceedings.

Finally, the McMahons argued that their website postings involved a topic of widespread public interest. Again, the court dismissed this assertion because the McMahons failed to cite any examples of how the law firm's conduct, as described in their website's statements, had generated any widespread interest beyond their own website. The court stated that to prove an issue of public interest, "the assertion of a broad and amorphous public interest is not sufficient." In this case, the matters were only made to a relatively small, specific audience of other persons who wanted to share their grievances among themselves. The anti-SLAPP statute requires more than statements made in a private campaign of "vilification." As a result, the appeals court affirmed the trial court's order denying the anti-SLAPP motion.

©2008 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited. [return to top]

Owners' Self-Help Tactics Resulted in Punitive Damages and Attorney Fees

Parton v. Palomino Lakes Property Owners Association, Inc., 928 So. 2d 449 ( Fla. Dist. Ct. App. 2006)

Attorney Fees/Association Operations:
A group of four owners that blocked the entrance to a community to prevent a modular home from entering was charged with costly compensatory and punitive damages, as well as attorney's fees and costs.

Palomino Lakes Subdivision is a deed-restricted community in Pasco County, Fla. In August 2000, James and Deborah Parton purchased a modular home to place on their lot in the subdivision. Other owners, including three officers and directors of the Palomino Lakes Property Owners Association ("association") blocked the entrance to the subdivision on three different occasions to prevent delivery of the home. The owners who blocked the entrance claimed that the home was a mobile home, which the deed restrictions prohibited, even after they were told that the home was a modular home that would be permanently attached to a concrete slab. The owners violated the subdivision's deed restrictions by obstructing the common roadway.

The Partons sued the association, asserting a claim for breach of contract based on the violation of the deed restrictions. In response, the court granted a temporary injunction that prohibited the owners from interfering with delivery of the modular home onto the Parton's property. The Partons amended their initial complaint to allege tortuous interference with contract and civil conspiracy and asked the court to award punitive damages, based on the added claims. Nearly three years later, a trial was held, and the jury reached a verdict in favor of the Partons on all claims, awarding $5,000 in compensatory damages, or $1,250 against each individual, (commonly known as a joint and several liability standard). In a separate trial, punitive damages were awarded in the amounts of $60,000 against Larry Vinson, $40,000 against Ila Vinson, and $50,000 against Linda Dreibelbis for their role in blocking the entrance. The Partons also filed a timely motion for attorney's fees and costs.

Palomino Lakes' deed restrictions provide that any person violating covenants must correct the violation after 10 days' notice in writing or be subject to legal prosecution to restrain the violation and/or recover damages for the same. The party suing the violator is entitled to recover reasonable attorney's fees in addition to the damages, costs, and disbursements allowed by law. The Partons' fee expert testified that the reasonable fee incurred for the five day trial was $336,000. The owners' expert testified that reasonable fees were somewhere between $5,000 and $11,000. The court awarded attorney's fees to the Partons in the sum of $9,900 for the fees incurred through the temporary injunction but stated that the other owners would be individually liable for the remaining fees of $2,475 each. In addition, the court decided that joint and several liability (i.e., the ability to collect the entire sum from one or fewer than all the defendants) was appropriate for the award of fees and costs against the other owners for breach of the deed restrictions since they were all subject to the same deed restrictions. As a result, the case was remanded for revision.

©2008 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited. [return to top]

Association's Enforcement of No-Dog Rule Violates Federal Fair Housing Amendments Act

Frechtman v. Olive Executive Townhomes Homeowners' Association, No. CV 07-2888 DSF (JTLx), U.S.D.C., C. Dist. Calif., September 26, 2007

Use Restrictions/Covenants Enforcement/Federal Law and Legislation:
A U.S. District Court granted a preliminary injunction to allow a homeowner to keep a support animal in his townhouse even though the community was subject to a restriction prohibiting dogs.


William Frechtman owns a unit in Olive Executive Townhomes, located in West Hollywood, Calif. Governing documents for the community prohibit homeowners from keeping dogs in any unit of the complex. Frechtman requested that Olive Executive Townhomes Homeowners' Association ("association") grant him an accommodation from the no-dog rule because he is disabled by diabetes and depression. The association denied his request, and he sued for injunctive relief under the Fair Housing Amendments Act ("Act"). 


The Act provides that it is unlawful "to discriminate against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection with such dwelling because of a handicap of [that person]." Such unlawful discrimination includes refusing to make reasonable accommodations in rules, policies, practices, or services when the accommodations may be necessary to afford a person equal opportunity to use and enjoy a dwelling. The Act imposes an affirmative duty on housing providers to reasonably accommodate the needs of handicapped persons.


To make a claim of discrimination based on a housing provider's failure to reasonably accommodate, a person must demonstrate (1) that he or she suffers from a disability defined in the Act; (2) that the housing provider knew, or reasonably should have known, of the disability; (3) that accommodation of the disability may be necessary to afford the person an equal opportunity to use and enjoy the dwelling; and (4) that the housing provider refused to make the accommodation.


Frechtman presented declarations from himself and his treating physician to support his disability claim. His declaration stated that he was diagnosed with diabetes and related depression that significantly impact his ability to work and engage in physical activity, including walking and caring for himself. His physician's declaration stated that caring for an emotional support dog would greatly improve Frechtman's mental and physical health by providing companionship, motivating him to exercise, and enhancing control of his diabetes. 


To avoid further litigation, the association stipulated that Frechtman was likely to prevail on the merits of his case. The court determined that federal and state courts have ruled that exceptions to no-pet rules are accommodations within the purview of the Act. As a compromise to affect this order for preliminary injunction only, the association agreed to immediately accommodate Frechtman by waiving the no-dog policy with respect to him so that he could obtain an emotional support dog. The court's order declared that the association must not take any action adverse to Frechtman on the basis of his keeping the emotional support dog in his unit, and should Frechtman move from his residence, the waiver of the no-dog rule would cease. 


As a condition of granting the injunction, the court provided that Frechtman had to keep the dog on a leash and under his supervision at all times. He was prohibited from feeding and walking the dog in the common areas, had to clean up after the dog, and had to accept responsibility for any damage to the common area the dog caused.


The court further ruled that the parties must attempt to resolve in good faith any disputes arising under the order and agree to a notice-to-cure procedure before applying to the court for enforcement of the order. Any party claiming a violation of the order was required to give written notice to the other of the nature and extent of the alleged violation. The party receiving notice then has five days to respond in writing or to cure the violation. If the person does not respond or cure within five days or if the parties cannot resolve the dispute within five days thereafter, the party claiming a violation may petition the court to enforce the order.


Editor's Observation: The underlying message is the association's willingness to resolve this matter quickly and favorably for Frechtman; perhaps they just need the court to give them "cover" to do so. Well done to all concerned.


©2008 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited. 

  [return to top]

Assessments Qualify as Debt under Fair Debt Collection Practices Act

Cole v. Toll, No. 07-0590, U.S.D.C., E. Dist. Pa., November 16, 2007

Covenants Enforcement:
The Fair Debt Collection Practices Act renders a debt collector liable to "any person" for failure to comply with any provision of the Act, so long as the alleged conduct was directed at that person; it does not limit causes of actions to those brought by a "consumer." 

On February 12, 2007, Robert Cole and his brother, Daniel Cole, sued the law firm, Gilbert E. Toll, Attorney-at-Law, P.C.; Gilbert Toll, individually; and attorney Robert Charleston, alleging that a series of letters received about their father's estate violated the Fair Debt Collection Practices Act ("Act"). Specifically, the Coles asserted that the various letters were communications relating to a debt, as defined by the Act, and were violations of the Act.

The Act provides a remedy for consumers who are subjected to abusive, deceptive, or unfair trade collection practices by debt collectors and forbids a debt collector to "use any false, deceptive, or misleading representation or means in connection with the collection of any debt." A debt collector may not (1) falsely represent the character, amount, or legal status of any debt; (2) threaten to take action that cannot legally be taken or that is not intended to be taken; (3) use any false representation or deceptive means to collect any debt or to obtain information concerning a consumer; and (4) fail to disclose in the initial written communication with the consumer that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose. In addition, the Act forbids a debt collector from using unfair or unconscionable means to collect or attempt to collect any debt. Finally, the Act mandates that the debt collector send an additional notice within five days of the initial communication with the consumer that contains a prescribed set of information.

In addition to violations under the Act, the Coles alleged violations of the Pennsylvania Trade Practices Regulations ("PDCTPR") and the Pennsylvania Unfair Trade Practices and Consumer Protection Law ("UTPCPL"). On April 12, 2007 and April 18, 2007, respectively, the defendants filed motions to dismiss the case.

In analyzing the case, the United States District Court discussed the actions of Gilbert Toll and his law firm and of Charleston separately. It focused on the text of letters sent by Toll and his firm and by Charleston regarding the Coles' father's estate. On February 13, 2006, Gilbert Toll sent the first letter, on Gilbert E. Toll, P.C. letterhead, which read:

Dear Mr. Cole: 

I represent Old Forge Crossing Condominium Association. The Board of Directors has asked me to proceed to enforce its lien for condominium assessments against the above premises.

According to the records of the Chester County Register of Wills, there has been no application for Letters Testamentary or Letters of Administration. Please advise me if an Estate has been raised in any jurisdiction, and if so, the name of the jurisdiction and identifying number.

If I am able to obtain this information, it will save the cost of searches and investigation which will constitute an additional lien against the above premises along with all legal fees to be incurred.

I would appreciate your prompt response, as I anticipate commencing such searches and investigation in (10) days. I thank you in advance for your cooperation.

Subsequently, on December 19, 2006, Charleston sent a letter to Robert Cole on his firm's letterhead. It read:

            Dear Mr. Cole:

I represent Old Forge Crossing Condominium Association to whom your late father is indebted for unpaid association fees, owner’s assessments, special assessments, late fees, and other costs in connection with his ownership of premises 490 Pewter Mews, Devon, PA, 19333. As of December 4, 2006, the balance on this account was $2,493.23. These charges constitute a lien against the Unit. In addition, any legal fees and court costs incurred by the Association in connection with the foreclosure of this lien and collection of the amount due constitutes a further lien against the Unit until paid.

On December 15, 2006, a Petition for Citation in the captioned matter was filed with the Register of Wills of Chester County. The Register awarded a Citation to you on December 18, 2006. True and correct copies of the Petition as filed and the Citation awarded are enclosed. Kindly file your complete answers under oath on or before January 8, 2007 and as otherwise directed.

Finally, on January 30, 2007, Charleston sent a third letter to Robert Cole, which read:

            Dear Mr. Cole:

Permit this to follow our conference before the Register of Wills and her solicitor on the above matter today and our brief discussion on the courthouse steps thereafter. It now appears with certainty that Letters of Administration will issue to one or more of the Cole family members prior to our hearing on April 2, 2007, or to my nominee thereafter. In the former event, we shall promptly bring our claim for damages as set forth in the Petition. In the latter event, we shall likely set the premises over for public sale in order to properly administer the estate.

As you are undoubtedly aware, the passage of time serves only to increase the amount of damages, including the Association's attorney fees, for which the estate will ultimately be responsible. If you have an interest in satisfying the current obligation and establishing a mechanism by which the estate can timely satisfy future assessments and other charges, I would be pleased to calculate the exact amount of present damages, run a time sheet for counsel fees incurred to date and otherwise broach this with my client. 

            In any event, I look forward to your earliest advices.

The sole action attributable to Toll and his firm is the February 13, 2006 letter. The most salient issue for the court was that the Coles failed to prove that the letter was an attempt to collect a debt under the Act. According to the court, one purpose of the Act is to eliminate abusive debt collection practices by debt collectors, and the term "communication" is broadly defined in the Act. For a communication to be governed by the Act, it must convey information "regarding a debt directly or indirectly to any person through any medium." However, not all communications made to a debtor in regard to a debt are made for collection purposes. While the Coles asserted that Toll's letter was an attempt to collect condominium association fees from them, according to the court the Coles alleged no facts to support the contention that Toll's letter, while clearly a "communication" as defined in the Act, constituted a collection or attempt to collect the amount in dispute. 

The court further explained that the letter was not created in an effort to recover the alleged debt owed but to ascertain the identity of the rightful debtor. The court pointed out that the letter did not represent that the debt was owed by the Coles, did not indicate that they were required to pay the debt, and did not request that they remit any payment. The letter was not an attempt to collect a debt, according to the court, because no amount was specified and no threats or coercive tactics were used to induce payment. Accordingly, the court held that Toll's letter, standing alone, was not of the type that the Act sought to cover and dismissed the case against Toll and his firm. 

In contrast, the court found that the letters the Coles received from Charleston did violate the Act. In its discussion of Charleston's actions, the court once again turned to the text of the Act, noting that for a communication to be governed by the Act it must convey information "regarding a debt directly or indirectly to any person through any medium." According to the court, Charleston's letter clearly constituted a communication regarding an attempt to collect a debt governed by the Act because an assessment owed to a homeowners or condominium association qualifies as a "debt" under the Act. In addition, the text of the January 30, 2007 letter expressly discussed damages relating to the debt and suggested that if the Coles would be interested in satisfying the lien it could be arranged without their incurring any additional penalties. 

The court disagreed with Charleston's contention that his letters only pertained to obligations of an estate, which is not a "natural person" and hence not a "consumer" under the Act. According to the court, the right to bring a cause of action to enforce the Act is not limited to "consumers" as that term is defined. Instead, the Act provides that:

"…any debt collector who fails to comply with any provision of this subchapter with respect to any person is liable to such person in an amount equal to the sum of ... any actual damage sustained by such person as a result of such failure, [or] in the case of any action by an individual, such additional damages as the court may allow, but not exceeding $1,000…."  

According to the court, the express statutory language renders a debt collector liable to "any person" for failure to comply with any provision of the Act, so long as the alleged conduct was directed at that person; it does not limit causes of actions to those brought by a consumer.  

Charleston also contended that he was not a "debt collector" as that term is defined in the Act. However, since he conceded that his defense on this claim required evidence outside the record, which is not appropriate on a motion to dismiss, the court declined to consider his argument. Since it found flaws in all of Charleston's arguments, the court declined to grant his motion to dismiss the Coles' claims against him.

©2008 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited. [return to top]

Building-Plans Committee Acted within Authority in Denying Garage Application

Christine Manor Civic Association v. Gullo, No. 712-VCN, Del. Chancery Ct., November 2, 2007

Architectural Control: In an unreleased opinion, a Delaware chancery court determined that a 40' x 30' x 13' garage deviated so much from its surroundings and was so aesthetically inconsistent with the rest of the community that enforcing the restrictive covenant requiring association approval for its construction was reasonable.


In May 2001, Anne and Marc Gullo purchased a home in Christine Manor East, a residential subdivision in Newark, Del., subject to a declaration of restrictions adopted in 1953. The declaration was administered and enforced by Christine Manor Civic Association ("association"). In purchasing their home, the Gullos' principal criteria were the school district and the ability to construct a large outbuilding. Prior to purchasing the property, Marc Gullo contacted Fred Arbogast, then-president of the association and a member of the association's building-plans committee, to review the Gullos' interest in building a large garage on their lot. The declaration limited structures on each lot in Christine Manor East to a dwelling and one private garage and required submission and approval of building plans and specifications prior to any construction.


Subsequent to the purchase of the property, Anne Gullo submitted an application to build a 40' x 40' x 13' garage. The application was rejected, as was a proposal to relocate the garage. Anne Gullo then reduced the size to 40' x 30' x 13'. That application was not formally rejected, but, as evidence of the association's rejection of the application, the association voted to pursue litigation to preclude the construction of the garage, reasoning that it was too large and too barn-like and appeared too commercial or agricultural for a residential area and aesthetically inconsistent with the rest of the neighborhood. Anne Gullo started and completed construction of the 40' x 30' x 13' garage, and the association sued her to enforce the declaration and have the structure removed.


Although the court acknowledged that doubts regarding restrictive covenant enforcement are usually resolved in favor of landowners because restrictions interfere with or limit property rights, the declaration for Christine Manor was reasonable and enforceable, and that constructing a 40' x 30' x 13' garage was out of keeping with the neighborhood and inconsistent with the declaration. In response to Gullo's assertion that the association acted arbitrarily and capriciously because the declaration did not allow rejection of an owner's plans based on the size of the proposed structure or improvements (the declaration identified nature, kind, shape, height, materials, color scheme, and cost – but not size – as criteria for judging a proposed structure), the court noted that the declaration was not as limited as Gullo suggested.


Because the declaration authorized consideration of the harmony of the proposed structure with its surroundings and because the Gullos' garage dwarfed and deviated so extensively from any other existing outbuildings subject to the declaration, the court concluded that the association's opposition to the garage was reasonable and should be enforced.


Furthermore, having concluded that Arbogast never made any commitment to authorize the garage's construction and that Arbogast had only agreed to work with Marc Gullo without approving any of the plans, the court rejected Anne Gullo's argument that the association was estopped from enforcing the declaration because of Marc Gullo's conversations with Arbogast prior to purchasing the property.


Finally, the court denied Gullo's assertion that the declaration's restrictions had been broadly violated over the years and were thus now unenforceable, stating that minor excursions from strict compliance with the scheme envisioned by restrictive covenants were allowed without invalidating the protections afforded by the declaration and that none of the previous violations of the declaration approached the scope of the Gullos' project.


©2008 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.


  [return to top]

Real Estate Agent Does Not Have Authority to Put 'For Sale' Sign in Owner's Window

Godley Park Homeowners Association, Inc. v Bowen, 286 Ga. App. 21 (2007)

Covenants Enforcement: A restrictive covenant prohibiting a "for sale" sign in a window was not considered an unenforceable restraint on alienation because it was not an absolute restraint on alienation.

Mary Gwyn Bowen owned a residence in Godley Park, a subdivision in Pooler, Ga. Each unit in the subdivision was subject to restrictive covenants administered and enforced by the Godley Park Homeowners Association, Inc. ("association"). One of the restrictive covenants states that owners are not permitted to erect 'for sale' or 'for rent' signs but allows the declarant to erect such signs. Bowen sued the association, seeking an injunction permitting her to erect a "for sale" sign in the window of her residence.

The association counterclaimed, seeking an injunction barring Bowen from erecting the sign. The trial court granted Bowen an injunction, and the association appealed, arguing that the trial court's refusal to enjoin Bowen from erecting the sign violated the terms of the restrictive covenant.

Bowen claimed that the prohibition did not apply to her real estate agent's right to erect a "for sale" sign on her property. The appeals court rejected her claim, stating that an agent may do no more than his or her principal, and that Bowen's agent therefore lacked the authority to erect the sign on Bowen's behalf. The court also rejected Bowen's arguments that the restrictive covenant was an unenforceable restraint on trade, citing both the Georgia Constitution and a Georgia law as foreclosing any contract frustrating competition or encouraging a monopoly and barring contracts in restraint of trade as contrary to public policy, and a Georgia code, which provides that "conditions which are repugnant to the state granted, would require impossible or illegal acts to be performed, or which in themselves are contrary to the policy of the law are void."

The court stated that with regard to the former, the court would only declare a contract void as against public policy where the case is free from doubt and the injury to the public interest clearly apparent and that this case was not such a case. With regard to the latter argument, the court concluded that only an absolute restraint on alienation would be unenforceable. As Bowen conceded, the covenant in this case did not directly prohibit the sale of her property. The court thus found the restrictive covenant enforceable and reversed the trial court's decision allowing Bowen to place a "for sale" sign in the window of her residence.

©2008 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited. [return to top]

Purchaser Did Not Have 'Implied Actual' Notice

Sheres v. Genender, 965 So. 2d 1268 ( Fla. Dist. Ct. App. 2007)

Architectural Control/Covenants Enforcement:
A Florida appeals court reversed a trial court's summary judgment decision that a purchaser had actual and inquiry notice of a property's unrecorded restrictive covenants.


Allan and Claire Sheres own a house previously owned by Bruce and Sharon Pearl and originally built for Mario and Delia Marun in The Enclave, a section of the Woodfield Country Club, in Boca Raton, Fla. Their lot is adjacent to a lot owned by Richard and Carla Genender. The Woodfield Country Club Master Plan and The Enclave's plat called for dwellings within The Enclave to be zero lot line, single-family residences. In violation of the restrictions for the lot, the Woodfield Homeowners Association's ("master association") and The Enclave Homeowners Association's ("association") respective design review boards permitted construction of the Pearl’s house on the lot three-and-a-half feet from the lot boundary line and approved an alcove that contained windows facing the Genenders' lot. The Genenders objected to the construction.


In an attempt to resolve their dispute, the Genenders entered into a settlement agreement with the Pearls and the other parties involved that required the Pearls and their successors and assigns-in-interest to construct and maintain a privacy wall. The agreement between the Pearls and the Genenders was reduced to a restriction providing that the Pearls and their successors-in-interest would maintain the privacy wall and that the Genenders and their successors-in-interest would provide an easement for that purpose. The restriction agreed to by the Pearls and the Genenders was not recorded prior to the Shereses purchase of the house.


The Shereses maintained that they first learned of the unrecorded restrictions after closing on their home and requesting permission to remove the privacy fence. The Genenders objected to the Shereses request to remove the fence. The Shereses then sued the Genenders, seeking a declaratory judgment that they were not bound by either the declaration or the settlement agreement. The Genenders moved for summary judgment, contending that the Shereses had express, implied, and inquiry notice as to the existence of the restrictive covenants for The Enclave prior to buying the house.


In granting the Genenders' motion for summary judgment, the trial court ruled that the Shereses had actual and inquiry notice of the existence of the property's restrictive covenants. Citing Sapp v. Warner, 105 Fla. 245, 141 S. 124 ( Fla. 1932), the appeals court noted that there are two types of actual notice: express actual notice and implied actual notice. Express actual notice includes what might be called direct information, and implied actual notice is notice that is inferred from the fact that the person had means of knowledge, which it was his duty to use and which he did not use. Implied actual notice is based on the principle that a person may not ignore information and then say that he had no notice. In Sapp, the Florida Supreme Court noted, "One may not remain willfully ignorant of a thing when the means of knowledge is at hand."


The trial court based its decision on the finding that Claire Sheres is a real estate agent and, as such, she should have known to inquire as to the existence of restrictive covenants at The Enclave. She knew what a zero lot line meant, she saw the privacy wall, and she knew that such a structure was unique in The Enclave. The appeals court agreed with the Shereses that the trial court erred in its reliance on Claire Sheres' status as a successful real estate agent when it determined that she should have inquired whether restrictive covenants for The Enclave existed. The court noted that whether Claire Sheres' experience as a real estate agent should have caused her to ask about the existence of restrictive covenants is a material question of fact and should be decided by a jury. The court went on to say that, should a jury decide that the privacy fence should have given Claire Sheres notice that restrictions existed, the appeals court could not conclude "that viewing the privacy wall would also have provided implied actual notice of restrictions pertaining to the alcove wall" or any other restriction at The Enclave.


In its review of the trial court's decision that the Shereses had inquiry notice, the appeals court looked to the Florida Supreme Court's decision in Chatlos v. McPherson, 95 So. 2d 506 ( Fla. 1957). In Chatlos, the Supreme Court ruled that "in order to charge a person with notice of a fact which he might have learned by inquiry, the circumstances known to him must be such as should reasonably suggest inquiry and lead him to inquiry." For example, in Citgo Petroleum Corporation v. Florida East Coast Railway Company, 706 So. 2d 383 (Fla. Dist. Ct. App. 1998), the Florida East Coast Railway Company ("FEC") had inquiry notice of Citgo Petroleum Corporation's easement because FEC observed the pipeline's construction.


In this case, Claire Sheres merely saw a privacy wall between her house and an adjacent house. The appeals court noted that the fact that she saw the privacy wall did not necessarily put her on inquiry of restrictions that did not concern the wall and reiterated that whether noticing the wall should have caused her to inquire further is a question of fact for a jury.

©2008 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited. [return to top]