September 4, 2017
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 5, 2017
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:
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?
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.
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.
March 23, 2017
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:
Jan. 1, 2017 Oral Argument Video: http://www.judiciary.state.nj.us/webcast/archive.html
May 31, 2016
Lynchburg got in the news lately on account of Liberty University suing neighbors over unwanted lake. People know about Liberty University (“LU”) from the political-incorrectness of its leaders, especially Jerry Falwell, Sr. Long before Donald Trump captured the headlines with controversial statements, Mr. Falwell had a comparable relationship with the news media. Liberty brands itself as a conservative Christian University. Until recently, I had no idea how intermeshed Liberty is in Lynchburg, Virginia. For example, in March 2016, Liberty purchased a 75% interest in the River Ridge Mall for $33.5 million dollars. This mall is across the street from LU. According to ABC13 WSET, Liberty will allow the property managers to operate the mall without much regard for the political or religious viewpoints of the University. R-rated movies will be shown. Victoria’s Secret will remain open. President Falwell, Jr. explained that the University purchased the controlling interest in the mall to diversify its investment portfolio.
River Ridge Mall is not the only local off-campus real estate owned by LU. Many years ago, a Real Estate Investment Trust donated Ivy Lake to Liberty University. Ivy Lake is the centerpiece of a residential development 10 miles from the LU campus. Ivy Hill Recreation, LLC (“IHR”), a LU subsidiary holding company and the homeowners around the lake are in an intractable dispute over maintenance of the lake’s dam and the road that runs over it. In April, 2016, IHR brought a lawsuit against more than 400 landowners, seeking contribution towards necessary repairs to the dam and the roadway. This case tests the institutional values of LU regarding respect for property rights and neighborly obligations. The case also illustrates risks to landowners when the duties to maintain and repair roads and bridges in a community are not very well-defined. Most suburban properties without direct access to public right of ways have recorded HOA covenants that refer to roads as commons areas. When considering purchase of properties in a HOA, potential buyers certainly should carefully review and consider the HOA disclosure documents. As this lawsuit shows, sometimes home buyers should be equally skeptical about the absence of restrictive covenants when there are “common areas” that require maintenance.
This case captured my attention because I grew up a mile from a man-made lake in rural Virginia. While the lake and adjoining park are owned by the local government, some of our neighbors had lakefront properties. My brothers and I used to walk to the lake during the winter and sled down the side of the dam. One winter, someone built a sledding ramp near the bottom of the dam for cheap, risky thrills. In the summer, I would run up the side of the dam for an intense workout. Perhaps IHR could offer rights to use a beach area on the lake as an incentive to maintain the dam?
According to the lawsuit, the developer constructed a dam across ivy creek in order to create Lake Ivy. The lake adds scenic and recreational value to adjoining owners. The developer built a road across the dam. Some of the homes around the lake are only accessible by the road across the dam. The lakefront owners have easements to use the lake for recreational purposes. What is unusual here is that the lake, dam and road are not owned by the county or by an HOA. The developer donated the Lake to Liberty University, subject to the easements of the homeowners. Liberty faculty, students and staff rarely use the lake. A few years ago the Commonwealth of Virginia determined that per statute, the dam required extensive repairs, particularly the spillway and the road over the dam. If the spillway and road are not repaired, they must be closed to mitigate risks of failure. The repairs will cost approximately $1 million dollars. The state ordered IHR to comply with the safety requirements. Because of all of this, Liberty is no longer interested in owning the lake property. If they can’t get the owners to assume ownership of the property, they at least want them to contribute to the repairs.
This dispute is complicated by the fact that some defendant owners have lakefront acreage and don’t use the dam road, some rely upon the road over the dam (with no lakefront), and some are on the water and rely upon the dam road for access.
The neighborhoods surrounding the lake are not without any restrictive covenants. While they don’t all appear to be an HOA, most of them are subject to a declaration of agreements that restricts development to residential use, sets up an architectural committee, prohibits commercial uses, limits unsightly outbuildings, and other restrictions.
The gravamen of LU’s demands to the homeowners is not unreasonable. If the owners want to continue to enjoy access to their properties, someone needs to maintain the dam road. If the waterfront owners want to continue to enjoy the lake, someone needs to support the repairs to the spillway. Many landowners willingly signed documentation that would require them to make pro-rata contributions to the repairs. LU would prefer to have the owners form a HOA with the lake property as a common area. The lawsuit doesn’t request that the owners be forced into a formal HOA. Judges have discretion to craft solutions to easement disputes. However, they cannot decree creation of an HOA. HOAs must be set up by the developer beforehand, because rarely will owners unanimously consent to one. Enough oppose the efforts to require filing of the lawsuit. LU’s decision to file the lawsuit is more reasonable than unilaterally draining the lake and eliminating the dam without an effort to resolve the dispute. Without the lake, the owners will lose a perk. Without the roadway, their properties become useless because of lack of access.
The lawsuit suggests that the legal and practical aspects of all of this has been apparent for many years. Any potential buyer could research land records and determine that if the dam road required repairs, someone would have to pay for it. Also, the developer who built the lake apparently did it on the cheap. The lawsuit alleges that, “The work necessary to armor or harden the spillway was contemplated when the dam was originally conducted, however it apparently was not completed, and it must be done now as a condition of maintaining the dam.”
What is LU asking the Court to do for them? The lawsuit contains five claims:
Count 1: Duty to Maintain Easement (both the lake and the required repairs)
Count 2: Contribution (to IHR towards Required Repairs and other related issues)
Count 3: Right to Assess a Fee (for use of the lake, consistent with the right to makes rules & regulations)
Count 4: Negative Reciprocal Easement (lake development parcels have similar restrictions, most have express easements for recreational use of lake subject to rules and regulations, because they have easements for use, they should be bound by the rules and regulations, and also should be bound to contribute to the required repairs)
Count 5: Otherwise, owners must (1) personally make the repairs or (2) suffer the consequences of an abandoned easement.
In my opinion, IHR is overreaching somewhat in this lawsuit. I doubt that the judge would enter an order that would create a quasi-HOA relationship between the parties absent a unanimous agreement. The lawsuit burdens the owners with having to defend the case. It forces them to take a position, either participate in the maintenance and repairs or abandone their interest in the road, dam and lake. I would be very surprised if the judge would do more than deciding that the LU subsidiary is entitled to financial contribution for the minimum amount of repairs to maintain the easements.
Regardless of its outcome, this case has lessons learned for prospective property owners. Buyers should not assume that the developer will record covenants that will adequately address common area maintenance. If a developer wants to give away a property like a man-made lake that is unfinished and requires maintenance, then an institution like a University should consider the implications before accepting the gift. Hopefully these parties can resolve this dispute and avoid endless litigation and/or removal of the dam. Ivy Lake could remain a blessing, and not become a curse.
photo credit: The James River from the Old N & W Railroad Bridge via photopin (license)(does not depict creek or lake in article)
September 17, 2014
Eight months ago, I posted about a January 10, 2014 Supreme Court of Virginia opinion interpreting ambiguous words of conveyance in a Southwest Virginia coal severance deed. In CNX Gas Company, LLC v. Rasnake, the Court decided that CNX had the right to continue to extract the Coal Bed Methane from a tract of land in Russell County. The Court interpreted language limiting words of conveyance in a 1918 deed so as not to include CBM. A land conveyance represents real estate decisionmaking in the face of the unknown future.
On September 12, 2014, the Supreme Court of Virginia issued another opinion relating to CNX’s extraction of CBM from Russell County coal fields. Swords Creek Land Partnership v. Dollie Belcher, et al., interprets words of conveyance and the difference between CBM and coal. This case caught my attention because it discusses the Rasnake case. It also so happens that in the past year, “Words of Conveyance” was the most common term entered by all of you into the search feature of this blog.
Like Rasnake, the Belcher case concerns an (1) 1887 conveyance of coal, (2) from a land in Russell County, (3) to Joseph Doran and W.A. Dick, (4) whose successors in interest leased the CBM extracting rights to CNX Gas. Despite the factual similarities, the outcome of the two cases is different, because each deed contains different granting language.
On February 7, 1887, Christopher & Amanda Richardson executed a severance deed conveying:
. . . all of the coal, in, upon or underlying a certain tract of land and the timber and privileges hereinafter specified as appurtenant to said tract of land [metes and bounds description follows] to enter on, over, upon, and through said tract of land for the purpose of digging, mining, or otherwise securing the coal and other things in and on said tract of land hereinbefore specified, and removing the same from off said land . . . .
Ms. Belcher and two others are the successors in interest to the Richardsons. Swords Creek entered into a lease in 1991, granting the CBM to CNX’s predecessor in interest. Swords Creek receives 12.5% royalties from CNX.
Belcher and the other surface owners brought suit claiming rights to the CBM. In September 2013, the Circuit Court of Russell County entered an order finding that Swords Creek only had rights to coal, not to the CBM. Nine years before, the Supreme Court of Virginia decided that the term “coal” as used in the 19th century unambiguously referred to the mineral coal. In Virginia deeds from the 1800’s, CMB is a separate mineral estate from coal.
In upholding the Circuit Court’s decision, the Court discussed the Rasnake case, in which the granting language was deemed ambiguous. In Belcher, the Court found the words of conveyance to unambiguously convey only coal and timber, not including CMB. The Court found Belcher, et al., entitled to all of the royalties from the CBM.
What do Rasnake and Belcher add to what we know about words of conveyance in Virginia? My previous post discussed some of the key technical rules for construction of deeds. Today’s post adds two considerations at a higher-level of analysis:
- Managing What You Don’t Know. When Messrs. Doran and Dick went around Russell County, acquiring coal severance deeds from landowners, they engaged in real estate decisionmaking in the face of an unknown future. They knew that coal and timber fueled the national economic engine. They didn’t know that one day CBM would later be big business. They can’t really be faulted for that. There is an aphorism attributed to Confucius: “What you know, you know, what you don’t know, you don’t know. This is true wisdom.” This Chinese sage’s advice could well apply to everyday strategic real estate decisionmaking. What Doran & Dick did know was that the wording of deeds has the power to spawn or avoid future legal conflict. Severing out certain natural resource extraction rights from the surface owners can maximize the use and value of a parcel. It also heightens the risk that the interests of the parties will fall out of alignment. Perhaps Confucius would advise us to be healthily aware of such risks. Sometimes efforts to simplify a transaction can reap dividends.
- Drafting or Litigating over Property Instruments. The words in a land instrument granting property are facts that Courts feel comfortable interpreting without deference to findings by a jury. Even the threshold question of whether the language in a deed is ambiguous is a legal one. The Supreme Court of Virginia took two of these similar cases and published opinions on them in a 8-month time frame. In title cases where no facts are in dispute, the appellate court will be less reluctant to disturb a decision of the trial court. The language of the instruments needs to make sense, to a general audience but especially a judge if necessary. The choice of language that agreed to in a deed requires careful consideration by a qualified real estate attorney. In a dispute between parties claiming adverse interests to the same real estate, a wise investor consults with an experienced title litigator.
case citation: Swords Creek Land P’ship v. Belcher, 762 S.E.2d 570 (Supr. Ct. Va. Sept. 12, 2014)
September 8, 2014
The boundary between Maryland and Virginia has been the subject of legal disputes for hundreds of years. On August 29, 2014, the Maryland Court of Special Appeals added another chapter to this “meandering” tale. The Court issued an opinion in a dispute over rights to certain waterfront property near Harper’s Ferry, West Virginia. River Riders, Inc., is a fishing, tubing and rafting tour company doing business in the “Potomac Wayside” area (pictured) along the southern bank of the upper Potomac River. Potomac Shores, Inc. claims the Potomac Wayside tract through their Washington County, Maryland, deed describing the south side of the Potomac as a boundary line. Potomac Shores asserts the parcel is in Maryland, because that geographic area was in the Potomac River before gradual accretion of the shoreline. From Potomac Shores’s perspective, that accretion is their windfall, not River Rider’s. Potomac Shores brought their title lawsuit in Washington County, Maryland. River Riders moved to dismiss on the grounds that the Potomac Wayside land is located in Loudoun County, Virginia, not Maryland.
I became interested in Maryland history during my undergraduate years in Annapolis. In 1996, I had a summer internship with the National Park Service in Sharpsburg, a small town in Washington County, Maryland. Harper’s Ferry remains one of my favorite day excursions, a beautiful spot where the Shenandoah River flows into the Potomac. This is where Maryland, West Virginia and Virginia meet. Along the Maryland side, the C&O Canal towpath offers a flat, scenic hiking and biking trail. Certainly an attractive area for entrepreneurs to base a river tourism business.
The historic Maryland-Virginia border disputes cover a spectrum of issues. Before this latest Maryland lawsuit, most disputes focused on use of oyster beds in Bay tidal areas. The passion for shellfish amid confusingly defined property rights repeatedly escalated into violence between Maryland and Virginia watermen. In 1874, Maryland and Virginia agreed to submit the boundary dispute to arbitration to resolve the matter peacefully.
The Potomac River is part of Maryland and the state boundary runs along the low-water mark on the Virginia side. What happens when this line moves? The Maryland Court of Special Appeals articulated the legal question as follows: “Does the boundary between Maryland and Virginia shift as the south bank of the Potomac alters because of time and the forces of nature? Or is the boundary fixed and immutable?” Potomac Shores argues that the boundary was set in the past and the gradual process of accretion, erosion and relection resulted in “new” land formed on the south bank of the Potomac.
Note that it has long been settled that the Potomac River is freely navigable by the citizens of the states, and that the waterfront property owners have rights to build docks and wharfs out into the river, as permitted under land use restrictions.
The conclusion reached by the Maryland Court of Special Appeals runs contrary to our modern preference towards “precision.” The Court rejected the “fixed boundary” approach requested by Potomac Shores. The Court upheld the Circuit Court decision, finding that, for the non-tidal portion of the Potomac River, the boundary shifts as time and the forces of nature gradually re-shape the low water-mark of the river’s “southerly shore.” This implies that the border between Maryland and Virginia is changing, by acts of nature, not government. This also means that those private landowners along the Maryland-Virginia border also have potentially shifting boundaries. Virginia’s Potomac waterfront landowners above Washington, D.C., may loose or gain waterfront property as the currents withdraw, add or relocate the shoreline.
The court’s decision avoids the problem of defining the water line boundaries as those that existed at a certain point of time in the past, such as a land grant or other legally significant document.
The new court opinion observes that the result of the case may be different if the accretion of the Potomac Wayside property was man-made. The opinion does not discuss waterfront landowners planting vegetation, constructing sea walls and laying rip-rap to protect their properties from natural change.
The Court analogizes state boundary lines and individual property boundary lines, quoting Justice Kennedy’s dissent in an older Virginia v. Maryland boundary case: “No court acts differently in deciding on Boundary between states, than on lines between separate tracts of land.” For example, the arbitrators in 1874 observed that, “Virginia’s prescriptive use of the river’s south bank had changed the boundary to the south bank’s low-water mark for the course of the entire river.” What is prescriptive use of real estate? Professor Minor defined it in his 1908 treatise as, “based upon the presumption of a grant, arising after long-continued, adverse, uninterrupted, notorious, exclusive enjoyment of a right in the land of another, under a claim of title.” The presumption becomes conclusive after twenty years. Was the arbitrator’s reference to the doctrine of prescriptive easements appropriate? Or is it a red herring?
The border between Maryland and Virginia is changing – is your boundary meandering as well? If you are currently experiencing a dispute with one of your neighbors concerning a property boundary defined by a river, stream, lake or other waterway, consult with a qualified attorney in order to explore your options to protect your rights.
Treatise Citation: Raleigh C. Minor, The Law of Real Property, Sect. 108 (1908).
May 2, 2014
Earlier this week, the National Basketball Association imposed a lifetime ban on Donald Sterling, owner of the Los Angeles Clippers. Adventuress Vanessa Stiviano recorded racist and demeaning statements made by Sterling about Basketball Hall of Famer Earvin “Magic” Johnson. The recordings subsequently leaked to the public.
In 1991, I watched the first NBA Finals for the first time. Magic Johnson led the Lakers against Michael Jordan’s Chicago Bulls. The 1991 Finals made me a basketball fan. Magic was one of my favorite professional athletes. The news about Don Sterling is offensive and bizarre. Why is this scandal happening?
On March 7, 2013, Sterling’s wife, Rochelle, filed a lawsuit against Ms. Stiviano. The lawsuit alleges that Stiviano seduced Don for money. According to Rochelle, Stiviano used marital funds to purchase a $1.8 Million dollar duplex home in Los Angeles in December 2013. Rochelle seeks a court order reforming the deed to identify herself and her husband as the proper owners.
The LA Times reports that Mr. Sterling told Clippers President Andy Roeser that Stiviano said that she would “get even” with Rochelle for filing the lawsuit. Apr. 26, 2014, Bettina Boxall, Sterling’s Wife Describes Alleged Mistress as Gold Digger in Lawsuit. I wonder if Stiviano has additional embarrassing Sterling recordings that she has not yet leaked. There is a controversy over whether the recordings were consensual. How are these leaked recordings related to the lawsuit?
Rochelle alleges that Donald Sterling provided the money for Stiviano to purchase the duplex, “with the understanding that the Property would be owned by [Donald and Rochelle Sterling] and title would vest in the name of [Rochelle] and D. Sterling.” Curiously, Donald is not a Plaintiff or Defendant to this lawsuit where the spouse sues paramour. Rochelle alleges that, “D. Sterling either gifted said Property to Stiviano, without the knowledge, consent or authorization of Plaintiff, or, in the alternative, Stiviano fraudulently and wrongfully caused title to the Property to vest in her name.”
- The transfers made from Donald to Stiviano were gifts.
- Rochelle and Donald are not in divorce proceedings.
- Rochelle does not allege that any of the transfers were thefts.
- Mr. Sterling is an, “on the top of his game infamous real estate mogul.”
- Rochelle knew of Donald’s reputation for “gold plated dalliances” in general and his relationship with Stiviano in particular.
Don Sterling’s health history is an issue. ESPN reports today that Mr. Sterling has prostrate cancer.
I try to avoid predicting the outcome of pending motions, especially those in California, where I do not practice law. Can a California Judge base a ruling on new facts introduced by a defendant on demurrer?
Rochelle alleges that she and Donald are the real owners of the duplex because either:
- Donald and his wife were supposed to be the grantees on the deed, and somehow the name got switched to Stiviano; or
- Donald secreted the funds to Stiviano out of the family estate without Rochelle’s knowledge.
These allegations seem contradictory. In the first case, there was an intention for the paramour to be the nominal purchaser for the benefit of the husband and wife. Did Rochelle condone Don’s relationship with Stiviano? The alternative alleges waste of marital assets, but outside a divorce proceeding. The “constructive trust” remedy sought by Rochelle is a flexible one. However, a spouse usually cannot invalidate transfers to a “other woman” absent theft, fraud, incapacity or other conduct that voids the intent of the philanderer.
This demurrer is set for hearing on July 8, 2014. Many things could happen before then. Don Sterling’s health is an issue. The media will shift their focus to other sports after the NBA Finals and Draft wrap up in late June. Will the NBA successfully force Sterling to sell the Clippers? His lawyers will research the admissibility of the Stiviano tapes thoroughly. Regardless as to how deep they go into the playoffs, the Clippers will have an eventful off-season.
January 24, 2014
On January 10, 2014, the Supreme Court of Virginia decided CNX Gas Company, LLC v. Rasnake, interpreting disputed language in a 95-year-old deed. The Court determined who owned the mineral rights in a parcel of land in Russell County in Southwest Virginia. The contested deed contained both (a) words conveying a parcel and (b) limiting language that excepted certain property from the transaction. Ultimately, the words of conveyance prevailed over the words of limitation! The opinion is a useful collection of some of the rules about how to prepare, interpret or litigate a deed.
In 1887, Jacob & Mary Fuller conveyed the coal in a 414 acre tract in Russell County to Joseph Doran and W.A. Dick. In 1918, W.T. Fuller conveyed to Unice Nuckles a 75 acre portion of the Fuller family tract except that, “[t]his sale is not ment (sic) to convey any coals or minerals. The same being sold and deeded to other parties heretofore.”
Over 90 years later, CNX Gas Company holds a lease from the successor to Ms. Nuckles for the mineral rights (excluding coal) in the 75 acre tract. CNX produces coalbed methane from the parcel. Coalbed methane is a natural gas extracted from coal mines and sold as energy. The opinion does not discuss how methane is a “mineral.” The parties likely stipulated to that based on authorities not mentioned. The successors to W.T. Fuller sue CNX over the non-coal mineral rights. To resolve the dispute, the Court has to decide what the above-quoted language meant. Have the non-coal mineral rights been legally conveyed or not? Royalties to the coalbed methane hang in the balance.
When I initially read these facts, I wondered if perhaps I was missing something. Did the 1887 deed say something about non-coal minerals? Was there some other deed prior to 1918 conveying the minerals? Perhaps there was an unrecorded deed known to the parties in 1918. Since the opinion states the parties stipulated to the facts, the title examination must have revealed the answer to both questions to be “no.”
The Supreme Court of Virginia applied the following legal rules to resolve the title dispute:
- Is the language capable of being understood by reasonable persons in more than one way? One could assume the answer to be “yes,” since the issue found its way to the highest court in the Commonwealth. But lawyers have a reputation for torturing unambiguous language, so the question is appropriate. The Supreme Court found the deed ambiguous.
- Which interpretation favors the grantee (recipient)? Since the Grantors (usually sellers) are the ones who sign the deed conveying the property, it is only fair to assume that they chose their language carefully.
- Can the language of the deed be considered holistically? Since W.T. Fuller included all of those phrases in the deed, it is reasonable to harmonize them rather than pick and choose certain sections that favor one side over the other.
- Is the limiting language clear and unequivocal? A deed must have, among other things, words of conveyance, which generally describe the lot or parcel of land transferred. A deed may also include other language limiting or reserving certain interests excepted from the transfer, such as certain mineral rights. Unless the limiting language contrary to the general grant is expressed clearly and unequivocally, it will not be upheld in court.
The Supreme Court of Virginia applied these rules to find that the only “coals or minerals” not included in CNX’s leasehold interest are the coal rights conveyed to Joseph Doran and W.A. Dick in 1887. The Court entered judgment upholding CNX’s rights to extract the coalbed methane from the 75 acre tract. Words of conveyance prevailed.
P.S. – There is one other principle that the Court could have mentioned: when interpreting legal documents, the specific prevails over the general. Since the 1914 deed made reference to previous conveyances of natural resource rights, the plaintiffs’ stipulation to the absence of any other deeds locked them in.