This was originally posted on the SGR Blog.
Did the Board Have Authority to Impose Sanctions?
We often see decisions invoking and applying the “business judgment rule” to the Board of Directors of a residential cooperative or the Board of Managers of a residential condominium. But, as a recent case illustrates, that rule also applies to the BOD of a homeowner’s association.
Alan Ives and his wife are homeowners and members of Fieldpoint Community Association, Inc. Fieldpoint is a master homeowners’ association that manages and controls the members’ use of common areas, as well as the exteriors of the members’ units and lots. In 2014, the Ives installed a six-foot-high aluminum fence in the backyard of their home. They then applied to the Fieldpoint Architectural Review Committee, seeking approval for the fence. The ARC denied the application, stating that “iron fences” are “considered inconsistent with the overall character and appearance of the Fieldpoint development.” The Ives appealed to Fieldpoint’s BOD, confirming the decision and directing them to remove the fence. The Ives did not remove the fence, and Fieldpoint imposed a one-time fine for $1,000, followed by fines of $20 for each day the fence remained in place.
The Ives sued Fieldpoint, challenging the denial of approval for the fence and the imposition of fines against them related to the retention of the fence and seeking declaratory and injunctive relief. Fieldpoint asserted two counterclaims for declaratory and injunctive relief, seeking to have the Ives be directed to pay all outstanding fines assessed in connection with the fence and immediately remove the fence at their own expense.
Following the conclusion of discovery, Fieldpoint moved for summary judgment, in effect, concerning the complaint, and on its counterclaims, and the Ives moved for summary judgment on the complaint. The Supreme Court granted those branches of Fieldpoint’s motion which were for summary judgment, in effect, declaring that its actions in denying approval for the fence were within the scope of its authority and were taken in good faith and that the fines imposed against the Ives of $20 per day were valid, and on its counterclaim for injunctive relief directing them to remove the fence. The Court granted that branch of the Ives’ motion for summary judgment, declaring that the imposition of the one-time fine of $1,000 was null and void and otherwise denied their motion. And the Court subsequently issued a judgment dismissing the complaint and awarding Fieldpoint the sum of $35,059.96.
Supreme Court, after a hearing, granted Fieldpoint’s motion to hold the Ives in civil contempt based on their failure to remove the fence in accordance with the Court’s order and directed them to purge themselves of their contempt by removing the fence.
In reviewing the actions of the HOA, the Court applied the business judgment rule. It limited its inquiry to whether the action was authorized and whether it was taken in good faith and furtherance of the legitimate interests of the HOA. Accordingly, the Court would defer to the actions of the HOA Board so long as the Board acted for the HOA, within the scope of its authority, and in good faith.
Here, Fieldpoint established that its actions in denying approval for the fence were protected by the business judgment rule. In opposition to Fieldpoint’s showing, the Ives failed to raise a triable issue of fact by submitting evidence that Fieldpoint acted:
(1) Outside the scope of its authority
(2) In a way that did not legitimately further the interests of the association
(3) In bad faith
Accordingly, Supreme Court properly determined that Fieldpoint’s actions in denying approval for the fence were within the scope of its authority and taken in good faith.
But Supreme Court erred in denying that branch of the Ives’ motion for summary judgment, declaring that the fines of $20 per day imposed by Fieldpoint were null and void. The Ives presented evidence establishing that the purported amendment to the by-laws pursuant to which those fines were assessed was passed as a resolution. There was no evidence that the resolution was incorporated in an amended declaration which was thereafter duly recorded, in compliance with the provisions of the Real Property Law. The Ives further established that, under the pre-amendment by-laws, Fieldpoint was only authorized to impose “a one-time fine of $50.00 for any violation of any rule or regulation adopted by the BOD, or the breach of any By-Law.” In opposition, Fieldpoint failed to raise a triable issue of fact. Accordingly, the fines of $20 per day should have been declared null and void.