CAI is active in preparing amicus curiae (friend of the court) briefs in federal and state cases that address issues of significant importance in community association law. This aspect of CAI's overall government and public affairs program is vital to preserve the legal rights of community associations and their homeowners. CAI's success in this area is the result of the tremendous hard work and dedication of the members of CAI's Amicus Curiae Advisory Group and other individuals who assist pro bono to review brief requests, draft and file briefs, or argue in select cases.
CAI 2011 Amicus Summary
Maronda Homes v. Lakeview Reserve Homeowners Association (Florida)
Public policy requires a finding that implied warranties of habitability, fitness and merchantability apply to a community’s common area structures that support the residences. A community’s developer should impliedly warrant that the community’s common area structures and improvements are fit for their intended and ordinary purposes and will not impair the habitability, use and merchantability of the community’s residences. Community developers who make homeowners’ associations, and by extension the homeowners, financially responsible for the maintenance and repair of the common area structures owe a duty to the homeowners and their homeowners association to turn over common area structures that are fit for use and do not impair the habitability or merchantability of the community’s residences. Developers owe a duty to avoid placing the burden of defective construction on the homeowners and their homeowners association.While condominium associations and condominium unit owners enjoy implied warranties of fitness and merchantability pursuant to Chapter 718, Fla. Stat. and common law, Petitioners’ contend that homeowners associations should not receive the same warranties under common law. This conclusion is illogical, inequitable and unsupported by public policy. Accepting Petitioners’ argument guarantees inconsistent results where condominium associations possess a cause of action for defective construction (e.g. defectively constructed road underdrains) while homeowners associations with identical defects are limited to claims of negligence. Implied warranties constitute the only effective remedy for defectively constructed common area structures. Florida common law should not require homeowners associations and their homeowners to essentially accept “as is” defectively constructed common areas from their developer, and therefore burden the homeowners’ association and its homeowner members with the financial obligation of repairing the common area improvements.Brief: Copy of CAI’s Amicus Brief
Status: Supreme Court RulingFairfield Harbour v. Drez (North Carolina)
This case involves the ability of an association, incorporated prior to the adoption of the North Carolina Planned Community Act, to purchase amenities within the community.
Fairfield Harbour Property Owners’ Association is the successor to a community founded in 1972. The original articles of incorporation provided:
“In addition to the general powers granted to corporations under the laws of North Carolina, the corporation shall have the full power and authority to do any and all lawful acts.”
The Association noted that nonprofit corporations have the power to purchase, receive and dispose of interest in real property under state statute (N.C.G.S. Section 55A-3-02). In addition, the recorded Declaration provided for parks, and amenities for property owners to use and enjoy and also expressly indicated that amenities may at some future date be conveyed to the Association and the Association must accept it.
Several supplemental declarations were recorded that reiterated the power of the Association to levy for amenities and to accept additional amenities transferred to it at an unspecified future date.
In 2009, MidSouth Golf, the owner of two courses within the community, expressed an interest in selling the courses to Fairfield Harbour. The Board reviewed the proposal and presented 5 options to the members for a preliminary survey. 57% of the respondents (totaling 1,497 units) indicated a preference to purchase the amenities. The Board has not taken a final position on the purchase. Defendants, property owners within the community, challenged the Board, indicating that they did not believe the documents empower the Board to purchase the amenities and sued. The trial court ruled for the defendants that the Association did not have the authority to purchase the amenities.
The Association appealed. CAI supported an amicus on the argument that the existing documents, as amended, provide the Association with the authority to buy the courses.
Brief: CAI’s Amicus Brief
DeBaliviere Place Association v. Veal (Missouri)
The Missouri Supreme Court reversed the Court of Appeals decision and held that an homeowners’ association, having lost its corporate status, has authority to collect delinquent assessments if a new corporation is organized and obtains an assignment from the dissolved corporation. CAI filed an amicus brief in support of the homeowners’ association.
Chronology of facts and events:
· 1977 – Declaration recorded; required DeBaliviere Place Association (DPA) to be a nonprofit corporation
· 1992 – corporation administratively dissolved for failure to file annual registration report
· 1997 – owner Veal acquired properties
· 2003 – new DPA formed, filed articles of incorporation
· Feb. 2006 – new DPA filed suit to recover assessments due from 1997
· June 2006 – assignment of rights made from old DPA to new DPA
· 2007 – new DPA recorded two new liens and lawsuit
· During the time the corporation was dissolved, the HOA continued to operate as usual under the Declaration, performing services, collecting assessments and paying expenses.
In addressing the owner’s challenges, the Court held the new DPA was authorized to exercise collection powers after the assignment. The Court held that the old DPA was authorized to make the assignment, even 14 years after dissolution, under its right to wind up its affairs. Under the Missouri Nonprofit Corporation Act, applicable at the time, a dissolved corporation had a ten-year window to reinstate its corporate status, but there was no time limitation on winding up its affairs. The assignment was a “permitted activity” included within “winding up its affairs.”
The Court held the new DPA was not a successor or assignee of the old DPA named in the Declaration, and was not authorized to enforce the covenants in the Declaration – until the assignment was made. Thus, the new DPA was not authorized to record liens or foreclose its lien in the 2006 lawsuit. However, once the assignment was made, “The assignment allows the new DPA to collect prior assessments owed to the former DPA as well as to bill and collect for future assessments.” (page 12, Final Ruling)
“Due to its covenant running with the land, the former DPA had a right to an assessment – $46 per year per single-family unit – every year. When the assignment occurred in 2006, the new DPA had the right to collect assessments due under the covenant running with the land and owed under the Declaration.” (page 13, Final Ruling)
The Court did not directly address the primary issue raised by CAI in its amicus brief as to whether a homeowners’ association, created by recorded governing documents, could be extinguished merely due to an administrative misstep (i.e., failure to file an annual registration report, and resulting failure to maintain the corporate status). However, the Court recognizes the duty to pay assessments as a “covenant running with the land” and implies that the assessments were owed for the years preceding the assignment based simply on the recorded covenant. The Court’s analysis was focused on the new DPA’s authority to “bill and collect” – enforce the collection by lien and lawsuit – by virtue of the assignment, without analysis of whether the assessments were validly levied in the first place during the years prior to the new DPA or prior to the assignment.
The case turns on whether there was an assignment to breathe authority into the new corporation. It holds that there is no time limitation on winding up the affairs of a dissolved corporation; thus, an assignment will be valid even if made after expiration of the period for rescission of the forfeiture. Of course, the former directors of the dissolved corporation must still be available to execute the assignment, which could be difficult if a lengthy period of years has elapsed.
The trap to avoid is a provision in the governing documents requiring the association to exist as a nonprofit corporation. Such provisions could be revised to authorize (but not mandate) incorporation, and/or to provide that even if unincorporated or if its corporate charter is forfeited, the association still would have all the rights and responsibilities under the governing documents. This approach tracks the uniform acts.
Brief: Copy of CAI’s Amicus Brief
Status: Decided, Copy of Final Ruling
Crossman Communities of North Carolina v. Harleysville Mutual Insurance (South Carolina)
At issue in this case is the ability of an association to collect for construction defect damages from a developers’ commercial general liability policy (CGL). Under South Carolina precedent damages are allowed in certain circumstances as outlined in the Newman decision and the holding in the L-J case.
The Newman case dealt with the applicability of CGL claims for negligent acts of a subcontractor. At issue was the application of the guidelines set out in the holding in L-J v. Bituminous Fire (366 S.C. 117, 621 (2005)). L-J held that negligent acts of a subcontractor alone do not constitute an ‘occurrence’ under the terms of a CGL policy unless faulty workmanship causes third-party bodily injury or damage to their property besides the defective work product in question. In the immediate case, the court allowed a claim as the subcontractor negligently applied stucco to the outside of the plaintiff’s home which resulted in damages caused by repeated intrusions of moisture which caused further damage. Thus the negligent act did not trigger CGL coverage but the “continuous or repeated exposure to substantially the same general harmful conditions” created an occurrence per the policy that triggers coverage.
The L-J decision dealt with the negligent construction of a road by a subcontractor. L-J was the developer and brought suit against a subcontractor for negligent construction of a road that, due to the subcontractor’s negligence, deteriorated rapidly after just four years. The parties settled and L-J sought indemnification from the subcontractor’s insurance company’s CGL plan. The court ruled against L-J, the developer, as the damages caused by the negligence were not an occurrence for purposes of CGL coverage. The rationale was that the negligence caused damage only to the defective work product itself and thus was a claim for faulty workmanship that would not be covered by the CGL policy.
In the Crossman case, owners of condominiums in the Crossman Communities (built between 1992 through 1999) brought suit against the respondents after discovering numerous construction defects and problems with the units. The homeowners alleged that defective construction allowed moisture to enter the home over time causing extensive deterioration and decay. The parties settled and the respondents sought coverage for damages arising out of the lawsuit under the CGL policy. The insurer, Harleysville Mutual Insurance, refused payment. The issue of coverage went to the trial court.
At trial, parties stipulated as to the facts which included: the property damages resulted from water intrusion, the damage was progressive in nature, and the damage was caused by negligent construction of the subcontractors. The trial court found that the negligent construction coupled with the progressive intrusion constituted an occurrence for purposes of CGL coverage.
The case was sent to the state Supreme Court which reversed the decision. The Court seemed displeased with the analytical framework provided by Newman and L-J. The Court’s decision glossed over the holding made in the Newman case and relied instead on persuasive, out-of-state precedents and the minority holding in that case. The court not only reversed the decision, but overturned Newman in the process, leaving South Carolina without a mechanism or doctrine to replace the occurrence analysis. The case was appealed to the full Supreme Court as allowed on state procedures.
Mazdabrook Commons Homeowners Association v. Khan (New Jersey)
Under the Twin Rivers decision, the New Jersey Supreme Court was asked to determine if private property (lots in a community association) or a private organization (a homeowners’ association) were subject to the state’s constitutional protections of free speech. Specifically, the Court was asked to decide if an association’s limitation on political signage violated the free speech rights of association residents. You can read a full analysis of that holding here. The court determined that the Twin Rivers’ (a case in which CAI filed an amicus) sign regulation did not run afoul of the state’s free speech protections and applied a balancing test for expressional rights within an association in its holding.
In that test, the court looks to three aspects of the property that include:
1) That nature, purposes and primary use of the property (it’s normal use);
2) The extent and nature of the public’s invitation to use that property; AND
3) The purpose of the expressional activity undertaken upon such property in relation to both the private and public use of the property.
In Mazdabrook Commons Homeowners’ Association v. Khan, a state appellate court examined an association sign restriction that prohibited all signs on the interior or exterior of any unit with the exception of a for sale sign. The appellate court found for the association on the first two prongs of the balancing test, but found for the unit owner on the third prong. Thus, the ruling in this case has the potential to narrow the rights of associations in lawfully regulating signage within the bounds of the community association by undermining the balancing test applied in Twin Rivers. Although the appellate case is unreported, the attorney for the homeowner, Wasim Kahn, is appealing to the Supreme Court. A ruling by the state Supreme Court would qualify the precedent in Twin Rivers and dilute the rights of associations to regulate expressional rights within the community.
Status: Copy of CAI’s Amicus
Rulings: Appellate Court Ruling
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