November 11, 2020
Dead Tree Lawsuit Against HOA Arborist Dismissed
Contemporary land development policies would not work well without trees. Lot owners use trees for shade, ornamentation, and to screening. Subdivisions, especially cluster developments, often include common areas where trees or shrubs provide dense visual screening of the development. Vegetation can be more attractive and taller than fences. When a tree dies, it transforms from an asset to a liability, threatening damage to nearby structures or people. It is in a lot owner’s self-interest to remove dead trees from their own lots to avoid potential damage. In HOAs, it is common for large trees to rot on common areas. Boards sometimes lack focus or motivation to address such concerns. When common area trees die and cause damage, aggrieved parties want to hold someone responsible. HOA covenants impose general duties on the board to maintain the common areas but may not contain language that would hold the HOA responsible for personal injury or property damage caused by dead trees. In an HOA, the directors typically do not personally perform landscaping work themselves. The board or a manager will hire advisors and tree men for such things. What happens if the HOA hires an arborist to inspect trees in a forest and the consultant overlooks a tree that later causes harm? That’s the subject of a case currently pending in the Circuit Court of Fairfax County. In Cawlo v. Rose Hill Reserve HOA, et al., homeowners sued the HOA, property manager and arborist when a tree fell and hurt them a year after the arborist conducted an inspection on an adjacent conservation easement. In August 2017, the HOA contracted with arborist Adam Wingo to inspect all trees on a conservation easement to assess which ones were dying or otherwise posed a threat to others, including the Cawlo property. Mr. Wingo identified certain trees that the HOA removed. Eleven months later, Mr. Cawlo and his daughters were playing in the backyard when a 40-foot-tall tree fell on them, causing injuries. The Cawlos alleged that Mr. Wingo owed a duty to them and caused or contributed to their injuries.
Mr. Wingo’s attorney filed a demurrer to the Cawlos amended lawsuit, and the court dismissed the claims against him personally. Judge John Tran explained his rulings in an opinion letter. Judge Tran observed that under Virginia case law, a property owner does not owe a duty to others who are harmed outside his property due to a “natural condition” such as a dead tree failing down. The Court found that although the HOA hired the arborist to assess trees that might be a threat to adjoining owners, Mr. Wingo did not have a legal duty to protect the Cawlos. In this case, the arborist did nothing to make the trees more unsafe, and this particular tree was not in imminent risk of collapse during his inspection. This tree did not fall until 11 months later. Trees are living, natural things that lack legal qualities of manmade structures. If the development plan contemplated a 10-foot-tall fence instead of trees, and the fence fell on the family, the owners might have a stronger lawsuit. It doesn’t matter if the tree sprouted because nature brought a seed to that location or was planted by human design. These legal particulars enhance the value of trees for landscape design. For lot owners, many HOA covenants don’t treat trees as a “structure” requiring HOA approval for installation or removal.
The HOA was in a “contractual” relationship with the Cawlos with regard to the conservation easement, as defined by the recorded instruments. However, Mr. Wingo was not a party to that document. The family alleged that they could hold Mr. Wingo personally liable on a theory that he assumed a duty of care towards them by the nature of what he agreed to inspect for the HOA. To make a claim for negligence based on a theory of assumption of duty, the plaintiffs must show an agreement, promise or express intent to undertake a duty specific to the plaintiffs. The Court found that he never said or did anything to expressly assume a duty to the Cawlos. For those reasons, the judge entered an order dismissing the lawsuit with respect to Mr. Wingo. The opinion implies that litigation continues against the HOA.
The Supreme Court of Virginia held in Fancher v. Fagella that an adjoining owner may sue a neighbor for nuisance when encroaching trees and plants cause actual harm or pose an imminent danger of actual harm to adjoining owners. The owner of the tree or plant may be held responsible for harm and may also be required to cut back the encroaching branches or roots, assuming the encroaching vegetation constitutes a nuisance. The adjoining landowner may, at his own expense, cut away the encroaching vegetation to the property line whether or not the encroaching vegetation constitutes a nuisance or is otherwise causing harm or possible harm to the adjoining property. However, the principles of Fancher v. Fagella don’t seem to apply in a case where the tree is entirely on the adjoining land.
Tree law problems won’t decline as Northern Virginia transforms into an urban area. Many people desire secluded, natural locations within convenient distances to commercial areas. Some cities, counties and HOAs want landowners to replace trees they cut down. Trees and shrubs will continue to play a prominent role in giving people a sense of privacy while increasing density in Northern Virginia. People are drawn to seclusion for the relaxing psychological effects achieved by separation from noise, traffic and eyesores. However, a large dead tree next door forces the homeowner to live in a continual fear of harm compounded by the stress of interpersonal conflict. Under the law of Virginia and most states, it matters a great deal if it is a 40-foot dead tree or a 40-foot builders’ crane that fall on top of the family, even if the effect is similar. Communities that fail to adequately address the problem of dead or invasive trees will continue to see problems with trees causing harm. Homeowners ought to carefully consider the threat posed by large, older trees on adjoining property.
Legal Authority:
Cawlo v. Rose Hill Reserve Homeowners Ass’n, CL2019-11705 (Fairfax County Nov. 6, 2020)
Fancher v. Fagello, 274 Va. 549 (2007).
Note that the image used for this blog post does not depict anything specifically referenced in the article or cited case authority.
May 20, 2020
Resolving Property Disputes through Mediation
Successful athletes, owners and coaches share a passion for winning. In 2020, ESPN aired a documentary about Michael Jordan’s Chicago Bulls basketball dynasty. Cancellation of professional sports during the Coronavirus is a disappointment to many Americans. Basketball Hall of Famer Steve Nash once said, “Nothing is black-and-white, except for winning and losing, and maybe that’s why people gravitate to that so much.” Attorneys and their clients also love winning, hate losing and look for things in black or white. When a client interviews a potential attorney, they want to know whether the attorney thinks that they can win, what that victory would look like, and what it would take to get there. The attorney is interested in learning what the client’s expectations are, what evidence exists, what the legal issues are and whether the client has the resolve and resources to take the case to trial if necessary. According to Ken Shigley, past president of the Georgia Bar, an attorney should, “Accept only cases you would be willing to take to trial.” The best time to have a “moment of truth” about the wisdom or meritoriousness of a lawsuit is before initial filing. The outcome of litigation is typically harsh for the losing side. Property owners value their sense of control, and submission of a case to a judge or jury means relinquishing control over major questions about the future. These are important considerations in cases among neighbors, HOAs, condominium associations, lenders, landlords, tenants, or contractors. Property and construction cases often include more than controversy over payment of a disputed sum. In property law, parties look to the court to resolve disputes concerning boundary lines, easements, walls shared among townhouses, the validity of legal documents, partition of property among multiple co-owners, injunctions against stormwater nuisances, and so on. After hearing evidence and argument, the court may make findings and rulings contrary to both sides’ legal positions. Whether the property represents an owner’s home, business or investment, there is always a “bigger picture” to their plans, needs and expectations that exceeds the scope of what could be won or lost in court.
Usually it is best for parties to settle the dispute on terms that all can live with. At trial, the judge applies the law to the testimony and documents entered into evidence in the context of the remedies requested in the pleadings. In settlement, the parties’ negotiations are not limited that way. It is not always enough for the parties to work out the terms of settlement simply by discussing the dispute with each other and the lawyers. It can be difficult to arrive at mutually acceptable terms by exchange or emails or letters. Settling disputes requires momentum in negotiations, which is difficult to achieve through emails or voicemails. Matters are in litigation because of pre-existing animosity that gave rise to the seemingly intractable dispute.
Fortunately, there are ways to resolve many legal disputes without the risks and expenses of further litigation or arbitration. Many property or construction cases are suitable for mediation as a form of alternative dispute resolution. In mediation, a retired judge or experienced attorney facilitates settlement negotiations. Some courts have institutionalized mediation programs. For example, in D.C. Superior Court, parties to go through a mediation program before the pretrial conference. The D.C. court mediators are local attorneys with stipends paid for out of the court’s budget. In courts that do not sponsor mediation, parties can obtain it through mediators who charge by the hour. Many judges go on to work as mediators after they retire from the bench.
The mediator does not decide the case or “rule” on any issues. What goes on in mediation is confidential. If the parties do not reach an agreement, then the case continues in court or arbitration. Both sides have the option of leaving at any time if they believe that the mediation is not working.
Mediation makes sense in the context of the coronavirus epidemic and the evolving changes in court operations. Virginia courts are just starting to reschedule in-person hearings and trials in civil cases. Private mediations do not require scheduling by the court or use of government buildings. If the court decides to push the trial date out 6-18 more months, the parties may want to mediate to get it over faster. Some mediators are willing to conduct sessions by remote meeting technology such as Zoom or Webex.
Before mediation, the parties submit copies of lawsuits, contracts, statements, etc. for review by the mediator. Mediation begins with the parties meeting at the court’s mediation center or the offices of a law firm. The mediator will explain how mediation works and answer questions. Mediators ask the parties to sign mediation agreements that spell out the confidential nature of the activity and the fees required, if any. After this, each side will break out into separate conference rooms. The mediator will go back and forth, listening to each side explain the facts, their expectations, and details of the settlement negotiations. It is a good idea to bring relevant documents and files to the mediation to facilitate these discussions. Parties who are well prepared are more likely to get their needs met. Some mediators tell participants that they will share with the other side whatever you share with the mediator, unless someone tells them to keep it confidential. Other mediators have the practice of only disclosing to the other side the confidence that someone expressly authorizes the mediator to share.
Mediation can take several hours. It is common for parties to be in mediation all day. It is a bad idea to schedule other things in the late afternoon or evening with the expectation that the mediation will be successful or abandoned by a set time.
Mediation is valuable in disputes between owners of neighboring parties. In family law, disputes between parents over child custody can be acrimonious. Challenges of shared custody are not placed on hold because litigation is threatened or pending. Sometimes new disputes can erupt during litigation that affect the case or the settlement negotiations. Disputes over boundary lines, easements, party walls, water channels, etc. are challenging in the sense that the parties need to maintain and use their property rights while the case has not yet been resolved. Often, one or both parties want to continue to live there for many years thereafter. Mediation offers a way out of disputes which have the potential to continue for years, even after the judge makes rulings at trial. In disputes between adjoining property owners, there is a value to cases being over in a fashion that is acceptable that well exceeds taking the matter to trial, after which there may be additional conflicts in court or on the premises. In such cases, the parties have interests that go beyond the exchange of money. I believe in exploring use of retired judges as mediators in disputes between owners of adjoining parcels of land. Mediation is also used to resolve disputes between lot or unit owners and their community association boards.
Sometimes the parties lack interest in mediation at the beginning, but later, for various reasons, become less reluctant to negotiate compromises. Mediation only works when both sides are willing to engage in a discussion that entails some compromise.
To be clear, I love winning and hate losing. That said, there is a bigger picture in property disputes than who wins and how big. Art Rooney, owner of the Pittsburg Steelers, once said, “The biggest thrill wasn’t in winning on Sunday but in meeting the payroll on Monday.” Whether they own a 500 square-foot studio apartment condominium unit or a large commercial property, landowners need to think more like Mr. Rooney and less like Vince Lombardy. Property cases are unique because they touch on such basic questions about human relationships, ambitions, and sense of safety. For many owners, mediation is the best route to secure their best interests and get past the current problems.
March 26, 2020
Foreclosures and Evictions During Coronavirus
Americans are now familiar with the “flatten the curve” tactic to prevent spikes in coronavirus cases from overwhelming health care systems. Governors impose limits on the number of people who may publicly congregate and encourage people to stay at home to slow viral communication. Otherwise, the ill may soon go to the hospital and discover that there are no beds or doctors available. There is another “curve” that poses a lesser-but-still-dangerous threat. Because of the restrictions on business, many wage earners and self-employs are now out of work. Even if workers can telecommute, closure of daycares and schools adds financial burden on families. Many Americans are now unable to make their rent or mortgage payments. Many citizens are at risk of eviction before the states lift stay-at-home orders. Defaults are worse beyond the reach of the public safety net into commercial property. Millions do not know how long they will be at home.
Washington, D.C. is trying to mitigate a spike in foreclosures, bankruptcies and evictions. The Washington Post recently reported (“Homeowners are getting federal mortgage relief, but renters aren’t so lucky”, Renae Merle, March 20, 2020) that the U.S. Department of Housing and Urban Development, Federal Housing Finance Agency, Fannie Mae, and Freddie Mac directed loan servicers to halt all foreclosures until mid-May 2020. The FHFA wants to establish a mortgage forbearance program as done in the 2008 financial crisis. Borrowers who cannot pay their mortgages can apply to the servicers for a deferral of their payments. They may still have to pay the money back later. Servicers do not have to automatically grant the loan modification request. Many people had bad experiences with that loan modification process. It is unclear whether this program will be more user friendly. These loan modifications don’t release the debt, they just push payment out. Pausing foreclosures until mid-May or beyond doesn’t make the loan defaults go away, it just postpones action.
As federal mortgage regulators hit the foreclosure “pause” button, the courts are restricting access to legal remedies for loan or lease defaults. The courts based their orders to defer scheduled hearings and trials in civil cases on social distancing concerns, not housing policy. In Virginia, all civil cases are continued through April 6th by general, emergency order of the state Supreme Court. Some local courts have stayed eviction orders. Continuance of “non-essential” civil cases will likely be pushed out past April 6th, but no one knows how long. The courts are under a lot of pressure to get things moving again while also promoting social distancing. The eviction or small claims dockets of some courts normally have hundreds of people in the courtroom. The longer courts push out unlawful detainer dockets, the greater the spike in cases after they return to their regularly scheduled dockets. These government actions aren’t flattening the curve on foreclosures, bankruptcies and evictions. They are merely postponing the increase until whenever restrictions disappear. Many owners will have less money then.
During the previous recession, mortgage servicers and foreclosure law firms made many mistakes because the sheer number of defaults overloaded the system. They frequently ignored the terms of mortgage documents and statutes to maximize volume-based profits. Sometimes servicers would foreclose on borrowers who went through a rough patch but had well-paying jobs. For example, if a worker has a decent salary from a government contractor, they could be furloughed if their employer lost a big contract to a competitor. The employee would then put their resume out to other government contractors. Months later they could find a new, good paying job. But loan servicing policies didn’t distinguish between such individuals from those who were incapable of making a mutually acceptable workout feasible. I predict that we are going to see similar things in 2020 and 2021 as workers go through periods of intense financial hardship before getting back to work.
During the 2008 financial crisis, I worked on numerous foreclosure-related litigation matters. I represented banks, borrowers or foreclosure sale purchasers. Many owners will have legal options for resisting foreclosures that will not be easily found by a keyword internet search. The servicers and foreclosure attorneys are going to be under a lot of pressure to handle a sudden, large volume of loan defaults. Borrowers will have some time in which to figure out how they are going to reinstate the loan or obtain a modification or forbearance. Even where they aren’t making mistakes, there are nonetheless opportunities to keep homes. The biggest mistake that owners or tenants can do is to simply ignore the notices that come in the mail or becoming easily discouraged by the confusing and unhelpful things that the servicers may be saying on the phone. Owners will not have unlimited time to stave off foreclosure and eviction. When there is a sudden explosion of foreclosures and evictions, there will be scam artists who will promise frightened borrowers that if they give their money to the foreclosure rescuer, then the foreclosure rescuer will stop the foreclosure and use the money to obtain a modification. However, these scams put owners ultimately in a worse position than had they done nothing. Owners receiving threatening letters from a foreclosure trustee or law firm may need to retain a qualified attorney to protect their rights. In a few days I’m planning on posting a “part two” to this that includes a timeline of what usually happens after a mortgage loan default in Virginia.
March 17, 2020
Be Safe When Property Disputes Coincide with a Public Crisis
When a public crisis occurs, pre-existing problems don’t go away. The crisis falls on top of all other burdens and conflicts of life. The Coronavirus epidemic is no different. This pandemic poses unique challenges not present in other crises. No one knows how long this will last, how many people will be affected or how far governmental restrictions will go. Some things can be deferred indefinitely without much difficulty, especially if they are only in the planning stages. If you have always wanted to put an addition on your house and planned on doing it in 2020 but haven’t bought anything, signed any contracts or other preparations, it’s easy to just put it on hold.
Other problems are not so easily deferred. For example, if a tenant is behind on her rent and the landlord wants to evict, the landlord’s mortgage payments aren’t going to be excused simply because the tenant isn’t paying, and the courts are not hearing eviction cases. Likewise, if an owner is in the middle of a major construction project requiring many people to be on the jobsite at the same time while the government is encouraging everyone to stay at home and delivery of materials are not coming on schedule, then decisions have to be made now. In this blog post, I would like to share a few thoughts about handling property-related disputes amid a public health crisis. This is not intended to replace the instructions of the authorities or other best practices to avoid getting sick. Note that these ideas may become obsolete as the situation continues to evolve. Generally, people should put health concerns first. However, sometimes there are urgencies or deadlines that must be considered.
- Availability of Court Remedies Will be Substantially Delayed. In Virginia, the District of Columbia and other places, courts are cancelling trials, postponing hearings and discouraging the sick, elderly and those with health conditions from coming. As a practical matter, while the doors of the courts may be technically open for filing, aggrieved parties may not be able to get a hearing anytime soon. When the Courts return to their regular schedule, the system will be clogged with a backlog of rescheduled hearings. Nonetheless, statutes of limitation and other deadlines may still be in effect. People should not assume that they can ignore a summons just because the governor is encouraging everyone to stay home.
- Consult with Counsel Before Exercising Self-Help. Sometimes, parties can exercise self-help legal remedies without court assistance. For example, residential landlords can’t just throw a tenant’s belongings out and change the locks just because they stop paying rent. They need a court order to direct the sheriff to transfer possession. However, on the commercial side, self-help may be an option. When adjoining owners have boundary or easement disputes, they may want to simply construct a fence in a disputed location, lock a gate across an easement or dispose of encroachments in the face of an adverse neighbor and without the blessing of the courts. However, there are potential unapparent risks of self-help, especially when the conflict has already escalated. For example, self-help can sometimes lead to threats of violence or someone calling the police. Landowners should consult with counsel to determine if some form of self-help would be helpful or risky.
- Law Enforcement and Regulators are Overwhelmed. Sometimes when disputes between adjoining owners, HOAs, contractors or landlords and tenants escalate, people may want to call the police, county departments or other regulators to protect themselves. During a public health crisis, law enforcement is already overwhelmed and may not view a neighborhood dispute with the same sense of urgency as someone living there. Code enforcement officials may be swamped with other work because of persons taking leave or other urgent matters. Unless there is an eminent threat of physical harm, theft or other crimes that cannot wait for a lawyer to respond to an inquiry, landowners ought to consider consulting with an attorney before contacting law enforcement.
- Avoid Physical Confrontations or Defects Posing Safety Threats. Sometimes neighborhood disputes escalate to the point that the parties come to fisticuffs or leave their property in a dangerous condition. Landowners should take every precaution to avoid contributing to a situation where someone gets hurt or must go to the doctor or hospital, and further burden the healthcare system.
- Avoid Homeowners Association Meetings, Hearings, and Events When Possible. The Coronavirus epidemic poses a unique threat to Americans living in condominiums and HOAs. This is because the community association form of living requires people to interact with each other to manage common concerns. The residents of associations tend to be older and at higher risk of infection. Governing instruments and state laws require “open” meetings which take place in person with the entire community free to attend, unless closed session is available. Owners are legally entitled to use common areas and facilities. Few statutes or declarations address emergency management or remote access to meetings. Many managers or directors will pursue their own agendas despite warnings from experts. Smart boards and committees will postpone nonessential meetings, prevent or discourage unnecessary gatherings and take commonsense measures to prevent common areas from becoming a venue for transmission of the virus. If an owner receives a notice of violation letter from the HOA or condominium board, she should consult with legal counsel if a postponement is not offered.
The Coronavirus has the potential to make deadlocked property disputes worse because everyone will be under greater stress, economic hardship and the legal system offers fewer immediate remedies. However, the advice of a trusted advisor such as a qualified attorney can lead to devising a self-protection strategy when the ordinary rules do not seem to apply.
February 20, 2020
HOA Records and the Exclusion of Hearsay from Evidence
HOAs and condominiums, as legal entities, are creatures that derive their power from documents. Governing documents must be in writing. Rules, regulations, policies, and resolutions must be put into writing. To maintain and manage the common areas, the board must make contracts with vendors. Covenant enforcement requires data collection and issuance of notices to lot owners. The process of making and collecting assessments is also document driven. Owners in disputes with associations frequently complain that they cannot obtain access to essential records necessary to resolve the disputes or discover that the records do not exist. The creation, organization, and storage of paper and electronic records and documents are essential to the operation of a community association. HOAs derive power from the creation, organization, and control of this information. Owners often complain that they cannot get the records they want from their association or documents that would exculpate them cannot be found.
Once judges call disputes between owners and HOAs forward for trial, the conflict over HOA records shifts to the inclusion or exclusion of association exhibits as evidence. The rules of evidence allow for the exclusion of hearsay. Hearsay is an out of court statement offered to prove the matter asserted in the statement. The hearsay rule applies to oral statements, written materials or electronic records. The hearsay rule prevents a party from proving their case with alleged passed-on statements by persons who cannot be cross-examined at trial. The right to cross-examine one’s opponent is an element of “due process”. Not all statements are presented to “prove the matter asserted.” Some statements are introduced to show that a party was on notice of or aware of a contention or some other basis other than the truth of a statement or document. Even if a statement is hearsay, there are many well established exceptions to the hearsay exclusion. For example, an admission by one’s opponent is admissible hearsay, because the party can offer evidence to try to explain the admission. Another is the “business records” or “shop-books” exception. Businesses rely upon the accuracy of data collection, entry and storage to make informed decisions, operate and make money. Properly kept business records are considered trustworthy because they are not made for purposes of having a self-serving answer, which are needed at the moment. In community associations cases, the lawyers must understand the business records exception to navigate hearsay objections.
When associations try to use their business records, one problem they experience is that the documents were made and kept by a director, community manager, accountant or other custodian who does not testify. The directors of a condominium or HOA constantly change. When members elect new boards, frequently they change management companies because of complaints about the former managers. Even within a “tenured” management company, there is significant employee turnover. A community association may have voluminous records, but no one may have personal knowledge about the making and keeping of many of them.
The business record exception to hearsay frequently arises in community association litigation. In 2013, the Fourth District Court of Appeal of Florida considered an appeal of a final judgment of foreclosure brought by Sebastian Lakes Condominium Association against Connie Yang and Frank Romero. Sebastian Lakes sent Yang and Romero letters stating that they owed over $10,000.00 in unpaid assessments and recorded a lien in the land records. Later Sebastian Lakes filed complaints to foreclose on the liens. The owners contended that the new property management company failed to accurately apply credits to the account in the records because the wife’s father made an advance payment of approximately $18,000.00 in 2008.
Yang and Romero also alleged that the association pursued the foreclosure and other “scare tactics” to retaliate against them for participating in an investigation into $100,000.00 in missing condominium funds.
At trial, Sebastian Lakes called one of the management company’s employees as a witness to testify and introduce an account ledger for the husband. The defendant owner’s attorney objected to the introduction because the plaintiff’s attorney laid insufficient foundational testimony for admission of the ledger under Florida’s business record exception. The owner challenged the association’s evidence on the grounds that they could not establish accurate balances to the owners’ ledger accounts prior to the current management company’s takeover. The owner contended that the new management company failed to accurately reflect a large payment made before the takeover. The owner contended that he stored a copy of the $18,000.00 casher’s check in his unit. He could no longer get into his condo unit. Note that the ledger amounts were submitted for their truth because the true dollar amount owed was in controversy in the foreclosure action. The trial judge cut the presentation of the owners’ evidence off after about 20 minutes and entered judgments of foreclosure in favor of the condominium association.
Yang’s and Romero’s appeal focused on their objections to the introduction of the hearsay HOA records. Under Florida law, the party seeking to use the business records exception must lay a foundation of witness testimony that (1) the record was made at or the time of the event, (2) the record was made by or from information transmitted by a person with knowledge, (3) was kept in the ordinary course of a regularly conducted business activity, and (4) it was a regular practice of that business to make such a record. The rule in Virginia is similar but not identical. The rules and practices for the business record exception vary in each state. I am not a Florida lawyer – I am using this case as an example. On direct examination, the condominium’s lawyer asked the normal foundational questions and the employee of the new property management company gave the expected answers. The trial judge overruled the owners’ objection that there was an inadequate foundation for use of the business records exception to hearsay. However, on cross examination the employee admitted that records from before the takeover were maintained by the prior accountant and she had no knowledge of how that prior accountant kept or maintained the ledger records. The witness could not explain how they verified the starting balances. Based on this testimony, the appeals court found that the introduction of the account ledgers failed to include a proper foundation of witness testimony for the use of the business records exception. The court reversed the judgments of foreclosure in favor of the association. Note that the cross examination revealed the foundation problem after the court overruled the hearsay objection. The opinion does not state whether the defendants’ counsel voir dire’d the witness or moved to strike the hearsay after the cross examination. Practitioners need to know how to properly handle such a situation should it arise to avoid waiving grounds to object to the hearsay specifically or challenge the plaintiff’s evidence generally.
Not all association records may constitute hearsay, and there are other exceptions to the hearsay exclusion other than the business records exception. However, in a HOA case everyone needs to be aware of how the business records exception works in that court system. The effect of this rule can cut both ways. Sometimes the owner may be the one trying to authenticate the books and records of the association for litigation use.
Often, associations use hearsay business records to enforce covenants or collect assessments where they bypass the evidence rules and the courtroom entirely. In Virginia (and many other states), to the extent that statutes and the declaration allow, associations can send owners notices of architectural violations, hold hearings before a board or committee, and decide whether to fine the owner without going before a judge who would impose the rules of evidence. Also, state statutes allow for associations to record liens for unpaid assessments without first obtaining a court judgment. When HOAs and condominiums take such action, often they rely upon business records that would require a proper foundation to be admitted under the hearsay exception in a court of law. These HOA and condominium statutes that allow for bypass of civil litigation is that they relieve associations of the challenges associated with turnover among the directors, management companies and employees. Yang and Romero successfully defended the assessment foreclosure action because the court rules for evidentiary foundations and cross examination uncovered that the balance used in calculation of the unpaid assessment amount was unreliable. Understanding the business records exception is essential to navigation community association litigation.
Yang v. Sebastian Lakes Condo. Ass’n, Inc., 123 So.3d 617 (Fl. 4th App. Dist. Aug 28, 2013)
May 24, 2019
Injunctions in HOA Cases
Some people like to talk about awards of money damages or attorneys’ fees that the courts order losing parties to pay. Litigation involving landowners, HOA or condominium boards revolve around what remedies the court may apply if it sees things the same way as one of the parties. Contrary to the focus of many news articles, monetary awards may not be the essential remedy available in property rights or corporate governance cases. In Virginia, and elsewhere, the law makes awards of money damages or possession of property preferred remedies. However, in many cases, an award merely of money damages is insufficient to properly vindicate the rights of an aggrieved party. In disputes between owners and HOA boards or neighbors involving the use of land, claimants frequently ask for the court to order the defendant to do certain things or to stop performing improper actions. This is called an “injunction.” For example, a neighbor or the HOA may be causing a nuisance on a lot or common area (e.g., improperly diverting drainage water), that unreasonably damages or interferes with the adjoining landowner’s rights. There are other examples which do not involve nuisances. An aggrieved owner could just sue for money, but the offending party may continue with the wrongful behavior, which results in more damage or interference justifying another suit. A succession of suits for money damages doesn’t solve the root of the problem. Community associations and their members have ongoing relationships that usually only end if someone sells their property or dies. While courts apply high standards for aggrieved parties to obtain injunctive relief, the scope of subject-matter to which injunctions may apply is as broad as the topics addressed in the governing documents, the applicable statutes or other controlling legal principles, such as the doctrine of nuisance. Cases where structural failure may cause catastrophic injury to person or property absent corrective action often include requests for injunctive relief. The ongoing character of neighborhood disputes makes an injunction a powerful remedy. The purpose of this blog post is to summarize how injunctive relief may work in HOA, condominium or adjoining landowner disputes.
Community associations revolve around a declaration of covenants, and any amendments, that function as a “contract” between the association board, committees, the developer and the lot or unit owners. To interpret and enforce this “contract”, Virginia courts apply statutes and judge-made doctrines pertaining to restrictive covenants, easements and deeds. Under the judicial doctrines, if a party requests a court to enter an injunction against conduct that violates a covenant, they must show that the covenant is not ambiguous or presents other enforcement problems. Courts traditionally apply heightened skepticism towards enforcement of covenants and easements. This is why lobbyists asked the General Assembly to enact the Property Owners Association Act (POAA) and the Virginia Condominium Act (Condo Act) and their amendments. This legislation made it easier for association boards to enforce HOA covenants and powers. The POAA and Condo Act provide for injunctions (not excluding money damages or other relief) as a remedy available to lot or unit owners for breach of the association covenants by the board or an adjoining owner. If those statutes don’t apply, a claimant must go to the Circuit Court to obtain an injunction. The association statutes provide an exception, allowing HOAs, condominium boards or owners to go to the local Circuit Court or the General District Court for money damages or injunctions for violation of the declaration of covenants.
In Virginia state courts, to obtain an injunction, the complainant must show irreparable harm and lack of an adequate remedy at law. The Supreme Court of Virginia has held that when an injunction is sought to enforce a real property right, a continuing trespass may be enjoined even though each individual act of trespass is in itself trivial, or the damage is trifling, nominal or insubstantial, and despite the fact that no single trespass causes irreparable injury. The injury is deemed irreparable and the owner is protected in the enjoyment of his property whether such be sentimental or pecuniary. An injunctive order must be specific in its terms, and it must define the exact extent of its operation so that there may be compliance. The declaration of covenants, like other contracts, require parties to perform as prescribed. The entry of an order granting a motion for an injunction based on HOA or condominium covenants takes this a step further, because disobedience to a court order allows the aggrieved party to file a subsequent request with the court to hold the party bound by the injunction to be held in contempt. This is why attorneys seek to avoid having their clients become subject to injunction orders.
There are two main kinds of injunctive relief. One is a “permanent injunction” which the judge enters at the end of the case should she agree that such a remedy is proper in a final order. The other kind is a “preliminary” or “temporary” injunction which the court may enter on motion for the time between when the suit is filed and the trial. Preliminary injunctions provide immediate relief, subject to revision at the end of the case. In Virginia, different judges apply different legal standards for preliminary injunctions. Many draw from common law cases which do not articulate a uniform standard. Some judges apply the strict federal standard for preliminary injunctions, requiring a showing that (1) the plaintiff is likely to succeed on the merits, (2) the plaintiff is likely to suffer irreparable harm in the absence of preliminary relief, (3) the balance of equities tips in his favor, and (4) an injunction is in the public interest. Preliminary injunction orders are unusual because waiting until the case is decided on the merits affords more due process to the defendant.
Association boards can sue for injunctions, but they don’t have to. The POAA and the Condo Act allow associations to fine property owners for violating covenants or rules when the declaration allows fines and the board strictly fulfills the requirements of the declaration and the statute. I don’t agree with these fine statutes because they enable HOAs to get a free pass from having to plead and prove breach of the covenants or the appropriateness of an injunction enforceable by contempt. In a sense, HOAs and condominiums are able to skip over months of litigation “due process” to determine if a remedy is proper for breach of the governing documents and instead, just enact a kind of contempt penalty. Owners don’t have the ability to jump ahead of the process and fine people without having to litigate for a year or more. Nonetheless, preliminary and permanent injunctive relief are powerful weapons for owners aggrieved by the wrongful actions of association boards or adjoining owners. Owners can draw from the governing documents, statutes and common law doctrines to achieve a judicial remedy or favorable settlement that resolves the dispute without forcing the owner to sell or engage in endless lawfare. Understanding what court remedies may be available, such as money damages, attorneys’ fees or injunctions is necessary in order to chart a legal strategy to resolve the dispute and achieve peace of mind.
2022 Update:
In 2022 I posted a new article, “Homeowner Injunction Claims Against HOAs.” This new article contains additional information regarding this important topic.
Selected Legal Authority:
Scott v. Walker, 274 Va. 209 (2007)
Va. Code § 55-515 (POAA – Compliance with declaration)
Va. Code § 55-513 (POAA – Adoption and enforcement of rules)
Farran v. Olde Belhaven Towne Owners’ Ass’n, 83 Va. Cir. 286 (Fairfax 2011)
Unit Owners Ass’n of Buildamerica-1 v. Gillman, 223 Va. 752 (1982).
Winter v. N.R.D.C., Inc., 555 U.S. 7 (2008)
Levisa Coal Co. v. Consolidation Coal Co., 276 Va. 44 (2008)
September 4, 2017
Show and Tell
September is when students go back to school. My daughter recently started at a new daycare. I feel like I have gone back to school too. Her school’s daily procedures are as new to me as they are to my daughter. One back-to-school activity is “Show and Tell.” Show and Tell is a great introductory public speaking educational activity for kids. The student might bring in something they acquired over their summer vacation. Her turn comes, she stands before the class, shows the item and explains its story. My daughter is not old enough for Show and Tell yet. At her age, the other kids want to grab any interesting new item that a classmate brings. I’ve learned not to let her bring her own toys to school because of the tendency for items to be disputed, damaged or lost. Home toys stay at home, daycare toys stay at school. Peace on earth.
When we become adults, our property we tell friends about has more complex stories than finding a horseshoe crab shell on the beach. I work with property owners who find themselves in various disputes over land, homes or major renovations. With a child, possession of a toy is often enough to justify shouts of “mine, mine, mine” to a classmate who wants it. With property, there is a maze of land records, contracts, statutes, rules, etc. that affect the respective rights of the parties. Adults see analytical thinking as important to deciding property and contract disputes. However, there is a deep emotional connection between owners and their property rights. At stake is one’s livelihood, sense of home, financial future, interpersonal relationships and a host of other matters that touch upon someone’s identity. All professionals who have experience in the residential property sector learn to accept the very real emotional dimension to all of this. Disputes in residential construction and property matters are emotional for the participants.
When anyone feels that their property rights are under attack, or they are accused of attacking someone else’s property rights discussions quickly acquire a moral quality. Right versus wrong. Us versus Them. When property owners reach a certain point in disputes with mortgage companies, buyers, sellers, tenants, contractors, HOAs or neighbors it often seems like their requests or explanations are not being heard. Angry people tend to “tell” things and struggle to also “show” key points. I frequently see how escalating stress in property disputes leads otherwise smart, good people to “over-moralize” their perception of a dispute and possibly miss opportunities to resolve it without any more delays, headaches and expenses than are necessary. I will describe how a “show AND tell” approach can be a powerful tool to getting things going in the right direction.
First, I would like to provide a hypothetical so that you can understand what I am talking about. Ted and Julianna hired Claude to build an addition on their house. They signed a contract. Claude started working on the project. Claude repeatedly requested that Ted and Julianna provide advance payments so that he would have funds to proceed. Wanting him to get done quickly, they did. Things progressed to the point that Claude got paid 90% on the job at a time when he was only 70% done on the project. Claude became less interested in the work once he got paid almost everything he was supposed to be paid. Ted and Julianna had a list of items that were not correctly built or not finished. One of the items was a leak into their house. They believed flashing around a window was not properly installed. Ted and Julianna grew weary of sending Claude multiple voicemails and emails about this and other defects. Claude sent someone to repair it. This required Ted and Julianna to cancel their annual garden party to accommodate the worker’s schedule. The “repairs” did not stop the leak. Realizing that they paid more than they received and were being given the runaround, Ted decided to fully document everything. Ted and Julianna had good reason to be upset at what Claude did. Ted took a video of the water coming into his house on his smartphone during a rainstorm and spoke during the video, adding a few choice words for Claude and his crew. One text message later, Claude received the video. All Claude could see was a close up of drops of water around what seemed to be the corner of the window of the interior of a house. He heard Ted’s upset voice. Claude forwarded the video to his lawyer Sean. Claude and Sean could tell that Ted was not happy. They did not know what to make of the video because it was unclear what house it was in, which window it was, what date it had been made. It was just a close up of a leak. Claude and Sean decided to just lie low and see what Ted and Julianna did next. Ted and Julianna became even more upset because their proof of the defect had been ignored by the contractor. They went online and noticed that a subcontractor filed a small claims case against Claude on another case. Several years ago someone left a zero star review about Claude on a website. They began to think about what they could do to force Claude to do something or at least get his attention. During a subsequent telephone call between Julianna and Claude, the discussion escalated further.
As you can see, Ted and Julianna have legitimate grievances about Claude’s work. They know that they need to do something. They decide that Claude isn’t hearing them, so they decide to tell Claude what is happening a little louder with the video with the angry voiceover. However, this does not “show” what is happening. The video is a closeup which lacks adequate context for someone unconnected to the dispute, like a judge, arbitrator or professional to understand the meaning of what they are being “told.” Claude and Sean decided to wait and see what Ted and Julianna do because so far they have not shown that they know how to explain their case. What often happens in these situations is the consumer who feels they are being ignored does not try to “show and tell” but merely to “tell” louder and louder.
When real estate and construction disputes escalate, eventually they are heard by regulatory officials, judges, arbitrators or juries. These “neutrals” are the audience for numerous complaints. If the complaining party is over-moralizing the dispute and only “telling” the story of how their opponent is a bad person instead of also “showing” through an accurate and engaging narrative, the neutrals are likely to side with the defendant. All the neutral knows is that an angry person is pointing fingers and is not prepared to explain how rules, contract documents and/or evidence support their claims. The aggrieved party does not understand why others cannot see what they know and feel. Disputes that escalate like this can become difficult to settle because of the attenuation of the circumstances and the “right and wrong” focus of the parties. If the opposing party feels that they cannot negotiate with the consumer they may be inclined to simply fight fire with fire. Sometimes angry people have a difficult time even coming up with a demand letter because the truth is something they live with every day. Explaining and proffering evidence seems unnecessary. But that is what is needed.
What is the answer to avoiding or resolving these kinds of disputes? I have a few ideas:
- Focus on “Show and Tell,” not just “Tell.” Consider how the narrative presents itself to the intended audience.
- Use qualified professionals such as attorneys, estimators, inspectors and engineers to provide an independent evaluation of the circumstances.
- Take deep breaths. Stick to a diet and exercise routine. Commit to one’s own mental and physical wellness.
- Focus on solving the problem the best it can, not on destroying one’s opponent.
- Be patient. The dispute took a long time in the making and it will probably not be resolved with a single letter.
- Stay focused on the relevant issues and avoid the temptation to become distracted by peripheral matters such as some other legal dispute one’s opponent experienced in the past with somebody else.
- Understand who to turn to for help. Often the answer is a judge or arbitrator and not a regulatory official.
Succumbing to the temptation of “over-moralizing” is dangerous is because the victim becomes susceptible to further manipulation. The consumer might do or say something that might prejudice their case. They might fall victim to further fraud by accepting the assurances of their opponent and then letting down their guard and missing some sort of deadline such as filing a lawsuit or warranty claim.
I am not saying that the difference between right and wrong is unimportant. It is very important. Also, I don’t like it when people call for someone to “strip your emotion out of this.” That’s not possible. The key is to bring the right “pitch” to one’s emotional response to a situation. Not too high and not too low. If one’s voice is on pitch, then the decision-makers will be able to hear it. If the advisors and allies of one’s opponent can see that the consumer is disciplined in their approach to defending their rights and is prepared to both “show and tell” then the necessary steps have been taken to settle the dispute or achieve the best result in court or arbitration.
photo credit: Onasill ~ Bill Badzo Waterloo Ontario ~ Canada ~ Italianate Architecture via photopin (license)
May 16, 2017
Breach of Agreement to Purchase Insurance
Many construction contracts contain provisions requiring one or more parties to purchase insurance to cover certain activities or property related to the project. These provisions put an affirmative duty on a party to go out and obtain insurance to protect themselves, the other party in the contract or for against third party claims. Given the potential for expensive property damage claims or even personal injury, it makes sense for the parties to consider insurance provisions. This can be a great way of protecting against the risks of loss and litigation. If there is damage or loss and it is covered by a policy, this “Plan B” works. But what if in the event of loss the party that agreed in the contract to purchase insurance failed to do so? Is there a “Plan C?” Can they sue for breach of agreement to purchase insurance? In Virginia, the courts often deem the party who failed to fulfill their obligations to purchase insurance responsible for the loss. This seems obvious, but in cases where the opponent also breached the contract, it may not be clear how to sort out the liabilities. Whether an owner, contractor or subcontractor is what lawyers and judges call a “constructive insurer” by failure to buy insurance turns on the specific language in the agreement.
The leading Supreme Court of Virginia case on this is the 1983 decision, Walker v. Vanderpool. Roland and Elizabeth Walker owned a home in Virginia, southwest of Richmond. In 1977, they retained Vanderpool Heating & Air Conditioning Service for purchase and installation of an oil-burning furnace for $2,305. The contract said, “All work to be completed in a workmanlike manner according to standard practices.” The terms also required the Walkers to acquire and maintain fire insurance on the house. After completion, the furnace caught fire and the house burned. The Walkers had not purchased fire insurance. The Walkers alleged that their home burned because Vanderpool negligently connected the new oil furnace to a “non-existent chimney” and then turned it on. The Walkers sued Vanderpool for $45,000.00 in damages.
Vanderpool argued that if a person enters into an agreement to obtain insurance and neglects to fulfil this obligation, that person becomes the insurer and is potentially liable as such to the other party to the contract. The Walkers responded that the insurance provisions do not properly work to protect Vanderpool from liability for their own negligence.
The Supreme Court of Virginia took a “freedom of contract” approach on this case, observing that the Walkers were free to reject the Vanderpool contract unless the insurance provision was removed or modified. The Court agreed with Vanderpool that by their failure to procure the insurance, the Walkers became self-insured on this risk, and could not come after Vanderpool.
It’s easy to see how these parties looked at the contract and saw in it what they wanted. Vanderpool liked the insurance provisions, and the Walkers liked the scope and standard of workmanship provisions. In general, courts will try to harmonize different provisions in a contract so that no sections are effectively removed or rewritten in the judge’s decision.
Owners and contractors often do not focus on the insurance provisions in a contract until after something unfortunate happens. It pays to understand any contract before signing it.
Sometimes a party who fails to purchase required insurance for a project has no means to pay on a claim. A contractor may have no assets except a few pieces of equipment. An owner may have spent all of their extra cash on the project. It is important to obtain certificates of insurance to confirm that there is coverage in place.
These insurance provisions are found in a variety of other real estate related agreements, such as lease agreements, condominium or HOA covenants or mortgage documents. Newer HOA and condominium covenants seek to shift risks off the board and onto individual owners in sections dealing with liability, indemnification and insurance. Sometimes state statutes will impose insurance requirements. For example, in the District of Columbia, the Condominium Act requires owners and the association to purchase insurance. To understand insurance obligations for an owner in a HOA or condominium, it is necessary to also check what statutes, if any may apply should a dispute arise. Owners and contractors usually need the assistance of a qualified attorney to answer questions raised by mumbo jumbo in real estate and construction documents. Individual persons can often protect themselves by purchasing insurance. Being fully insured can save property owners from potential costs, including repairs and related attorney’s fees.
Case Citation:
Walker v. Vanderpool, 225 Va. 266 (1983)
Photo Credit:
May 5, 2017
Community Association Dispute Resolution Procedures in Virginia
When owners have disputes with their condominium or HOA boards, sometimes it is unclear where or how they must go about seeking redress or defending their rights. Owners must understand how association dispute resolution procedures work so that they do not prejudice their own claims or defenses by failure to go to the proper forum or meet deadlines. What options are available will depend upon the facts of the case and the governing documents. Sometimes it can feel like a labyrinth without an aerial view of sorts. The following is a summary overview and is not intended to explain everything:
Litigation:
In the absence of other dispute resolution procedures, owners have the option of filing or defending a lawsuit. The Property Owners Association Act and Condominium Act both provide that owners or associations may bring suit in order to enforce the declaration of covenants. They also provide that the prevailing party shall receive an award of reasonable attorney’s fees. The Supreme Court of Virginia recently made an owner-favorable decision on the issue of attorneys fees. See my post, Condo Owner Prevails on her Request for Attorney Fees.
Some suits where the amount in controversy is $25,000.00 or less can be brought in the General District Court (GDC) for the city or county where the property is located. The advantage of the GDC is that cases go to trial faster and are in most situations less expensive to litigate. Suits over $25,000.00 or where equitable remedies are sought by the owner must be brought in the Circuit Court. The procedures there are more complex. This blog post explains how they usually start, The Beginning of a Virginia Circuit Court Case. Community association cases usually don’t end up in the U.S. District Court. If one of the parties is in bankruptcy, the case may end up in the U.S. Bankruptcy Court. While litigation is more time-consuming and laborious than some other dispute resolutions options, the outcomes tend to be more favorable because of the independence of the judiciary.
Internal Nonjudicial Dispute Resolution:
The most common “venue” for resolution of disputes between owners and boards is internally within the association’s governance structure. Declarations of covenants, bylaws, architectural standards, rules & regulations and articles of incorporation may provide for claims to be brought by owners or the association before the board of directors or the architectural review committee.
The most notorious form of this is where the association issues a notice to an owner that she has violated a covenant, rule or regulation and must appear in a hearing before the board or committee. See, Don’t go it alone on a Notice of Violation. The courts allow this under the statutes, but there must also be provisions in the covenants that allow for the association to assess nonjudicial fines. These procedures are controversial because they allow the association to act as prosecutor, judge, jury and collection agent in their own case.
Sometimes owners have disputes with one another over party walls or boundary fences. Many covenants have provisions that require them to submit disputes over party walls or boundary fences to the board of directors as arbitrator. I don’t like these provisions because board members typically don’t have experience or training as arbitrators. Arbitration is not the same as rules violation hearings. Board members may have a vested interest or bias in the outcome of the party wall arbitration.
Some newer governing documents have internal dispute resolution procedures that seem all-encompassing. For example, an owner may be required to exhaust detailed procedures under the governing documents before acquiring the legal right to bring suit. Rules may require deadlines and procedures for seeking board of directors “appellate” review of decisions adverse to the owner. This may require an owner or their lawyer to compare multiple governing documents and to analyze them under Virginia statutes and case-law to determine whether action is necessary in order to protect one’s property rights. If the owner fails to first exhaust the” internal remedies” before going to court or fails to follow some dispute resolution procedure, they may be prejudiced in their ability to get a judge (or arbitrator) to consider it on its merits.
In general, the world of these internal nonjudicial procedures favors the boards. Not only do they sit as decision makers, they also may have authority to record liens, foreclose or even act as trustee in condominium termination proceedings. That said, owners should not ignore these procedures. If the board fails to follow its own internal rules, then that may position the owner for a favorable outcome in litigation or arbitration. The board has no authority outside of what the covenants and statutes create. See, Do your association’s parking rules pass the small test?
Arbitration:
Virginia law allows community associations to put binding arbitration clauses in their covenants. This means that in the event of a dispute, an owner may find out that they cannot simply bring the case before the judiciary. Arbitration clauses typically designate a company such as the American Arbitration Association as the “venue” that acts in the place of a court. Sometimes, arbitration can be more expensive to the participants than litigation. Significant up-front fees may be required. The covenants may require the case to be arbitrated through an agency that has cozy relationships with real estate industry people and doesn’t have a consumer protection orientation. The arbitration process doesn’t favor the “little guy.” See, Overcoming Delay Tactics in Arbitration.
Office of the Ombudsman of the Common Interest Community Board:
If there weren’t already enough potential venues, the General Assembly created another one. If an owner has a grievance against a board or licensed property manager, they may submit an adverse decision to the state Common Interest Community Board for review. This has been touted by some as a way of having a government regulator review the legality of a board or property manager action without having to court or arbitration. As my previous blog post explains, the Ombudsman does not render decisions adverse to boards where the parties are arguing opposing interpretations of statutes or governing documents. See, Condo Owner Prevails on her Request for Attorney Fees. Since both sides need to take opposing interpretations for a dispute to arise in the first place, this is not a useful process for an owner to pursue when they are concerned about the outcome.
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In my practice, I prefer to help clients to understand and protect their rights without unnecessary legal action. Ideally, boards and owners can negotiate a mutually acceptable outcome without going to court or arbitration. Unfortunately, this is not always possible in many owners’ circumstances. When a HOA or condominium board seems to be taking improper action or failing to fulfill its obligations under the governing documents, owners need to know where they can turn to obtain useful and cost-effective relief. As this survey shows, in Virginia there is a potentially confusing array of procedures and venues. An owner can potentially become focused on one or two and run the risk of having a deadline expire on bringing the claim properly. When owners need some help making sense out of the governing documents, laws and correspondence from the association, they need an attorney who practices community associations law but isn’t allied with the boards or association industry. That’s why I started my little firm where we don’t accept cases where we represent boards.
photo credit: –v Laberint d’Horta via photopin (license)
April 28, 2017
Condo Owner Prevails on Her Request for Attorney Fees
One problem that owners in HOAs and condominiums face is access to justice. Boards enjoy various out-of-court remedies, such as fines, liens and foreclosures. To obtain remedies for the board’s breach of the governing documents, owners must bring a lawsuit. This requires legal counsel familiar with how governing documents, statutes and judicial precedent fit together. When cases go to trial, owners face uncertainty in the amount of attorney’s fees that may be awarded to the prevailing party. What determines whether a condo owner prevails on her request for attorneys fees? Many judges seem reluctant to award a full amount of attorney’s fees. Is seeking the assistance of a state agency a viable alternative to the courts?
I’m happy when I can report news to my readers when owners win and courts set precedents that will help them in the future. On April 13, 2017, condo owner Martha Lambert won a significant victory in the Supreme Court of Virginia against Sea Oats Condominium Association. Her board forced her to hire an attorney go to trial to obtain reimbursement for a $500.00 repair. The governing documents contractually obligated this Virginia Beach association to repair an exterior door jamb to her condo unit. The board failed to make the repair despite her persistent requests. They insisted that the damage was to a limited common element that was her responsibility. Initially, she sought petitioned the Virginia Common Interest Community Ombudsman’s Office to redress the board’s adverse decision. The Ombudsman issued a couple decisions letters indicating that she was unable to help Ms. Lambert. The owner made the repair herself and sued the association in the General District Court of Virginia Beach. When Sea Oats prevailed in G.D.C., Lambert appealed to the Circuit Court. There Sea Oats continued to defend the case, filing a motion and discovery requests. Lambert prevailed in the subsequent trial. The judge awarded a $500 judgment in her favor and against the condominium association. Ms. Lambert’s attorney submitted an affidavit indicating she incurred $8,232.00 in attorney’s fees. Under the Virginia Condominium Act, a prevailing party is entitled to reasonable attorney’s fees. The parties submitted briefs and argued a post-trial motion on the issue of attorney’s fees.
The lawyers for the condominium board opposed the attorney’s fees award. They argued that the owner’s request for attorney’s fees was 16 times the amount of the judgment. Without waiting to read Ms. Lambert’s response, the Judge James C. Lewis awarded her only $375.00 in attorney’s fees. Ms. Lambert’s attorney nonetheless filed a brief, and provided notice that she incurred an additional $2,650 in fees for the post-trial motions activity.
Was court litigation Ms. Lambert’s only means of redress against the condo board’s adverse decision regarding the broken door? Is there some state agency or official who can aid resolution of these disputes? Ms. Lambert tried to take this dispute to the Office of the Common Interest Community Ombudsman. Ombudsman Heather S. Gillespie issued a decision letter on April 17, 2013. Ms. Gillespie observed that her office lacked the legal authority to decide the dispute because the answer lay in the interpretation of the condominium instruments (bylaws, covenants, etc.) as to whose obligation it was to repair the limited common element. In a separate letter dated May 13, 2013, Ms. Gillespie declined to decide against Sea Oats on Ms. Lambert’s claim to inspect the association books and records pursuant to the Condominium Act. Ms. Gillespie observed that the Act was not clear and that sorting out statutory ambiguity was the province of the courts. As you can see from this case study, the Ombudsman’s Office lacks the authority to decide cases where parties present conflicting interpretation of legal documents. Of course, if the parties agreed as to what they meant, there would not be a dispute. Consumers and property owners are better off in court anyway because of the independence of the judiciary from lobbying and the political winds of change.
Ms. Lambert’s only effective means of redress was through the courts so that’s where she went. There are two ways of looking at Ms. Lambert’s case. There is a view that if someone files a civil lawsuit, they must have done something wrong to incur the damage that they suffered or they are otherwise petty or vindictive. In my years of practice both bringing and defending civil suits, I have come to see that there is often an unfair prejudice against plaintiffs.
The other perspective is that Sea Oats drove unnecessary litigation by failing to perform their maintenance obligations and then aggressively defending the suit to exhaust Ms. Lambert’s resources. If the defendant can simply outspend and exhaust their opponent, they don’t need to be in the right. If obstructionist tactics are rewarded in how attorney’s fee awards are determined, then the specific obligations of the HOA or condominium covenants can be made of no effect.
Judge Lewis explained why he only awarded $375 in attorney’s fees. He found that Ms. Lambert’s lawyer did a “magnificent job,” but “I thought $6,000 in attorney’s fees on a case involving a dispute of $500 was not fair to the Defendant [Sea Oats].” Ms. Lambert appealed her case to the Supreme Court of Virginia.
Was it proper for Judge Lewis to find that a prevailing party could be denied almost all the attorney’s fees she incurred because the amount was not “proportional” to the judgment? Lawyers know from experience that, especially in many state courts, judges are reluctant to award a prevailing party $6,000-$9,000 in attorney’s fees on a $500.00 judgment. The practical effect is that owners and their lawyers are reluctant to bring lawsuits where the amount of attorney’s fees is expected to exceed the value of what could be expected in the judgment. Sometimes these circumstances embolden boards to strategically breach the covenants.
On appeal, Ms. Lambert analogized the attorney’s fees provision in the Condominium Act to similar provisions in the Virginia Consumer Protection Act. The Supreme Court previously held that the purpose of the VCPA’s attorney’s fees provisions is to encourage private citizens to enforce the statute through civil litigation. Otherwise, the VCPA’s policies could be made of no effect if the consumer must bear the costs of vindicating the statutory rights. If you listen to the audio recording on the Court’s website, you can hear Lambert’s appellate attorney Kevin Martingayle doing an excellent job arguing the case to the justices.
On appeal, a judge’s determination of an award of attorney’s fees is evaluated on an “abuse of discretion” standard. However, the scope of the judge’s discretion is not absolute. The statutes and contract provisions create a boundary of exercise of discretion. The Supreme Court viewed the trial judge’s “proportionality” requirement as an incorrect legal conclusion misinforming his decision.
The Condominium Act states that the prevailing party in an action to enforce compliance with the condominium covenants and bylaws shall be entitled to recover reasonable attorney’s fees. There is an analogous section in the Property Owners Association Act that applies to most HOA’s in Virginia. These statutes are exceptions to the general rule that each party to a lawsuit must pay their own attorney’s fees. Unless you are in Alaska, courts won’t consider attorneys fee requests unless there is a statute or contract provision that allows for attorney’s fees. The Condominium Act makes an award of reasonable attorney’s fees mandatory when one side prevails, instead of merely an option for the judge.
What factors determine the reasonableness of an award of attorney’s fees? According to the Supreme Court of Virginia, those factors include:
- The time and effort expended by the attorney.
- The nature of the services rendered.
- The complexity of the services.
- The value of the services to the client.
- The results obtained.
- Whether the fees incurred were consistent with those generally charged for similar services
- Whether the services were necessary and appropriate.
Judges are also permitted to consider other factors. In Lambert v. Sea Oats, the Supreme Court found that the amount of damages awarded was a permissible consideration under the “results obtained” factor. However, “merely applying a ratio between the damages actually awarded and damages originally sought will not satisfy the reasonableness inquiry.” This is common sense. In some cases, the non-prevailing party will engage in vigorous litigation tactics that will leave their opponent with the choice of taking necessary action to obtain a result in the case or abandon the claim. Conversely, plaintiffs can also be found to “over-litigate” cases, resulting in defendants incurring attorney fees that may be unnecessary in the case was properly brought. A formulaic ratio may be simply inadequate to do justice. The Supreme Court observed that a trial court may consider any disparity between the amount sought in the lawsuit versus the verdict. If a plaintiff sues for $500,000.00 but only receives $50,000.00 at trial, then this may factor in the attorney’s fee award. The Supreme Court found that Judge Lewis should have compared the $500 sought to the $500 awarded instead of the ratio of the fee request to the award:
[T]he “results obtained” factor does not permit courts to do what the circuit court did here—i.e., to use the amount of damages sought as a limit beyond which no attorney’s fees will be awarded. To do so tells parties that they may not recover the reasonable attorney’s fees they incur simply by sending an attorney through the courthouse door if they prosecute, or defend against, claims in which such fees exceed the amount in controversy. Circuit court litigation comes at a price, sometimes a heavy price. There is an initial pleading, or an answer to one, to research, write, and file. Discovery may be propounded and must be answered. There will be witnesses to prepare for trial. There may be pre-trial motions to research, write, and argue. And then there is the trial itself, if the case makes it that far. If either party invokes its right to a jury, trial could encompass everything from voir dire to jury instructions.
Each of these tasks requires an attorney’s time and, provided the time is reasonable in light of his or her experience and the nature of the case, he or she may expect compensation for that time at a reasonable rate. Undoubtedly, the number of tasks and the time required for them will vary depending on whether the ad damnum is $500 or $5 million, regardless of whether the attorney represents the plaintiff or the defendant. They will likewise vary based on the vigor with which the opposing party responds. But it is the court’s duty to assess the necessity of those tasks, the time spent on them, and the rate charged “under the facts and circumstances of the particular case.” Mullins, 241 Va. at 449, 403 S.E.2d at 335. This does not require the court to pore over pages and pages of billing records to evaluate the reasonableness of each line-item. But the court may neither shirk its duty to assess what amount of attorney’s fees is reasonable in the specific case before it, nor award an amount so low that it fails to reimburse the prevailing party for the costs necessary to effectively litigate the claim that—after all—it prevailed on.
Plaintiffs who come to court believe they have legitimate claims that are being illegitimately denied by the defendant. Defendants who come to court believe their defenses are legitimate. Neither’s position need be frivolous; they may simply disagree. But when each of them comes to court seeking a neutral adjudication of their disagreement, each is there because the opposing side forced him or her to be. When the case is covered by a fee-shifting provision and the court weighs the reasonable amount of attorney’s fees to award, it cannot dismiss out of hand the costs of litigation inflicted on the prevailing party by the losing party’s insistence on its losing argument, based solely on the dollar value of the claim. To do so deprives the parties of the benefit of their bargain if the fee-shifting provision is contractual and contravenes the intent of the General Assembly if the provision is statutory.
We stress that this holding does not mean that courts may not consider the value of the claim, along with other factors, to assess the complexity of the case (and therefore the legal services necessary to represent the client’s interests), or whether those services were necessary and appropriate in light of the claims prosecuted or defended against. It means only that courts may not do what this court did and say that “$6,000 in attorney’s fees on a case involving a dispute of $500” is unreasonable per se, without regard to the necessary costs of effectively litigating a claim.
The Supreme Court’s decision requires the case to go back to the Circuit Court of Virginia Beach to reconsider the award of attorney’s fees in light of the opinion.
Lambert v. Sea Oats is a big victory for owners in condominiums and HOAs. First, it sends a message that the particular circumstances of a case cannot be ignored and replaced by some percentage of the judgment. Second, this discourages HOA and condo boards from stonewalling owners’ rightful claims for what they are entitled under the governing documents. Third, it puts the obligation on the parties to make sound, rational litigation decisions. Fourth, it will help owners in cases that will never actually go to court. Why? Because the association lawyers will counsel their clients regarding this case and it will deter the kind of conduct that gave rise to cases like Ms. Lambert’s.
What I dislike about the trial judge’s approach in awarding only $375 is that it places parties like Ms. Lambert in an impossible position. Without reversals like this appellate decision, in the next case an owner would have to either (a) fix the common area herself and not seek reimbursement, thus making the covenants to no benefit to her, (b) limit the attorney’s activity to one or two hours of work, which could result in the owner losing the case for failure on a procedural technicality, or (c) effectively pay eight or nine thousand dollars to get the door fixed when the board is required to do it for $500.00.
Not all community association lawsuits are about money damages. Sometimes the plaintiff seeks an order that their opponent stop doing something, to take affirmative action required under a contract, or to declare the results of a board election invalid. In a footnote, the Supreme Court states that in those cases there may not be a dollar amount in controversy: “These cases tend to be binary, and the ‘result obtained’ is clear based on whether the relief sought was granted or denied.”
Does this new decision mean that homeowners will always get a disproportional award of attorney’s fees in small dollar cases where they prevail? No. But it does help to level the playing field of litigation. I hope that this case encourages more owners to pursue legal action when they suffer damage and infringement of rights in association matters. This case should also discourage owners and boards alike from bringing cases that should not be brought in the first place.
Update July 20, 2022:
I have a new blog post about Attorney fee awards in HOA and condominium law cases. “Awards of Attorney’s Fees in Community Association Litigation.” This blog post addresses the issue of attorneys fees in these cases more generally, with greater focus on the procedural aspects of such claims.
For Further Reading or Listening:
Lambert v. Sea Oats Condo. Ass’n, 293 Va. 245 (2017)
Lambert v. Sea Oats Condominium, Inc. (Jan. 2017 Va. Supr. Ct. Oral Argument)
Lambert v. Sea Oats Condominium, Inc. (Apr. 17, 2013 Va. CIC Ombudsman Determination)
Lambert v. Sea Oats Condominium, Inc. (May 13, 2013 Va. CIC Ombudsman Determination)
Lambert v. Sea Oats Condominium, Inc. (Jun. 5, 2013 Va. CIC Ombudsman Determination)
Featured Image:
The photograph for this blog post doesn’t depict anything discussed in the article. It’s a row-house in Alexandria, Virginia.
March 23, 2017
Overcoming Delay Tactics in Arbitration
On March 9, 2017, the Supreme Court of New Jersey delivered a significant victory to consumers against an auto dealership attempting to use an arbitration agreement to obstruct claims from being heard. Roach v. BM Motoring, LLC shows a strategy for overcoming delay tactics in arbitration so that consumer protection claims can be considered on the merits. Arbitration clauses appear in all sorts of contracts all over the country, including many real estate and construction matters. BM Motor Cars put a clause in its contracts requiring that disputes be decided under the rules of the American Arbitration Association. The AAA is a commonly used alternative dispute resolution service. After the consumers submitted their cases to the AAA, BM refused to pay its $3,200.00 portion of the arbitration fees required for them to proceed. Consequently, the AAA dismissed the claims. When the consumers filed lawsuits, the court referred the case back to AAA. BM used this revolving door tactic to continuously delay hearing of the consumers claims by a judge or arbitrator. Finally, the Supreme Court of New Jersey short-circuited these tactics, finding that BM breached the arbitration agreement by failing to pay the required fees. The opinion provides insights on how arbitration clauses may expand or restrict a party’s substantive rights under an agreement.
Arbitration clauses find their way into all sorts of contracts these days, in employment, consumer, HOA, condominium and many other matters where industries find themselves in risk of litigation. Many consumer advocates have a low opinion of arbitration clauses, and for good reason. Before diving into an analysis of the BM case, let’s first consider how arbitration differs from litigation.
- Cost to Initiate. To get into court, the consumer may have to pay an attorney but the court fees are low. The operational costs of the judiciary are subsidized by the government. To get a case heard by an arbitrator, someone must also pay the AAA (or another arbitration agency) and the arbitrator. AAA arbitrators are typically experienced attorneys who charge the parties by the hour. If the defendant refuses to pay the fees required by the AAA, the consumer is forced to up-front those costs herself, file a lawsuit in court to compel arbitration or abandon the case.
- Fewer Procedural Rules. In arbitration, there are fewer procedural rules. The overall expense of the process can be lower because of reduced discovery, depositions, motions practice, disclosures, appeals, etc. However, if the consumer or small business finds themselves unable to initiate the proceeding, it does not offer much value. Because arbitration clauses are created by contract, there is potential for creativity in the agreed dispute resolution procedures. However, detailed arbitration clauses tend to work against the interests of the party to the contract most likely to find themselves trying to bring claims. Often, consumers do not understand how arbitration clauses may practically limit their right to a fair hearing.
- Does Arbitration Save Money Overall? Some people say arbitration clauses “save” consumers the cost and trouble of a lawsuit. However, arbitration can also be time consuming and expensive. The claimant or her attorney must prepare a detailed written claim and file it with the arbitration agency and maintain momentum.
- Do Arbitrators Suffer from Bias? The next step is the selection of the arbitrator from a panel of experienced lawyers and retired judges. The AAA will send the parties a list of potential arbitrators narrowed by geographic area and subject matter experience. The risk of bias is mitigated by the opportunity to cross names they don’t like off of the list. There are other arbitration agencies which cater to specific industries. Some providers have arbitrators who never attended law school or passed the bar exam. Parties are wise to consider whether an arbitration company functions as a vendor for their opponent.
- Hearing or Meeting? Once the arbitrator is determined the parties will receive a schedule of deadlines in preparation for the arbitration hearing. In a court trial, there are all sorts of formalities required for parties to make motions, disclosures and objections. In arbitration, there are few rules of evidence. The parties sit in a conference room instead of going into a courtroom. There are no juries.
- Judicial Review Strictly Limited. If the arbitrator makes a monetary award, the prevailing party can then go to court to get the result confirmed as a judgment. Unless there is fraud or other extreme irregularities, there is no judicial review of the merits of the arbitration result.
I believe that parties ought to be able to contract for whatever alternative dispute resolution provisions of their own choosing. However, the devil is in the details of the arbitration clause language and the rules of the arbitration forum. The arbitration process works well for wealthy parties looking to reduce their annual legal expenses and keep their disputes out of the public eye. Consumers are better off with the judiciary, especially with juries or in small claims court.
Consumers often sign arbitration agreements for economic reasons, lack of consumer choice or by ignorance. Because parties often find themselves bound by arbitration clauses, the victory won by Mmes. Jackson & Roach is significant. These women (separately) purchased used cars from BM Motor Cars in Rahway, New Jersey. The Dispute Resolution Agreement provided for arbitration in accordance with the rules of the AAA before a single arbitrator who shall be a retired judge or attorney. The DRA also require that, “Dealership shall advance both party’s (sic) filing, service, administration, arbitrator, hearing or other fees, subject to reimbursement by decision of the arbitrator.” They subsequently submitted demands for arbitration against BM with the AAA. They asserted claims under consumer protection statutes. Ms. Jackson alleged that BM refused to sell the car for the advertised price, overcharged from title and registration and misrepresented the terms of the extended warranty. Ms. Roach also sued under consumer protection legislation. The AAA repeatedly requested that BM pay the arbitration fees required by its rules. The AAA suggested to the consumers that they simply pay BM’s fees and later seek recovery of them from BM in the arbitral award. After BM ignored these requests, the AAA dismissed the consumer’s cases. The AAA became so fed up that it sent BM a letter instructing it to remove the AAA arbitration language from its agreements. Undeterred, the consumers filed lawsuits in court. The judges granted BM’s motions to dismiss the cases and compel arbitration. The court wanted the plaintiffs to go back to AAA and for BM to pay the fees. When the women went back to the AAA, the arbitration company dismissed their claims again because BM failed to pay the fees. As you can see, BM was trying to deny the consumer a decision on the merits of their claims by leading through the revolving door from court to the AAA and back again.
At the Supreme Court of New Jersey, BM Motor Cars argued that the contract did not, “contemplate using AAA as the forum and venue for arbitration” and that it, “consistently not arbitrated disputes with its customers by utilizing AAA . . . because of the excessive filing and administrative fees charged by AAA.” However, BM never asserted this argument before the case reached the Supreme Court. The justices asked some pointed questions to BM’s lawyer about this at the January 3, 2017 oral argument. It sounds like they found BM’s belated objection to AAA as the arbitral forum to be disingenuous. The consumers responded to this by pointing to AAA’s rules which provide that if the contract requires that arbitration be conducted under AAA rules, then the AAA is a proper venue for the case.
The consumers argued that the requirement to advance the fees was a material term of the Dispute Resolution Agreement. By breaching that term, BM Motor Cars precluded itself from the right to force arbitration. BM waived its right to deny the consumers the ability to go to court instead. Roach & Jackson argue that BM should not profit from its own breach of the arbitration agreement’s language. The court rejected BM’s argument, finding that the consumer’s filing with the AAA was consistent with the terms of the arbitration clause.
In its opinion, the Supreme Court of New Jersey mentions that judges have not always been so inclined to enforce arbitration clauses. Under the common law, judges were averse to arbitration. Courts strictly construed these clauses as like they would with restrictive covenants or covenants not to compete. To encourage arbitration, congress and the states enacted legislation to place arbitration agreements upon the same footing as other contracts. Now a court cannot subject an arbitration agreement to more burdensome requirements than ordinary contract law doctrine. But the Supreme Court doesn’t end its analysis by affirming pro-arbitration public policy. Roach v. BM Motor Cars illustrates that ordinary contract law doctrine provides protections against abusive practices. Generally applicable contract law defenses can be applied in proper cases. Ambiguous provisions may be construed against the drafter of the agreement, especially in a take-it-or-leave-it consumer contract. Under contract law, breach of a material term relieves the non-breaching party of its obligations. The court observed that the federal Ninth and Tenth Circuit Courts of Appeal previously held that a party’s failure to pay required fees constitutes a material breach of an arbitration agreement.
The N.J. Supreme Court held that BM’s refusal to comply with the arbitration procedures was a material breach of the Dispute Resolution Agreement. This breach prevents BM from later compelling arbitration if the matter is brought to court before a judge. The case will proceed in the courts. The Supreme Court reversed the previous decisions that the trial judge and intermediate appellate panel made in favor of BM. Consistent with its finding that arbitration clauses are subject to generally-applicable contract law defenses, the Court refrained from setting rules about refusal to pay arbitration fees that could be applied in every case:
Nevertheless, we establish no bright-line rule. The determination of whether refusal to respond to a written arbitration demand within a reasonable time period constitutes a material breach of an arbitration agreement that precludes enforcement by the breaching party must be made on a case-by-case basis after considering the agreement’s terms and the conduct of the parties.
If consumers encounter this obstructionist tactic in the wake of these appellate decisions, they must consider whether it is easier to simply up-front the defendant’s fees or to initiate court motions practice on whether the defendant’s breach waived their right to enforce arbitration. In the wake of these decisions in New Jersey and the federal courts, I expect that parties preparing arbitration clauses will react accordingly. Some will seek to specifically burden the complaining party with the burden of up-fronting the arbitration agency and arbitrator fees. Roach v. BM Motor Cars represents a balanced approach to judicial enforcement of arbitration clauses. Perhaps there are additional contract law doctrines that parties can assert to protect their interests? Often builder contracts or community association restrictive covenants are ambiguous, contradictory or unclear in whether the remedies provided are exclusive. Consumers, property owners and family-owned businesses should not rely upon their opponent or their opponent’s lawyers to give a fair assessment of how a judge or arbitrator would read the agreement. When one’s investment, home or business are on the line, a qualified attorney can help navigate a path to a solution that may not be immediately apparent.
Opinion and Video:
Roach v. BM Motoring, LLC, No. 77125, 2017 N.J. Lexis 239 (N.J. Mar. 9, 2017)
Jan. 1, 2017 Oral Argument Video: http://www.judiciary.state.nj.us/webcast/archive.html
March 15, 2017
Should Homeowners Bring Complaints Against Contractors Before Courts or Regulators?
Property owners frequently have complaints about construction contractors. Some of these complaints involve thousands of dollars in damage or serious infringement upon the use or value of property. These property owners (and their attorneys) want to know who to turn to. Should homeowners bring complaints against contractors before courts or regulators? This question raises issues about how the government ought to enforce its laws and resolve disputes. There is a perspective that regulatory boards ought to be a welcome forum for owners threatened or damaged by alleged contractor misconduct. In this blog post I will explain why I believe that, for all its imperfections, the judicial system is the best venue for vindication of legal rights in consumer disputes.
In 2015, the Court of Appeals of Virginia decided an illustrative case arising out of a complaint of a home purchaser about the seller’s contractor. Around 2002, Mark Holmes purchased an Alexandria, Virginia home, including an addition constructed by Culver Design Build, Inc. Mr. Holmes was unhappy about defective construction of the addition. He went to the city government, whom the General Assembly tasked with enforcing the building code in his locality. The City Code Administration found extensive water damage caused by construction defects and issued a Notice of Violation to Culver. Holmes was not satisfied with Culver regarding corrective work, so he filed a complaint with the Virginia State Board of Contractors. Holmes asked the Board to suspend Culver’s license until it corrected the violation. Culver Design Build, Inc. argued that Holmes did not have legal standing to seek judicial review of the Board’s ruling because this was a license disciplinary proceeding. The Holmes case also includes issues about how deferential the courts should be to a licensing agency’s administrative rulings. This case is unusual in that Mark Holmes represented himself in his appeal to the Court of Appeals of Virginia. Mr. Holmes acknowledged that unlike the seller, he lacked the privity of contract with the contractor which potentially could be used to go to court in breach of contract. The Court of Appeals agreed with Culver and the Board for Contractors.
When homeowners conclude that a state-licensed contractor or tradesperson committed a wrongful act depriving them of their home or damaging its value, it is easy to see why the aggrieved party would want a governmental agency to help them. Most people deal with governmental agencies much more than courthouses or law offices. Lawsuits require significant commitments to pursue or defend. Public resources go to supporting various agencies that have apparent subject-matter authority. This may appear to be a taxpayer-financed legal authority to go after the professional. However, this strategy often does little more than aggravate the licensed professional, the agency officials and the consumer. The Holmes v. Culver case illustrates one key weakness with homeowners pursuing consumer complaints through the professional licensure and disciplinary board process.
When consumers are harmed by unprofessional conduct, usually what they want is to have the defect corrected, an award of money or the transaction voided. These kinds of remedies are conventionally handled in the court system. The professional regulatory boards focus on licensure. They consider whether a business is properly licensed, should the license be suspended or revoked, should fines be assessed, and so on. Prominent members of the industry typically dominate these boards. For example, licensed contractors sit on the Board for Contractors. Initiating a professional licensure proceeding is a clumsy means of advancing the specific interests of the consumer having a transactional relationship with the business. It is the judiciary that can grant money damages or other remedies arising out of the formation and any breach of the contract. Regulators focus on whether disciplinary action is warranted regarding the registration or licensure of the business. In the Culver Design Build, Inc. case, the Board for Contractors and the Court of Appeals for Virginia agreed that Mark Holmes did not have standing to contest a regulatory decision in favor of the contractor. The board had authority to punish Culver for failing to abate a regulatory violation. However, the board had no authority to order the contractor to take any specific action at the job site. The board did not deny Homes any right or impose upon him any duty in its decision, because its authority revolves around Culver’s licensure. It is the State Building Code Technical Review Board that has the authority to review appeals of local building code enforcement decisions, not the Board of Contractors. One of the appeals judges suggested that if Holmes’ contentions were taken to a logical conclusion, the new buyer of the house could have greater leverage over a contractor than the previous owner, whose remedies may be limited by the contract. In his oral argument, Mark Holmes admitted that trying to resolve his complaints through the Board of Contractors complaint process was, “cumbersome and very long lasting.”
Even if the consumer unhappy with an adverse decision made by a regulatory agency in response to a complaint has standing, her appeal to the courts may encounter other obstacles. The licensure dispute is unlikely to starts afresh on appeal. The courts tend to be receptive to the agency’s interpretation of the legislature’s statutes. In Virginia, courts accord deference to an agency’s reasonable interpretation of its own regulations (as adopted by the board pursuant to the statutes). A consumer’s ability to raise new factual issues may be strictly limited in her attempts to get the courts to overturn the board’s decision. Judicial deference to agency rulemaking is not without controversy. Judge Neil Gorsuch, whom President Trump nominated for the U.S. Supreme Court is a high-profile critic of judicial deference to agencies. In his August 23, 2016 concurrence to a federal appeals decision Gutierrez-Brizuela v. Lynch, Judge Gorsuch explained that concentration of both legislative and judicial power in regulatory agencies creates constitutional problems. The constitution protects the public from authoritarianism by separating the government by the type of power, not the subject-matter. Under the constitution, the legislature prescribes new laws of general applicability. Taken to its logical conclusion, doctrine that courts should defer to agencies’ quasi-judicial determinations of what the statutes mean unconstitutionally undercuts the independence of the judiciary. The constitutional problems identified by Judge Gorsuch are illustrated in the arena of housing industry occupational regulation.
Where does this leave an owner when property rights are infringed by regulated professionals? Should everyone should go back to renting? Certainly not! This is what the independent judiciary is there for. Usually owners have privity of contract with the contractor and do not need to go to an agency. They can sue for remedies for breach of contract or deceptive practices. Consumer advocates with an interest in legislation should focus on increasing access to the court system and not promoting an administrative process that may not be a good fit for the homeowner. If you find yourself needing to bring or defend a construction claim, contact my office or a qualified attorney in your jurisdiction.
Case Citations:
Homes v. Culver Design Build, Inc., No. 2091-13-4 (Va. Ct. App. Jan. 27, 2015) (Alston, J.)
HOMES V. CULVER DESIGN BUILD, INC. APPELLATE ORAL ARGUMENT
Gutierrez-Brizuela v. Lynch, No. 14-9585 (U.S. Ct. App. 10th Cir. Aug. 23, 2016) (Gorsuch, J.)
Photo Credit:
ehpien Old Town Alexandria via photopin (license)
