Schaefer v Chautaqua Escapes Assn., Inc.
Annotate this CaseDecided on December 6, 2016
Supreme Court, Chautauqua County
Robert Schaefer and Kimberly Schaefer, Plaintiffs
against
Chautaqua Escapes Association, Inc., Board of Directors of Chautaqua Escapes, Inc. and Camp Chautauqua, Inc., Defendants
K1-2015-1236
ERICKSON, WEBB, SCOLTON & HAJDU
Attorneys for Plaintiffs
Paul V. Webb, Jr., Esq., of Counsel
KENNEY SHELTON LIPTAK NOWAK, LLP
Attorneys for Defendants Chautauqua Escapes Association, Inc. and Board of Directors of Chautauqua Escapes Association, Inc.
Maurice L. Sykes, Esq., of Counsel
LUNDBERG LAW OFFICES
Attorneys for Defendant Camp Chautauqua
Dana A. Lundberg, Esq., of Counsel
Frank A. Sedita III, J.
All parties have moved for summary judgment in this dispute between husband and wife homeowners, the homeowners' association, its board of directors and the sponsor of the real estate development.
In 1972, defendant Camp Chautauqua, Inc. (Sponsor) acquired a large parcel of land in Chautauqua County. The Sponsor subdivided a portion of the property into residential lots and provided certain amenities to be shared by the subdivision's homeowners. The Sponsor also created a homeowners' association, which came to be known as Chautauqua Escapes [*2]Association, Inc. (HOA), which, in turn, is governed by a Board of Directors (Board), elected by the homeowners.
In 1991, the Sponsor and HOA entered into an agreement entitled: "Declaration of Protective Covenants, Conditions, Restrictions, Easements, Charges and Liens" (Declaration). Relevantly, the Declaration sets forth the powers of the Board; the formula by which it should make assessments; the rights and obligations of the Sponsor concerning amenities; and, the manner in which disputes shall be settled.
Pursuant to §3.01 of the Declaration, the HOA was formed to own, operate and maintain the Association property, as well as to enforce the provisions of the Declaration. Pursuant to §3.04, the HOA Board has the powers and duties necessary for the administration of the affairs of the HOA, including the determination and levying of assessments (§3.04 a.); the making of repairs, additions and improvements (§3.04 e.); entering into contracts (§3.04 f.); and, "doing such acts, obtaining such things and providing such services as may be necessary or appropriate or desirable to maintain the high value, desirability and attractiveness of the Association Property and to maintain the quality, lifestyle, welfare, property and interests of the owners" (§3.04 u.).
Pursuant to §5.03 of the Declaration, the annual maintenance assessment is to be equally divided amongst the lots. Pursuant to §5.07, the HOA may change the basis of determining the maintenance assessment by obtaining the written consent of not less than 67% of the total votes of all lot owners. Pursuant to §5.04, the Board may also levy a special assessment for the purpose of defraying the cost of any capital improvements, additions or alterations.
Pursuant to §4.09 of the Declaration, the rights, duties and obligations the Sponsor and HOA are governed by Use of Facilities Agreement (Facilities Agreement) contained in Schedule "C" of the Declaration. Part I-3 of the Facilities Agreement requires the Sponsor to keep the Schedule "A" amenities in good repair and condition. Schedule "B" sets forth the amount of compensation due to the Sponsor for each of these amenities, which include the water system, sewer system and lodge. Part I-4 of the Facilities Agreement entitles the Sponsor to increases in compensation, "upon providing satisfactory evidence to the Board of Directors that the actual expenses incurred by the Sponsor for the maintenance and operation of the Amenities or any part thereof exceeds the amount per lot shown in Schedule B." Part III-2 of the Facilities Agreement states, in part, that: "All disputes arising out of this agreement shall be decided by arbitration."
Pursuant to §11.02 of the Declaration, its provisions bind the property and run with the land and are enforceable by the Sponsor, the HOA — which is specifically designated as the "agent" for the owners — and by any member or owner. Pursuant to §11.03, however, no liability shall attach to the Sponsor, the HOA or any Board member for failure to enforce the Declaration's provisions.
In 1999, the Board voted to waive assessments on Lots 138 and 139, which were (and still are) unoccupied and owned by the Sponsor. The Sponsor has not paid any assessments on these lots since 1999.
In 2008, the plaintiffs purchased lots 133 and 134. Robert Schaefer transferred his property interest to his wife, Kimberly Schaefer, the following year.
In 2011, the sewer system failed, which necessitated $114,663.00 worth of repairs. The sewer repairs were financed by a special assessment levied against the homeowners. The Sponsor did not pay a share of this cost. Ironically, plaintiff Robert Schaefer — who now faults the current Board for making no effort to recoup money from the Sponsor for the sewer system [*3]repairs — introduced a resolution to waive claims against the Sponsor for these costs when he sat on the Board.
In 2013, the Board approved an amendment to the Facilities Agreement which set the cost of water, to be purchased by the HOA from the Sponsor, at $50.00 per day. In 2014, the Board voided the 2013 agreement and approved a retroactive increase to $57.50 per day without having first obtained an itemization of actual water expenses from the Sponsor. As a result, each homeowner has been 'burdened' with an approximate six-cent per day increase in water costs.
In January 2015, plaintiff Robert Schaefer commenced an action, setting forth many of the same allegations and seeking much of the same relief as is sought in this lawsuit. Defendants motion to dismiss the action was heard on September 14, 2015, before Chautauqua County Supreme Court Justice Paul Wojtaszek. The court ruled that dismissal was warranted because Robert Schaefer (who had sold his property interest to his wife in 2009) was not a homeowner and therefore did not have standing. Mrs. Schaefer transferred the lots into the name of both she and her husband the following day (September 15, 2015). This lawsuit was commenced thirteen days later (September 28, 2015).
Plaintiffs' complaint — lodged against the HOA and the Board and purportedly on behalf of the HOA against the Sponsor — requests a mishmash of declaratory relief, injunctive relief, money damages and/or hearings. Plaintiffs' principal theory of liability against the Board (as well as its individual directors) is breach of fiduciary duty, grounded in several alleged failures to rigorously enforce the Declaration against the Sponsor, including: the failure to collect maintenance assessments for lots 138 and 139; the failure to collect a share of sewer repair costs; the failure to insist that water costs be based upon actual expenses instead of competitive rates and estimated expenses; and, the failure to keep the lodge in good repair. Breach of contract appears to be plaintiffs' principal theory of liability against the Sponsor.
On June 10, 2016, plaintiffs moved for what they characterize as "partial summary judgment" in no less than ten parts. Specifically, plaintiffs request the court to: (1) declare that lots 138 and 139 are subject to assessments; (2) permanently enjoin the HOA from waiving assessments on these lots (3) declare that assessments for maintenance, repairs and capital costs must be equally divided amongst all lots; (4) award a money judgment to the HOA and against the Sponsor for past due assessments associated with these lots, as well as a hearing to determine the amount of the judgment; (5) award a money judgment to the HOA and against the Sponsor for the Sponsor's fair share of costs to repair the sewer system, as well as a hearing to determine the amount of the judgment; (6) permanently enjoin the HOA and Board from granting any increase in water rates paid to the Sponsor unless the Sponsor provides satisfactory evidence that the actual expenses for water exceed the amount, per lot, in Schedule "B" of the Facilities Agreement; (7) award a money judgment to the HOA and against the Sponsor for the difference in water costs, as well as a hearing to determine the amount of the judgment; (8) declare that the Sponsor must keep the lodge in good repair and condition; (9) enter a judgment in favor of the HOA requiring the Sponsor to restore the lodge, as well as a hearing to determine how much that would cost; and, (10) permanently enjoin the HOA and Board from paying for expenses that should be paid for by the Sponsor.
On August 22, 2016, the HOA and Board filed their responding papers in opposition to plaintiffs' summary judgment motion. The HOA and Board also cross-moved for summary judgment in their favor, principally contending that the Declaration's own provisions shield them, both collectively and individually, from liability premised upon alleged failures to enforce [*4]the Declaration. They also contend their decisions are shielded from judicial review under the business judgment rule.
On August 23, 2016, the Sponsor filed its responding papers in opposition to plaintiffs' motion. The Sponsor also moved for summary judgment in its favor. It joins in many of the arguments set forth by the HOA and Board. The Sponsor additionally contends that individual homeowners have no standing to bring a lawsuit (against them) and that any dispute regarding the Facilities Agreement (i.e. the sewer, water and lodge claims) must be resolved by arbitration.
Plaintiffs' replying papers, filed on August 25, 2016 and August 29, 2016, essentially repeat the liability theories and allegations set forth in their original summary judgment motion. Notably absent is any claim that the provisions of the Declaration which shield the HOA and Board from liability are unconscionable or unenforceable. Likewise, plaintiffs do not contend that the provisions of the Facilities Agreement, which mandate arbitration with the Sponsor, are unconscionable or unenforceable.
The August 29, 2016 oral arguments were adjourned once the court was informed that the results of an upcoming vote amongst the homeowners to amend the Declaration might make the continuation of the instant litigation unnecessary.
The parties again appeared on October 24, 2016. Defendants' attorneys advised the court that more than 50% but less than the required 67% of the homeowners voted to approve the proposed amendments to the Declaration, due in significant part to Robert Schaefer's opposition campaign. After repeated inquiries from the court, plaintiffs' attorney reluctantly confirmed his client's active opposition to amending the Declaration. The court reserved decision after the parties completed their oral arguments.
Summary judgment permits a party to show, by affidavit or other evidence, that there is no material issue of fact to be tried, and that judgment may be directed as a matter of law (Brill v. City of New York, 2 NY3d 648, 650-651). The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any genuine, material issues of fact. Once this showing has been made, the burden shifts to the party opposing the motion to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action (Alvarez v. Prospect Hospital, 68 NY2d 320, 324-325).
With respect to plaintiffs' summary judgment motion, the principal question for the court is whether the defendants are liable, as a matter of law, for their purported failures — the Sponsor's failure to live up to its contractual duties as well as the Board's failures to fulfill its fiduciary duty to proceed against the Sponsor on behalf of the homeowners — with respect to assessments, sewer system repairs, water rates, and the condition of the lodge.
A court should apply the business judgment rule when reviewing the actions of a homeowners' association (19 Pond, Inc. v. Golden Bridge Community Association, Inc., 142 AD3d 969). The business judgment rule essentially restrains a court from overturning the management decisions of a corporation's board of directors or holding the board liable for any loss resulting from those decisions. It is well-settled that so long as the board of directors of a homeowners' association acts for the purposes of the homeowners' association, within the scope of its authority and in good faith, courts will not substitute their judgment for that of the Board (Preserve Homeowners' Association, Inc., v. Zhan, 117 AD3d 1398, 1399; Spaulding Lake Club, Inc., v. Jiang, 78 AD3d 1668). To trigger further judicial scrutiny — i.e. to make out a prima facie case for summary judgment — an aggrieved homeowner must make a showing that the [*5]board acted outside the scope of its authority or in a way that did not legitimately further the corporate purpose or in bad faith (40 West 67th Street v. Pullman, 100 NY2d 147, 154).
Plaintiffs fail to set forth any facts which establish that the HOA or Board acted in a way that did not legitimately further the corporate purpose or that they acted in bad faith. Plaintiffs' principal contention is, instead, that the conduct of the Board — regarding assessments, sewer system repairs, water rates, and the condition of the lodge — was unauthorized by, or in direct contravention of, the Declaration and/or Facilities Agreement.
As previously noted, §3.04 of the Declaration grants the Board the powers and duties necessary for the administration of the affairs of the HOA. The Board is specifically authorized to enter into contracts and to levy assessments, especially for the purpose of the making repairs and improvements. §3.04 also authorizes the Board to do such acts, obtain such things and provide such services as may be necessary or appropriate or desirable to maintain the high value, desirability and attractiveness of the Association Property and to maintain the quality, lifestyle, welfare, property and interests of the owners.
Plaintiffs contend such a broad grant of authority is limited by other provisions in the Declaration. For example, plaintiffs point to various provisions of Article 5 which, in their view, prohibits the HOA from exempting the Sponsor from paying assessments without obtaining written consent from a super-majority of the homeowners. While it is true that the waiver of assessments regarding the lots 138 and 139 was by Board action and not by super-majority vote, it occurred in 1999, which is approximately sixteen years before plaintiffs brought their lawsuit. Thus, even assuming, arguendo, that plaintiffs' interpretation the Declaration with respect to waivers of assessments is correct, claims against any of the defendants are barred under the statute of limitations (see, CPLR §213). Indeed, the six-year statute had expired well before the plaintiffs purchased their lots in 2008.
Plaintiffs also point to §4.09 of the Declaration and Part I-4 of the Facilities Agreement which, in their view, prohibits the six-cent per day water rate increase. Although the Sponsor should have provided proof that actual water expenses had increased before the water rate was renegotiated — an event that did not occur — the Board is entrusted with the broader duty to safeguard the welfare of the homeowners and to assure that essential services, like water, are delivered to them. Moreover, from the proof submitted, it appears that the rate increase is relatively miniscule and that the overall all cost for water is well below the average for a homeowners' association in New York state. Although the Board failed to carry out a technical pre-requisite to renegotiation, such a failure is clearly within the scope of §11.03 of the Declaration, which provides that no liability shall attach to the Sponsor, the HOA or any Board member for failure to enforce the Declaration's provisions.
In addition to failing to set forth any facts which establish that the HOA or Board acted illegitimately or in bad faith, plaintiffs' have failed to demonstrate that the Board's actions were unauthorized. Accordingly, plaintiffs have not met their burden of proof with respect to summary judgment against the HOA and Board. Plaintiffs also fail to set forth sufficient facts that would entitle them to summary judgment against the individual members of the Board (see, Pomerance v. McGrath, 143 AD3d 443; 38 N.Y.S.3d 164, 168-169; Pine Street Homeowners Association v. 20 Pine St. LLC, 109 AD3d 733, 755).
With respect to the HOA and Board's summary judgment motion, the Board's decisions, as previously catalogued, are generally authorized by §3.04 of the Declaration. Moreover, the deposition testimony of Board President Anthony Giammarise makes clear that such decisions [*6]were made in good faith and in furtherance of the legitimate interests of the HOA. Consequently, the Board acted within the scope of the business judgment rule. Even if there existed triable issues of fact as to whether such alleged enforcement "failures" fall outside the scope of the business judgment rule, the HOA and Board are clearly absolved of liability for them under §11.03 of the Declaration. The HOA and Board have therefore made the necessary prima facie showing of entitlement to judgment as a matter of law. In opposition, the plaintiffs have failed to demonstrate the existence of genuine issues of material fact requiring a trial (see, LoRusso v. Brookside Homeowner's Association, 17 AD3d 323,324). Nor have they alleged that §11.03 of the Declaration is unconscionable or unenforceable. Accordingly, the HOA and Board are entitled to summary judgment in their favor.
The Sponsor is also entitled to summary judgment in its favor, for the following reasons.
The Board's powers and duties include the authority to enter into agreements on behalf of the HOA. As previously noted, actions within the scope of the Board's authority, made in good faith and in furtherance of the legitimate interests of the homeowners' association, are protected from judicial scrutiny by the business judgment rule.
It is axiomatic that making agreements on behalf of the HOA — a power specifically granted to the Board under the Declaration — is an "action" under the business judgment rule. It is also axiomatic that both parties to an agreement are entitled to rely upon its terms. Relevantly, three such agreements were made between the Board and Sponsor: to waive collection of assessments on lots 138 and 139; to waive contribution to sewer repair costs; and, to renegotiate the water rate. Thus, even if the plaintiffs had standing to contest these agreements, there is no material issue of fact concerning whether these agreements were lawfully made (they were) and binding upon the parties (they are). Additionally, even if the Board exceeded its authority in agreeing to a waiver of assessments on lots 138 and 139 (instead of putting it to a super-majority vote of the homeowners), plaintiffs' claims are time-barred by the statute of limitations.
With respect to the condition of the lodge, there is no agreement between the Board and the Sponsor, other than what is set forth Declaration and Use Facilities Agreement. The Sponsor is clearly under an obligation to keep the lodge in good repair and condition under Part I-3 of the Facilities Agreement. The plaintiffs, as homeowners, also have the right dispute whether the Sponsor has carried out its obligations, pursuant to §11.02 of the Declaration (also see, Caprer v. Nussbaum, 36 AD3d 176). Part III-2 of the Facilities Agreement, however, obligates the plaintiffs to resolve such a dispute by arbitration. Here, there is no material issue of fact regarding whether the arbitration provision is lawful (it is) and whether the plaintiffs have abided it (they have not).
Finally, the court has considered the defendants' arguments regarding unclean hands (see, Wells Fargo Bank v. Hodge, 92 AD3d 775) and champerty (see, Justinian Capital SPC v. WestLB AG, ___N.Y.3d___, 2016 NY Slip Op. 07047), and find them to be unpersuasive.
Defendants' summary judgment motions are granted. Plaintiffs' ten-part partial summary judgment motion is denied in its entirety and their complaint is dismissed.
The foregoing shall constitute the order of this court.
Dated: December 6, 2016
HON. FRANK A. SEDITA, III
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