CAI Law Reporter - 09/28/2018 (Plain Text Version)

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Recent Cases in Community Association Law

Law Reporter provides a brief review of key court decisions throughout the U.S. each month. These reviews give the reader an idea of the types of legal issues community associations face and how the courts rule on them. Case reviews are illustrations only and should not be applied to other situations. For further information, full court rulings can usually be found online by copying the case citation into your web browser. In addition, the College of Community Association Lawyers prepares a case law update annually. Summaries of these cases along with their references, case numbers, dates, and other data are available online.

Master Association Did Not Qualify as a Condominium Association

Dimitri v. Commercial Center of Miami Master Association, Inc., No. 3D16-2549 (Fla. Dist. Ct. App. Aug. 8, 2018)

State and Local Legislation and Regulations:  The Florida Court of Appeal held that an amendment to the Florida Condominium Act did not apply retroactively to bring an existing master association within its scope.

Commercial Center of Miami Master Association, Inc. (master association) governed a project comprised of several condominiums in Miami, Fla.  Each condominium had its own condominium association.  The master association administered a declaration of covenants, restrictions and easements (master declaration) covering the entire project.

Benedetto Dimitri owned six units in one of the condominiums.  In March 2015, Dimitri notified the master association that he wanted to inspect certain documents in accordance with the Florida Condominium Act (act).  The act requires a condominium association to provide unit owners with access to certain official records within 10 days of receiving the owner's written request.  An owner is entitled to damages for the association's willful failure to comply. 

The master association did not respond to the request, so Dimitri filed suit.  The master association asserted that it was not a condominium association subject to the act.  The trial court agreed and granted summary judgment (judgment without a trial based on undisputed facts) in the master association's favor.  Dimitri appealed.

The master declaration is considered a contract between the master association and its members.  A basic principle of law is that the laws existing at the time a contract is formed govern its validity, interpretation, and enforcement.  When the master association was formed in 1982, the act defined "condominium association" simply as the corporate entity responsible for operation of the condominium.  "Operation of the condominium" was defined as the administration and management of the condominium property, and "condominium property" meant the land and personal property subjected to condominium ownership.

Examining the master declaration, the appeals court determined that the master association did not administer or manage any condominium property.  Rather, each condominium association in the project was responsible for maintaining and managing the condominium property subject to its jurisdiction.  The master association was responsible only for the common property outside of the condominiums, such as the private streets and landscaping.  As such, the master association did not qualify as a condominium association in 1982, and nothing in the act at that time suggested an intent to bring an association that did not operate condominium property within its scope.

However, in 1991, the act was amended to change the definition of "condominium association" to include any entity which operates or maintains real property in which condominium unit owners have use rights and where membership in the entity is composed exclusively of condominium unit owners or their elected or appointed representatives and membership is a required condition of unit ownership.  There was no dispute that, if the 1991 amendment applied retroactively to already existing associations, the master association would qualify as a condominium association. 

The enacting legislation for the 1991 amendment simply provided that it was to take effect on January 1, 1992, and no evidence of intended retroactive application was found. Absent the legislature's clear expression of retroactive application, a court will not infer retroactive application. 

Dimitri responded that the court should use the constituency and function tests to determine whether the master association qualified as a condominium association.  These two tests look at the composition of the association's membership and the powers of the association over condominium operations. However, the tests were administrative interpretations of the act adopted by the Florida Department of Business and Professional Regulation.  While statutory interpretations by the administrative agency charged with the statute's enforcement are normally given great deference, the agency's opinions and interpretations do not come into play where the statutory language is plain and unambiguous. 

The appeals court found no ambiguity in the pre-1991 definition of "condominium association."  The master association clearly did not qualify as a condominium association.  Accordingly, the trial court's judgment was affirmed.

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Association Violated Its Documents by Failing to Budget for Reserves

El Attar v. Marine Towers East Condominium Owners' Association, Inc., No. 106140 (Ohio Ct. App. Aug. 16, 2018)

Assessments:  The Ohio Court of Appeals held that, where a condominium association's documents required reserves be included in the annual budget, the owners could not waive the reserve requirement as allowed by statute.

Marine Towers East Condominium Owners' Association, Inc. (association) governed a condominium in Cuyahoga County, Ohio.  Heba El Attar, Dennis Grabowski, Delores Mlachak, Kevin McDowell, Claudia Gruchalla, and Robert Monahan (collectively, plaintiffs) owned units in the condominium.

In the winter of 2015, the building's heating, ventilation, and cooling (HVAC) system was unexpectedly damaged, rendering it unable to heat some units.  The association temporarily restored heat to the affected units by providing space heaters.  This required installation of a dedicated electrical line at a cost of $200,000.  A special assessment was levied on all units to cover the cost.

The association's board of managers subsequently learned that it would cost more than $4 million to replace the HVAC system serving the entire building.  The association did not have reserves to cover the cost, so it notified all 137 owners of a special assessment to fund the project.

The plaintiffs sued the association for a declaratory judgment (judicial determination of the parties' legal rights) regarding their obligation to pay the special assessment and for breach of contract and breach of fiduciary duty for failing to establish a reserve fund as required by the declaration of condominium and Ohio's condominium property code (act). 

The association responded that neither the declaration nor the act required it to maintain a reserve fund and that any duty to maintain a reserve fund was waived by a majority of the owners voting on an annual basis to pay for extraordinary expenses through special assessments.  The trial court ruled in the association's favor and dismissed the case.  The plaintiffs appealed.

The act requires an association to include reserves in its annual budget in "an amount adequate to repair and replace major capital items in the normal course of operations without the necessity of special assessments."  The act further specifies that the amount set aside annually for reserves shall not be less than 10 percent of the budget unless the reserve requirement is waived annually by owners holding a majority of the voting power in the association.

However, the act directs that its budgeting requirements apply unless the declaration or bylaws provide otherwise.  So, the declaration and bylaws control over the act's default provisions.  The declaration required the association to build up and maintain a reasonable reserve for contingencies and replacement. The bylaws also instructed the association to include in the annual budget a reasonable reserve amount for contingencies and replacements.  The appeals court found that the declaration and bylaws plainly required the association to establish a reserve account.

The association insisted that the use of the term "reserves" in the declaration and bylaws did not obligate it to establish a separate reserve fund, but only to establish money in the budget.  The appeals court rejected this notion, finding that the documents clearly and unambiguously obligated the association to maintain adequate reserves.  Although the bylaws did not use the word "fund," the requirement that the association "build up and maintain" permitted no other conclusion than that the association must account for reserves separately in its annual line-item budget.

Such conclusion was reinforced by the bylaws' mandate that, if expenses exceeded collections in a given year, the owners were to make up the shortfall in the next calendar year. By differentiating reserves from actual expenses, the bylaws made clear that the reserve was to be money collected separate from that allocated for routine services and expenditures.  In any event, the bylaws required the association to budget for extraordinary expenditures, which the association plainly did not do. 

The association next argued the bylaws permitted it to impose special assessments as a means of addressing extraordinary expenditures without having to use cash reserves.  The bylaws provided that, if the estimated cash requirement proved inadequate for any reason, the association could specially assess the owners. 

The appeals court acknowledged the special assessment power but held that such power did not supersede the reserve requirement.  To the contrary, the bylaws stated that extraordinary expenditures shall be charged first against the reserve.  Thus, the special assessment was intended only as means of making up any shortfall, not an alternative funding mechanism.  Finally, the appeals court noted that the act's provisions allowing owners to waive the reserve requirement could be used only where the condominium documents did not mandate reserves. 

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

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Owner Had to Give Association First Opportunity to Pursue Corporation's Rights

Iezzi Family Limited Partnership v. Edgewater Beach Owners Association, Inc., No. 1D16-5878 (Fla. Dist. Ct. App. Aug. 1, 2018)

State and Local Legislation and Regulations:  The Florida Court of Appeal held that a condominium unit owner had to comply with the Florida Not For Profit Corporation Act's pre-suit requirements before filing a derivative claim, even if the claim was based on the Florida Condominium Act.

Edgewater Beach Owners Association, Inc. (association) governed a condominium in Destin, Fla. Iezzi Family Limited Partnership (Iezzi) owned a unit in the condominium and sued the association and seven of its current or former directors or officers (collectively, directors). 

Iezzi claimed the association acted improperly and the director breached fiduciary duties, resulting in illegal expenditures and assessments and loss of association funds. The trial court dismissed the suit because the claims were derivative (suit by a corporation member or shareholder to enforce the corporation's rights) and Iezzi did not comply with the Florida Not For Profit Corporation Act's (nonprofit act) derivative pre-suit requirements.  Iezzi appealed.

The nonprofit act requires that a corporation member first bring any issue concerning the enforcement of the corporation's rights to the attention of the corporation's board of directors to allow the board to conduct investigations and initiate a lawsuit. If the corporation conducts an independent and reasonable investigation, and the board determines in good faith that a lawsuit is not in the corporation's best interests, a court may dismiss the member's complaint.

The Florida Condominium Act (condominium act) provides that damages or equitable relief may be pursued by an association or a unit owner.  Iezzi argued that, to limit suits based on the condominium act by requiring compliance with the nonprofit act's pre-suit procedure, would create a conflict between the two statutes.  Where a conflict exists, Iezzi argued, the condominium act must control.

The appeals court first examined whether Iezzi's claims were derivative and, thus, subject to the nonprofit act's procedures.  A claim is derivative when the plaintiff's alleged injury is not distinct from that of other corporation members, and any harm is primarily against the corporation. It is the substance of the allegations made that determines whether a claim is derivative, not what the claim is labeled.

All association members sustained basically the same injuries alleged by Iezzi, and Iezzi could not point to any injury distinct from other members.  Iezzi insisted its claims brought under the condominium act were outside the purview of the nonprofit act.  The appeals court disagreed.  An essential principle is that statutes must be read together, and courts must interpret statutory provisions in harmony with one another when possible.

The appeals court found that compliance with the nonprofit act's pre-suit requirements would not impede rights under the condominium act.  It further emphasized that association members may not avoid the nonprofit act's pre-suit requirements for derivative actions.

Accordingly, the trial court's judgment was affirmed.

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Association Counsel Disqualified From Representing Association in Suit Against Former Directors

Quatama Park Townhomes Owners Association v. RBC Real Estate Finance, Inc., No. 3:18-cv-00023-SB (D. Ore. Aug. 3, 2018)

Risks and Liabilities: The United States District Court for the District of Oregon disqualified an association's lawyer from representing the association in its suit against former directors because the directors reasonably believed the lawyer represented them personally.

Quatama Park Townhomes Owners Association (association) governed a community in Washington County, Ore. The townhomes were constructed by companies owned by James Standring (collectively, Standring). 

The project declarant had the right to appoint the association's board of directors until control was turned over to the owners.  It appointed Laura Wilson and Daron Anderson as the initial board.  In 2015, Anderson resigned from the board, and the declarant appointed Scott McFerran as his replacement.

In 2015, the board hired the law firm of Vial Fotheringham (VF) to provide general legal services to the association.  VF's engagement agreement was signed by Wilson on the association's behalf.  In November 2015, the association engaged VF to sue Standring and other contractors for construction defects, and McFerran signed a litigation fee agreement as the association's authorized representative.

In August 2016, Standring issued subpoenas to Wilson and the association's management company for all documents related to Quatama Park.  VF asked the directors to turn over their records to allow VF to review them for privileged communications before responding to the subpoenas.  The directors provided VF with all their files relating to the development.  In reviewing the files, VF discovered that the directors knew about the construction defects as early as 2012.

In 2016, several owners threatened to sue the directors regarding the construction defect repair costs and for breach of fiduciary duties.  VF asked the directors whether it could respond to the owners and discussed the allegations with the directors multiple times.  The directors agreed, and VF defended the directors' actions to the disgruntled owners.

In March 2017, Wilson and McFerran resigned from the board as part of a planned transition to owner control.  In April, although Standring was still actively pursuing the litigation by scheduling depositions, it also moved for summary judgment (judgment without a trial based on undisputed facts), arguing the statute of limitations had expired because the directors knew about the construction defects more than two years before the lawsuit was filed. 

In June, VF informed the directors the association was considering suing them based on their failure to timely sue Standring after discovering construction defects.  VF informed the directors that the association's interests were no longer aligned with theirs.  VF said it could no longer represent them in the depositions, and the directors needed to retain their own counsel.

The court granted summary judgment in Standring's favor, and the association filed a separate suit against the directors.  The directors moved to disqualify VF from representing the association, asserting that VF had previously represented them.

The Oregon Rule of Professional Conduct (RPC) prohibits an attorney from representing a client whose interests are materially adverse with those of a former client in a substantially related matter without the written consent of all parties.  The directors asserted that they turned over their files to and shared confidential information with VF, believing that VF represented them and that they were protected by the attorney-client privilege.  The association argued the directors were required to provide the files because they had been subpoenaed. 

An attorney-client relationship may be implied when the alleged client subjectively believes such a relationship exists and when a reasonable person would objectively believe the relationship exists based on the facts.  The evidence must also show that the attorney should have understood that a relationship existed or that the attorney was providing legal advice to a client.

VF did not advise the directors to retain their own counsel before turning over their files.  Even after the directors were no longer on the board, VF was still preparing to defend them in depositions.  The court found the directors reasonably believed the attorney who was to prepare them for and defend them in the depositions was acting as their lawyer.

VF also acted as if it were providing legal assistance to the directors when owners threatened to sue them individually, and VF tendered notice of the claims to the insurance carrier on the directors' behalf.  Any of these events should have put VF on notice that the interests of the association and the directors were or could become adverse.  Yet, VF continued to act as if it were the directors' counsel.

The association argued the RPC recognizes that a corporation's lawyer represents the corporation through its duly authorized constituents, so it was necessary for VF to give legal advice to the directors.  However, the RPC requires a lawyer to identify its client when the lawyer reasonably should know that the corporation's interests are adverse to those of the constituents with whom the lawyer is dealing.

The court acknowledged that the association would undoubtedly be harmed if its counsel was disqualified, but it found the directors would suffer the greater harm if VF continued to prosecute the case against them.  The directors would face significant prejudice because of the confidential information, documents, and communications that VF obtained during its dealings with the directors.

The court disqualified VF from continuing to represent the association in the lawsuit and directed the association to engage new counsel.

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Association Lacked Power to Conduct Nonjudicial Foreclosure

Sakal v. Association of Apartment Owners of Hawaiian Monarch, Nos. CAAP-15-0000529 and CAAP-15-0000573 (Haw. Ct. App. Jul. 26, 2018)

Powers of the Association: The Hawaii Intermediate Court of Appeals held that an association could not foreclose its assessment lien by nonjudicial foreclosure unless the association's governing documents gave it a power of sale.

Association of Apartment Owners of Hawaiian Monarch (association) governed the Hawaiian Monarch Condominium in Honolulu, Haw.  Christian Sakal owned a leasehold interest in a unit.

In March 2012, the association filed a lien against Sakal's unit in the amount of $22,007.  In June 2012, the association filed a notice of default and intent to foreclose the lien.  Four months later, the association filed an amended notice indicating an intent to proceed with nonjudicial foreclosure under a power of sale, with the public auction scheduled for December 3, 2012.  

Days before the sale, Sakal filed a motion to stop the sale, but it was denied by the trial court. Jonah Kogen purchased the unit at the foreclosure sale for $50,500.  In April 2013, Kogen filed an ejectment action against Sakal, which was granted. 

The following year, Sakal sued the association and Kogen, asserting the nonjudicial foreclosure was illegal because the association did not have a power of sale.  Kogen argued the association had such power because its bylaws authorized the association to use "any other remedies it may have" to enforce assessments.

The trial court found that the Hawaii Condominium Property Act (condominium act) gave the association the power to foreclose assessment liens by nonjudicial means.  The trial court dismissed all of Sakal's claims, and Sakal appealed.

Hawaii's foreclosure statute sets forth procedures for both judicial foreclosures and nonjudicial foreclosures without court supervision.  The statute specifies that nonjudicial foreclosure can be conducted in certain non-mortgage situations where a law or written document authorizes a nonjudicial foreclosure or power of sale foreclosure.  A power of sale gives the lienholder the power upon the debtor's default to advertise and sell the liened property at public auction to satisfy the debt, but without having to resort to court proceedings.

The appeals court found that every reference in the foreclosure statute to nonjudicial foreclosure contemplated an existing power of sale.  It held that the foreclosure statute did not create a foreclosure right, only a foreclosure process.  The statute merely allowed the parties to create a power of sale within a contract. Thus, the association's power to foreclose its lien without judicial process must come from other law or the association's own governing documents.

The condominium act provides that the association's lien may be foreclosed in the same manner as a mortgage. In 1999, the condominium act was amended to clarify that associations could utilize the foreclosure statute's nonjudicial foreclosure procedures like mortgagees.  However, mortgagees can only conduct nonjudicial foreclosures if the mortgage contains a power of sale clause. 

The appeals court found this change clearly indicated that the legislature did not create a power of sale for associations in the condominium act.  Rather, it merely allowed associations to avail themselves of the foreclosure statute's less burdensome procedures for nonjudicial foreclosures.  Nothing in the condominium act's legislative history suggested that the legislature meant to create a power of sale.

Next, the appeals court examined the association's bylaws for any power of sale.  The bylaws referred generally to the remedies provided by law.  The appeals court could find nothing that clearly gave the association a power of sale over the units. 

As such, the association did not have the power to foreclose its lien on Sakal's unit without going through a judicial foreclosure, and the trial court erred in dismissing Sakal's claims for wrongful foreclosure.  However, since Sakal failed to challenge the nonjudicial foreclosure prior to the foreclosure deed to Kogen being recorded, Sakal waived any right to reclaim the unit itself, although Sakal could still recover damages from the association for wrongful foreclosure. 

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

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Golf Course Not Immune from Liability for Injuries from Yellow Jackets

Staats v. Vintner's Golf Club, LLC, No. A147928 (Cal. Ct. App. Aug. 1, 2018)

Risks and Liabilities: The California Court of Appeals held that golf course operators were not immune from exercising reasonable care to protect patrons against the foreseeable risk posed by yellow jacket nests.

Vintner's Golf Club, LLC (club) operated a golf course in Yountville, Cal.  In July 2013, Carolyn Staats was taking a golf lesson from one of the club's instructors when she was attacked by a swarm of yellow jackets. 

As Staats began losing consciousness, paramedics at a nearby fire station were summoned.  The paramedics gave Staats a shot, and then she was transported to the hospital.  The paramedic said Staats had been "within fifteen seconds" of dying. 

Staats was stung more than 50 times, causing welts and swelling all over her body.  She spent the night in the intensive-care unit and missed over five weeks of work.  The attack left Staats so highly allergic to yellow jacket stings that she had to receive three injections per month and carry multiple epinephrine pens. 

The club did not regularly inspect the grounds for pests or use any preventative measures to control yellow jackets, although it did use a pest-control company to inspect and treat the offices and restaurant for insects.  The club's golf director and grounds superintendent had seen stray yellow jackets or bees on the golf course before, but no one knew of any swarm, hive, or nest ever being on the grounds or of any golfer ever being stung.

After the attack, the club's manager could not find any hive or nest in the area.  However, after an intensive search, an employee finally located an underground hole about one and a half inches around with some yellow jackets around it.  The hole was near the edge of a sand trap and partially covered by grass.  The club sprayed the nest and surrounding area and placed yellow jacket traps nearby.

Staats sued the club for negligence and premises liability.  The Club argued it had no duty to protect golfers from swarms of wild insects without knowledge of the swarm's existence.  The trial court granted summary judgment (judgment without a trial based on undisputed facts) in the club's favor, finding the club had no duty to Staats due to the lack of prior knowledge about the yellow jackets. Staats appealed.

Property owners have an obligation to maintain their property in a reasonably safe condition and to either correct or warn others about any dangerous condition that could reasonably be discovered.  Staats claimed the club had a duty to protect its patrons from yellow jacket nests, including underground nests, by inspecting and setting traps to prevent their formation.

In determining whether the club satisfied its duty of reasonable care, important factors to consider include the foreseeability of the harm, the policy of preventing future harm, the burden to the club and consequences to the community of imposing a heightened duty of care, and the availability, cost, and prevalence of insurance for the risk involved.

The appeals court determined it was reasonably foreseeable a golfer could be attacked by a yellow jacket swarm from a subterranean nest.  An entomologist testified that yellow jackets were prevalent throughout Northern California, and they favored abandoned animal holes for nesting. Yellow jackets aggressively protected their nest if they felt it was threatened.  There was also evidence that some other golf courses in Northern California treated underground yellow jacket nests.

The club claimed a duty to protect patrons from yellow jackets would impose an enormous burden on it to inspect its entire outdoor property, including every tree, shrub, hole, and crevice, for all conceivable dangers because traps do not completely eliminate yellow jackets.  The club suggested it would have to hire an additional employee just to comply with such a duty.  The appeals court was not persuaded because the club could not show that engaging a pest control service would impose a heavy burden.  It acknowledged the traps may not eliminate yellow jackets completely, but the evidence suggested that traps significantly reduced the risk to patrons by preventing new nests from forming.

The club urged against imposing a duty that requires property owners find and kill all living creatures on its property based on animal rights and because the law affords special protections to some creatures, such as bees.  The appeals court stated that the policy of protecting human life outweighed the policy of protecting animal life, and the club could not show yellow jackets were in need of any special protection.

The appeals court emphasized that it did not determine the club breached a duty to Staats but merely held that golf course operators were not immune from exercising reasonable care to protect patrons against the foreseeable risk posed by yellow jacket nests. A jury must determine whether the club should have taken steps to minimize the yellow jacket swarm and whether any failure to do so caused Staat's injuries. 

Judgment was reversed, and the case was remanded for further proceedings.

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Lien for Unit Repair Costs Did Not Survive Foreclosure

In re U.S. Bank, N.A. for a New Certificate of Title after Mortgage Foreclosure Sale, No. A18-0008 (Minn. Ct. App. Aug. 6, 2018)

State and Local Legislation and Regulations:  The Minnesota Court of Appeals held an association's lien for unit repair costs did not survive the mortgagee's foreclosure because they were not budgeted expenses as required by the Minnesota Common Interest Ownership Act to be included in the surviving lien for six months of assessments.

Traverse Pointe Association (association) governed a condominium in Inver Grove Heights, Minn. Anita and James Kennedy owned a unit in the condominium, and U.S. Bank, N.A. (bank) held a mortgage on the unit.

In July 2015, significant water and mold damage was discovered in the Kennedys' unit, and the City of Inver Grove Heights ordered the association to repair the damage. The unit had to be partially demolished and reconstructed.  Most of the demolition and repair costs were covered by the association's master insurance policy, except for a $10,000 deductible and $7,989 for uninsured work (collectively, repair costs).  The association levied assessments against the unit to cover the repair costs.

In June 2016, the bank foreclosed its mortgage and purchased the unit at the foreclosure sale.  In December 2016, after the Kennedys' right to redeem the unit had expired, the bank petitioned the trial court to cancel the existing certificate of title and issue a new certificate free and clear of the Kennedys' interest and all junior liens.

Three months later, the association recorded a lien against the unit in the amount of $20,810, which amount included the repair costs, assessments and late fees from April 2016 to March 2017, and attorneys' fees and costs, less $1,100 paid by the bank in February 2017.  The association asserted the bank was not entitled to a certificate of title free of the association's lien.  The bank argued the association's lien should not include amounts that were not included in the association's then-current annual budget. 

The trial court determined that the bank's certificate of title was subject to the association's lien and granted summary judgment (judgment without a trial based on undisputed facts) in the association's favor.  The trial court also granted the association attorneys' fees and costs in the amount of $12,000.  The bank appealed.

The bank argued that the trial court erred in determining the association's lien complied with the Minnesota Common Interest Ownership Act (act).  The act provides that, following foreclosure of a first mortgage, the purchaser takes title subject to an association lien for unpaid assessments for common expenses which became due during the six months immediately preceding the end of the prior owner's redemption period. 

The association asserted that the repair costs constituted common expenses which were assessed within the act's six-month period included in the lien.  The act defines "common expenses" as expenditures made or liabilities incurred by or on behalf of the association.  However, the act also specifies that the common expenses covered by the association's lien shall be based upon the association's then-current annual budget.

The association urged that, although its 2016 annual budget did not originally include the repair costs, it amended the budget to include repair costs before filing the lien.  To support this contention, the association submitted its August 2016 balance sheet listing the repair costs as liabilities. It also relied on minutes of an October 2016 board meeting which briefly summarized a financial report, with amounts stated for revenues, expenses, net income, assets, liabilities, and equity.

The appeals court determined that the evidence did not show that the annual budget was amended.  The appeals court found that the balance sheet was not the same thing as the budget.  By definition, a balance sheet is a statement of financial position on a specific date, whereas a budget is an itemized summary of estimated or intended expenditures over a given period along with proposals for financing them. Although the balance sheet did factor in the repair costs, the balance sheet did not indicate whether the repair costs were budgeted expenses.

The association also submitted a budget comparison dated August 2016 showing the amount budgeted in the 2016 annual budget for each expense category, the amount spent in such category to date, and an operating variance reflecting the difference between the amount budgeted and the amount spent.  The appeals court found the comparison document suggested that the budget had not been amended since it still showed the original budget amounts when calculating the variance.

Finally, the board meeting minutes did not reflect that an amended budget was adopted.  The appeals court found the financial report was for informational purposes only.  Any recommendation associated with the report would have required a formal vote, but the minutes did not indicate any vote to amend the budget.

Accordingly, the trial court erred in granting summary judgment in the association's favor and in granting attorneys' fees to the association.  The case was remanded for the trial court to issue a new certificate of title and to reconsider the bank's request for attorneys' fees.

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Owner Responsible for Safety Repairs to Aluminum Wiring

Winchester Condominium Association v. Auria, No. 1512 WDA 2017 (Pa. Super. Ct. Aug. 3, 2018)

Documents:  The Superior Court of Pennsylvania concluded that safety repair work to aluminum wiring was performed on electrical outlets within the units instead of common element wiring and, therefore, was the unit owner's responsibility based on the condominium declaration.

Winchester Condominium Association (association) governed a condominium in Allegheny County, Penn. Joseph Auria owned a unit in the condominium.

The association's insurance underwriter notified the association that it had to mitigate or reduce the risk of fire at the condominium in order to obtain reasonable insurance coverage.  The underwriter suggested that all electrical outlets be rewired using the copalum method to eliminate the potential for aluminum connection failure. 

Aluminum wire was used in many homes built in the 1960s to mid-1970s due to a shortage of copper. However, it was later determined that aluminum-wired connections and splices can fail and overheat without prior warning signs, creating a fire hazard.  The U.S. Consumer Product Safety Commission adopted the copalum method as appropriate for repairing aluminum wiring without undertaking complete replacement with copper wire.

The association notified all owners that they needed to repair the aluminum wiring in their outlets for safety reasons and to maintain adequate reasonable insurance coverage. Every owner completed the work inside their unit except for Auria.  Despite having several months to get the work done, Auria informed the association that he was not going to do the work in his unit.  He thought the repair was the association's responsibility since the wiring was within the walls.

The association sued Auria, asking the court to order Auria to perform the work.  Auria eventually agreed to undertake the work, but he still disputed that he should be required to pay for it.  The trial court ordered Auria to pay for the repairs.  Auria appealed.

Auria asserted the wiring behind the unit's interior walls was part of the common elements and the association's responsibility to repair.  The declaration of condominium (declaration) specified that all conduits, wires, and utility lines "up to the outlets thereof inside the walls of each unit" were part of the common elements. 

According to Auria, the electrical receptacle designed for a plug was part of the unit, but the wires leading up to the receptacle or outlet plate were part of the common elements. He argued that the fact that the receptacle or outlet was enclosed in a receptacle box did not alter the plain meaning of the words "up to" the outlet. 

The appeals court consulted various dictionaries.  An outlet was generally defined as a receptacle for a device's plug, but the definitions did not provide guidance on whether the outlet included appurtenant wiring.

The appeals court reviewed the testimony offered at trial regarding how the copalum wiring was to be installed.  The trial court had concluded that the wiring in question involved essentially the "guts" of the outlet, not the major conduit wiring running behind the walls. When the repair work was performed, the outlets were pulled out of the walls and inside the unit.  The copalum method involves attaching a short section of copper wire to the ends of the aluminum wire at connection points using a special connector named copalum to join the wires.  Once this is done, the outlet is reinserted into the wall so that only the plug receptacle is visible.

The trial court interpreted the work as being to the outlet itself, and the declaration clearly put the responsibility for outlets on the owners.  In the trial court's opinion, this approach made the most sense because the outlets were located solely within Auria's unit and were for his sole use.

The appeals court found the trial court's conclusion supported by the evidence.  The appeals court affirmed the trial court's judgment ordering Auria to pay the aluminum wiring repair costs.

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