Internal Appeal Procedures and Dispute Resolution Standards Can Reduce Lawsuits

The Washington Court of Appealsrecently issued an unpublished opinion relating to the Prince Hall Grand Lodgeof Free & Accepted Masons of Washington. A member of the Grand Lodge was suspended after he raised allegationsthat one of the Grand Masters and the Grand Lodge Entertainment Committee hadmismanaged funds.  The member sued tocontest that suspension.  However, theGrand Lodge Constitution states that “no member … shall resort to civil courtsto establish any right or to redress any grievances arising out of themembership in the Order or connected therewith until … he shall have exhaustedthe remedies within the Order and in a manner provided by the Constitution, lawand regulations of this Grand Lodge.”

The appellate court upheld therequirement that members of the Grand Lodge must exhaust its internal appealprocedures before filing lawsuits.  It emphasizedWashington courts’ unwillingness to interfere with private associations’ interpretationsof internal rules and procedures unless they are arbitrary and unreasonable.  The court affirmed the dismissal of themember’s lawsuit because he did not pursue the proper appeal procedure (vote ofthe members at the next annual meeting) before filing it.     

Some Washington condominium andhomeowners associations have internal appeal procedures and dispute resolution standards in their original governing documents.  Many others do not.  For those associations in the latter category,amending the declaration or covenants to require exhaustion of internal appealprocedures and fulfillment of dispute resolution requirements (such asmandatory mediation) can help defuse some future disputes with owners before they turninto lawsuits.          

Disputes Between Owners Pose Risks to Community Associations

It is always unfortunate when disputes between neighbors escalate into litigation. The Washington Court of Appeals was recently confronted with just such a case. The first sentence of its unpublished opinion last month sets the tone: “Tensions arose among neighbors in a Redmond cul-de-sac after the Wherretts began parking numerous vehicles and buses on their property and on the street.” Police involvement, surveillance, civil anti-harassment orders, and a lawsuit followed. The court notes during the course of its opinion that taking numerous photographs and videos of items in public view for the purpose of documenting alleged misconduct did not form the basis for a legal claim against one of the owners. The court ultimately affirms the summary judgment dismissal of the plaintiff’s case.

Community association boards must choose their approach carefully when owners quarrel. Do they stay out of the dispute entirely? Do they provide a forum to discuss the dispute? Do they convey a position regarding the dispute? All of those choices involve varying amounts of risk that the association will be sued by one of the owners. Minimizing that risk is an important (some would say the most important) consideration when boards are evaluating how to respond to disputes between owners.

Boards understandably tend to prefer the “stay out of it” approach to owner disputes whenever possible, and this is a legitimate response in many instances. However, boards must verify that disputes do not involve a violation of their association's governing documents before selecting that option. If a board fails to do so and the dispute does involve such a violation, then one of the owners may be able to successfully argue that the association is also liable for damages.

Owners Use Political Process to Challenge Stricter Covenant Enforcement Policy

Parking restrictions can lead to intense disputes between boards and owners. For example, home owners in a West Lafayette, Indiana subdivision are currently battling their board of directors over a covenant amendment banning street parking. The amendment was enacted in 2003, but it was not strictly enforced until November of 2009. Some owners complained that they were no longer able to host gatherings as a result of the new enforcement policy. The board responded to the outcry by starting a pilot program that allows owners to pay a refundable deposit for up to five street parking permits in advance of an event. The protesting owners were not satisfied with that solution, and they are now attempting to call a special meeting and replace the board members.

As a general rule, community association boards may begin enforcing existing covenants more strictly as long as all owners are notified of the change and are equally subject to the new policy. However, boards should also consider the reaction of the owners to abrupt changes in the standards governing their property. Giving owners an opportunity to state their concerns in advance and modifying the enforcement policy to address those concerns will reduce the odds of a major conflict.

The various political remedies described in every association’s governing documents (such as the ability to amend the governing documents, override board-adopted rules, and recall board members) often represent the best options for owners that want to challenge a strict enforcement policy. Mediation and some types of arbitration can also be effective ways to resolve such disputes. On the other hand, legal action is too slow, expensive, and uncertain for many owners to consider it a viable option, and litigation has the added drawback of greatly reducing the potential for dialogue and compromise.

Goat Dispute Highlights Best Practices for Covenant Enforcement

A North Carolina couple has won a legal battle with their homeowners association to keep two Nigerian dwarf goats named Fred and Barney in their yard. The association’s covenants state as follows: "No animals, livestock or poultry of any kind shall be raised, bred or kept on any lot except that horses, dogs, cats and other pets may be kept provided they are not kept, bred, or maintained for any commercial purposes." Several neighbors complained to the board about the smell and noise caused by the goats, so the board ordered the owners to remove them. Litigation ensued, and a judge eventually ruled that Fred and Barney should be permitted to stay because they are pets.

As the cliché goes, life is not black and white. Gray is a popular color in the world of law. Many covenants can be reasonably interpreted in more than one way. Boards should make an effort to play devil’s advocate and view covenants from owners’ perspectives before issuing demands or initiating litigation.

Another lesson that can be gleaned from this story is that it is sometimes better to focus on minimizing the negative effects of a disputed behavior rather than attempting to end that behavior. For example, it may be possible to address the goat odor issue by requiring more frequent bathing and waste removal. It may also be possible to address the goat noise issue by restricting them to certain portions of the property. Boards should always be on the lookout for creative approaches that lead to win-win solutions.

Enforcing Restrictions on Holiday Decorations

The holiday season can be tough on community association boards. Owners sometimes place decorations on or near their homes that violate the governing documents, pose safety hazards, and/or annoy other owners. Informal attempts to reign in their exuberance typically result in accusations that the boards are acting like Scrooges and blunt refusals to tone down or remove the displays. Boards are then forced to decide whether the decorations merit fines or other punitive measures.

There is nothing wrong with enforcing restrictions on owners’ holiday displays if those restrictions have a reasonable basis (maintaining a uniform appearance, reducing the risk of property damage, etc.) and all owners are held to the same standard. However, boards may also wish to consider amending their association’s governing documents to reflect the prevailing practice in the community or a more permissive policy in general. This usually involves allowing owners to display holiday decorations within a specified time period as long as they do not pose a danger or unduly bother other owners. Boards retain the power to act in extreme situations while otherwise permitting the owners to celebrate the season as they see fit.

As a wise man said long ago, there is a time and place for everything. Strict enforcement of broad rules is appropriate in many situations. A more flexible approach may be preferable in other situations. Boards that make these types of distinctions are laying the groundwork for happier communities.

Conflicting Covenants Result in Victory for Owner in Roof Litigation

The covenants that govern condominium and homeowners associations sometimes contain provisions that are inconsistent, and those imperfections can spark disagreements about board decisions and costly litigation. The Washington Court of Appeals issued an unpublished opinion last month that discussed the problem of conflicting covenants in a homeowners association. The owners prevail over the association in that case, and the reason why might surprise you.

In 2003, James and Janice Geary purchased a lot in the Flying H Ranch subdivision in Buckley, Washington. In late 2005, their house’s composition roof began to leak. The Gearys learned that their house could not support the tile roofing material permitted by the covenants. Another composition roof appeared to them to be the best available option. The Gearys’ proposal to the architectural control committee was rejected because the covenants do not allow composition roofs. The Gearys installed a composition roof anyway. The Flying H Ranch Homeowners’ Association filed a lawsuit against them nine months later.

Flying H Ranch’s covenants state that construction does not require committee approval and complies with the covenants if the association has not started a lawsuit by the time of its completion. However, the covenants also provide for an automatic $10 per day fine on lots that violate the covenants. The trial court concluded that these two provisions contradict each other and make the meaning of the covenants unclear. Since the developer (the source of the uncertainty) was actively involved in this dispute, the trial court strictly interpreted the covenants in the Gearys’ favor. The appellate court agreed with this result, but it also pointed out that covenants are more liberally interpreted in favor of restrictions once developers are no longer involved.

The Geary case demonstrates how inconsistencies in covenants can disrupt enforcement efforts. Identifying conflicting provisions and amending the covenants to fix those problems can prevent many headaches down the road. This case also shows how important it is for boards to be familiar with the portions of the covenants that are time sensitive.

Recent Washington Case Illustrates Rule Enforcement Pitfalls

The Washington Court of Appeals filed an unpublished opinion last week in a case involving a community association. This opinion provides valuable guidance regarding enforcement of governing documents and the limits of rule-making authority.

Gloria Holcomb purchased an undeveloped lot in Kitsap County that was subject to restrictive covenants. The covenants established an architectural control committee and prohibited building on the lots without written approval from the committee. However, the covenants also stated that the committee’s written approval was not required if the committee did not approve or disapprove a project within 30 days after construction plans had been submitted to it.

Ms. Holcomb planned to build her retirement home on the undeveloped lot. She submitted construction plans to the committee in May of 2006. In June and July of 2006, the committee requested more detailed plans in accordance with a stricter procedure recently enacted by the committee. Ms. Holcomb did not provide more detailed plans, and eventually abandoned the project. She then sued the community association, claiming that it violated the covenants by preventing her from proceeding with the project. The trial court ruled in favor of the association, and Ms. Holcomb appealed.

The appellate court’s opinion instructs the trial court to reconsider the case and determine whether the committee violated the covenants by unreasonably delaying approval of her construction project. If the committee is found to have acted improperly, Ms. Holcomb will be awarded damages that naturally flowed from the committee’s misconduct, which in this case could exceed $50,000. This serves as a reminder to boards and committees that failure to reasonably enforce the governing documents can result in liability.

During the trial court’s initial consideration of this case, it significantly concluded that the stricter procedure adopted by the committee was unenforceable because it conflicted with the covenants. The appellate court agreed that the committee exceeded its authority. This serves as a reminder to boards and committees that the rules they enact must be consistent with the association’s declaration or covenants.

The Statue Standoff - Lessons for Curbing Community Conflict?

A few months ago, Glenn and Laura Wolf bought a house in a planned development in South Corvallis, Oregon. They placed five statues (ranging from 6 inches to 3 feet in height) in their front yard, including Christian figures, a Hindu deity, and an Indian chief. A neighbor complained. The association informed the Wolfs that the statues required board approval. The Wolfs responded that there is nothing in the governing documents that specifically addresses statues. Statuegate was born.

The Wolfs and the association each hired attorneys. An effort to recall three members of the association’s board is underway. The board recently offered to settle the dispute by allowing the current statues to stay as long as no more are added. The Wolfs rejected that offer, and they appear to be willing to litigate the issue. The Wolfs’ strong perception that the board is selectively enforcing the rules against them may make legal action inevitable.

Statuegate serves as a reminder that disputes over rules can escalate quickly if certain conditions are present, including ambiguous governing documents, debatable harm to the community, and owners who believe that they are being singled out for different treatment. Boards should always consider the likelihood of a legal challenge when deciding how to exercise broad authority and apply specific rules. Giving owners an adequate opportunity to be heard, discussing their concerns in a civil manner, and offering compromises when appropriate can keep small fires from turning into large ones.

Rules Enforcement - Litigation or Exception?

In 2003, the River Watch Homeowners Association in Tarpon Springs, Florida imposed a $1,000 fine on an owner because her husband insisted on walking their black Labrador Cole through the community without a leash in defiance of an Association rule after repeated warnings. The Board President admitted that Cole was a pleasant dog that never caused any problems, but said that making an exception for him would mean that the board would have to permit all owners to walk their dogs without a leash. The owner and her husband refused to pay the fine, so the Association recorded a lien against her lot and began a foreclosure action. In 2007, a judge ordered the owner and her husband to pay the fine, interest, attorney fees, and costs, which meant that they owed the Association over $40,000 at that point. The owner and her husband say that they have already paid their own attorney over $100,000. They are now appealing the judge’s decision.

The “hard-line litigation approach” adopted by the River Watch HOA may be the only appropriate course of action in some instances. Most owners are not going to be willing or able to spent large amounts of time and money fighting over a rule and will grudgingly pay the fine and begin complying with the rule once they realize that it is in their financial best interest to do so. Many of those owners will back down after they speak with several lawyers because those individuals will likely warn the owners that litigation is expensive and risky. That being said, boards should likewise make sure that they are standing on firm legal ground before they file lawsuits that could in rare instances take years to resolve and cost tens of thousands of dollars.

The Washington laws that govern condominium and homeowners associations only permit them to impose and collect “reasonable” fines and attorney fees. This is of course an “eye of the beholder” standard to some extent, and it introduces an element of risk to any legal action to collect fines. Fines may be considered invalid by courts if associations do not follow the procedures required by law (distribute a fine schedule in advance and impose fines only after giving owners notice and an opportunity to be heard) and the governing documents. Courts may also refuse to order owners to pay fines if there is evidence that owners are being singled out for harsher treatment under the rules.

The “reassessment of the rule” approach should also be considered by boards at an early stage of disputes over rules. Boards should first evaluate whether the rule at issue is consistent with the prevailing standard of conduct in the community and still serves a useful purpose. If the rule at issue should be preserved in its current form, then boards should assess whether the particular circumstances justify making a specific exception to the rule. Community association boards have the discretion to make those types of decisions. Well-defined exceptions to rules that are documented in the meeting minutes will not render those rules unenforceable. If boards are concerned that making exceptions will cause other owners to stop following the rule at issue, they can explain the basis of the relevant exception at the next owners meeting and through written notifications such as meeting minutes and newsletters.

Enforcing the Governing Documents

The United States Supreme Court, at the time led by Chief Justice John Marshall, ruled in 1832 that the forced migration of the Cherokees from South Carolina was unlawful. President Andrew Jackson is said to have responded as follows: "John Marshall has made his decision. Let him enforce it." The Cherokees were subsequently removed to Oklahoma.

If owners are not complying with the restrictions contained in a community association’s governing documents, the board of directors must decide how to respond. The association’s governing documents typically provide the board with several enforcement powers, which include imposing fines, suspending the right to use recreational facilities, and beginning a lawsuit. The preferred initial course of action is usually imposing a fine, but the board should make sure that it is acting in accordance with the Washington laws that govern this power.

There are three basic rules to remember regarding fines. First, a fine must be reasonable, which means that the fine amount should be related to the harm caused by the violation. Second, a fine must be based on a previously established schedule that has been adopted by the board and distributed to the owners. Third, a fine may only be imposed after the owner has been given notice that a fine is being considered and an opportunity to be heard by the board of directors or a designated representative regarding the alleged violation. Failing to meet these legal requirements will give the owner a basis to challenge the fine.

However, some violations may call for a different response. As noted in a recent KING 5 report, many condominium owners attempting to sell their units are being compelled by negative financial circumstances and the sour real estate market to rent their units on a month-to-month basis until they are sold. Such short-term rentals are often inconsistent with their associations’ governing documents. Boards confronted with this issue may wish to simply approve these types of rentals based on the “hardship exception” that is typically present in the governing documents. Boards likewise have the discretion to make exceptions with regard to other types of restrictions in the governing documents if extraordinary circumstances justify it.