May a board impose fines when homeowners fail to remediate, even though the owners claim they are being prevented from doing so by another owner? That was one question in Tucciarone v. The Hamlet on Olde Oyster Bay Homeowners Association.
The Facts of the Case
Joseph and Anita Tucciarone, both in their 70s, owned a home in a gated community known as the Hamlet on Olde Oyster Bay, which is governed by the Olde Oyster Bay Homeowners Association. In another action, pending before a different judge, Jill Fadlon, a neighbor, claimed that the Tucciarones planted an invasive form of bamboo, which had spread to her property and rendered the yard unusable.
In this case, the Tucciarones claimed that the HOA’s board improperly imposed fines in connection with the bamboo infestation. As of June 2013, the board had assessed fines of $14,000 and the couple had paid more than $8,000. Other than failing to pay the balance of the fines, they were not in arrears.
The Tucciarones claimed that they could not remove the bamboo on Fadlon’s property because she would not permit access. In addition, they tried to settle the action begun by Fadlon, but were unable to do so. Although not explicitly stated, it appears that whether the couple had the ability to access the common areas was also being litigated in the Fadlon action.
In August 2013, the board adopted a resolution that residents who were in arrears for more than 60 days would not be permitted to drive their car onto the premises. Further, they would be denied access to other amenities. As to vehicular access, cars could not be parked at or near the gate house. The entrance to the HOA was on the Long Island Expressway and public parking was roughly one mile away. The Tucciarones argued that, by not permitting them to drive onto the property, the board in effect denied them access to their home.
The board responded that the Tucciarones were only being denied vehicular access to their home. It asserted that the point of the no-car-access provision was to make it inconvenient for them to get to their home. Moreover, the board conceded the resolution was meant to force settlement of the Fadlon action.
A Fined Romance
The court determined that the issue was whether the fines and penalties were properly imposed. The only evidence concerning the fines was letters from the HOA’s counsel to the Tucciarones, advising that the board would impose fines on an escalating basis if the bamboo were not removed.
The HOA failed to produce to the court copies of a board resolution imposing fines, explaining why the Tucciarones were being fined and what they could do to avoid the penalty, or even the notice of meeting or the minutes of the meeting at which the resolution was adopted. The court explained that the Tucciarones were barred from driving to their home, had been denied use of the HOA’s amenities, and faced escalating charges. Yet, they had no control over whether Fadlon would provide access so that the offending bamboo could be removed.
The court then turned to the HOA’s governing documents. They said that every member had an easement of “enjoyment in and to the” property, but that the rights could be suspended if an assessment remained unpaid for 30 days and that assessments were to be used “exclusively for the purpose of promoting the recreation, health, safety and welfare of the residents... and in particular for the improvement and maintenance of properties, services and facilities…”
Further, the HOA documents set out a procedure to be followed: after a determination was made concerning the validity of a complaint, a written notice of the violation was required to be sent to the homeowner. Thereafter, if not cured, a second notice was to be sent, after which a fine would be imposed. The bylaws also established a grievance committee and a grievance procedure if a unit-owner felt wronged. The court noted that there was no evidence that any of these procedures were followed by the board. Nor was there any evidence of the board’s findings, to justify its imposition of fines.
The court determined that the HOA relied on arguments made in the Fadlon action to justify its imposition of the fines and, when the fines failed to cause the Tucciarones to act, the HOA “escalated the stakes” and imposed “measures affecting the physical well-being” of the couple.
Back in the Driver’s Seat
The Tucciarones had moved for a preliminary injunction. The court explained that in order to obtain this, they had to demonstrate by clear and convincing evidence a probability of success on the merits, irreparable harm absent a grant of the relief sought, and a balancing of the equities in their favor.
The couple had established that they were likely to succeed on the merits. As to irreparable harm, they alleged non-economic harm, namely the inability to drive to their home or use the HOA’s amenities. The court also determined that the Tucciarones established that the equities balanced in their favor in that they would have been required to surrender their claims in the Fadlon action to avoid the fines and penalties.
Accordingly, the court granted the Tucciarones’ motion for a preliminary injunction. In accordance with statute, it required them to post a bond (in the amount of $10,000) and, in the interim, extended a temporary stay. The HOA was enjoined from enforcing any resolution regarding the bamboo infestation, levying or seeking to collect any fine in connection with this case, and denying the Tucciarones the use and enjoyment of all amenities, including the right to access the premises with a car.
In making this decision, the court discussed the Business Judgment Rule, noting that it is premised on the concept that there should be no judicial inquiry into board actions unless the owner can determine that the action was not taken in good faith, in the exercise of honest judgment, and in the lawful and legitimate corporate purpose. The court explained that the Business Judgment Rule does not apply when the actions of a board are “unconscionable.” Here, the court determined that the board’s conduct may have been unconscionable.
While this case involves an HOA, and not a co-op or a condo, it is instructive. The HOA board knowingly placed the Tucciarones in a catch-22 situation. From the decision, it appears that the only way for the couple to stop the imposition of the fines and penalties, including the denial of car access, was to make a deal with their next-door neighbor. We cannot tell from this decision whether the couple or the neighbor was being reasonable (if either of them was), but we are not sure it makes a difference. The way in which the board chose, apparently, to force a settlement, placed the Tucciarones in an untenable position.
Although the court referred to the board’s behavior as possibly “unconscionable,” identifying such activity as an exception to the Business Judgment Rule, it appears that the court was actually speaking about a component of the good faith standard imposed by the rule. In other words, it appears that the owners were able to demonstrate that the actions taken by the board were in bad faith so that the rule would be inapplicable and the court need not defer to the board’s determination.
From the facts recited in this opinion, it appears that the board consciously placed the Tucciarones in a no-win position. Indeed, according to the decision, the board admitted that “the purpose of the new directive is [to] obtain remediation, i.e., settlement of the Fadlon Action, of the bamboo infestation.”
An important factor is that the board plainly did not follow its own rules. There is no question that it had to comply with its governing documents in any treatment of unit-owners. In instances such as this, strict compliance is required and it is advisable that a board have – and produce to the court – the paperwork to demonstrate it has done precisely that. In this case, the board apparently failed, and this alone was likely a basis for the relief granted.
For Plaintiffs: Stanley S. Zinner.
For Defendants: Cantor, Epstein & Mazzola.