Maria A. Basave de Guillen (“Debtor") filed a Chapter 13 bankruptcy on February 28, 2018. The Association filed a proof of claim in the amount of $64,137.20 on March 30, 2018, asserting that the amounts owed are secured by the assessment lien, and by an abstract of judgment. The Debtor filed an objection thereto on May 15, 2018. The Debtor's objection set forth many grounds, but ultimately only one was persuasive to the Court. The Bankruptcy Court ruled that the assessment lien secured only the amount originally stated therein ($1,395.00), but the abstract of judgment secures the amount of the judgment ($29,970.65). The remaining $34,166.55 is unsecured. The Debtor has not yet filed a motion to avoid the judgment lien.Whether, in California, an assessment lien is a continuing lien, rather than a lien which is limited to the amount stated therein when the lien was originally recorded.
The Association (Appellant) asserts that liens are continuing liens. The Debtor asserts that liens are limited to the amount set forth therein when recorded.The issue has been one that has been considered in two unpublished opinions: one by the Northern District of California District Court, and one by the Northern District of California Bankruptcy Court. In those cases, the courts held that liens are limited to the amount stated therein when recorded. Those decisions appear to be contrary to California law.
In 2005, the California Court of Appeal considered the issue. In
Bear Creek Master Association v. Edwards (2005) 130 Cal.App.4th 1470, 1489, the court expressly held that associations are not required to record successive liens, and the lien is a continuing lien which secures all amounts authorized by statute and the governing documents. The court in that case held as follows:
"Condominium homeowners associations must assess fees on the individual owners in order to maintain the complexes." (Park Place Estates Homeowners Assn. v. Naber (1994) 29 Cal.App.4th 427, 431-432, 35 Cal.Rptr.2d 51, italics original.) Those fees are statutorily prescribed to be "a debt of the owner . . . at the time the assessment . . . [is] levied." (Civ.Code, § 1367, subd. (a).) "These statutory provisions reflect the Legislature's recognition of the importance of assessments to the proper functioning of condominiums in this state. Because homeowners associations would cease to exist without regular payment of assessment fees, the Legislature has created procedures for associations to quickly and efficiently seek relief against a nonpaying owner." (Park Place Estates Homeowners Assn. v. Naber, supra, 29 Cal.App.4th at p. 432, 35 Cal.Rptr.2d 51, italics added.)Were the relevant provisions to be construed as Edwards suggests, the described statutory purpose of providing for a quick and efficient means of enforcing the CC & R's would be seriously undermined; each month, or at such other intervals as the assessments are charged under a given set of CC & R's, the association would be required to record successive liens. A successive recordation requirement would impose a heavy — and needless — burden upon homeowners' associations, fraught with risk to the association, and undue windfall to the delinquent homeowner, should any installment be overlooked.
We are unwilling to construe Civil Code section 1367 to require such an oppressive burden. Both delinquent homeowners and the public at large are placed on notice, with the recordation of the initial assessment lien, that subsequent regularly and specially levied assessments, if they continue unpaid, will accrue in due course. The purpose of the lien notice and recordation will have been served, and the association's remedy justly preserved, by the initial recordation of lien. (Emphasis added.) *
* The foregoing case references former Civil Code §1367, which was amended in 2013 to be re-numbered as §§5660 – 5690.California statutes also suggest that liens are continuing liens. Civil Code §5675(a) provides, in relevant part:
The amount of the assessment,
plus any costs of collection, late charges, and interest assessed in accordance with subdivision (b) of Section 5650, shall be a lien on the owner's separate interest in the common interest development
from and after the time the association causes to be recorded with the county recorder of the county in which the separate interest is located, a notice of delinquent assessment,… (Emphasis added.)
Civil Code §5650(b)(1) provides that associations may recover reasonable costs incurred in collecting the delinquent assessment, including reasonable attorneys' fees. Because most collection costs will be incurred after a lien is recorded, as a result of efforts to enforce the lien, the statutes must be interpreted such that the lien secures those costs.Civil Code §5720 provides a limitation on the foreclosure of assessment liens. That section states, in relevant part:
(b) An association that seeks to collect delinquent regular or special assessments of an amount less than one thousand eight hundred dollars ($1,800), not including any accelerated assessments, late charges, fees and costs of collection, attorney's fees, or interest, may not collect that debt through judicial or nonjudicial foreclosure, but may attempt to collect or secure that debt in any of the following ways:
* * *
(2) By recording a lien on the owner's separate interest upon which the association may not foreclose
until the amount of the delinquent assessments secured by the lien, exclusive of any accelerated assessments, late charges, fees and costs of collection, attorney's fees, or interest, equals or exceeds one thousand eight hundred dollars ($1,800) or the assessments secured by the lien are more than 12 months delinquent. (Emphasis added.)
Section 5720(b)(2) acknowledges that a lien may be recorded on one date, and that it will reach the statutory threshold for foreclosure at a later date.Nevertheless, two Bankruptcy Court opinions have held that assessment liens are limited to the amount stated in the lien when it was recorded.
In re Guajardo (2016 Bankr. LEXIS 769; 2016 WL 943613), the Bankruptcy Court held that because liens must include an “itemized statement of the charges owed by the owner, including items on the statement which indicate the amount of any delinquent assessments, the fees and reasonable costs of collection, reasonable attorney's fees, any late charges, and interest, if any." Cal. Civ.Code § 5660 (emphasis added). In turn, both repealed section 1367.1(d) and current Civil Code section 5675 limit the lien to that specified amount." That court expressly rejected the holding in
Bear Creek v. Edwards, stating that “the lien provisions of the
Bear Creek covenant, however, were much more specific as to future accruals than those in this case."Similarly, in In re Warren (2016 U.S.Dist LEXIS 49917; 2016 WL 1460844), the Court rejected the argument that California statutes create a continuing lien, stating: “The Court disagrees. Section 5720(b)(2) simply provides an association with the option to wait to record the lien until delinquent assessments exceed $1,800. Alternatively, the association may record the lien and wait a year to foreclose thereon."
United States Bankruptcy Appellate Panel of the Ninth Circuit Opinion
Brief Author: Nathan McGuire, Esq.
CAI Amicus Review Panel: Mr. Robert Diamond, Esq., Chair of Amicus Committee, Mr. Edmund Allcock, Esq. (MA), Mr. Gary Kessler, Esq. (CA), Mr. Thomas Moriarty, Esq. (MA)
Appellant, North Point I Condominium Association, entered into a settlement agreement with Defendant/Appellee Harry Burney dated April 18, 2015 (the “Contract"). The Contract contains a confession of judgment clause.
After Defendant breached the Contract, Plaintiff filed a confession of judgment on February 21, 2017. Plaintiff filed the writ of execution on February 14, 2018.
On July 7, 2018, more than sixteen months after the judgment, Defendant filed a Motion to Stay Execution. Defendant Burney does not dispute the amounts due or his repeated breaches of the various settlement agreements, including the Contract.
On July 17, 2018, the Trial Court issued an Order and Opinion stating, inter alia, that the Confession of Judgment was stricken, finding that, “because the judgment arises out of defendant's failure to pay homeowner dues and assessments, … the judgment was entered by confession in connection with a consumer credit transaction." (Op. at 3). Plaintiff filed a Motion for Reconsideration on July 24, 2018, which was denied July 31, 2018. Plaintiff appealed to this Honorable Court on August 14, 2018.
CAI filed an amicus brief in this case for a few reasons: (1) homeowners associations (HOAs) in any of the states that allow confessions of judgment could be affected by the PA Superior Court's ruling in this case, even if it is just persuasive and not binding authority; (2) a ruling against appellant in this case would chill the possibility of settlement by all associations that wish to settle regarding past-due debt of homeowners; and (3) HOAs already struggle to collect from delinquent unit owners, the law in most states subordinates debt for assessments to that of first mortgage holders, so foreclosure is rarely a practical option, and any further hindrance for such collection (which a ruling against appellant could be) would make collection that much more difficult. See Goldmintz, Daniel. Lien Priorities: The Defects of Limiting the “Super Priority" For Common Interest Communities, Cardozo Law Review, Vol. 33, No.1, at 268, Fall 2011.
CAI advances the arguments suggested in the reasons stated above and urges the Court that public policy dictates that parties settle matters out of court whenever efficiency, fairness, and economy dictate. To affirm the Trial Court's striking of appellant's confessed judgment would mean that HOAs would not settle out of court anymore but would insist on obtaining judgments against debtors even if the parties wished to enter into a formal settlement agreement. Debtors would have judgments on their records, showing up on their credit reports, and rue the day they decided to buy into an HOA in the first place.
Superior Court Reversal Memorandom
Brief Author: Henry F. Reichner, Esq.
CAI Amicus Review Panel: Mr. Robert Diamond, Esq., Chair of Amicus Committee, Mr. Edmund Allcock, Esq. (MA), Ms. Karyn Kennedy Branco, Esq. (NJ), Mr. Gary Kessler, Esq. (CA), and Mr. Steve Sugarman, Esq. (PA)
Plaintiff Christian Sakal ("Sakal") owned unit 2806-A in the Hawaiian Monarch condominium project. Sakal was delinquent in common assessments. After unsuccessful attempts to collect the delinquency, the Association of Apartment Owners of Hawaiian Monarch ("Hawaiian Monarch") proceeded with a nonjudicial foreclosure under Hawaii Revised Statutes ("HRS") Chapter 667, Part VI. Sakal filed an action seeking an injunction to stay the nonjudicial foreclosure sale which was denied on December 3, 2012. That same day, Hawaiian Monarch held a public auction for the property subject to the unit's mortgage. Defendant Jonah Kogen ("Kogen") was the highest bidder with a purchase price of $50,500. On January 16, 2013, a quitclaim deed to Kogen for unit 2806-A was recorded.
On May 5, 2014, Sakal filed a complaint against Hawaiian Monarch and Kogen to set aside the foreclosure and for damages. Kogen filed a motion to dismiss which was granted on the grounds that Sakal was required to challenge the validity of the foreclosure prior to the recording of the quitclaim deed and that Hawaiian Monarch had the authority to foreclose nonjudicially. Hawaiian Monarch's motion to dismiss was also granted on similar grounds. Sakal filed a timely appeal.
On appeal, the Hawaii Intermediate Court of Appeals ("ICA") ruled that Hawaiian Monarch did not have the authority to foreclose nonjudicially because there was no provision in the governing documents or in an agreement with Sakal that expressly provided for a nonjudicial foreclosure. The ICA's rationale was that mortgagees must have authorization to foreclose nonjudicially in the mortgage or other agreement before they can proceed nonjudicially and the
statutes adopted by the legislature are not specific enough to determine that the legislature intended to grant that power to associations by statute. The ICA denied Hawaiian Monarch's motion for reconsideration by order filed September 19, 2018. A judgment on appeal has not been entered by the ICA at this time.
The Sakal case was decided by the ICA. Once the Judgment on Appeal is filed, a writ of certiorari will be filed by Hawaiian Monarch which will request that the Hawaii Supreme Court consider the matter on appeal.
The Hawaii Legislative Action Committee supported the amendments to the condominium statute authorizing nonjudicial foreclosure. It provided and continues to provide an important tool for associations when their delinquencies are high and when lenders are not pursuing their own foreclosures. Nonjudicial foreclosures provided relief to associations faster and with less expense. All the arguments described above should be made because the Hawaii Legislative Action Committee can present the unique perspective of having lobbied for the changes that allow associations to foreclose nonjudicially.
Order rejecting application for writ or certiorari
Brief Author: John A Morris, Esq., M. Anne Anderson, Esq., Kapono F.H. Kiakona, Esq.
CAI Amicus Review Panel: Mr. Robert Diamond, Esq., Mr. Edmund Allcock, Esq., Mr. Henry Goodman, Esq., Mr. Marc Markel, Esq., and Mr. Steven Sugarman, Esq.
The issue at stake is whether an owner of real property within a community association, who files a bankruptcy petition under Chapter 13 of the Bankruptcy Code, may discharge all past and future assessments that accrue during ownership. When an owner files a Chapter 7 bankruptcy petition there is a specific statute that precludes from discharge all post-petition assessments. 11 U.S.C. § 523(a)(16). The Bankruptcy Code, however, is silent as to whether post-petition assessments are discharged under other bankruptcy chapters.
There is a split of authority throughout the United States as to whether owners who file a Chapter 13 bankruptcy are liable for ongoing assessments. The Ninth Circuit is arguably the most influential since it is the largest in terms of geography and population. As such, the outcome of this case threatens the livelihood of community associations throughout the country from being able to collect assessments once they file a Chapter 13 bankruptcy.
On July 10th, 2018, the Ninth Circuit held against community associations, creating a heightened duty of record keeping that few boards or management companies can maintain. Specifically, if an owner is relieved of all personal liability to pay assessments after filing a Chapter 13 bankruptcy, the association must keep a record of that bankruptcy and never attempt to collect a future debt for unpaid assessments from the owner personally – even if the owner was not delinquent at the time he/she filed bankruptcy and even if the bankruptcy was filed decades ago.
Prior to the Ninth Circuit's ruling, the lower bankruptcy court and district courts who heard the case had both agreed with my client's position, which was the de facto approach.
Amicus Brief /Petition for Writ of Certiorari
Petition for Writ of Certiorari Denied
Ninth Circuit Opinion
Brief Author: Thomas Moriarty, Esq.
Brief Contributors: Mr. Chad Miesen, Esq., Mr. Craig Zaller, Esq., Mr. Tim Carey, Esq., Mr. Richard Ekimoto, Esq., Mr. Brian Fellner, Esq., Ms. Kimberly Bielan, Esq.
CAI Amicus Review Panel: Robert Diamond, Esq., Edmund Allcock, Esq., Gary Kessler, Esq., Michael Karpoff, Esq., Henry Goodman, Esq.
Plaintiff Sunnyside Resort Condominium Association, Inc., a Michigan nonprofit corporation, (“SRCA" or the “Association") instituted a two-count suit on December 11, 2012 to collect past due assessments from Defendants Beckman Holdings, Inc. (“Beckman") and Meinke Construction, Inc. (“Meinke"). Beckman and Meinke each owned 50% undivided interests in Units 11 and 13 of the Sunnyside Resort Condominium (“SRC"). Under Count I, Plaintiff sought $11,853.90 in past due assessments (from January 1, 2006 through September 30, 2012) along with pre-judgment interest and the Association's expense of litigation including reasonable attorney's fees. Under Count II Plaintiff asserted that the individual Defendant Neil J. Beckman (principal of Beckman Holdings, Inc.), with breach of fiduciary duty during his tenure as President and Director of the Association for a failure to assess and collect from Units 11 and 13 any amounts of Association assessments during his tenure which included 2006 through 2011 as required by the SRC Master Deed and Bylaws.
Defendants Beckman and Meinke argued that Units 11 and 13 were not liable for their percentage share of assessments because they were incomplete even though such assessments were otherwise required to be allocated to Units 11 and 13 under the Master Deed and Bylaws. In addition, the three Defendants also filed a Counterclaim (Count I) against the Association and a Third-Party Complaint against former and present directors and officers of SRCA (“Officer/Director Group") charging them with breach of fiduciary duty.
The District Court rejected the Defendants' argument that they were not liable for any assessments and ultimately entered a money judgment against Defendants Beckman and Meinke in the amount of $4,577.68 for assessments from Spring, 2012 through September 30, 2015. The District Court, however, refused to permit the Association to recover Unit 11's and Unit 13's share of assessments from January 1, 2006 through Winter, 2012. The District Court also refused to permit the Association to recover its attorney fees on Count I (August 3, 2016 Opinion and Order at pp. 3 -4), despite multiple requests for a hearing on and award of such fees. It instead awarded Case Evaluation attorneys' fees to the losing Defendants in the amount of $30,238. (Oct 1, 2015 Opinion and Order Determining Entitlement to Case Evaluation Sanctions and Prevailing Party Status; February 29, 2016 Opinion and Order Awarding Trial Damage and Case Evaluation Sanctions). Further, the District Court found Defendant Beckman not liable for breach of fiduciary duty and ordered Plaintiff to pay him $2,735.55 in reasonable attorneys' fees and costs under Count II of the Defendants' Counterclaim for indemnification. (September 29, 2015 Trial Opinion at pp. 5-6; September 29, 2015 Trial Judgment at p.2; February 29, 2016 Opinion and Order Awarding Trial Damages and Case Evaluation Sanctions).
With respect to the Defendants' Counterclaim, the District Court found the Association not liable (September 29, 2015 Trial Opinion, pp. 6-7) but found the members of the Officer/Director Group liable for breach of fiduciary duty for having continued Beckman's practice of failing to commission the conducting of annual audits but assessed no money damages. (Id., p. 17-19)
The Defendants separately alleged that the Association (Count IV of Counterclaim) and its President Thomas Brown (Count II of Third Party Complaint) had committed Slander of Title by recording Notices of Lien prepared by the Association's counsel against Units 11 and 13. The District Court found both the Association and Defendant Brown liable for Slander of Title (Id., p. 11-17) but assessed no damages against them. (February 29, 2016 Opinion & Order at pp. 8 - 10).
The Association and each member of the Officer/Director Group including President Brown appealed each ruling adverse to them described above. No cross-appeal was instituted.
Per Curiam Opinion – Unpublished
Brief Author: Kevin M. Hirzel, Esq. and Matthew W. Heron, Esq.
CAI Amicus Review Panel: Robert Diamond, Esq. (VA), Chair of Amicus Committee, Edmund Allcock, Esq. (MA), Karyn Kennedy Branco, Esq. (NJ), and Mary Howell, Esq. (CA)
Aimco sued Airbnb to stop Airbnb from providing booking, payments processing, and travel support services to Aimco's tenants at four of its residential apartment communities in Los Angeles County, California. As Airbnb has surged in popularity since 2014, a minority of Aimco's tenants have turned to Airbnb to rent out their apartment homes over Aimco's objections and in violation of their lease agreements.
The vacation rentals have resulted in significant problems for Aimco and Aimco's full-time residents, including loss of resident satisfaction due to disruptions and safety concerns, loss of Aimco's control over and right to exclude unauthorized persons from the properties, continuous trespassing by unauthorized Airbnb “Guests," and reputational and business harms. Airbnb has actual knowledge of Aimco's prohibition of vacation rentals, but does not care and does nothing to enforce its own terms of service against breaching tenants. Rather, Airbnb has made the business decision to broker rental transactions regardless whether the tenant has the landlord's permission and regardless whether the tourists—Airbnb's own customers—are denied access to their vacation accommodations because they are unwittingly trespassing on Aimco's property. Airbnb refuses to stop inducing Aimco's tenants to breach their leases because its continued success and rapid growth depend on ignoring the rules governing the properties they broker and because Airbnb believes it can wield the CDA to shield itself from liability from any claims.
Judge Gee agreed with Airbnb. The Court granted Airbnb's motion to dismiss with prejudice, treating the CDA as an insurmountable barrier to litigation against Airbnb by aggrieved property owners. The Court did not address whether Airbnb's trampling of private property rights and interference with contracts is legal under California law. Instead, the Court ruled that section 230(c) makes Airbnb immune from any liability under state law because “Airbnb hosts who use Airbnb's website have complete control over the content at issue—listing rentals in violation of Aimco's leases" and “it is with Airbnb's publication of this content that Aimco takes issue." 2017 WL 6799241, at *7-8.
The Court made a number of fundamental errors in granting Airbnb's motion to dismiss without leave to amend the complaint, including (i) ignoring the plain, narrow language of subsection 230(c)(1) defining the limited scope of the Good Samaritan defense; (ii) relying on a non-binding case (from the First Circuit) and other out-of-circuit decisions applying an overly broad interpretation of the CDA in direct violation of binding Ninth Circuit precedent; (iii) failing to conduct the claim-by-claim analysis required by the Ninth Circuit to properly evaluate the applicability of the CDA defense; Memo to Community Associations Institute and (iv) ignoring the operative complaint's well-pled factual allegations and instead relying on allegations in the original complaint and adopting Airbnb's own factual assertions as true. Aimco is confident that the Ninth Circuit will reverse the LA Park order as contrary to the Ninth Circuit's earlier CDA decisions—namely, Fair Hous. Council of San Fernando Valley v. Roommates.com, LLC, 521 F.3d 1157 (9th Cir. 2008) (en banc), Barnes v. Yahoo!, Inc., 570 F.3d 1096 (9th Cir. 2009), and Doe v. Internet Brands, Inc., 824 F.3d 846 (9th Cir. 2016)—and the federal rules governing motions to dismiss.
Aimco's appeal will challenge Airbnb's and the district court's erroneous position that the CDA gives Airbnb complete immunity from suits challenging its tortious brokering of prohibited vacation rentals. Section 230(e)(c)(1) provides that “[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider." The Ninth Circuit has made clear that this does not provide “an all-purpose get-out-of-jail-free card for businesses that publish user content on the internet." Internet Brands, Inc., 824 F.3d at 853. Rather, “all businesses, whether they operate online or through quaint brick-and-mortar facilities," must comply “with laws of general applicability" and must “refrain from taking affirmative acts that are unlawful." Fair Hous. Council, 521 F.3d at 1169 n.24. “[W]hat matters is whether the cause of action inherently requires the court to treat the defendant as the 'publisher or speaker' of content provided by another." Barnes, 570 F.3d at 1102. Only those types of claims are barred by the CDA. Judge Gee's order ignores that Aimco's challenge to Airbnb's brokering activities do not rely on Airbnb being treated as the publisher or speaker of another's content and allows Airbnb to continue brokering short-term rentals in conflict with the legitimate interests of those who are attempting to maintain a building's residential character.
Brief Author: Steven Weil, Esq. and Dena M. Cruz, Esq.
CAI Amicus Review Panel: Robert Diamond, Esq., Chair of Amicus Committee, Edmund Allcock, Esq. (MA), Laurie Poole, Esq. (CA), and Jennifer Loheac, Esq. (GA)
Brief Summary: Eric S. Boorstin, Attorney for Amicus Curiae Apartment Investment and Management Company, requested that CAI join the attached amicus brief.
The following argument is made in the amicus brief:
Short-term rentals bring large numbers of tourists into places that were not designed to accommodate them. Cities and landlords, as well as their residents and tenants, therefore have an interest in setting reasonable short-term rental policies to promote the overall well-being of their communities.
Plaintiffs Airbnb and HomeAway.com seek a regime where they can continue extracting massive profits from their short-term rental booking services while disclaiming any responsibility for the significant costs and burdens their services impose on the community at large. They claim that the Communications Decency Act (CDA), 47 U.S.C. § 230, immunizes them from all liability for brokering short-term rentals that convert residential living spaces into hotel rooms, no matter whether the applicable local regulations or leases permit it.
Plaintiffs are wrong. The CDA was enacted to encourage “Good Samaritan[s]" to address the undesirable third-party content on their websites, not give online business “an all-purpose get-out-of-jail-free card" (Doe v. Internet Brands, Inc., 824 F.3d 846, 853 (9th Cir. 2016)) for all aspects of their business models no matter the terms of relevant state and local laws or contracts that generally govern a community. 47 U.S.C. § 230(c) (2012). The CDA by its terms preempts only claims where a website operator is “treated" as the publisher or speaker of information provided by another, 47 U.S.C. § 230(c)(1), not all claims where third-party content is a but-for cause of a harm, or all claims that might cause a website operator to remove third-party content as a practical matter.
This Court has recognized the limited scope of the CDA, cautioning that it “must be careful not to exceed the scope of the immunity provided by Congress and thus give online businesses an unfair advantage over their real-world counterparts." Fair Hous. Council of San Fernando Valley v. Roommates.com, LLC, 521 F.3d 1157, 1164 n.15 (9th Cir. 2008). Accordingly, this Court has recognized that claims are not preempted unless they “inherently require[ ] the court to treat the defendant as the 'publisher or speaker' of content provided by another." Barnes v. Yahoo!, Inc., 570 F.3d 1096, 1102 (9th Cir. 2009) (emphases added).
Plaintiffs enter into the contracts at the heart of the short-term rental transaction they facilitate, as well as provide travel support, guarantees, payment processing, rental rate setting, and other related services, which are integral for the transaction's success. For all these services, Plaintiffs collect substantial fees. These are not the activities of a publisher, so regulating these activities does not treat Plaintiffs as publishers. The CDA, therefore, does not preempt the City of Santa Monica's ordinance, or any other attempt to hold Plaintiffs accountable for the rules they violate (such as limitations on short-term rentals in residential lease provisions) with their own conduct in providing short-term rental services.
Amicus Brief written by Eric S. Boorstin, Attorney for Amicus Curiae Apartment Investment and Management Company
August 2019 - Airbnb's Motion for Rehearing Denied
July 2019 – Amicus Brief in Opposition to Petition for a Rehearing and Rehearing En Banc
Homeaway v City of Santa Monica -
Order Denying Plaintiffs' Motion for Preliminary Injunction; Granting Motion to File Amicus Brief
CAI Amicus Review Panel: Robert Diamond, Esq., Chair of Amicus Committee, Edmund Allcock, Esq. (MA), Jennifer Loheac, Esq. (GA), and Laurie Poole, Esq. (CA)
Plaintiff seeks to bring a class action suit against Lieberman, a third-party property management company, under a novel implied-right-of-action theory, for an alleged violation of Section 22.1 of the Condominium Property Act, 765 ILCS 605/1 et seq. (the “Condo Act"). Section 22.1 allows sellers of condominium units to obtain from their condominium association board certain documents and information regarding the condominium and make those documents “available for inspection to the prospective purchaser, upon demand." Section 22.1 requires that the information be furnished within 30 days of the written request, and provides that the board may charge a “reasonable fee covering the direct out-of-pocket cost." 765 ILCS 605/22.1. The statute makes no reference to property management companies or document processing companies.
Plaintiff bases his theory of liability on the premise that Defendant violated Illinois law by allegedly charging amounts beyond a “reasonable fee covering the direct out-of-pocket cost" in providing a package of disclosure documents listed in Section 22.1 (the “Disclosure Documents") to the prospective seller of the condo. Plaintiff concedes that the language of Section 22.1 makes no reference to a third-party property management business, and does not purport to regulate the business of third-party property management businesses. Despite this, Plaintiff alleges Lieberman can be sued as an agent of the condo associations, and can be individually liable for breaching a duty of the condominium associations under an “active-part agency" theory of legal liability.
Specifically, the class representative alleges that on October 7, 2016, Plaintiff sold a condo unit that was part of the Mission Hills Condominium Association in Northbrook, Illinois. On September 27, 2016, the prospective buyer requested information from Plaintiff regarding the condominium and association pursuant to Section 22.1 of the Condo Act. In turn, Plaintiff's real estate attorney directly requested that Lieberman prepare and provide the Disclosure Documents, as well as additional documentation, within five days. Plaintiff's attorney affirmatively submitted an order form from Defendant's web site requesting a Section 22.1 Disclosure and additional documents for a total cost of $220. Plaintiff's attorney also ordered a paid assessment letter, agreed to a rush fee, and buyer's transfer fee for a total of $250.
Defendant moved to dismiss the claim for violation of the Condo Act, arguing 1) that Section 22.1 does not apply to property management companies under the express terms of the statute; 2) there was no arguable violation of the statute because Plaintiff did not pay more than the condominium association's out-of-pocket costs; and 3) that Section 22.1 does not create a private cause of action, and no cause of action could be implied in favor of a seller against a property management company. The trial court allowed Plaintiff's cause of action for violation of the Condo Act to survive relying on the Seventh Circuit's decision Merrill Tenant Council v. HUD, 638 F.2d 1086 (7th Cir. 1981). The trial court found that Plaintiff could bring a cause of action under the Condo Act on the theory that Lieberman acted as the condominium association's agent and played an active part in breaching a duty owed by the condominium association under Section 22.1.
Following this order, the parties and the trial court agreed an interlocutory appeal was appropriate in this case given that it was an issue of first impression, and the trial court certified questions for appeal concerning whether Plaintiff could bring a cause of action under the Condo Act against the Defendant for actions taken by Defendant allegedly as the agent of a condominium association. Lieberman filed an application for leave to appeal, and the Appellate Court quickly granted the application.
Amicus Brief written by Diane J. Silverberg, Esq.Status:
Remanded to Circuit Court 3/25/19Leave to Appeal
CAI Amicus Review Panel: Robert Diamond, Esq., Chair of Amicus Committee, Edmund Allcock, Esq. (MA), Jennifer Loheac (GA), Jim Strichartz (WA), and Steven Sugarman, Esq. (PA)
The lawsuit appears to involve seven named plaintiffs, those plaintiffs' seven community associations, and those seven community associations' community management companies and association law firms. The original complaint suggested that both the named plaintiffs and named defendants were representative of larger classes and might be expanded.
The Amended Complaint asserts claims for:
(1) violation of the FDCPA by defendants arising out of the filing of liens for unpaid assessments and subsequent foreclosure actions;
(2) a declaratory judgment to the effect that restrictive covenants do not create a mortgage or mortgage-like relationship, and the act (or threat) of foreclosure should not be available to community associations for the nonpayment of assessments;
(3) intentional interference with a contractual relationship between owners and their mortgages; and
(4) abuse of process.
Damages sought include actual, compensatory and consequential damages, statutory damages and attorney's fees, and punitive damages.
South Carolina has not adopted a planned community type statute. Plaintiffs argue that the actions or threats of action by community associations and their representatives are not supported by contract or common law. It appears that Plaintiffs are not arguing that Defendants have improperly followed the process, but that there is no legal process to be followed for collection of assessments and that Defendants' actions violate the law and should be stopped. This federal lawsuit and its outcome are relevant to all states where there is no community association statutory scheme as the same allegations could be made elsewhere and a bad decision in South Carolina would impact elsewhere.
Amicus Brief Status:
Order and Opinion,
Judgement in a Civil Action
Prior Opinions: Amended ComplaintBrief Author: Marvin Nodiff, Esq. CAI Amicus Review Panel: Robert Diamond, Esq., Chair of Amicus Committee, Edmund Allcock, Esq. (MA), Marc Markel, Esq. (TX), Karyn Branco, Esq. (NJ), and Steven Sugarman, Esq. (PA)
The lower court found that the “voter apathy" is not a requirement under 4275, and that the association acted in accordance with election laws and granted the petition. The objectors filed an appeal.
The appeal concerns whether “voter apathy" is a requirement that must be met in order for a Court to grant a 4275 petition to approve a CC&Rs amendment. This is an issue that community association counselors encounter regularly when petitioning the court under Civil Code section 4275. Many courts are confused when faced with this issue because every published appellate case concerning a 4275 petition mentions “voter apathy" in the opinion based off a reference to a practice guide by Rosenberry and Sproul. However, the Code does not require a finding of “voter apathy" and such a requirement would greatly hinder community associations from getting their 4275 petitions granted. For example, if voter apathy was a requirement, the Association would need to hope for nearly 100% of the votes to be in favor of the CC&Rs amendment for a supermajority requirement because if 85% of owners in a 100-Unit CID turn out to vote on an amendment requiring 75% approval, is it voter apathy if 74 owners vote in favor and 11 owners vote against? This is why the most current practice guide by Rosenberry and Sproul “Advising Community Associations" lists this as an unresolved issue for a 4275 petition. If the appeal is successful, we would move to have the court published, thereby eliminating this argument in the future.
The Association argues that “voter apathy" is not a requirement to file a 4275 petition and would create disincentives to get owners to vote. Additionally, “voter apathy" is vague and has no definition thus subject to varying determinations by courts.
Court of Appeal OpinionPrior Opinions:
Final Order and Judgment Granting Petition to Reduce the Required Voting Percentage to Amend the CC&RsBrief Author: Laurie Poole, Esq., CCAL FellowCAI Amicus Review Panel: Robert Diamond, Esq., Chair of Amicus Committee (VA), Jennifer Loheac, Esq. (GA), Greg Daddario, Esq. (NH), Gary Kessler, Esq. (CA), Tom Moriarity, Esq. (MA)
The case involves a declarant who consented to the annexation of real estate into a common interest community in 1999. Disputes arose overassessments on the property over the following years, which prompting the association to record a lien in 2017. The lien appeared to be proper under both the community's recorded covenants and the Colorado Common Interest Ownership Act (“CCIOA"), which our legislature adopted in 1991 based on the 1982 uniform act. The declarant responded by suing the association under Colorado's spurious lien statute, which allows property owners to make expedited challenges to frivolous liens that were neither approved by the owner nor authorized by law. After a short hearing, a district court judge granted the petition. He examined the 1999 annexation form and concluded that it did not comply with the requirements that the Colorado Supreme Court's would recognize seventeen years later in
Ryan Ranch Community Association v. Kelley, 380 P.3d 137 (Colo. 2016).
CAI previously participated in the
Ryan Ranch case, in which the court ultimately ruled against an association seeking to enforce covenants stating that units identified on a plat would be automatically annexed to a community upon recording of a deed. In that case, the court largely agreed with the property owners' argument that units could only be annexed by recording a declaration amendment in strict compliance with all statutory requirements, including a mathematical calculation of reallocated common interests. The court invalidated the common practices of “annexation by deed" and automatic reallocation of common interests by reference to other recorded documents.
Stroh Ranch case asks the court of appeals to decide how broadly the
Ryan Ranch opinion should be applied. The district court has interpreted
Ryan Ranch to mean that all annexations recorded since 1991 are subject to challenge at any time by disgruntled property owners, and that any community association that attempts to enforce its covenants may be subject to penalties for recording a spurious document.
We do not think this is reasonable or what the supreme court intended when it announced
Ryan Ranch last year. Although many community association lawyers were disappointed by the outcome of
Ryan Ranch, the case was limited to a fairly unique fact pattern, wherein two developers had reached a side agreement to exempt nine units in a community from annexation or payment of assessments. The association argued that their agreement was superseded by the community's annexation-by-deed covenants, but the court disagreed and suggested that annexation requires strict compliance with CCIOA procedures for declaration amendment.
The effect of the
Ryan Ranch holding on other communities remains unclear. The supreme court ruled that certain methods of annexation are invalid, but it never suggested that it intended to open the door for the judiciary to examine the documents of every declaration recorded in the twenty-seven years since CCIOA's passage. On the contrary, the court remanded the case for determination of whether the statute of limitations precluded such review. The case settled before this question was ever answered.
Prior Opinions: Brief Authors:
Jerry Orten, Esq., CCAL Fellow, Aaron Goodlock, Esq. and Jonah Hunt, Esq. of the Orten, Cavanagh & Holmes law firm. CAI Amicus Review Panel: Robert Diamond, Esq., Chair of Amicus Committee (VA), Henry Goodman, Esq. (MA), Laurie Poole, Esq. (CA), James Strichartz (WA).