Board of Directors of Woodmont Homeowners Assn. v Gallego
Annotate this CaseDecided on May 25, 2006
Civil Court of the City of New York, Richmond County
Board of Directors of Woodmont Homeowners Association, Plaintiff,
against
Diana Gallego, Defendant.
60656/05
Counsel for Claimant:
Howard M. File, Esq., P.C.
260 Christopher Lane
Suite 102
Staten Island, NY 10314
(718) 494-8800
Defendant:Pro Se
Philip S. Straniere, J.
Claimant, Board of Directors of Woodmont Homeowners Association, Inc., commenced this Small Claims action against the defendant, Diana Gallego, alleging that the defendant owed common area charges and dues. On February 23, 2006, the parties appeared in Court. Claimant was represented by counsel. Defendant appeared without an attorney. The parties elected to have their case decided by an arbitrator as permitted under the Court rules rather than by a judge and signed the small claims case record card acknowledging that choice. After a hearing on the merits, the arbitrator rendered a decision in favor of the defendant, dismissing the case. Claimant has filed a motion to vacate the arbitrator's award as provided for in Civil Practice Law and Rules (CPLR) Article 75. The application was heard on March 30, 2006. Defendant did not submit any opposition to the motion.
FACTS:
Defendant obtained title to the premises 76 Fahy Avenue, Staten Island, New York from her father, Jose Plaza Mercado, by deed dated March 29, 2005. Mercado had purchased the premises from the Woodmont Development Corp. by deed dated October 10, 2000. This deed specifically included a clause stating that the premises was "subject to covenants and restrictions and declarations of homeowners association." The deed in the Mercado to Gallego transaction does not contain such a "subject to" clause. The March 2005 transfer was designated as being between "relatives" and without any consideration being exchanged. On March 31, 2005 claimant, through its managing agent, T.W. Finnerty Property Management, prepared a statement in regard to the premises showing that as of March 31, 2005 there had been assessed against the premises $1,423.00 for common charges due and owing. This amount remained unpaid. Thereafter, monthly common charges continued to accrue as did legal fees when claimant referred the account out for collection. When the action was commenced in November 2005, claimant was allegedly owed $2,152.00 for common charges and legal fees. Claimant, in its affidavit accompanying this motion, contends it presented this claim to the arbitrator. It is alleged that the defendant asserted as her defense that she was unaware of any common charges being owed or that she had any responsibility to pay them as an owner of the premises. It is not contested that the premises 76 Fahy Avenue is a member of the claimant homeowners' association. Based on these facts the arbitrator dismissed claimant's complaint. As is the practice in Small Claims Court, the arbitrator did not state the reason for the dismissal, nor was there any record.
ISSUES PRESENTED:
A. What Relief Is Available to the Claimant?
1. Right to an Appeal.
Claimant has sought review of the arbitrator's decision pursuant to CPLR Article 75 since under the rules of the court, no appeal lies from the decision of an arbitrator (22 NYCRR 208.41(n)(2)). Although it has been held that there exists no right to appeal an arbitrator's award, that denial is not contained in a statute. Civil Court Act 1807 provides:
A person commencing an action upon a small claim under this article
shall be deemed to have waived all right to appeal, except that either
party may appeal on the sole grounds that substantial justice has
not been done between the parties according to the rules and principles
of substantive law.
The language of this section contains no differentiation in regard to the right to an [*2]appeal on the ground that "substantial justice has not been done" between a claim decided by an arbitrator and those decided by a judge.
The limitation on the right to appeal appears in the Civil Court Rules at 22 NYCRR 208.41(n)(2). This paragraph provides: "The parties shall sign a consent which shall contain...an affirmation that the decision of the arbitrator is final and that no appeal shall lie from the award." Civil Court Act 2103 grants to the appellate division of the first and second departments the authority to "adopt rules to implement and facilitate procedures in this court,...." Since the above rule has been promulgated pursuant to statute, it must be concluded that the claimant does not have a right to appeal the arbitrator's decision even though that right is not limited by a specific statute. One reason often cited for this restriction on the right to appeal is the fact that at a hearing before the arbitrator, there is no record kept. There is no stenographer nor is there any taping. Without a record it would make it impossible for an appellate tribunal, or a Civil Court judge reviewing an application in that regard, to determine whether or not "substantial justice" had been done between the parties according to the rules and principles of substantive law (CCA 1803). This basis may not withstand scrutiny. Since an appeal would only lie for a deviation from "substantive law" (CCA 1807) not being applied in a manner to achieve "substantial justice," how would a record help? Would not a "record" only be helpful if there were an error in a procedural determination of the arbitrator that adversely affected the due process rights of the parties? Perhaps the reason there is no appeal is that the arbitrator does not have to give a justification for his or her decision and since arbitrators do not render awards with the parties present, recording the proceedings becomes irrelevant. It would seem that should the legislature not want the right to appeal set forth in CCA 1803 to apply to arbitrations in small claims court, it should place that restriction into the language of the statute and not have it arise from a court rule.
It must be concluded that under the rules of the court as currently interpreted the claimant does not have a right to an appeal (Molloy v Froyton, 124 Misc 2d 865, (1984)).
2. Right to Vacate the Award.
As the decision was rendered by an arbitrator, CPLR 7511 is applicable (Rymer v Leider, 122 Misc 2d 873 (1983)). This permits an arbitration award to be vacated in certain specified circumstances. The statute provides: (b) Grounds for vacating. 1. The award shall be vacated on the application of a party who either participated in the arbitration or was served with a notice of intention to arbitrate if the court finds the rights of the party were prejudiced by: (I) corruption, fraud or misconduct in procuring the award; or (ii) partiality of an arbitrator appointed as a neutral; except where the award was by confession; or (iii) an arbitrator, or agency or person making the award exceeded his power or so imperfectly executed it that a final and definite award upon the subject matter [*3]submitted was not made; or (iv) failure to follow the procedure of this article, unless the party applying to vacate the award continued with the arbitration with notice of the defect and without objection.
In order to determine if this section is applicable, it is necessary to analyze the facts of this case. This Court, like an appeals court, of course, is limited in the scope of its inquiry since there is no record and is relying on the representations of claimant's counsel contained in its motion papers. Claimant brought this action to recover condominium common charges allegedly due from the defendant. The claimant asserts that the defendant's defense was that (1) most of the common charges accrued before she obtained title to the premises (2) that she was unaware that there was any obligation to pay common charges and (2) she was never notified that there were any common charges due when she obtained title.
Were this not a "small claims court arbitration" such defenses would be immediately dismissed. There are only two possible defenses to this type of action, one would be that the premises is not included in the condominium and the second, payment. Neither of these defenses are present in this fact pattern. (There is a third option, which is statutory and not applicable to this situation, conveyance of the unit to the board of managers pursuant of Real Property Law 339-x). The record is clear that the premises is a member of claimant homeowners' association. The offering plan was prepared in 1984 and the covenants, restrictions and declarations in regard to the creation of the condominium were recorded with the Richmond County Clerk. In fact, the deed to the defendant's predecessor in interest (her father), includes a reference to these covenants, restrictions and declarations establishing the condominium and homeowners' association and recorded with the county clerk. Although the deed to the defendant does not recite these covenants and restrictions, since they have been recorded, they do run with the land (RPL 339-s). Further as they are recorded, the defendant, as does the entire world, has constructive notice of their existence. If defendant purchased the property from her father and she failed to be represented by counsel or to purchase title insurance, then she did so at her peril. Even a novice attorney just out of law school would have ordered a letter from the condominium prior to closing setting forth the common charges and payments were due and owing. The fact that the defendant failed to do so, does not create a legal defense.
Real Property Law 339-z provides: The board of managers, on behalf of the unit owners, shall have a lien
on each unit for the unpaid common charges thereof, together with
interest thereon, prior to all other liens....Upon the sale or conveyance
of a unit, such unpaid common charges shall be paid out of the
proceeds or by the grantee....
The establishment of this lien and the requirement that all homeowners make their [*4]payments to the association are recited in the offering plan and declaration and are therefore a matter of public record. Defendant is likewise charged with constructive knowledge of these facts.
Part of Real Property Law 339-z also guarantees to a grantor or grantee the right to receive a statement from the board of managers setting forth the amount of unpaid common charges which have accrued against the unit. The statute also prohibits the condominium from asserting a lien for any unpaid charges that exist in excess of the amount set forth in such a letter. There is no evidence that the defendant ever requested such a letter. In any case, if she did, it would only limit her liability to the amount in the letter up to the date of conveyance, it would not relieve her of her obligation to pay the assessments coming due after that date. It should be noted that RPL 339-aa requires a filing of the lien with the county clerk in order for the lien to be effective as an encumbrance of record against the property.
The defendant also has a contractual obligation set forth in the by-laws to pay the homeowners' association dues that arose when she became an owner of the property. The other homeowners are in fact third party beneficiaries of that agreement since the expenses of each unit owner are directly affected by the actions of all other unit owners in paying these assessments. If one unit owner is excused or defaults in the obligation to pay, the cost of operating the condominium and maintaining the common area is passed along to all other unit owners, increasing their mandated contribution. This is why Article 9-A of the Real Property Law is so stringent in requiring unit owners to keep paying their dues. Real Property Law 339-x does not permit a unit owner to excuse himself or herself from this obligation unless that owner is willing to convey his or her unit to the board of managers. Neither defendant nor her father has done so.
Finally, there is no evidence that the defendant either actually paid the obligation or even acknowledged a duty to do so.
It must be concluded that the defendant has no legal defense to the payment of the dues. Thomas Jefferson is credited with saying, "Ignorance of the law is no excuse in any country." To allow the defendant to escape liability for this statutory and contractual duty owing to her own negligence in failing to take even a modicum of steps to protect her interests in her acquisition of title, would make a mockery of the legal system.
The above being said however, is this a sufficient ground to vacate the arbitration award under the statute? It appears that it is not. The failure of the arbitrator to apply the relevant law or to properly interpret the facts is not, in and of itself a ground listed in CPLR 7511 (American Insurance Co. v Messinger, 43 NY2d 184 (1977). CPLR 7511 sets forth four different grounds by which a party who participated in the arbitration can vacate the award. The first is "corruption, fraud or misconduct in procuring the award." [*5]There is no evidence that either the arbitrator or the defendant engaged in any of these activities. Although the claimant asserts that the arbitrator's alleged ignoring of the terms of the declaration and the statute arises to the level of misconduct, that is not how the case law defines misconduct. The claimant is not asserting that the arbitrator refused to permit claimant from submitting the statute and by-laws, but that the arbitrator chose to ignore them. The standard of proof is "clear and convincing evidence" to establish misconduct, and that does not exist here either.
The second ground is partiality on the part of the arbitrator. There is no allegation in this regard by the claimant. Likewise there is no allegation that the fourth ground, the failure to follow the procedure of Article 75 of the CPLR, was violated.
The only possible ground would be if the award exceeded the arbitrator's power or "so imperfectly executed it that a final and definite award upon the subject matter submitted was not made;..."(CPLR 7511(b)(iii)). Although this ground is often liberally interpreted, it is not applicable to the facts of this case. The award in this case is not of such a nature so as to label it "improperly executed." It would seem that for an award to be "improperly executed," there would have to be some defect in the award that prevents it from resolving the issues between the parties or is in some manner contradictory; that is not the case here. What can be more specific than a dismissal of the claim? In support of its position, claimant also cites case law which holds that an award may be set aside when it is "irrational." Although that would seem to make sense, it is not one of the terms used by the legislature as a ground for vacating an award and in fact may be a term that lacks a precise definition making it difficult to apply. The Court agrees that "irrationality" and "violation of public policy" are both valid grounds for vacating a court decision and perhaps should also be applicable to arbitration awards; however, since this is a process created by statute and the legislature has not seen fit to add either of these reasons to those currently listed in the statute, they may not in fact be legitimate reasons to vacate an award. When the parties agreed to arbitration, they knowingly entered into a process which limited their post judgment rights and those rights include severely restricted avenues to challenge an arbitration award.
There does not appear to be any ground in CPLR 7511 under which the claimant can be granted relief.
B. Is the Claimant Remediless?
It may seem that it is a harsh result to prohibit the claimant from having a new hearing when it appears that the arbitrator ignored an applicable statute and a recorded covenant, restriction and declaration that runs with the land; however, the claimant elected to use the arbitrator rather than the Court. In doing so, the claimant knew of the risk that no appeal would lie from the arbitrator's decision and that CPLR 7511 limited the circumstances for vacating an arbitrator's award. [*6]
Since the claimant is prohibited from appealing the decision and the facts do not appear to warrant vacating the arbitrator's award, is the claimant without any statutory remedy? The answer is yes. CPLR 2221(d) permits the court to entertain a motion to reargue when the prior decision was based upon matters of fact or law overlooked or misapprehended by the Court in determining a prior motion. Claimant brought this action seeking a sum certain due and owing. There was no motion involved. The language of CPLR 2221 makes this statute only applicable to motions or orders before a judge and not an award of an arbitrator. Although it must be concluded that there was a misapprehension of the law and the facts by the arbitrator, it was not the result of a prior motion or court order, so it is excluded from the relief afforded by this section. Parenthetically, small claims arbitrators lack the authority to decide motions or review court orders and had that occurred here, the Court could have granted the relief being sought since it would have been beyond the arbitrator's authority. The error was part of an arbitration proceeding pursuant to the Rules of the Civil Court which are not subject to the same standards of review as a trial or motion before a judge.
The Rules of the Civil Court (22 NYCRR 208.41(n)(5) state that the award of an arbitrator will, if not objected to, become a judgment two days after the making of the award. As the award in small claims becomes a judgment, perhaps CPLR 5015 would be applicable to the situation. This section provides: Relief from judgment or order. (a) On motion. The court which rendered
a judgment or order may relieve a party from it upon such terms as may
be just, on motion of any interested person with such notice as the court
may direct, upon the ground of: (1) excusable default,...(2) newly-discovered
evidence which, if introduced at the trial, would probably have produced a
different result and which could not have been discovered in time to move
for a new trial under section 4404; or (3) fraud, misrepresentation, or other
misconduct of an adverse party; or (4) lack of jurisdiction to render the
judgment or order; or (5) reversal, modification, or vacatur of a prior
judgment or order upon which it is based.
Analysis of the facts of the case leads to the conclusion that reason (1) does not apply since this is not a default situation. Reason (2) is not suitable since the evidence submitted by claimant is not "newly-discovered." It is conceded that the claimant's evidence should have "produced a different result" and would alter the award, but, this evidence was in fact presented at the hearing and for reasons unknown since there is no record, rejected by the arbitrator.
"Fraud, misrepresentation or other misconduct of an adverse party," reason (3), likewise is not relevant since the claimant does not assert that the defendant engaged in this prohibited conduct. The claimant alleges that the error was on the part of the arbitrator and not the defendant. Perhaps an argument could be made that the defendant had [*7]constructive notice of her obligations to the condominium because the declarations are filed with the county clerk and part of the public record. Additionally, it could be concluded that she also has constructive notice of the applicable Real Property Law sections. A person with constructive notice is charged with such knowledge so that her failure to acknowledge the existence of this obligation might amount to a "misrepresentation." However, to reach this conclusion requires such convoluted reasoning and an expansion of the theory of "silence as misrepresentation," that it would stretch beyond even the elasticity of the small claims concept of substantial justice. As previously stated, there is no way to know why the arbitrator ruled in the defendant's favor; perhaps it was as a result of a failure of claimant's proof? Without a record it is impossible to tell.
Likewise reasons (4) and (5) do not apply, leading to the conclusion that relief pursuant to CPLR 5015 is not appropriate for this case.
CPLR 2001, which permits a court to correct "a mistake, omission, defect or irregularity...upon such terms as may be just," is only applicable to minor procedural defects and is not to be used to correct substantive errors such as occurred here.
C. Public Policy Argument.
It is a maxim of the law that courts have the inherent power to determine that certain activities, although not specifically covered by a statute, violate the public policy of the state and therefore must be set aside. In this case there are two conflicting public policy issues to be balanced. One is the theory that courts should not "second guess" or "Monday morning quarterback" the findings of alternate dispute resolution forums and administrative agencies so as to impose the court's interpretation of the facts and law. The second is the concept that condominium living imposes certain obligations on the unit owners that cannot be avoided so as to maintain the integrity of that form of property ownership. In deciding which public policy is to be given deference it is necessary to decide if that enforcement of one policy over another would adversely affect third parties outside the litigation.
It is clear that there is an important public policy being advanced by having finality resulting from the decisions of small claims arbitrators. Without that, the civil court would become an appellate tribunal for any dissatisfied litigant and the Court would be forced to place its interpretation of the facts and law on a situation that had already been decided by an arbitrator without a record. There would be no one to determine if the party's new application was asserting the same or different facts. The losing party would have the advantage of "20-20 hindsight" and a new case would be presented to the Court. The purpose of small claims court would be undermined by permitting review of the arbitrator's decision. The existence of a statute that was allegedly ignored by the arbitrator has been generally held not to be sufficient to vacate arbitration awards. [*8] Thus our courts may be called upon to enforce arbitration awards which
are directly at variance with statutory law and judicial decision interpreting
that law. Furthermore, there is no way to assume consistency of
interpretation or application. The same conduct could be condemned
or condoned by different arbitrators.
(In the Matter of Aimcee Wholesale Corporation, 21 NY2d 621, 627, (1968))
However, a striking exception to that rule is where public policy may be adversely impacted should the arbitrator's award stand. In the case at bar, there is an equally important public policy issue of mandating members of homeowners' associations to pay their common charges; a policy reinforced by a statutory scheme set forth in Real Property Law Article 9-B. Courts have vacated arbitration awards when the violation of the statute affects persons or interests beyond that of the parties; that is, the injury extends to the people of the State as a whole and the issue transcends the private interest of the parties (Aimcee Wholesale Corporation, supra; Associated General Contractors, New York State Chapter, Inc v. Savin Brothers, Inc., 45 AD2d 136, affd 36 NY2d 957 (1974)). In this case the Real Property Law requires all members of the condominium to pay common charges and assessments. This is such a fundamental element of condominium living, that the legislature gives the condominium a lien for those charges, which may be foreclosed so as to protect the interests of the condominium. It is easy to understand why this is the law. If member homeowners could opt out of payment, then before long the condominium would collapse.
Since the condominium is a creature of statute, and it is offered for sale to the general public through a public offering, the legislature has seen fit to treat the sale of units as the sale of a real estate security subject to General Business Law Article 23-A, the Martin Act. This statute requires the approval of the New York State Attorney General of the offering plan and gives the attorney general continuing jurisdiction to monitor this form of ownership. The legislature included the attorney general in the process as a method of protecting the general public from fraud in the offering of the sale of units. The effect of the arbitrator permitting a homeowner to escape liability for common charges, results in an adverse affect on the other unit owners, and is a re-writing of the offering plan, declaration and by-laws without going through the process set forth in those documents and the statutes. It is an alteration of the rights of the other unit owners without giving them notice or having them participate in the litigation. The Court cannot permit such a situation to exist.
In order to protect the interests of the other unit owners, it is necessary to vacate the arbitrator's award dismissing this action. To carry the arbitrator's finding to its logical extreme could not only lead to the collapse of this condominium, but to all condominiums if unit owners can escape liability for assessments for reasons other than payment or exclusion of the unit from the condominium. [*9]
There exists at least one open question from this litigation which is, since the common charges have not been paid, can the condominium record the lien created by the statute and foreclose that lien against this premises. Would the arbitrator's decision be entitled to any res judicata? Cannot the condominium still bring an action for money due and owing against the claimant's predecessor in interest who was not a party to this action?
CONCLUSION:
The decision of the arbitrator must be vacated on public policy grounds. To permit it to stand undermines the legislative purpose of the Condominium Act and adversely affects the rights of other unit owners who are not parties to this action.
The matter will be restored to the calendar on Thursday, June 8, 2006, at 6:00PM at the Courthouse, 927 Castleton Avenue, Staten Island, New York for a trial on the merits before the Court.
This constitutes the decision and order of the Court.
Dated: May 25, 2006_________________________
Staten Island, NY HON. PHILIP S. STRANIERE Judge, Civil Court
ASN by _________ on ________________.
[*10]
A P P E A R A N C E S
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