Risk Management Assessment for Condos and HOAs

Here is a link with tips on how to be sure you are covered by your association’s Directors and Officers (D&O) insurance.

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.

SC Court of Appeals Reduces Punitive Damages Award in Construction Case

Hollis v. Stonington Dev. LLC, No. 4869, 2011 S.C. Ct. App. LEXIS 215 (Aug. 17, 2011).

Two families sued a development company for damages to their jointly owned property.  The Plaintiffs’ land includes two man made ponds built by family members over 50 years ago.  Stonington purchased land upstream from the property to build a residential subdivision.  The Plaintiffs alleged that as a result of the project, they experienced severe flooding, were hindered from accessing their homes, and their ponds were raised four feet due to sediment deposits.  The cost to restore the Plaintiffs’ property was estimated at $250,000.

The Plaintiffs further claimed that the Defendant Stonington violated state and local laws concerning erosion control and runoff, disregarded engineer recommendations, and misled them about its remediation plans.

At trial, the jury returned a verdict for the Plaintiffs in the amount of $400,000 in actual damages and $3.5 million in punitive damages.  Punitive damages are awarded when the conduct of the defendant is particularly egregious.  Stonington appealed this verdict to the SC Court of Appeals, where the punitive damages amount was reduced to $2 million.

The appellate court noted that it has the authority to set an upper limit range for punitive damages while still giving deference to the jury’s determination.  In determining whether a punitive damage award is excessive, courts look to the degree of reprehensibility of the defendant’s conduct, the ratio of compensatory damages awarded, and a comparison of the punitive damages awarded for similar misconduct.

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.   

Disabled Resident’s Abusive Conduct Violates Covenants

Connor v. Lake Dexter Woods Homeowners Ass’n, Inc., No. 2D09-5382, Fla. App. Ct., Dec. 29, 2010.

The Lake Dexter Woods Homeowners Association sued for an injunction against a disabled resident with an “angry” personality disorder.  Watson, the developmentally disabled resident, lives in the subdivision under the care of his guardian advocate, Connor.  The trial court determined that Watson’s longstanding behavior constituted a nuisance and violated the declaration of covenants, conditions, and restrictions for Lake Dexter Woods.  Based on the facts, Watson frequently yelled abusive obscenities at other residents, made physical threats against them, and drove his car erratically, often aiming at pedestrians.

The appeals court reluctantly affirmed the injunction, in spite of the fact that it is unlikely to remedy the problem.  The guardian advocate is charged with taking all reasonable steps to keep Watson under control, and has spent more than $47,000 in legal fees for Watson’s defense.

Although this is an unfortunate situation, the board of directors in this case likely decided that the risk of personal injury was too much to ignore the problem any longer and seeking an injunction was the association’s only viable option.

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.

LLC Members are not Protected from all Liability

Sturm v. Harb Development, 298 Conn. 124, 2 A.3d 859 (2010).

Members of limited liability companies may be surprised to know that they can be sued individually when they personally direct or participate in tortious conduct. This is not the same as piercing the corporate veil, and does not require the plaintiff to allege facts to show that the corporate veil should be pierced.

In this case, a homeowner sued a contractor for breach of contract, negligence, fraud, and negligent misrepresentation in connection with the construction of a new home. The trial court held that the plaintiff failed to allege facts sufficient to pierce the corporate veil, so the contractor could not be held personally liable. On appeal, the plaintiff homeowner argued that piercing the veil was unnecessary because he was asserting liability against the defendant based on his individual actions, not trying to hold the contractor vicariously liable for the actions of the LLC. The court determined that a member of an LLC is not liable for the actions of the LLC merely because of his position within the company. However, when the member personally directs or participates in tortious conduct, he cannot hide behind the corporate shield.

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.

Sub Lulled into Believing Contractor Would Pay

Cleveland Construction, Inc. v. Ellis-Don Construction, Inc., 2011 N.C. App. LEXIS 641 (April 5, 2011).

The statute of limitations tolled on a subcontractor awaiting payment from a general contractor. Usually this would bar the sub’s claims, however, the court in this case held that the GC made promises to the sub that payment was forthcoming from the owner. The GC also encouraged the sub to hold off on filing suit so the two could assert a united front against the owner. The court held that under these circumstances, it was reasonable for the sub to rely on the GC’s promises of payment and the statute of limitations should not bar the sub’s recovery.

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.

Liquidated Damages Upheld Unless Extraordinarily Disproportionate

Weis Builders, Inc., 2010 ASBCA No. 56306, LEXIS 13 (Feb. 17, 2010).

The U.S. Army Corps of Engineers awarded Weis Builders, Inc. a design/build contract for family housing at Minot AFB in North Dakota valued at $350 million.  The liquidated damages provision of the contract and both disputed task orders stated that failure to complete the work on schedule would result in $2,400/day until the work was completed or accepted plus $35/day for each incomplete house.

Weis failed to complete both task orders on time, which resulted in a total $1.3 million in liquidated damages.  Weis argued that the provision was unenforceable because the government’s actual damages were less than $1.3 million and that the late turnover requirement was ambiguous. Both the contracting officer and the Armed Services Board of Appeals denied Weis’s claim.

Liquidated damages provisions will be upheld unless they are extraordinarily disproportionate to the actual damages suffered, thus penalizing the breaching party.  The difficulty lies in actually proving that the liquidated damages are extraordinarily disproportionate, especially in government contracts where it is hard to predict at the outset what damages the government will suffer if the contract is breached.

In this case, the liquidated damages were tied to reasonable estimates of the government’s predicted losses in the event that the construction was not completed on time.  $2,400/day was an adequate measure of the administrative costs and personnel costs that the government could have been expected to spend, and the $35/day was based on the need for housing military families in hotels until the construction was complete.  The Appeals Board also determined that the government need not prove the exact measure of calculation of liquidated damages so long as they were based on reasonable estimates.

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.