The 2200 Westlake complex is a four-unit mixed-use condominium that has three highrise towers over a multi-level podium and five levels of underground parking. Urban Venture("UV") was the developer of this project, and the construction took place from 2004 to 2007.The condominium consists of four master Units: the Residential Unit, the Hotel Unit, the Food Unit, and the Commercial Unit. Until recently, UV was the owner of the Hotel, Food, and Commercial Units. The 2200 Residential Association ("RA") is the homeowners association that governs the 260 residences that make up the Residential Unit. The 2200 Condominium Association ("MA") governs and maintains the commercial retail space, hotel, parking garage, the shell and core of the buildings, and other major common and limited common elements. Each of the four master Units has one member on the MA Board, and each board member can cast one vote on MA decisions. Because the MA must decide all actions by unanimous consent of the Unit Owners, each Unit has veto power over any action that another Unit is pushing through the MA. Each Unit also has the ability to challenge a veto by another Unit.
The MA and RA share the expense of maintaining certain aspects of the limited common elements at the 2200 Westlake complex. The Condominium Declarations (Master Declaration and Residential Declaration) and the Public Offering Statement apportioned the financial responsibility for the limited common elements according to the market value of each unit at the time the Master Declaration was recorded, with the Hotel, Commercial, and Food Units being responsible for 22.8 percent of the common expenses and the Residential Unit being responsible for 77.2 percent.
At the outset, the 2200 Westlake complex suffered from construction defects, and UV conducted numerous warranty repairs. In November 2012, UV, the MA, and the RA entered into a Settlement Agreement regarding the construction defects.
In October 2015, Joseph Grace and Shamim Mohandessi (collectively "Plaintiffs") filed an action for breach of contract and breach of implied covenant of good faith and fair dealing against the RA and a derivative claim for breach of fiduciary duty against the RA Board of Directors. Plaintiffs also brought individual and derivative claims against UV, the MA, and the MA Board of Directors for declaratory judgment, breach of contract, breach of fiduciary duty, breach of implied covenant of good faith and fair dealing, tortious interference, unjust enrichment, and accounting. All Plaintiffs' claims stemmed from either 1) the allocation of financial responsibility for common elements at 2200 Westlake, including decisions regarding which elements are deemed "common" or 2) the Settlement Agreement in the construction defect lawsuit against UV.
In August 2016, Defendants filed summary judgment motions to dismiss Plaintiffs' derivative claims. Defendants argued that Plaintiffs lacked standing to bring derivative claims on behalf of the RA, a Washington non-profit corporation. Defendants based their summary judgment arguments on the Washington appellate case, Lundberg v. Coleman, 115 Wn. App. 172, 60 P.3d 595 (2002), which found that the legislature did not intend for the Washington Nonprofit Corporations Act to grant private individuals standing to bring derivative lawsuits against, or on behalf of, nonprofit corporations. On September 29, 2016, based on the analysis and holding of the Lundberg court, the trial court issued an order granting partial summary judgment and dismissing all derivative claims asserted against, or on behalf of, the RA, including all claims against the RA Board, UV, the MA, and the MA Board.
Following the court's dismissal of derivative claims, the parties continued to litigate this case until December 2017 when Plaintiffs voluntarily dismissed their remaining claims against Defendant RA. For the past three years, this case has been heavily litigated by the parties, as demonstrated by a docket of 538 filed pleadings, including numerous motions, discovery dispute filings, and a post-dismissal dispute regarding Defendants' entitlement to attorneys' fees. The parties (Plaintiffs and Defendants) have filed appeals and cross-appeals of various trial court orders issued between February 2016 and March 2018. The cross-appeals in this case involve at least seven separate orders by the trial court.
This request for Amicus Curiae briefing is only for issues related to Plaintiffs' appeal of the court's September 29, 2016 order granting partial summary judgment and dismissing Plaintiffs' derivative claims under Lundberg v. Coleman and the Washington Non-profit Corporations Act (RCW 24.03).
Brief Author: Anthony Rafel, Esq.
CAI Amicus Review Panel: Mr. Robert Diamond, Esq., Chair of Amicus Committee, Mr. Edmund Allcock, Esq. (MA), Ms. Karyn Kennedy Branco, Esq. (NJ), Ms. Jennifer Jacobsen, Esq. (CA), and Ms. Theresa Thorgesen, Esq. (WA)
This putative class action before the Seventh Circuit Court of Appeals presents the same legal issues involved in the pending Friedman v. Lieberman Management Services case in the Illinois appellate court, in which CAI – Illinois Chapter submitted an amicus curiae brief in support of the defendant property manager. Horist differs from Friedman in the sense that it pursues not only the property management company for an alleged violation of section 22.1 of the Illinois Condominium Property Act, 765 ILCS 605/1 et seq. (the “Condo Act"), but also the document services company involved in facilitating the transactions with condominium sellers to provide them with certain disclosure documents that sellers provide to prospective buyers.
Both the property management company, Sudler & Company (“Sudler"), and the document services company, NextLevel Association Solutions, Inc. doing business as HomeWiseDocs.com (“HomeWise"), achieved dismissal of the plaintiffs' complaint in the district court claiming plaintiffs failed to present any legally viable cause of action. Both defendants are members of CAI. Plaintiffs have now appealed to the Seventh Circuit, seeking reversal of the dismissal of their claims.
The Condo Act 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 association provide such information to a seller within 30 days of a written request. The statute enables the association to recoup its costs through language stating “[a] reasonable fee covering the direct out-of-pocket cost of providing such information and copying may be charged by the association or its Board of Managers to the unit seller for providing such information." 765 ILCS 605/22.1(c). The statute makes no reference to property management companies or document processing companies. Yet, plaintiffs in this case alleged that the statute prohibits both property management companies and document processing companies from charging any fees exceeding their own costs for providing disclosure documents ordered by the sellers directly from these companies. Plaintiffs alleged various causes of action based on this theory, including violation of the Condo Act, violation of the Illinois Consumer Fraud and Deceptive Practices Act, aiding and abetting/inducement to breach fiduciary duty, common law conspiracy, and unjust enrichment.
Consistent with the arguments of the CAI – Illinois Chapter in the Friedman case, these defendants argued to the trial court that the statute does not prohibit defendants from charging for their services in providing disclosure documents in their businesses; no cause of action can be implied from the subject provision of the Condo Act; and plaintiffs' proposed cause of action would impair the public policy of the Condo Act of expeditiously providing buyers disclosure information. Judge Robert Gettleman of the Northern District of Illinois agreed, issuing a Memorandum Opinion and Order on April 24, 2018, that dismissed all claims with prejudice. See Horist v. Sudler & Co., 17 C 8113, 2018 WL 1920113 (N.D. Ill. Apr. 24, 2018).
Judge Gettleman held that the subject language of section 22.1 did not provide a private cause of action, and no such cause of action could be implied given the statutory intent to provide full disclosure to buyers and to allow associations to recoup their costs.
Counsel for Sudler in this action also represents Lieberman Management Services, Inc. (“Lieberman") in a near-identical putative class action pending in state court. Following an adverse ruling by the trial court that found that section 22.1 did allow a cause of action against a management company, the trial court certified the issue for interlocutory appeal, and the Illinois First District Appellate Court accepted the appeal. Lieberman requested amicus support from CAI, and the CAI Board of Trustees approved the filing of an amicus brief in that case. A copy of that brief is included in this submission. The appellate court recently held oral arguments in that appeal, and a decision is expected in the next few months.
Brief Author: Gabriella Comstock, Esq. CCAL, of Keough Moody in Chicago and Phil Calabrese, Esq. of Porter Wright in Cleveland
CAI Amicus Review Panel: Mr. Robert Diamond, Esq., Chair of Amicus Committee, Mr. Edmund Allcock, Esq. (MA), Ms. Karyn Kennedy Branco, Esq. (NJ), Ms. Mary Howe ll, Esq. (CA), and Mr. Steve Sugarman, Esq. (PA)
This case involves what is a common and routine practice at Community Associations throughout California – a member who needed to replace windows due to deterioration. Here, HPBHC member Clint Stevenson, who owns a unit in the 106-unit condominium development, received a letter instructing him that he needed to replace his windows due to deterioration (HPBHC sits literally in the sand next to the Pacific Ocean, so this is a common occurrence).
Over the years, the HPBHC board allowed numerous other unit owners to install windows in the exterior walls of their units to create views and/or air flow, and also to convert windows into doors. Virtually all of the entry way doors at HPBHC were long ago converted into windows so that the units would have a view of the ocean and the entry way doors were then moved to the interior side of the building in place of an existing window – exactly the request from Stevenson. Some 80% of units at HPBHC have been revised using this process, with the addition of more than 90 windows and several window/door swaps. In the words of a former HPBHC HOA president, “It's rather routine."
Following in the footsteps of almost all of the other owners in the development, Stevenson obtained permission to swap out his windows, and also to convert an existing window into a door and convert the old entry way door into a window. The exterior stucco wall space at issue for the conversion of the window to an entry way door was very small: 1⅔ x 3 feet. Plaintiffs in this litigation are 3 other owners—who had added multiple windows to their own units through the very same process—who responded to Stevenson's proposal with the instant lawsuit.
Plaintiffs' lawsuit contended that Civil Code section 4600 required the HPBHC board to obtain approval of 67% of the entire HPBHC membership before authorizing any additional window or door space, no matter how small the expansion. Plaintiffs attempted to stop Stevenson's project and force a membership-wide vote on it by way of a Motion for Preliminary Injunction, which was denied, and Stevenson went forward with his window/door swap.
The parties agreed to conduct the trial in phases with Phase 1 limited to a bench trial on whether Civil Code section 4600 applied to Stevenson's project. At trial, the trial court characterized Plaintiffs' position as “hypertechnical" and “nitpicky." But, the trial court also said that it said that it “would love to be able to say that [section 4600] is a de minimis or reasonableness standard," given that the only issue is “one little piece below the window that became a door" and that Plaintiffs “are going to have a difficult time showing any damage."
But the trial court nonetheless agreed with Plaintiffs' position and ordered that Civil Code section 4600 did apply, with no exemption, and that a vote must take place on whether Stevenson's window for door swap could remain. In sum, the trial court ruled that section 4600's literal language required HPBHC association-wide approval for Stevenson to remove a small square of stucco (or any amount of stucco at all) on the exterior wall of his unit so that the window could be replaced with a door.
The trial court also ruled against our argument that Civil Code section 4600 does not apply because it restricts only grants of non-exclusive use common area for a member's exclusive use, and there was no such grant here: The exterior wall space under Stevenson's window was already for his exclusive use.
Plaintiffs argued, and Judge Crandall (the trial court judge) agreed, even if the stucco wall was nonexclusive use common area, the member's use of the wall space under his window did not fall within an exception to section 4600's approval requirement, which exempts “[a]ny grant of exclusive use" for the reason of “ transfer[ing] the burden of management and maintenance of any common area that is generally inaccessible and not of general use to the membership at large of the association." (Cal. Civ. Code, § 4600(b)(3)(E), italics added.) The Court held that because the stucco wall was “capable of being touched" by members, it was “not generally inaccessible", and that the “not of general use to the membership at large of the association" did not apply.
Brief Author: Anne Rauch, Esq.
CAI Amicus Review Panel: Mr. Robert Diamond, Esq., Mr. Edmund Allcock, Esq., Ms. Laurie Poole, Esq., Mr. David Ramsey, Esq., and Ms. Jennifer Jacobsen, Esq.