COMMUNITY ASSOCIATION SEMINAR
CASE LAW UPDATE
Significant Legal Decisions of 2014
March 9, 2015 – Holiday Inn Express, Centereach, N.Y.
March 18, 2015 – Holiday Inn Express, Centereach, N.Y.
(1) LIABILITY FOR PERSONAL INJURY
DeJesus v. The Parkchester South Condominium
Appellate Division (1st Dept., 2014)
Plaintiff was injured while walking on an interior walkway of the Condominium when she was struck by a child riding a bicycle. The Condominium had a rule against riding bicycles in the interior walkways and posted the rule on a number of signs in the area. There were also surveillance cameras monitoring the area. Those found violating the rule were either given a summons, issued a warning, or had their bicycle confiscated. The Court found that the Condominium had provided the minimal precautions required to protect people from the foreseeable harm of those riding bicycles in the walkways, and dismissed the case against the Condominium.
Bottom line: Rules prohibiting certain activities that are unambiguous and posted may reduce or eliminate liability.
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(2) HOUSING DISCRIMINATION CLAIM
Olsen and Long Island Housing Services v. Stark Homes, Inc.,
Federal Appeals Court (2d Cir., 2014)
The Olsens sought to purchase a mobile home in a 55 and over community where the land for the home is leased from another land owner (the “Lessor”). The contract to purchase the home is contingent upon approval of a lease to the buyer by the landowner. The Olsens have a severely depressed son under the age of 55 whom they claim cannot live alone, and sought approval of the Lessor for their son to reside with them in the home, due to his disability and as a reasonable accommodation. The lessor requested proof that the son could reside in the unit without anyone home with him for short periods of time. A letter was sent from the son’s psychiatrist stating that the son had severe depression, but was able to live “independently”. The lessor denied the request for an accommodation.
The Olsens sent a follow up letter to the lessor from the psychiatrist which explained that “living independently” was a clinical term, meaning he could live outside of a hospitalized environment, but that he needed to live with his parents to function. The lessor denied the request once more, stating the letter was still insufficient. The Olsens sought help from Long Island Housing Services (“LIHS”), which sent “testers” (persons posing as possible buyers/renters) to the property to attempt to show a pattern of discrimination. The tests (according to LIHS) showed discriminatory practices by Lessor.
The trial court dismissed the claims, holding there was no evidence that the defendant’s rejection of the application was caused by or based upon prohibited discrimination. The appellate court found that the trial court erred in not allowing a jury to make the decision and remanded it back for trial. The court explained that, if housing is sought by a person who has provided proof of a disability, which disability prohibits that person from performing a major life function (such as the ability to work), the application is denied and that denial is not based upon a non-discriminatory purpose (person seeking accommodation has a violent history), then the refusal is discriminatory and actionable.
Bottom line: Don’t get caught in a never ending court case.
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(3) SPECIAL MEETINGS
Pastrana v. Cutler,
Appellate Division (2d Dept., 2014)
Plaintiff unit owners request an inspection of the Condominium books and records and submit a petition for a special meeting to remove the Board and elect new Board members. The Board finds that the petition does not contain the required number of valid signatures. Plaintiffs sue the Board and the Court orders that both an inspection of the books and records and the special meeting take place. The Board refuses to cooperate and the Court issues another order, again compelling the inspection and special meeting. The Court also directs that the plaintiffs are to set the date, time and location of the meeting, send out the notice of meeting and proxy, conduct the meeting and retain a professional association to conduct the election. The Board appeals, claiming that the Condominium By-Laws direct the Board to conduct special meetings. The Appellate Division upholds the lower Court’s decision.
Bottom line: Don’t spit into the wind.
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(4) BOARD COMPLIANCE WITH COURT ORDERS
Yusin v. Saddle Lakes Home Owners Association, Inc.,
NY Supreme Court, Suffolk County, 2014
Condominium unit owner and her mother purchased their unit in November 2001 and following the death of plaintiff’s mother in October 2011, the HOA sought to enforce their claim that applicable regulations required occupancy by at least one person over the age of 55 years; Plaintiff is under the age of 55.
During the course of proceedings, the parties entered into a stipulation to which the defendants agreed, among other things, that during the pendency of this action they would “not disturb in any manner the possession rights of the Plaintiff in the subject premises …” The parties also agreed that the HOA “may continue to assert fines for any alleged violation of the Governing Documents – but may not send or communicate notices or demands with respect to said alleged violations nor attempt to collect said assessments or fines if any.”
Plaintiff moved for an order punishing the defendants in contempt of court for their alleged violation of the terms of the stipulation.
In support of their application, Yusin submitted a statement for the total amount of $703.90 which sets forth charges in the amount of $18.90 for “late charge”; $50.00 for “violation”; $35.42 for “common charge” and $284.58 for “HOA fee”. Similar statements were subsequently mailed to Yusin by the HOA property manager, and Yusin also claims that she had complained to the President of the defendant Board of Managers “about an intruder” who had allegedly rung her doorbell after midnight, and that he responded that “it was a neighbor harassing you due to the lawsuit you have.”
In addition, plaintiff submitted a notice sent by the defendants to all of the unit owners giving notice that each homeowner would be assessed $250 .00 for the litigation expenses connected with a lawsuit instituted by one homeowner under the age of 55 years who resides alone in the condominium complex. Yusin alleged that the notice is inflammatory and was published with intent to harass her because, rather than simply notify unit owners that a special assessment was being imposed for litigation expenses, it asserts: “Our attempts to negotiate a mutually acceptable solution to this suit has met with a response that is non-negotiable, demanding complete permission for this resident to remain regardless of age.”
The HOA submitted the affidavit of its property manager who averred that monthly statements are prepared and sent to all unit owners, and the fines for alleged violations which were set forth on the statements sent to plaintiff were issued “based upon directions given to me by the Board of Directors and our attorney.” He also stated that the fines were included in the statements “to apprise the plaintiff that fines have been levied and their amount” and because their billing system “does not allow any other way for us to impose and keep track of the fines.”
The court held that the statements sent by the HOA constituted notices of alleged violations, as well as attempts to collect fines, that the notice of a special assessment for litigation expenses that was sent to all homeowners could only be viewed as adversarial, and its circulation prejudiced the plaintiff by instigating harassment by neighbors and disturbing plaintiff’s right to peaceful occupancy and possession of her condominium unit, – all in violation of the stipulation and order – and accordingly, held the HOA and its Board in Contempt of Court, fining them $250 each.
Bottom line: Attention to detail and strict compliance can be critical, especially when dealing with court orders.
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(5) PROHIBITING ACCESS TO AMENITIES FOR NON-PAYMENT
Columbia Condominium v. Ullah,
NY Supreme Court, NY County, 2014
Owner stops paying common charges. Board commenced a foreclosure action and later withheld privileges and amenities pursuant to a newly passed house rule. Owner answered in foreclosure action with a multitude of affirmative defenses, all rejected by the Court. The Court reiterated past case law stating the obligations of a unit owner to pay common charges and special assessments are for the most part absolute. The court further found that a house rule withholding privileges due to non-payment is valid.
Bottom line: Defendants can throw in the kitchen sink (and still not prevail) – and House Rules can be more powerful than we think.
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(6) LIEN PRIORITY
ACQUA Capital, LLC v. Board of Managers of Spook Rock Industrial Park Condominium,
NY Supreme Court, Rockland County, 2014
Eight months after a bank foreclosure auction at which the bank became the owner of the condominium unit, the bank tries to sell the unit to a third party. The bank agrees to pay the Condominium the common charges owed for the past eight months, but the Board of Managers insists that the bank or new purchaser pay the common charges owed for the past six years. The Court rules that, while there had been a consolidation of a first and second mortgage and despite the broad language in the bank’s Terms of Sale, the foreclosure judgment and sale of the unit extinguished any lien for unpaid common charges, both based upon NYS law and the Condominium’s governing documents.
Bottom line: Frustration is not a legal principle.
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(7) LIEN PRIORITY
Bank of America v. Brooks,
NY Supreme Court, Westchester County, 2014
The bank commenced a foreclosure action in 2010, but did not do much to move the case forward. The Board moved to compel the bank to pay the accrued common charges claiming that the charges had accrued due to the bank’s delay in prosecuting the action. The Court denied the Board’s motion and stated that their claims against the homeowner for common charges should be litigated in a separate action. There was no basis for the Board to recover damages from the bank for not pursuing its foreclosure action at a faster pace. The Court noted that if the bank continued to delay, the Board might argue that the bank’s delay should reduce the amount of interest accruing on the loan. This could potentially result in a surplus once the bank foreclosed which the Board and other junior lienholders would be entitled to. However, in practical terms, this scenario is unlikely.
Bottom line: You can’t control how fast the banks foreclose.
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(8) PETS
The Preserve Homeowners’ Association, Inc., v. Zhan,
Appellate Division (2d Dept., 2014)
Property owners’ association directed defendants to remove two chickens from their property because the presence of the chickens violated a restrictive covenant of the Declaration, but the defendants refused to do so. HOA thereafter commenced suit seeking a permanent injunction ordering defendants to remove the chickens, and subsequently moved for summary judgment; defendants cross-moved for summary judgment dismissing the complaint. Supreme Court denied the motion and granted the cross motion, and the Appellate Division reversed.
Here, the Declaration provided that the HOA “shall have the absolute power to prohibit a pet from being kept on the Properties, including inside residences constructed thereon.” As a result, the court held that the HOA established that its Board was acting for the purposes of the homeowners’ association and within the scope of its authority when it directed defendants to remove the chickens from the property, and that there was no evidence that defendants had been “deliberately singled out … for harmful treatment” because no other residents of the subdivision had chickens or were in violation of the applicable restrictive covenant.
Bottom Line: Sometimes a chicken is a pet – sometimes it isn’t.
(The dissenting opinion vigorously argued that a chicken could, and should in this case, be considered a “normal household pet.”).
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(9) OBLIGATION TO REPAIR
Von Arx v. The Board of Managers of Newton Tower Condominium,
NY Supreme Court, Queens County, 2014
Unit owner moves into unit and almost immediately experiences leaking water from the ceiling of the unit. Unit owner complains to Board and managing agent for over four years without relief. Unit owner believes leak is due to faulty repairs and poor workmanship on the terrace which adjoins the unit above. Unit above is owned by the President of the Board, who refuses access for repairs. Leak causes initial damage to ceiling and continued leaking causes personal property damage, damage to walls and mold growth. Unit owner brings suit against the Board and its members individually seeking an injunction to compel the Board to repair and pay for all of the repairs, including ancillary damages and to compel the President of the board to allow access to do so. Governing documents required the Board to maintain, repair and replace limited common elements as a common expense and required unit owners to permit reasonable access to their unit for performance of these repairs. Court grants application in its entirety, including repairs that would not have been a common expense if addressed in a timely manner.
Bottom line: If you delay, you may pay.
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(10) BOARD CONFIDENTIALITY
Board of Directors of Windsor Owners Corp. v. Platt,
NY Supreme Court, NY County, 2014
This case involves a civil suit brought by the co-op Board against one of its own directors, Elaine Platt, after she improperly shared confidential Board information (including litigation strategy and documents) with other persons not on the Board.
Initially, a dispute arose regarding one of the co-op’s shareholder/tenants (Mazzocchi) who’s girlfriend, thought to be mentally disturbed, was consistently acting strangely in the common areas and creating repeated disturbances.
An action was therefore commenced by the Board to terminate Mazzocchi’s lease and evict them from the building, and Mazzocchi brought a federal action against the Board alleging an array of claims.
At about that same time, the defendant in this case, Ms. Platt, was running for re-election, and as a part of her campaigning efforts, shared certain confidential communications between the Board and its attorneys (involving the Mazzocchi lawsuit) that was protected by the attorney-client privilege.
The Board directed Ms. Platt to cease all such communications with others not authorized to access same, and when she continued doing so, it brought an action against Platt seeking a preliminary injunction barring Platt from revealing any other privileged attorney-client information to anyone not on the Board. Platt, of course, immediately sued the Board and its attorneys, seeking, among other things, a declaration from the court that she did nothing wrong in sharing the Board’s privileged communications with non-Board members.
The court ordered that, pending final determination of the action, Platt was prohibited from sharing or disclosing confidential communications provided by counsel to anyone except another member of the Board.
Bottom Line: Discretion is the better part of Board valor.
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(11) ASSESSMENTS
Board of Managers of the 4260 Broadway Condominium v. Caballero,
Appellate Court (1st Dept., 2014)
A unit owner fails to pay assessments and the Board commences a foreclosure action. The unit owner counterclaims and the Board moves for summary judgment. The court denies the motion, questioning whether certain assessments were for building repairs, which would not require unit owner approval, or for alterations, additions or improvements to the building, for which unit owner approval would be required. The Board appeals the decision and the Appellate Court agrees with the lower Court.
Bottom line: Keeping proper Board Minutes can avoid hours, days, months and years of litigation.
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(12) RIGHT OF FIRST REFUSAL
The South Tower Residential Board of Managers, v. Ann Holdings, LLC,
NY Supreme Court, NY County, 2014
Owner of Condominium unit negotiated a sale of his unit to his “neighbor” – a unit holder who wanted to merge the 2 units. The deal does not go to contract. The Owner entered into a contract with a new buyer and notified the Board pursuant to his obligation to do so under the By-laws (right of first refusal). The Board exercised its right to purchase the unit through a designee, who just happened to be an entity fully owned by the “neighbor.” The Board agreed to structure the purchase in this manner because “neighbor” agreed to license part of the hallway for a fee, as other unit owners had done in the past, in order to effectuate the merging of the units. Owner refused to sell to the Board and accused the Board of self- dealing and bad faith. Board brings an action against the homeowner for specific performance. The Court found that the Board acted legitimately in all aspects of the transaction and that the owner was to receive exactly what he had bargained for under the contract.
Bottom line: Right of first refusal can be used to remedy a multitude of problems.
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(13) BOARD COMPLIANCE & FOLLOWING OF CORPORATE FORMALITIES
The Board of Managers of the Clermont Greene Condominium, v. Vanderbilt Mansions, LLC.,
NY Supreme Court, Kings County, 2014
Condo Board sought compensation for alleged defects in the construction of the condominium and asserted claims against the Sponsor for breach of contract, breach of warranty, breach of fiduciary duties, attorneys’ fees, punitive damages and an accounting of all books and records. The Sponsor, who also sits on the Board, moved to dismiss the case against it.
The Sponsor argued that the Condo Board lacked capacity to prosecute the action because the lawsuit was never properly authorized by the Board.
The court agreed with the Sponsor that the board of managers lacked authorization to bring suit against the Sponsor (because the bylaws required special meetings of the board to be called by the president on three days’ notice to each member sent by mail, telegraph, telefax, or telephone, and the board of managers did not convene a formal meeting prior to filing the complaint to commence the action), and that the failure to comply with procedures delineated in the bylaws in obtaining authorization to commence suit required dismissal of the action.
Bottom Line: The failure to strictly comply with your by-laws and the ignoring of required corporate formalities can doom your case before you even start.
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(14) PROTECTING & PRESERVING COMMUNITY FUNDS
United States of America v. Iovino,
Federal Court of Appeals, Second Circuit (2015)
In this case, defendant Iovini unsuccessfully appealed a judgment of conviction which sentenced him to 60 months’ imprisonment, claiming that sentencing guidelines called for a lighter sentence. The facts in the underlying case are noteworthy. Iovino was president of the property management company which managed Bedford Terrace Condominium in Westchester, NY. Iovino admitted to using the Condominium’s debit card to pay for personal expenses, including trips to Las Vegas and Atlantic City. He also took out a loan in the Condominium’s name. All this was accomplished by forging loan documents, board minutes and bank statements. The amount lost by the Condominium was over $280,000.
Bottom line: Did you say forensic accounting?
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(15) BUSINESS JUDGMENT RULE
DSW Lennox, LLC v. Rosetree on Lenox Avenue, LLC,
NY Supreme Court, NY County, 2014
Plaintiff, a unit owner and Board member, brought an action on behalf of the Condominium and its Board against the Condominium’s sponsors for design and construction defects. Plaintiff also sued the other Board members for breach of their fiduciary duties. Prior to commencing this lawsuit, the Board retained an attorney to try to determine whether they should bring an action against the sponsor. Although the attorney recommended commencing a lawsuit, the Board, with the exception of Plaintiff, voted against commencing a lawsuit. Plaintiff claimed that the other Board members breached their fiduciary duties by voting against the lawsuit which deprived the Condominium of the opportunity to sue the sponsor for construction defects. The other Board members argued that the claim against them should be dismissed because it is barred by the business judgment rule. The Court found that the Board had a legitimate business justification for deciding against commencing a lawsuit and was acting in furtherance of the Condominium’s purpose. Plaintiff’s complaint was dismissed since all it alleged was that the Plaintiff disagreed with the Board’s decision not to commence a lawsuit.
Bottom line: Disagreement with a Board decision is not enough to overcome the business judgment rule.
