CAI Law Reporter - April 2014 (Plain Text Version)

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Association Cannot Increase Assessments Beyond Amounts Specified in Declaration

Keltz v. Enchanted Hills Community Association, No. 12CA16 (Ohio Ct. App. Feb. 28, 2014)

Assessments/Covenants Enforcement/Association Operations/Powers of the Association:An Ohio appeals court ruled that an association could not assess lot owners for amounts greater than those set forth in the community’s declaration of covenants.

The Enchanted Hills planned community in Paint Township, Highland County, Ohio, is governed by the Enchanted Hills Community Association (association).

The declaration of covenants and restrictions (declaration) for Enchanted Hills provides that each lot owner is subject to an annual maintenance charge of $15 for the first lot and $5 for each additional lot in the same name. Under its terms, the declaration may be amended by a document signed by the owners of 60 percent of the lots in the community. In 1972, the declaration was amended to increase the annual maintenance fee to $25 for the first lot and $5 for each additional lot. The association’s bylaws further provided that the board of trustees can establish membership dues and assessments in addition to the annual maintenance charges specified in the declaration.

Throughout the years, the association charged lot owners additional assessments beyond those authorized by the declaration based on the authorization in the bylaws. The charges were used for the community’s common expenses. Further attempts by the association to amend the declaration to increase assessments failed because of insufficient support.

In June 2011, certain lot owners sued the association, seeking a judicial declaration that the association had charged dues and assessments that exceeded the amount set forth in the amended declaration, and they were due a refund of overpayments made to the association. The trial court held that the association was barred by the Ohio Planned Community Act (act) from increasing assessments beyond the amounts set forth in the amended declaration. The court awarded the lot owners amounts paid in excess of the annual maintenance fees authorized by the declaration. The association appealed.

The association argued that the trial court erred because the bylaws authorized the additional assessments. The act, adopted in 2010, applies to all non-condominium planned communities in Ohio, whether the community was established before or after its enactment. The act provides that an association board “may not charge assessments for common expenses unless the declaration provides for or contemplates the charging of such assessments.” The declaration established only one type of common expense assessment—the annual maintenance charge. Although the declaration authorized the association to adopt “rules for the betterment of the community,” the declaration does not authorize or even suggest that the association is empowered to levy additional assessments. Further, where the declaration limits assessment amounts, the act prohibits an association board from increasing any assessment unless the declaration is properly amended to allow the increased amount.

The association argued that because the bylaws were recorded in 1970, long before he act’s adoption, they survived under the act’s “grandfather clause” provisions. However, the appeals court observed that the provisions of the bylaws concerning additional assessments were not authorized by the declaration. That is, where an association created before the act adopts bylaws that expand its authority beyond what is granted in the declaration, the bylaws are ineffective. Even if the association could reasonably argue that it had discretion to enforce a clearly applicable restriction, the declaration confers no discretion on the association to “unilaterally create restrictions where none exist.”

The appeals court concluded that the association was not exercising a power authorized by the declaration; rather it was attempting to expand the scope of its power beyond that granted by the declaration.

The association argued that affirmation of the trial court’s judgment would eliminate its existence, because it would not be able to charge sufficient fees to maintain the community. Although out of more than 600 lot owners, only a handful complained of the dues and assessments charged by the association, yet all lot owners would suffer if those objectors prevailed. Despite this claim, the association argued it could not amend the declaration because “[i]t would be nearly impossible to get 60% of the lot owners to agree on anything.”

Notwithstanding the association’s policy arguments, the appeals court concluded the association could not increase assessments beyond the amounts specified in the amended declaration unless the declaration was properly amended to provide such authority. The trial court’s judgment was affirmed.

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Confirmation of Associationís Bankruptcy Reorganization Plan Was Denied

In re: Manchester Oaks Homeowners Association, Inc., No. 11-10179-BFK, Chapter 11 (Bankr. E.D. Va. March 12, 2014)

Assessments/Covenants Enforcement: A Virginia bankruptcy court denied confirmation of an association’s Chapter 11 reorganization plan because the association improperly categorized the claims in order to have the plan approved and because the plan’s funding relied on a special assessment levied by the board without authority.

Manchester Oaks is a townhome community in Fairfax County, Va., managed by Manchester Oaks Homeowners Association, Inc. (association). Patrick Batt, Rudolph Grom and James Martin are unit owners who sued the association in the county circuit court, alleging that a parking policy adopted by the board of directors violated the declaration of covenants, conditions and restrictions (declaration) for Manchester Oaks.

In January 2011, the association filed for bankruptcy under Chapter 11 (reorganization) of the Bankruptcy Code. Batt, Grom and Martin timely filed a proof of claim (creditor’s statement of the amount owed it by the debtor) for amounts they may be awarded in the lawsuit (the unit owner claims).

In August 2011, the circuit court struck down the parking policy, finding it was not properly authorized and violated the declaration. The circuit court awarded Batt and Grom $27,355 each in compensatory damages and Martin $2,468 in compensatory damages, and these amounts were to bear post-judgment interest. In addition, the circuit court awarded Batt and Grom $188,840.69 in attorney’s fees and costs. The association appealed to the Virginia Supreme Court.

In September 2012, the supreme court reduced the damage awards to $2,355 each to Batt and Grom and $705 to Martin. The supreme court affirmed the award for attorney’s fees and costs and remanded the case to the circuit court for an additional award for costs incurred by Batt, Grom and Martin on appeal. The circuit court awarded the unit owners another $28,048.01 in appeal costs.

The law firm of Whiteford Taylor & Preston, LLP (WTP) represented the association in the parking litigation. WTP filed a proof of claim with the bankruptcy court for $81,262.40. The WTP and unit owner claims were the only significant claims in the bankruptcy case.

In October 2013, the association filed with the bankruptcy court a proposed plan (plan) for reorganizing or addressing its debts. The plan grouped the association’s creditors into different classes based on whether the creditor’s claim was secured or unsecured and whether the association proposed paying all, some or none of the debt. WTP objected to the plan, which proposed paying only 10 percent of WTP’s claim over a 60-month period. At a hearing, the association advised the bankruptcy court that it had reached a settlement with WTP, under which WTP had agreed to accept 80 percent of the claim in return for the association’s release of any malpractice claim it might have against WTP.

In December 2013, the association filed an amended/modified proposed plan, which proposed the following structure for paying the WTP and unit owner claims:

Class 3 – the compensatory portion of the Fairfax Judgment in favor of Messrs. Batt, Grom and Martin ($2,355 to Batt, $2,355 to Grom, and $705 to Martin) will be paid in full, with interest, in equal amounts over a 60 month period. This Class is impaired.

Class 4 – the legal fees and costs awarded to Messrs. Batt, Grom and Martin (totaling $217,888.67) will be paid in full, without interest, over a 60 month period. This Class is impaired.

Class 5 – the unsecured claim of WTP will be paid 80% of the claim, over a 60 month period, without interest. This Class is impaired.

The association proposed funding the plan through a special assessment levied on all owners. In October 2013, the association’s board adopted a special assessment, but it was not approved by a unit owner vote. The assessment required each owner to pay $5,876 over the 60-month plan duration or $97.78 per month.

The Bankruptcy Code requires that a debtor’s reorganization plan be accepted by at least one impaired class of claims. WTP (Class 5) and Batt, Grom and Martin (Classes 3 and 4) represented the only impaired classes under the plan. Class 5 accepted the Plan, Classes 3 and 4 rejected the plan. Batt, Grom and Martin argued that the WTP claim was not impaired because the association would be paying WTP all that it agreed to accept as a compromise. However, the WTP claim was only compromised as part of the plan confirmation process.

The bankruptcy court examined two issues: (1) whether the WTP claim was impaired; and (2) whether the association properly classified the WTP claim separately from the Class 3 and 4 claims. The bankruptcy court found the WTP claim to be impaired since the plan proposed paying the claim over 60 months without interest.

However, the bankruptcy court found the association failed to justify the separate classification of the WTP claim. The association argued that the claim should be in a separate class because it had to release malpractice claims to induce WTP to compromise its claim. However, WTP indicated that the association had never asserted any claims against WTP, and the association did not present any evidence concerning the nature of any malpractice claims. Accordingly, the bankruptcy court found the separate classification as “highly suspect” and impermissible gerrymandering for the purpose of creating a class of impaired creditor that would approve the plan.

The bankruptcy court found that the WTP claim belonged with the Class 4 claims. Because the association did not have an accepting class of impaired claims, the plan could not be confirmed. Unfortunately, this was not the only problem with the plan.

The Bankruptcy Code provides that a debtor’s plan must “present a workable scheme of organization and operation from which there may be a reasonable expectation of success.” The debtor has the burden of demonstrating that its plan is feasible. The bankruptcy court found that the plan was not feasible because it rested on a faulty special assessment.

It was undisputed that the association did not obtain the requisite approval of unit owners required by the declaration for a special assessment. The association relied on Section 55-514(A) of the Virginia Property Owners’ Association Act, which grants a board the power to levy a special assessment in addition to all other assessments authorized in the declaration, subject to the assessment being overturned or reduced by owners at a meeting called to rescind or reduce the assessment.

However, the statute only grants authority where the special assessment “proceeds are used primarily for the maintenance and upkeep of the common area and such other areas of association responsibility expressly provided for in the declaration, including capital expenditures.” The statute limits the board’s authority to make special assessments for matters of association responsibility “expressly provided for in the declaration” (emphasis added). Finding that this phrase does not provide a sweeping grant of authority in derogation of the declaration, the bankruptcy court held that, if the declaration does not authorize the assessment, the assessment is not authorized under the statute.

Accordingly, the bankruptcy court denied confirmation of the association’s plan.

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Associationís Fraud Claims Must Be Arbitrated

Villas di Tuscany Condominium Association, Inc. v. Villas di Tuscany, LLC, No. 12 MA 165 (Ohio Ct. App. Feb. 26, 2014)

Contracts: An Ohio appeals court ruled that a condominium association was required—under buyers’ purchase agreements with the developer—to arbitrate action against the developer for alleged misrepresentations made to unit buyers.

Villas di Tuscany Condominium Association, Inc. (association) serves 11 units in the Villas di Tuscany Condominiums in Poland, Ohio. Villas di Tuscany, LLC (developer) is the developer and declarant under the declaration of condominium.

The developer purchased property for a development from an elderly seller (original owner), who retained a life estate in a house located near the entrance to the community. A life estate grants occupancy and use rights in the property to a person for the duration of his or her life. The association claimed the developer represented to each prospective purchaser that, upon the original owner’s death, it would demolish the original owner’s house and the property would be added to the common area where the association could build a pool and/or clubhouse. However, when the original owner died in November 2009, the developer denied making these representations and refused to demolish the dwelling or add the property to the common area.

In November 2010, the association sued the developer for specific performance (a mandate that a party perform specifically what it agreed to do) and monetary damages, alleging the developer made false representations to purchasers.

The developer moved to stay the proceedings (suspend the case) and refer the case to arbitration, claiming that its purchase agreements with unit buyers required all claims to be submitted to arbitration. The trial court granted the developer’s motion and ordered the parties to submit their claims to arbitration in accordance with the purchase agreements. The association appealed.

The association argued that it was not required to arbitrate the claims for several reasons. First, the complaint concerned title to and possession of real estate. The Ohio Arbitration Act provides that the arbitration provisions do not apply to controversies involving title to or possession of real estate. The appeals court found that, while the association requested the transfer of title in its complaint, the complaint was principally a claim for fraud because it alleged misrepresentations made in marketing and selling the units. There are only two remedies available for fraud—contract recission or monetary damages. The association cannot seek title to the property based on a fraud claim.

Moreover, it is proper for a trial court to stay an entire action where both arbitrable and non-arbitrable claims are involved. An arbitrator will not arbitrate a claim for the transfer of property. Should the arbitrator find, after arbitrating the arbitrable issues, that an issue still remains regarding title to property, the arbitrator would simply refer the matter back to the trial court to resolve any remaining issues.

The association next argued that it was not bound by the developer’s arbitration agreements with unit owners because it was not a party to those purchase agreements. The appeals court, however, noted that a non-signatory can be bound by an arbitration agreement signed by someone else in certain situations. The appeals court found that agency law may apply. If the association filed the lawsuit as an agent of the unit owners, then it could be bound by the purchase agreements’ arbitration provisions.

The appeals court found it reasonable to presume that the association was acting as agent for the unit owners because it requested damages for the developer’s breaching individual purchase agreements and fraud in inducing the owners to purchase the units. These monetary claims are for damages to each individual unit owner.

The association further contended that it was the proper party to sue on issues involving the common area under the Ohio Condominium Act (act), which provides that the association may sue or be sued in any action relating to the condominium common area. The appeals court agreed with this statement, but the court found nothing in the act or elsewhere in the law that an association cannot be required to submit to arbitration.

Because the appeals court found that none of the association’s arguments had legal merit, the trial court’s judgment was affirmed.

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Unit Owner Does Not Have Duty to Provide Association with Copy of Deed

Bel Air Glen Homeowners Association, Inc. v. Dowlatshahi, No. B243549 (Cal. Ct. App. March 5, 2014)

Covenants Enforcement/Contracts/Association Operations: A California appeals court ruled that a condominium association could not fine unit owners for failing to provide a copy of a lease when the property was not leased to the new occupant but had been conveyed by an unrecorded deed.

Reza and Soraya Dowlatshahi owned a condominium unit in Bel Air Glen, a development in Los Angeles County, Calif. Bel Air Glen is governed by Bel Air Glen Homeowners Association, Inc. (association).

The declaration of covenants, conditions, and restrictions (declaration) for Bel Air Glen requires that unit leases be in writing and a copy be given to the association.

In 2009, the Dowlatshahis conveyed their unit to Alexander Escandari, an attorney. Escandari moved into the unit with his family. The deed to Escandari was not recorded until December 2011, and the Dowlatshahis made at least two assessment payments to the association after the transfer. There was speculation that the deed was not recorded because the Dowlatshahis were at risk of foreclosure on their mortgage, but Escandari did not have sufficient credit to obtain a mortgage, so he was secretly paying the Dowlatshahis’ mortgage, and no one wanted the bank to find out.

On numerous occasions, the association asked the Dowlatshahis to provide the board with a copy of the lease. The Dowlatshahis never did so and retained Escandari to deal with the board. Escandari informed the board there was no lease. The board invited the Dowlatshahis to meetings to discuss the matter, but they declined to appear. By letter to the board dated March 29, 2010, Escandari stated, “in accordance with public records,” Mr. and Mrs. Dowlatshahi remained the owners of the property. In September after a hearing on the subject, the association imposed a $1,000 fine on the Dowlatshahis for the declaration violation and subsequently imposed an additional $1,000 fine for the same reason. Eventually, the board imposed approximately $13,000 in fines on the couple for failure to provide a copy of the lease.

In November 2010, the Dowlatshahis sued the association, seeking an award of damages based on the board’s alleged harassment. The association filed a cross-complaint, seeking to recover fines and damages arising from the Dowlatshahis’ failure to comply with the declaration. Prior to trial, the association dismissed all of its claims against the Dowlatshahis except for $2,000 in fines, and the Dowlatshahis dismissed all of their claims against the association.

The trial court stated that the Dowlatshahis had a legal defense since there was, in fact, no lease, but the court also found that the Dowlatshahis either conspired with Escandari or decided to aid and abet Escandari in deceiving the association. The trial court held that the association had both the right and need to know if the unit had been sold, transferred or leased to another person. The trial court determined that Escandari defrauded the association when he told the association that the Dowlatshahis were the owners after execution of the deed, and the Dowlatshahis participated in that fraud when they knew the statement had been made and did nothing to correct it. The trial court entered judgment in favor of the association for $2,000 plus $63,910 in attorney’s fees based on a “prevailing party” provision in the declaration. The Dowlatshahis appealed.

The association argued that the transaction between the Dowlatshahis and Escandari involved a lease, which, under the declaration, must be in writing and must be provided to the association. However, Black’s Law Dictionary defines “lease” as a “contract by which a rightful possessor of real property conveys the right to use and occupy the property in exchange for consideration.” The appeals court found that occupancy by lease differs significantly from occupancy by quitclaim deed. A lease confers only temporary use and possession, while a deed confers title or ownership in the property.

The appeals court noted that the association asked the Dowlatshahis specifically and only for a copy of the lease. After the board was told that no lease existed, it did not ask whether Escandari’s occupancy was based on something other than a lease. Instead, the board kept asking the same question and receiving the same answer. The association did not cite any authority for the proposition that the Dowlatshahis had a duty to provide information outside the scope of the board’s question. Therefore, the Dowlatshahis could not be held liable for failure to fulfill a duty they did not have.

The judgment of the trial court was reversed and the trial court was directed to enter judgment in the Dowlatshahis’ favor, with the parties to bear their own costs on appeal.

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Refusal to Allow Service Dog Violated Fair Housing Act

Sabal Palm Condominiums of Pine Island Ridge Association, Inc. v. Fischer, No. 12-60691-Civ-SCOLA (S.D. Fla. March 19, 2014)

Covenants Enforcement/Use Restrictions: A Florida district court ruled that a condominium association violated the Fair Housing Act by its unreasonable delay in granting a request by a physically disabled resident to keep a service dog.

Sabal Palm Condominium of Pine Island Ridge Association, Inc. (association) manages a condominium project in Miami, Fla. The association has a no-pets policy, which provides that no resident may have a pet, other than one cat or fish, without the consent of the board of directors. Laurence and Deborah Fischer are residents of Sabal Palm, and Deborah suffers from multiple sclerosis.

In October 2011, Deborah notified the association by letter that she was bringing home a trained service dog to assist her with tasks of daily living. She obtained the dog, Sorenson, from Canine Companions for Independence. The association informed her it was treating her letter as a request for accommodation under the Fair Housing Act (FHA). The association requested extensive documentation of Deborah’s disability, including copies of the medical records from all healthcare providers who diagnosed or treated her disability that indicated a service dog was necessary. In addition, the association requested that she provide all documents relating to the nature and species of the dog, as well as all documents regarding any training it received, and that she show a medical need for a dog weighing more than 20 pounds.

The FHA forbids discriminating against people who have handicaps when providing housing services or facilities. “Such discrimination includes ‘a refusal to make reasonable accommodations in rules, policies, practices, or services, when such accommodations may be necessary to afford such person equal opportunity to use and enjoy a dwelling.”

In her reply to the association, Deborah indicated that based on a Joint Statement regarding reasonable accommodations under the FHA issued by the Department of Housing and Urban Development (HUD) and the Department of Justice, she did not have to provide medical records to substantiate her accommodation request. She enclosed a picture of herself in her wheelchair with Sorenson to document her visible handicap for any board member not familiar with the physical nature of multiple sclerosis.

The association responded that the information Deborah provided was insufficient and asked for more. So the next day, Deborah provided a medical history form completed by her primary care doctor. The form provided copious information, including her suitability for placement of a service dog. The information reflected that Deborah was disabled, that she needed assistance with “all aspects of daily living,” and that she was a good candidate for a service dog, which would help with her physical disabilities. All of the medical records told a consistent story—Deborah’s multiple sclerosis rendered her severely disabled and in need of assistance with daily activities.

The board unanimously voted to deny Deborah’s accommodation request, but it delayed enforcing its decision. Instead, almost four months after Deborah first submitted medical records, the association sued the Fischers, seeking a judicial declaration that they had failed to provide sufficient evidence to entitle Deborah to a service dog as an accommodation under the FHA and that the association had the legal right to deny the accommodation. The Fischers brought counter-claims against the association, Marvin Silvergold (the association’s president), and Christopher Trapani (the association’s attorney) for FHA violations. All parties moved for summary judgment (judgment without a trial).

The court acknowledged that there exist reasons to be skeptical of requests to keep dogs as service animals, particularly in cases where dogs provide emotional support, due to the growing problem of people using fake service animals. But Deborah’s request was not such a case. The court determined that the materials Deborah submitted unquestionably establish that Deborah is severely disabled, that Deborah has physical limitations that make it difficult for her to perform essential daily tasks, and that Sorenson was specially trained to assist her in completing these physical tasks.

In addition, while the association was entitled to discuss with Deborah the possibility of her being able to use a dog weighing less than 20 pounds, the association cannot require a smaller dog. Moreover, a published HUD policy statement indicates that breed, size and weight limitations may not be applied to an assistance animal.

The court found that the evidence overwhelmingly showed that Deborah was entitled to an accommodation for Sorenson. When the person requesting an accommodation provides enough reliable information such that the only reasonable conclusion is that the accommodation should be granted, the denial of such request or undue delay in making a decision violates the FHA. Accordingly, summary judgment was granted to the Fischers regarding the association’s liability, and the association’s summary judgment request was denied. The case will proceed to trial to determine the amount of damages to which the Fischers are entitled.

With respect to Silvergold, the court held that there was no question that he personally contributed to the association’s refusal to accommodate Deborah reasonably since he voted against Deborah’s request. Individual board members or agents can be held liable when they have personally committed or contributed to an FHA violation. Therefore, summary judgment was granted to the Fischers and against Silvergold regarding his personal liability, and the case will proceed to trial to determine the amount of damages.

The court granted Trapani’s motion for summary judgment, however, because Trapani had no authority to vote and did not vote in the association’s decision to sue instead of granting Deborah’s request. No evidence was presented that Trapani gave the board bad advice, but if his advice was so bad as to constitute legal malpractice, then the association, but not the Fischers, may have a claim against the attorney.

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Association That Undertakes Tree Maintenance Has Duty to Maintain Trees in Safe Condition

Gibbons v. Horseshoe Lake Corporation, No. 311754 (Mich. Ct. App. March 11, 2014)

Risks and Liabilities: A Michigan appeals court reversed summary judgment in favor of an association because there was a genuine issue of material fact as to whether the association was negligent in failing to maintain trees on an access lot that injured a homeowner and damaged his property.

Michael and Juanita Gibbons reside in the Schrum subdivision, one of four subdivisions that surround Horseshoe Lake in Washtenaw County, Mich. In June 2010, a large tree branch fell through the Gibbons’ roof and caused significant physical injuries to Michael and damage to his house.

Each of the subdivisions surrounding Horseshoe Lake has its own homeowners association, but the associations all participate in a larger organization, Horseshoe Lake Corporation (corporation). The Gibbons’ home is adjacent to Lot 40, one of eight undeveloped lake-access lots scattered throughout the community. The tree from which the branch fell on Gibbons’ home was located on Lot 40.

In February 2011, Gibbons sued the corporation for negligence, alleging that the corporation breached its duty to maintain the tree on Lot 40. The corporation moved for summary judgment (judgment on the facts without a trial), and the trial court granted the motion. The trial court held that Gibbons failed to establish that Lot 40 was owned by the corporation. Gibbons appealed.

On appeal, Gibbons maintained that the corporation controlled and possessed Lot 40 and was, therefore, required to exercise reasonable care in maintaining the lot. To establish negligence, a plaintiff must show that a defendant owes a duty to plaintiff, breached that duty and the breach was the proximate cause of damage to the plaintiff.

A 1925 deed for all subdivision property designated Lot 40 as lake access for lots in Schrum’s subdivision that lacked lake frontage. The tax assessment records indicate that Lot 40 is owned by the Schrum’s subdivision association. The corporation president testified that the corporation was responsible for cutting the grass and generally cleaning access lots, including Lot 40.

In 2007, in response to homeowner concerns about the access lots, the corporation formed a tree committee of two homeowners to survey the area roadways and access lots for dead and diseased trees that required removal. The corporation used homeowner assessments to pay for access lot maintenance, including lawn care and tree removal, both before and after Gibbon’s injuries. In fact, the corporation paid to remove the tree at issue after his injuries.

The corporation’s board meeting records reflected that it pursued legal action against members when they encroached on access lots. This demonstrated that, at least in this circumstance, the corporation believed it possessed and controlled the access lots to the exclusion of others.

The appeals court indicated that the title documents did not fully resolve the question of ownership. From a policy perspective, the appeals court found that the corporation was in the best position to prevent harm to others arising from the access lots, noting that it would be inefficient for each homeowner with access to Lot 40 to identify dangerous or diseased trees and provide for their inspection or removal. As the central organization of Horseshoe Lake homeowners, the corporation was presumably created specifically to handle such situations for the common benefit of its members. Accordingly, there was sufficient evidence to conclude that the corporation possessed and controlled Lot 40 to preclude granting summary judgment to the corporation.

Even if the corporation did not own Lot 40, Gibbons asserted that, when it specifically undertook to identify and remove diseased trees from access lots around the lake, the corporation was required to use due care. Gibbons also argued the corporation had notice of the potential danger posed by the tree.

Every person engaged in an undertaking has a duty to use due care or not to endanger unreasonably the person or property of others. Before the limb fell, Gibbons sent three letters to the corporation stating that his home had been damaged by tree branches falling from Lot 40, that the trees were in “dire need of trimming” and maintenance was needed before further damage occurred.

The appeals court concluded that the letters were sufficient to create a question of material fact as to whether the corporation had actual or constructive notice of the danger posed by the trees on Lot 40. Gibbons’ experts testified that the tree defects had likely been there for 10 to 15 years, that the problem was visible from ground level and that a reasonable person should have called in a tree service. The appeals court determined that the evidence raised a sufficient question as to whether the corporation should have inspected the trees more closely or hired a professional after undertaking the responsibility to survey the access lots for unsafe trees.

Accordingly, viewing the evidence in the light most favorable to Gibbons, the appeals court concluded that it was an error to grant summary judgment to the corporation, and the case should proceed to trial to determine whether the corporation should be held liable.

The trial court’s judgment was reversed.

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Unit Owner Has Duty to Clear Walkway of Ice and Snow

Scrocca v. Ashwood Condominium Association, Inc., No. A13A2411 (Ga. Ct. App. March 13, 2014)

Risks and Liabilities/Covenants Enforcement: A Georgia appeals court ruled that a condominium association did not have a duty to clear ice and snow from the limited common area outside a unit because the unit owner had a duty to keep the area in a clean and sanitary condition.

Nancy Scrocca resides in Ashwood Condominium in Fulton County, Ga. In January 2011, the Atlanta area experienced a snowstorm, and Scrocca slipped on the ice directly outside her unit, fell and fractured her wrist.

Scrocca sued Ashwood Condominium Association, Inc. (association), alleging that the association had a contractual duty to remove ice and snow from the condominium limited common elements where she was injured. The trial court granted summary judgment (judgment without a trial) to the association, holding that pursuant to the condominium documents, Scrocca, not the association, had the duty to remove ice and snow from the walkway on which she fell. Scrocca appealed.

Under the declaration of condominium (declaration), porches, steps, stoops and walkways in front of a unit are limited common elements for that unit. Scrocca did not contact the condominium association or its management company to clear snow and ice from her stoop and walkway.

A condominium association’s obligations and responsibilities toward the condominium property are determined by the declaration and the association’s bylaws. The declaration requires that each owner maintain and keep in good repair his or her unit and all limited common elements assigned to the unit, except any portion that is expressly an association maintenance obligation. In addition, the declaration makes each unit owner responsible for keeping the limited common element serving his or her unit neat, clean and sanitary. By contrast, the association is obligated to maintain, repair and replace the limited common elements: porches, steps, stoops and walkways in front of the units.

The appeals court concluded that the declaration was ambiguous in some respect because neither provision dealing with responsibility for the walkway unambiguously includes snow and ice. Therefore, the rules for contract interpretation apply. Under these rules, words are to be given their usual meaning, but their meaning may also be determined by the context.

The appeals court concluded that Scrocca had the duty to keep the walkway in a “neat, clean and sanitary condition,” while the association had the duty to “maintain, repair, and replace” the walkway. The appeals court found that the terms “to keep” and “maintain” were synonymous, so it looked to the remaining terms for guidance.

The dictionary defines “neat” as orderly, clean and tidy, “clean” means free from foreign matter or pollution, and “sanitary” means free from elements or filth that endanger health. With respect to the association’s duties, “repair” means to restore to sound condition after damage or injury, and “replace” means to put back into a former position or place. In this context, the appeals court held that the association’s responsibility was to keep the walkway structurally sound or to make permanent changes, while Scrocca’s responsibility was to remove transient foreign matter, which includes snow and ice.

A party cannot be found negligent if it has no legal duty. Since the association did not have a duty to remove snow and ice from Scrocca’s walkway, the appeals court affirmed the trial court’s grant of summary judgment to the association.

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Content of Associationís Meetings Not Discoverable in Construction Defect Litigation

Seahaus La Jolla Owners Association v. The Superior Court of San Diego County, No. D064567 (Cal. Ct. App. March 12, 2014)

State and Local Legislation and Regulations: A California appeals court issued a writ of mandate ordering a trial court to vacate its order denying a homeowners association’s assertion of attorney-client privilege during discovery in a suit to recover damages for construction defects.

Seahaus La Jolla is a common interest development in San Diego County, Calif. It is managed and maintained by Seahaus La Jolla Homeowners Association (association). When the subdivision common areas sustained water and other damage due to construction defects, the association notified homeowners it anticipated suing the developer and builder, La Jolla View Ltd., LLC and Webcor Construction L.P. (defendants).

The association filed suit in July 2009, and the association’s attorneys subsequently conducted meetings with homeowners to apprise them of the status and goals of the litigation. The defendants sought discovery of information disclosed at the litigation update meetings. The association objected, invoking attorney-client privilege under the “common interest” doctrine, which allows parties who possess common legal interests to share privileged information without losing the privilege protection. However, several rulings by the trial court either declined to allow the association to assert such a privilege or concluded the privilege was waived because the homeowners were not the actual clients of the association’s counsel.

The association filed a petition with the appeals court, seeking relief from the trial court’s order to give information it claimed was privileged to the defendants. The association argued that the trial court erred in allowing the defendants to question individual homeowners about statements made by the attorney at the litigation status meetings.

The defendants claimed they were entitled to information about the association’s litigation status meetings, based on a separate action filed by homeowners seeking stigma damages for the individual units. They maintained that they should be allowed to inquire into the beliefs of the homeowners about damages and the source of their beliefs (such as perceptions gained from information given to them by association’s counsel at the status meetings).

The attorney-client privilege protects confidential communications between a client and lawyer. “Confidential communications” means:

information transmitted between a client and his or her lawyer in the course of that relationship and in confidence by a means which, so far as the client is aware, discloses the information to no third persons other than those who are present to further the interest of the client in the consultation or those to whom disclosure is reasonably necessary for the transmission of the information or the accomplishment of the purpose for which the lawyer is consulted, and includes a legal opinion formed and the advice given by the lawyer in the course of that relationship. (Emphasis in original.)

California law expressly clarifies that privilege is not waived when disclosure is reasonably necessary for a lawyer to do his or her job.

Although the attorney-client privilege is absolute, the protection afforded by the common interest doctrine depends on the content and circumstances of the communication. To evaluate the proper scope of the attorney-client privilege, the court turned to the statutes governing the association’s obligations to its members.

The act governing common interest developments obligates homeowners associations to inform their members about proposed common area construction defect litigation. Specifically, the association is required to provide written notice to the members before a suit is filed specifying options available for addressing the problems, and the association must hold a meeting to discuss the matter with members. The association’s declaration of covenants, conditions and restrictions also requires the association to give written notice to the members that it intends to file suit. Before the association can file an action, however, more than 50 percent of the members must approve the action.

The defendants argued that confidentiality was waived through several circumstances. First, association consultants and several homeowners who were employed or affiliated with defendants were allowed to attend. Second, a few homeowners later discussed issues raised at the meetings with their friends and relatives. Third, the letters announcing the meetings stated that the letters could be shared with potential buyers or lenders. Finally, the association had made available to others the numerous e-mails its counsel received from homeowners about the defects they experienced.

The association responded that its counsel had given instructions that attendance at the litigation meetings was restricted to Seahaus owners only, not tenants, prospective purchasers, real estate agents or other third parties.

The appeals court concluded that the association’s duties and powers included communicating with its members, as parties with closely aligned common interests. In its role as client, the association could properly take into account not only its own goals of protecting the common areas, but also the interests of its individual members. The appeals court further concluded that the litigation meetings were held to accomplish the purpose for which the association’s lawyers were consulted. The common interest doctrine and its protection of confidentiality of the communications applied as a matter of law to the circumstances.

The appeals court issued a peremptory writ of mandate directing the trial court to vacate its order denying assertion of the attorney-client privilege and enter a new protective order. The appeals court awarded costs of the proceeding to the association.

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