Tag: due process

Illinois appellate court awards punitive damages for reckless indifference by condo

Note:  This case is based on Illinois laws and case history precedent with respect to punitive damages and the business judgment rule.  (Normally, punitive damages are not awarded for breach of contract claims, but this case was a breach of fiduciary claim). I believe other states have similar laws and case history that would make this opinion valid in the respective states.  However, the decision is not for publication or use as binding precedent.

It reflects a common sense approach to justice under the law and not a decision to uphold the view that the HOA can do nothing wrong; and that the HOA always acts in the best interest of the HOA’s obligation to all the members.

Plaintiff must ask for punitive damages.

 

The issue:  Over a 2-year period, condo ignored homeowner’s repeated requests for assistance in addressing water damage, forcing homeowner to incur expenses to make repairs and to hire an attorney to seek condo reimbursement.  Punitive damages against the condo were sought.

The Laws:  Condo board’s breach of fiduciary duty;   punitive damages award for willful or evil motive or reckless indifference to rights of others; business judgment rule.

Decision:   Affirmed trial court decision against condo for breach of fiduciary duty to homeowner, and the award of punitive damages amounting to $22,000 above the damages of $5,497.

Discussion by the Court: 

“The purpose of punitive damages is not compensation, but punishment of the offender and deterrence of the wrongdoer and others. Punitive damages may be awarded ‘where the defendant’s conduct is willful or outrageous due to evil motive or a reckless indifference to the rights of others.’ “The parties agree that a trial court may award punitive damages in a breach of fiduciary duty case.

“[The trial court] found the Association ‘acted with reckless indifference to the rights and needs of [plaintiff] who was forced to use her own funds to repair an apartment and then hire a lawyer to help her recover her reasonable cost.’”

[Business judgment rule opinion].

“We note here that the Association urges us to find an abuse of discretion [judge overstepped his authority] because the award conflicts with its business judgment. ‘Under the business judgment rule [. . .] absent evidence of bad faith, fraud, illegality, or gross overreaching, courts are not at liberty to interfere with the exercise of business judgment by corporate directors.’

“The rule protects directors who have been careful and diligent in performing their duties from being subjected to liability for honest mistakes of judgment. . . . That is not what occurred in this case, where the Association was neither diligent nor careful in performing its duties, but instead chose to ignore the plight of  [plaintiff].”

Comment:  Punitive damages are the only realistic method whereby homeowner’s can impose a meaningful detriment to continued board abuse, as state laws do not punish the HOA board for violations of state laws or the governing documents.

 

Case:   Shuh v. Plaza Des Plaines Condominium Assn, No. 1-13-1999 (IL App. 1st  Dist. July 24, 201) (Thanks to HOA Member Services, “This website is designed to provide people with all the information they need to understand and enhance their experience of working with or living in a common interest development that is governed by a homeowners association.”)

 

 

HOA laws that fail to protect the people from harm

I have written many times about the loss in the protections of individual rights, freedoms, privileges and immunities that continues in our country.  I wrote about the presumption that all laws passed by the legislature are constitutional, because, apparently, the sovereign can do no wrong.  After all, the legislature is the voice of the people, isn’t it?

BUT, this false analogy to the king can do no wrong ignores the fact that the king was not bound by any constitution or charter, and was free to do as he pleased.  But, we have, or are supposed to have, a constitution with restrictions on government.  We also have the doctrine of judicial review of legislation, subjecting the laws to pass judicial scrutiny.

Of the three levels now part of the doctrine of judicial scrutiny, the peoples’ rights fall into one of three categories. The least protective is a legitimate, rational government interest (basically anything the government says is important to the people goes); the strictest is a compelling and necessary interest, reserved for explicit fundamental rights violations.

I have always been bothered about many HOA laws purported to be in the best interest of the people, yet deprive or deny a category of people, those living in HOAs, of their constitutional rights (free speech in many forms, due process protections) and the equal protection of the laws. In Arizona, for example, the horrendous SB 1482 omnibus (read ‘ominous’) bill did just that: granted special rights to HOA managers and left homeowners with unequal legal representation; rejected a private agreement to prevent crimes to allow real estate agents to be able to rent homes in HOAs, a long time frowned upon right.

In the recent Arizona appellate opinion in Vong v. Aune (non-HOA case that explains judicial scrutiny), the court held that, “Courts have found a legitimate purpose lacking where a regulation fails to protect the public from harm.” ¶ 18.  Did I miss something?  Did the Rules Committee that has the duty to check for constitutionality miss something?

Of course the game is still in favor of the government where the burden is put on the homeowner challenger.  He must show that the alleged good for the community is overwhelmingly overridden by the damage to the HOA homeowner public class, and is contrary to public policy. It raises the question of one class of people losing constitutional protections so that others may . . . . may what?

Sadly, public policy as shaped by court and legislative decisions seems to be on the side of the HOA.

Getting the Feds involved in HOA reforms

As apparent from the Illinois Supreme Court opinion[i] favoring HOAs, the Feds need to get involved. However, the Feds, like state attorney generals, have no specific authority to get involved – HOA/condo states are state laws, except for those federal laws like the American Disabilities Act and Fair Housing.

A broader approach is necessary in order to wake up the Feds, and that can come about by an appellate or US Supreme Court case decision on 1) violations of a homeowner’s constitutional rights, or 2) a violation of the 14th Amendment’s equal protection clause brought under federal law § 42 U.S.C. 1983, Civil action for deprivation of rights. This approach would be similar to the whistle blower law suits of Erin Brockovich or Jeffrey Wigand (tobacco nicotine is addictive).

Read the paper at constitutional rights . . . .

 

[i] See IL Supreme Court holds HOAs “are a creature of statute,” and not contractual.

IL Supreme Court holds HOAs “are a creature of statute,” and not contractual

Last month the IL Supreme Court opinion in Spanish Court[1] reversed the right of an owner to withhold assessments in view of the HOA’s failure to fix and maintain.[2] In its argument, frequently making use of pro-HOA activist and CAI CCAL attorney in Florida, Gary Poliakoff, the Court stated,

 

Although contract principles have sometimes been applied to the relationship between a condominium association and its unit owners based on the condominium’s declaration, bylaws, and rules and regulations . . . the relationship is largely a creature of statute, defined by the provisions of the Condominium Act. . . . Although these duties may also be reflected in the condominium declaration and bylaws, as they are in this case, they are imposed by statute and exist independent of the association’s governing documents. Accordingly, a unit owner’s obligation to pay assessments is not akin to a tenant’s purely contractual obligation to pay rent, which may be excused or nullified because the other party failed to perform. ¶ 21.

So much for the sanctity of the CC&Rs contract! The Court, guided not only by Poliakoff, but by a CAI amicus curiae brief,[3] rolls with the punches and chooses when and when not to uphold the contractual nature of the governing documents.

The Court avoided dealing with the equitable aspects of withholding assessments just like withholding rent, rejecting the favorable appellate decision that held,

[T]he obligation to pay assessments, and the obligation to repair and maintain the common elements, as mutually exchanged promises, and concluded that under principles of contract law, a material breach of the repair obligation could warrant nonpayment of assessments. ¶ 7.

Adding fuel to the fire, the Illinois Supreme Court followed the CAI propaganda that the HOA’s survival depends on assessments being paid immediately and without question.

This section [of the IL condo act] was adopted to provide a constitutionally permissible, quick method for collection of assessment arrearages. . . . The necessity of a “quick method” for collection of past due assessments, unencumbered by extraneous matters, is manifest when we consider the manner in which condominium associations operate . . . . the condominium form of property ownership only works if each unit owner faithfully pays his or her share of the common expenses. When a unit owner defaults in the payment of his or her assessments, the resulting forcible entry and detainer action is thus brought “for the benefit of all the other unit owners.” ¶¶ 29 -30.

Permitting a unit owner’s duty to pay assessments to be nullified would thus threaten the financial stability of condominium associations throughout this state. . . . For the same reason that taxpayers may not lawfully decline to pay lawfully assessed taxes because of some grievance or claim against the taxing governmental unit, a condominium unit owner may not decline to pay lawful assessments. Trustees of the Prince Condominium Trust v. Prosser, 592 N.E.2d 1301.” ¶ 32.

 

Here we have the alleged dicta [non-supported court opinions], and becoming part of the Illinois public policy, that the survival of the HOA/condo is first and foremost. The HOA rises to the same level as a public entity, with the questionable governing documents now having contractual validity and court support to deny homeowner rights, freedoms, privileges and immunities.

 

Welcome to the New America of HOA-Land.

References

 

[1] http://www.state.il.us/court/Opinions/SupremeCourt/2014/115342.pdf.

[2] See appellate decision Court decisions: HOA Enlightenment Movement vs. the Dark Ages.

[3] “Spanish Court Condominium Association II vs. Carlson (Illinois),” CAI Amicus Curiae Activity 2013.

Defending the Constitution: VA, yes; AZ, no

With the removal of the statutory imposed right of an HOA to fine members from Virginia’s  HB 791, the VA legislature demonstrated that it stood behind the separation of powers doctrine of the US and VA constitutions.

I had written VA Rep. Suorvell and Senator Petersen, who opposed the bill as it was written, about the Virginia Supreme Court’s findings in Gillman v. Unit Owners, which said HOA fines were unconstitutional.

In Gillman the Virginia Supreme Court held,

We do not agree that it was ever the intent of the General Assembly of Virginia that the owners of units in a condominium be a completely autonomous body, or that such would be permitted under the federal and state constitutions. Admittedly, the Act is designed to and does permit the exercise of wide powers by an association of unit owners. However, these powers are limited by general law and by the Condominium Act itself.

The imposition of a fine is a governmental power. The sovereign cannot be preempted of this power, and the power cannot be delegated or exercised other than in accordance with the provisions of the Constitutions of the United States and of Virginia. Neither can a fine be imposed disguised as an assessment. . . . We think it clear that the Gillmans were being punished, not assessed, and hold the action of the Association to have been impermissible.

 And very importantly from a constitutional point of view (my emphasis), “A condominium restriction or limitation, reasonably related to a legitimate purpose, does not inherently violate a fundamental right and may be enforced if it serves a legitimate purpose and is reasonably applied.”

Sadly, the Arizona Legislature is still trying to pass for a 4th and 5th time (two versions of last year’s trice defeated HB 2371/SB 1454).  It would allow unlicensed and untrained HOA property managers to represent HOAs in small claims court and in administrative hearings;  but not allow the homeowner a third-party representative, violating the equal application of the laws and no special laws for special groups provisions of the US and AZ  constitutions.

What is the legitimate AZ government purpose to selectively deny homeowner equal representation?  Does it reasonably promote good public policy?