Act’s Definition of “Occurence” Only Applies Prospectively

The South Carolina Supreme Court held unconstitutional the retroactivity clause in S.C. Code Ann. Section 38-61-70, which was made effective on May 17, 2011. The Act defines “occurrence” in a commercial general liability policy as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions and property damage or  bodily injury resulting from faulty workmanship, exclusive of the faulty workmanship itself.”

The Act’s retroactivity clause provides: “This section applies to any pending or future dispute over coverage that would otherwise be affected by this section as to all commercial general liability policies issued in the past, currently in existence, or issued in the future.”

The S.C. Supreme Court held that this clause unconstitutionally violates the Contract Clause of both the U.S. and S.C. Constitutions because retroactive application of this definition would substantially impair existing contractual relationships. The Court addressed whether the Act was reasonable and necessary to effectuate a legitimate legislative purpose and held that it was not.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

 

 

Notice of Arbitration Must Appear on First Page of Master Deed to be Enforceable

In Richland Horizontal Prop. Regime Homeowners Ass’n, Inc. v. Sky Green Holdings, Inc., the Court of Appeals upheld the trial court’s ruling that an arbitration clause on a master deed was unenforceable. In this case, a developer created a horizontal property regime by master deed. The master deed included  a cover page and then a second page where the arbitration provision was found. The developer later created a supplemental master deed, also including an arbitration provision, to add a new unit to the existing regime and reduce the proportionate share of common area ownership held by the original unit owners. The original unit owners filed suit seeking a declaratory judgment that the supplemental master deed violated the original master deed. The developer moved to compel arbitration, which motion was denied.

The court held that the arbitration clause failed to comply with the Uniform Arbitration Act which provides in § 15-48-10(a): “Notice that a contract is subject to arbitration pursuant to this chapter shall be typed in underlined capital letters, or rubber stamped prominently, on the first page of the contract and unless such notice is displayed thereon the contract shall not be subject to arbitration.”

The developer argued that the cover page of the master deed should not be included because the second page contains the following statement: “This is the first page of the Master Deed for The Richland Horizontal Property Regime. In the event other pages including, but not limited to cover pages, indexes, or tables of contents are placed in front of this page, those pages shall not be deemed to be the first page. This page and only this page shall be deemed the first page of the Master Deed for all legal purposes.

The court strictly construed the language of the statute and held that the “first page of the contract” meant  “preceding all others.” Since the cover page preceded the other pages in the master deed and it did not contain an arbitration provision, the court held that arbitration was not required.

This site and any information contained herein is for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Court Finds Developer not in Contempt for Stormwater Damage to HOA

Ex Parte: Lipscomb v. Stonington Devel., No. 4961 

Respondents/property owners filed suit against a developer for property damage caused by stormwater runoff. The circuit court judge issued an order granting a permanent injunction to the property owners, which enjoined the developer “from discharging sediment-laden stormwater onto [Respondents] property and causing damage thereto.”   Respondents later filed a motion to hold the developer in civil contempt for violation of the order. The circuit court held a hearing to determine if the developer was in contempt.  At the hearing, evidence was presented illustrating efforts the developer had taken to prevent the stormwater runoff, albeit unsuccessfully. The court found the developer in contempt and this appeal followed. 

The court of appeals reversed the order of civil contempt.  “Contempt results from the willful disobedience of a court order, and before a court may find a person in contempt, the record must clearly and specifically reflect the contemptuous conduct . . . . A willful act is one . . . done voluntarily and intentionally with the specific intent to do something the law requires to be done; that is to say, with bad purpose either to disobey or disregard the law.” 

The evidence in this case showed that the developer had taken steps to alleviate the runoff by hiring consultants and workers to monitor the property, and erecting silt fences, rock dams, and hay bales. Although these efforts did not completely stop the stormwater from entering onto Respondents’ properties, the court held that the developer’s “good faith attempt to comply with the order [did] not warrant a finding of contempt.”

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter. 

Tenant’s Failure to Surrender Possession of Premises Allows Lessor to Retain Security Deposit

Atlantic Coast Builders & Contractors, LLC v. Lewis, No. 27044.

Atlantic entered into a commercial lease for property owned by Lewis.  After taking possession of the property and making improvements to it, Atlantic discovered that zoning restriction prohibited commercial use on the property. Atlantic continued possession of the premises but stopped paying rent.  The lease provided for a security deposit in the event of Atlantic’s default of its obligations. Atlantic filed suit against Lewis for negligent misrepresentation, unjust enrichment, breach of the lease, and breach of the covenant of quiet enjoyment. The master found for Atlantic and required Lewis to return the $3,500 security deposit.  The court of appeals affirmed the master’s findings and Atlantic petitioned the supreme court for writ of certiorari. The court affirmed the court of appeals, and then substituted this opinion after a petition for rehearing.

“[W]here a decision is based on more than one ground, the appellate court will affirm unless the appellant appeals all grounds because the unappealed ground will become law of the case.” Based on this rule, the majority determined that considerations of Lewis’s arguments were barred. Lewis appealed only the master’s findings of negligent misrepresentation and breach of contract, not unjust enrichment.

The court reversed the court of appeals on the issue of Atlantic’s entitlement to return of the security deposit. This issue was preserved on appeal since it was set out in Atlantic’s complaint, denied in Lewis’s answer, and presented through witness testimony before the master. Lewis was entitled to retain the security deposit based on the clear language of the lease and Atlantic’s failure to surrender possession of the premises. Further, the supreme court held that Lewis would not be unjustly enriched by retaining the deposit.

Chief Justice Toal disagreed with the court’s determination of the Two-Issue Rule in her separate opinion.  The Chief Justice did not believe this rule would preclude the court from considering Lewis’s arguments because “where the question of preservation is subject to multiple interpretation, any doubt should be resolved in favor of preservation.”  The Chief Justice likened this stringent application of the Two-Issue Rule to a game of “gotcha” where mistakes of attorneys are showcased.  The Chief Justice would have held that this was an unenforceable and illegal contract because the contemplated purpose of the lease was contrary to zoning restrictions.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter. 

Liability of a Parent Corporation for Construction Defects



Magnolia N. Prop. Owners Ass’n, Inc. v. HeritageComm. Inc., No. 4943.

A property owners
association (POA) filed suit for construction defects in a condominium complex.
Appellants are three corporations: HCI (parent corporation), HMNI (seller) and
Buildstar (general contractor).
  HCI
created separate corporations for every development it constructed for the
purpose of operating as cost centers. HMNI was the cost center for Magnolia
North POA and Buildstar supervised construction at Magnolia North.
           

The POA board of directors initially consisted of
officers of the Appellant corporations. 
During this time, unit owners discovered various construction defects. The
officers assured POA members that the defects would be timely cured.  The POA filed suit after turnover of
the board from the developer to the unit owners. The POA asserted causes of
action of negligence, breach of express warranty, breach of warranty of
workmanlike services, and breach of fiduciary duty.  The court affirmed the jury’s award of $6.5M in actual
damages and $2M in punitive damages.
 

Amalgamation

Amalgamation is a theory of
holding a parent corporation liable in place of its subsidiary where evidence
shows that corporate interests, entities and activities are blurred to the
point that separate legal distinctions can be ignored.
  This is not piercing the corporate
veil, as fundamental unfairness and fraud are not required elements. The court
compared the instant case with
Kincaid v.
Landing Devel. Corp.
where amalgamation was found between three distinct
corporations.
  In the instant case,
the court pointed to the following facts for upholding the trial court’s
finding of amalgamation:

1.    
HCI, HMNI and Buildstar
“shared officers, directors, office space and a phone number”

2.    
The corporations shared
employees

3.    
HCI held itself out to the
POA as the corporation responsible for construction defects in its written
warranty

 Equitable Tolling

A three-year statute of
limitations applied to the POA’s causes of action. Appellants argue the statute
of limitations started when construction defects were discovered, marked by the
POA’s first meeting on March 8, 2000.
 
The court disagreed and held that the statute did not begin to run until
the date of turnover.

The
court relied on the recent case of
Hooper
v. Ebenezer Senior Svcs and Rehab. Ctr.
, where the supreme court described
equitable tolling as a “
doctrine to suspend
or extend the statutory period to ensure fundamental practicality and fairness

. . . It has been observed that equitable tolling typically
applies in cases where a litigant was
prevented from filing suit because of an extraordinary event beyond his or her
control
. . . To deny [equitable
tolling] would permit one party to suffer a gross wrong at the hands of the
other.”

The POA board consisted of
the corporations’ officers until turnover, so it is unreasonable to expect that
the POA would have brought suit before the homeowners gained control of the
board. As soon as turnover occurred, the POA promptly filed suit.
  The court upheld the trial court’s
ruling on equitable tolling.

Equitable Estoppel

The Appellant corporations
were equitably estopped from asserting the statute of limitations as a bar to
the POA’s claim because the Appellants induced the POA’s delay in filing
suite.
  The court held that deceit
is not an essential element of estoppel; it is enough that the party
“reasonably relied on the words and conduct
of the party to be estopped in allowing the limitations period to expire.”
  Appellants assured the unit owners that
the construction defects would be repaired, so it was reasonable for the unit
owners to give the Appellants time to make good on these promises before filing
suit. 

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice.  Seek a competent attorney for advice on any legal matter. 

Liability of a Parent Corporation for Construction Defects

Magnolia N. Prop. Owners Ass’n, Inc. v. HeritageComm. Inc., No. 4943.

A property owners association (POA) filed suit for construction defects in a condominium complex. Appellants are three corporations: HCI (parent corporation), HMNI (seller) and Buildstar (general contractor).  HCI created separate corporations for every development it constructed for the purpose of operating as cost centers. HMNI was the cost center for Magnolia North POA and Buildstar supervised construction at Magnolia North.            

The POA board of directors initially consisted of officers of the Appellant corporations.  During this time, unit owners discovered various construction defects. The officers assured POA members that the defects would be timely cured.  The POA filed suit after turnover of the board from the developer to the unit owners. The POA asserted causes of action of negligence, breach of express warranty, breach of warranty of workmanlike services, and breach of fiduciary duty.  The court affirmed the jury’s award of $6.5M in actual damages and $2M in punitive damages. 

Amalgamation

Amalgamation is a theory of holding a parent corporation liable in place of its subsidiary where evidence shows that corporate interests, entities and activities are blurred to the point that separate legal distinctions can be ignored.  This is not piercing the corporate veil, as fundamental unfairness and fraud are not required elements. The court compared the instant case with Kincaid v. Landing Devel. Corp. where amalgamation was found between three distinct corporations.  In the instant case, the court pointed to the following facts for upholding the trial court’s finding of amalgamation:

1.     HCI, HMNI and Buildstar “shared officers, directors, office space and a phone number”

2.     The corporations shared employees

3.     HCI held itself out to the POA as the corporation responsible for construction defects in its written warranty

 Equitable Tolling

A three-year statute of limitations applied to the POA’s causes of action. Appellants argue the statute of limitations started when construction defects were discovered, marked by the POA’s first meeting on March 8, 2000.  The court disagreed and held that the statute did not begin to run until the date of turnover.

The court relied on the recent case of Hooper v. Ebenezer Senior Svcs and Rehab. Ctr., where the supreme court described equitable tolling as a “doctrine to suspend or extend the statutory period to ensure fundamental practicality and fairness . . . It has been observed that equitable tolling typically applies in cases where a litigant was prevented from filing suit because of an extraordinary event beyond his or her control . . . To deny [equitable tolling] would permit one party to suffer a gross wrong at the hands of the other.”

The POA board consisted of the corporations’ officers until turnover, so it is unreasonable to expect that the POA would have brought suit before the homeowners gained control of the board. As soon as turnover occurred, the POA promptly filed suit.  The court upheld the trial court’s ruling on equitable tolling.

Equitable Estoppel

The Appellant corporations were equitably estopped from asserting the statute of limitations as a bar to the POA’s claim because the Appellants induced the POA’s delay in filing suite.  The court held that deceit is not an essential element of estoppel; it is enough that the party “reasonably relied on the words and conduct of the party to be estopped in allowing the limitations period to expire.”  Appellants assured the unit owners that the construction defects would be repaired, so it was reasonable for the unit owners to give the Appellants time to make good on these promises before filing suit. 

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice.  Seek a competent attorney for advice on any legal matter. 

Association Meetings Must be Properly Noticed

Bd. of Managers of Park Regent Condo. v. Park Regent Assoc., No. 2009-04227, N.Y. Supr. Ct., App. Div., March 30, 2010.

A condominium regime in New York was recently involved in litigation over the validity of an association member annual meeting. Several unit owners called the meeting and purported to elect a new board of managers for their regime. The board of managers in place prior to the meeting brought suit for a declaratory judgment that the meeting was invalid for lack of proper notice; therefore no new board members were elected. A unit owner also sued past and current board members for fraud and breach of fiduciary duty. The trial court held that the unnoticed meeting was invalid and issued a permanent injunction against the board members elected at the meeting, preventing them from acting as members of the board. The appeals court affirmed this holding.

The individual unit owner later amended his complaint to recover attorney’s fees and expenses, as permitted in the regime’s governing documents. This motion was also granted.

In sum, when associations fail to properly give notice of member meetings and board meetings very costly results may follow. Associations should closely read their governing documents for notice requirements and follow these requirements to the letter. Contact an attorney for help in complying with your governing documents.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Ambiguous Covenant Construed to Permit Pet Bird

Breakwater Cove Condo. Ass’n v. Chin, No. A-1420-09T3, N.J. Super. Ct., App. Div., Dec. 2, 2010.

A unit owner at Breakwater Cove kept two birds in her unit. The association informed her that she was in violation of the master deed and her birds were a nuisance to other owners. The Master Deed provides: “No bird, reptile or animal of any kind shall be raised, bred or kept in any unit or anywhere else upon the property except that dogs, cats or other household pets are permitted, not to exceed two in the aggregate, provided they are not kept, bred or maintained for any commercial purpose, are housed within the unit and abide by all applicable rules and regulations. No outside dog pens, runs or yards shall be permitted.”

The association pursued alternative dispute resolution with a mediator in hopes of resolving the dispute. When mediation did not resolve the issue, the association sued the owner. The trial court sided with the association, finding that the owner’s birds did not qualify as “other household pets” under the master deed. The trial judge also determined that the birds were a nuisance based on testimony of other owners.

On appeal, the court determined that the pet policy in the master deed was ambiguous because it is reasonably susceptible to two meanings. The court held that based on this ambiguity, the covenant did not provide fair notice to unit owners and could not be upheld.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice.  Seek a competent attorney for advice on any legal matter.

Association Can Enforce Zoning Regulations

Ariyan v. Pine Orchard Ass’n, Inc., No. CV084034207S, Conn. Super. Ct., Dec. 3, 2010.

The court in this case held that the Pine Orchard Association had the authority to enforce zoning regulations within the association.  Ariyan began constructing a gazebo on her lot, which is zoned with a 20-foot rear setback. Behind her lot is a private, unimproved right-of-way.  Ariyan did not initially seek approval of the zoning board before starting construction.  However, she eventually did submit an application for a permit, which was denied.  She later submitted a second application for a permit and that was also denied based on the setback requirement.

Ariyan then submitted a variance request for the setback requirement, arguing that because there was no barrier between her property and the private right-of-way, the gazebo would not be noticeable if it violated the required setback requirement.  Her variance was also denied, and was shortly followed with a cease and desist order for the partially constructed gazebo.  Ariyan was asked to remove the gazebo.  After the Zoning Board of Appeals upheld the decision, Ariyan appealed to the Connecticut Superior Court.

Ariyan argued on appeal that the decision was illegal, arbitrary and an abuse of discretion.  She based most of her argument on the fact that the regulations did not define “structure.”  The court found this unconvincing and held that “structure” is defined using its common and usual meaning.  The court also held that the appeal lacked merit because zoning regulators are required to apply the regulations when appropriate, and the fact that the gazebo would not obstruct her neighbors’ views was irrelevant.

This site and any information herein is intended for informational purposes only and should not be construed as legal advice.  Seek a competent attorney for advice on any legal matter.

Limited Home Warranty Waived Implied Warranty of Habitability

Jones v. Centex Homes, 189 Ohio App. 3d 668 (2010).

The Joneses entered into a sales agreement with Centex Homes for the construction of a new home.  The agreement included a Limited Home Warranty provision covering defects in materials and workmanship.  The provision also contained a clause purporting to waive any and all express or implied warranties of habitability or fitness. 

Under the law in most states, a new homebuilder impliedly warrants to a purchaser that the home is structurally safe and free from defects.  In some states, it is incredibly difficult if not impossible to disclaim this warranty.  However, both the trial court and court of appeals in this Ohio case found that the buyers contractually waived their claims by virtue of the Limited Home Warranty. 

The court of appeals seemed to place great emphasis on the fact that the Joneses were in their 30s and 40s and made the conscious decision to enter into this agreement without the aid of an attorney.  The court relied on basic contract principles of freedom of contract and the presumption that a party reads what he signs.  The court also noted that although the Limited Home Warranty provision was not emphasized in the contract, it was also not hidden or in small font.  Because the language was clear and unambiguous and because the parties voluntarily entered into the agreement, the court upheld the waiver as the homebuyers’ exclusive remedy.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice.  Seek a competent attorney for advice on any legal matter.