HOA files "frivolous" complaint?

Started by JeanH1 • 19 replies • 2285 views

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JeanH1 (Colorado)
Posts: 4

Posted:

Our subdivision is a covenant controlled, single family, residental community in Colorado. In accordance with provisions of the Colorado Common Interest Ownership Act (CCIOA), and stated within our CC&Rs, we are "subject only to sections 38-33.3-105, 38-33.3-106, and 38-33.3-107" of the CCIOA. (please bear with me, the section numbers are relevant to my question)

Although our CC&Rs still contain a declaration prohibiting political yard signs, Colorado passed legislation in 2006, effective 1-1-07, (SB 100 & 89, 38-33.3-106.5(1)(c)) which prohibits HOAs from completely prohibiting political signs during elections. This past election, the HOA president removed signage from the yards of a handful of homeowners. Several homeowners informed the HOA president of the new law, and replaced their signs.

Now, the HOA has formally (through an attorney) filed a claim/petition against these same homeowners for a judgement from the court to uphold the CC&R prohibition of political signs, and to add a monetary penalty to the CC&Rs for "future violations" by any homeowner. The main basis for the claim seems to be the interpretation that CCIOA sections "38-33.3-105, 38-33.3-106, and 38-33.3-107" (which do apply to our HOA) do NOT now include 38-33.3-106.5, and that SB 100, 38-33.3-106.5 does not apply to our HOA.

It is my understanding that this new law applies to all HOAs in CO. Am I wrong?

references from:
http://www.hindmansanchez.com/docs/sb_100___89_at_a_glance.pdf

"SB 100 & SB 89’s REQUIREMENTS ‘AT A GLANCE’
An association must allow the display of at least one political sign per candidate or ballot issue on a
unit owner or occupant's property or window at least 45 days before and 7 days after an election.
An association may regulate the size of the sign, but must allow the lesser of the size allowed by any
applicable local ordinance or 36 x 48 inches . [38-33.3-106.5(1)(c)]"

http://www.hindmansanchez.com/docs/sb_100___89_quick_reference.pdf

Colorado Revised Statutes
http://www.michie.com/colorado/lpext.dll?f=templates&fn=main-h.htm&cp=

Thanks in advance!

MaryA1 (Arizona)
Posts: 7,043

Posted:

Quote:

Posted By JeanH1 on 11/25/2008 12:00 AM
Our subdivision is a covenant controlled, single family, residental community in Colorado. In accordance with provisions of the Colorado Common Interest Ownership Act (CCIOA), and stated within our CC&Rs, we are "subject only to sections 38-33.3-105, 38-33.3-106, and 38-33.3-107" of the CCIOA. (please bear with me, the section numbers are relevant to my question)

Although our CC&Rs still contain a declaration prohibiting political yard signs, Colorado passed legislation in 2006, effective 1-1-07, (SB 100 & 89, 38-33.3-106.5(1)(c)) which prohibits HOAs from completely prohibiting political signs during elections. This past election, the HOA president removed signage from the yards of a handful of homeowners. Several homeowners informed the HOA president of the new law, and replaced their signs.

Now, the HOA has formally (through an attorney) filed a claim/petition against these same homeowners for a judgement from the court to uphold the CC&R prohibition of political signs, and to add a monetary penalty to the CC&Rs for "future violations" by any homeowner. The main basis for the claim seems to be the interpretation that CCIOA sections "38-33.3-105, 38-33.3-106, and 38-33.3-107" (which do apply to our HOA) do NOT now include 38-33.3-106.5, and that SB 100, 38-33.3-106.5 does not apply to our HOA.

It is my understanding that this new law applies to all HOAs in CO. Am I wrong?

references from:
http://www.hindmansanchez.com/docs/sb_100___89_at_a_glance.pdf

"SB 100 & SB 89’s REQUIREMENTS ‘AT A GLANCE’
An association must allow the display of at least one political sign per candidate or ballot issue on a
unit owner or occupant's property or window at least 45 days before and 7 days after an election.
An association may regulate the size of the sign, but must allow the lesser of the size allowed by any
applicable local ordinance or 36 x 48 inches . [38-33.3-106.5(1)(c)]"

http://www.hindmansanchez.com/docs/sb_100___89_quick_reference.pdf

Colorado Revised Statutes
http://www.michie.com/colorado/lpext.dll?f=templates&fn=main-h.htm&cp=

Thanks in advance!

Jean,

First of all, I seriously doubt your assn is only bound to abide by 3 sections of the CCOIA:

38-33.3-105 - separate title and taxation
38-33.3-106 - application of local ordinances regulating building codes
38-33.3-107 - eminent domain

The new law recently enacted, regarding political signs - 38-33.3-106.5, IMO, does most definitely apply to your assn. Frankly, just the fact that it is a subsection of 33.3-106 makes me feel it would apply to your assn. However, I can't imagine an HOA that does not have to abide by the whole act rather than just a few sections of it. Perhaps when your CCRs were written the act only contained these three sections???

Yes, I do believe your HOA has friviously entered into a lawsuit they cannot win! I certainly would question the knowledge of the HOA attorney they've hired to handle this lawsuit.

DwightT (Idaho)
Posts: 664

Posted:

Quote:

Posted By JeanH1 on 11/25/2008 12:00 AM

This past election, the HOA president removed signage from the yards of a handful of homeowners.

The HOA president entered their property and removed the signs??? Frankly, even without a state law allowing political signs IMO that borders on trespass and theft. The docs may give the HOA the authority to correct infractions, but that is usually only as a last resort after other enforcement measures have gone nowhere and even then would probably require that the HOA give notice first.

I'm not a fan of yard signs and our CC&Rs also don't allow them. We don't have a state law that requires the HOA to allow them, but I wouldn't dream of just taking any out of somebody else's yard.

BrianB (California)
Posts: 2,820

Posted:

mary is right: Your documents were written before there was a section X.5, and thus, are preempted by state law when they created that subsection. Unless section X.5 has some wording that excludes your situation, it applies, regardless of whether your rules, written prior, mention it. technically, your rules should have said something like "Sections X, Y, and Z of Colorado Codes, inclusive" or something.

Your HOA and the lawyer they are going to pay will be rudely awakened by a judge.

BruceF1 (Connecticut)
Posts: 2,535

Posted:

This wouldn't be another example of an attorney practicing in an area outside of their primary specialty, would it?

RogerB (Colorado)
Posts: 5,067

Posted:

Jean, you wrote "subject only to sections 38-33.3-105, 38-33.3-106, and 38-33.3-107" of the CCIOA. This suggests your HOA has no more than 10 units and the HOA is a common interest ownship community. CCIOA does not apply to all HOAs in CO; only those which have common interest ownership or have otherwised formally adopted CCIOA. If you are under CCIOA (even with 10 units or less) then your Board of Directors and their legal council are mistaken.

JeanH1 (Colorado)
Posts: 4

Posted:

Quote:

Posted By RogerB on 11/25/2008 9:41 AM
Jean, you wrote "subject only to sections 38-33.3-105, 38-33.3-106, and 38-33.3-107" of the CCIOA. This suggests your HOA has no more than 10 units and the HOA is a common interest ownship community. CCIOA does not apply to all HOAs in CO; only those which have common interest ownership or have otherwised formally adopted CCIOA. If you are under CCIOA (even with 10 units or less) then your Board of Directors and their legal council are mistaken.

The subdivision includes 198 homes, but we do have limited areas of common interest ownership (irrigation pond, small park and greenspace). Although not specifically cited in the CC&Rs, 38-33.3-116 is the basis for exemption from all but 38-33.3-105, 38-33.3-106, and 38-33.3-107.

**
38-33.3-116 Exception for new small cooperatives and small and limited expense planned communities.
...
(2)If a planned community created in this state after July 1, 1998, provides, in its declaration, that the annual average common expense liability of each unit restricted to residential purposes, exclusive of optional user fees and any insurance premiums paid by the association, may not exceed four hundred dollars, as adjusted pursuant to subsection (3) of this section, it is subject only to sections 38-33.3-105, 38-33.3-106, and 38-33.3-107, unless the declaration provides that this entire article is applicable.
**

The exact wording in Art. IV, Section 10 of the HOA CC&Rs reads:
"Notwithstanding any other provision contained herein, Declarant hereby affirmatively states that at no time shall the annual assessment imposed herein on each lot, exclusive of optional user fees and insurance premiums paid by the Association, if any, exceed three hundred dollars, or such higher amount as may be hereafter permitted under the Act (as hereafter defined) to retain this exemption. Therefore the Properties are subject to 38-33.3-105 THROUGH 107, C.R.S., but are not subject to the remainder of the provisions of the Common Interest Ownership Act..."

So, as Brian both pointed out with clarity -

Quote:

Posted By BrianB on 11/25/2008 7:13 AM
mary is right: Your documents were written before there was a section X.5, and thus, are preempted by state law when they created that subsection. Unless section X.5 has some wording that excludes your situation, it applies, regardless of whether your rules, written prior, mention it. technically, your rules should have said something like "Sections X, Y, and Z of Colorado Codes, inclusive" or something.

Your HOA and the lawyer they are going to pay will be rudely awakened by a judge.

Absolutely. But here's the rub. If it's a no-win complaint by the HOA (which it sure seems to be), the HOA will end up holding the bag for both the initial frivolous filing AND Attorney fees of the defendant homeowners, right? But the "HOA" money comes from all the homeowners. Lose-Lose. Homeowners get to pay either way.

So the next question logical question becomes... is it appropriate, or at what point is it appropriate, and through what procedure, can homeowners hold the HOA president and BODs personally liable for irresponsible use of HOA funds? To my mind, this is kind of a no-brainer. The conflict was in the papers and local news at the time, and our State Senator (informally) sided with the homeowners (that the new law should be interpretted to allow political signs no matter what our CC&Rs said). The HOA president and the BOD should have made sure of their facts BEFORE spending HOA funds to pursue this.

I guess my personal preference would be to see if the judge would throw the case out before any more money is spent by either side, and then explore what our options are for the HOA funds that have already been spent. And then move towards getting rid of this BOD.....

Thanks all. Any more insights or ideas would be greatly appreciated!

JeanH1 (Colorado)
Posts: 4

Posted:

Quote:

Posted By BruceF1 on 11/25/2008 7:27 AM
This wouldn't be another example of an attorney practicing in an area outside of their primary specialty, would it?

Bingo! Even better.... the HOA Pres is, himself, an attorney. Go figure.

RogerB (Colorado)
Posts: 5,067

Posted:

Jean asked "So the next question logical question becomes... is it appropriate, or at what point is it appropriate, and through what procedure, can homeowners hold the HOA president and BODs personally liable for irresponsible use of HOA funds?"
The President and the other Board who chose to continue with this course of action could be personally liable (not covered by D&O insurance plus not be covered by any indemnification clauses in the Articles and By-laws) by a court for knowingly doing wrongdoing. To document this you should write a letter with copies to the attorney, the Board, the insurance company, and the Management Company (if any) and make them all aware of the statutes which apply which the Board is not following. If you are correct and they continue then it can be established in court that they were made aware and failed to comply. But hopefully they would cease prior to going to court.

BrianB (California)
Posts: 2,820

Posted:

yahoo, right again, and all i did was agree with Mary!

man, this game gets easier all the time.

KirkW1 (Texas)
Posts: 1,665

Posted:

I don't think you will breach the protection the Board members enjoy. You would have to show that they knowingly ignored legal advice and a whole lot more.

All the scare tactics aside, for the insurance to not cover the expenses would require a serious breach of duty. The insurance company stands to lose big time on this issue. As such, it is very unlikely that the insurance company would fail to defend the officers.

In the end, your attempts will actually end up costing the association even more money. Your best use of resources would be to work towards removing the Board in favor of people who will make different decisions.

BruceF1 (Connecticut)
Posts: 2,535

Posted:

I think a key point that needs to be considered is the fact that Jean mentioned that the HOA president also happens to be a lawyer. That being the case, should the HOA's case be deemed frivolous, it could be deemed that at least the HOA president should have known better and acted recklessly.

Also, D&O insurance defends against suits where the association is the defendant. I don't believe it pays for cases where the HOA is the plaintiff. I think whether or not D&O insurance would defend the HOA in a counter suit might depend on the findings of the court in the original suit brought by the HOA.

JeanH1 (Colorado)
Posts: 4

Posted:

Quote:

Posted By BruceF1 on 11/26/2008 2:29 AM
I think a key point that needs to be considered is the fact that Jean mentioned that the HOA president also happens to be a lawyer. That being the case, should the HOA's case be deemed frivolous, it could be deemed that at least the HOA president should have known better and acted recklessly.

Also, D&O insurance defends against suits where the association is the defendant. I don't believe it pays for cases where the HOA is the plaintiff. I think whether or not D&O insurance would defend the HOA in a counter suit might depend on the findings of the court in the original suit brought by the HOA.

All excellent points, Bruce. And since the suit was file through an attorney, he can say he DID seek legal advice.

It's all so very frustrating in that - no matter how you look at it - the HOA Pres has risked an unnecessary financial burden for the HOA, and has placed the burden of proof for the applicability of SB 100,89 on a small handful of homeowners. After all, that's the crux of the matter - the question that first needs to be answered is whether it applies. And after spending a couple hours scouring the internet, and looking at the exact wording of the new law as well as how other HOA's in CO have interpretted it, it seems crystal clear that it applies to ALL HOAs regardless of whether they fall under the CCIOA. So in essence, the suit becomes a test case for the State Law with our little HOA footing the bill. Homeowners can be right as rain and still pay through the teeth through increased dues for years to come.

So, one thing I'm now wondering is who to approach at the State level for an official interpretion of the new law? It seems like there should be a black and white answer....somewhere. Would that be the State Attorney office?

BruceF1 (Connecticut)
Posts: 2,535

Posted:

If it's a new law, then the text of the bill that enacted it might still be available, assuming your state legislature posts bills on the web. Ours does, and the bills are worded exactly the way the law will be worded if the bill is passed, along with a legislative analysis which describes, in rather easy to understand terms, the purpose of the bill, what it means, who is affected by it, and so forth.

KirkW1 (Texas)
Posts: 1,665

Posted:

If the suit is determined to be frivolous, then there could perhaps be a cause of action. But if there is any basis at all for the legitimacy of the declaration that it only falls under a limited number of paragraphs then the suit is not frivolous.

So unless this lawyer president has some reason to believe that the declaration itself is not accurate, the suit is not frivolous.

Don't get me wrong, I hope your association loses the suit. But I don't think it should be a frivolous suit.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Jean,

I would suggest contacting the sponsor of the bill. Who else should know what the intent of the bill is? However, if the intent of the bill is not clear in the bill itself, it will be up to the plaintiff (the homeowners bringing suit) to prove the intent -- or I think we should be saying "applicability".

KirkW1 (Texas)
Posts: 1,665

Posted:

Beyond intent, many courts have ruled that they are not in the position to rewrite poorly written laws. And thus regardless of intent, they are obligated to uphold a law as written. This happened in Texas when the legislature intended to state that an RV is not to be subject to real estate taxes. But they inadvertently placed a double negative into the text. The intent was clear, but the law stated that opposite. The courts ruled that the tax would have to be collected. The legislature then had to write a new law to undo the damage and refund people's money.

Don't know if this is the same community, but did notice the following link in the feed:
http://www.gjsentinel.com/hp/content/news/stories/2008/11/27/112808_9A_Political_signs.html

AnnaD2 (Florida)
Posts: 960

Posted:

We've wrestled with this one a lot, ourselves. We have decided to not print or publish names nor addresses. Every month we say how many owners are delinquent. We DO talk about it at meetings; and we do let the members know what is happening with the liens and/or legal processes.

We also make it very clear that once a lien has been placed on a property that it is public information and anyone with a computer can access the county court records. Owners are quick to look up which of their neighbors have liens filed against them. Word spreads quickly but the Board never embarrasses anyone by listing their names or unit numbers.

AnnaD2 (Florida)
Posts: 960

Posted:

Ignore me above.....I answered to a wrong post. Oops. Sorry.

CharlieM1 (Colorado)
Posts: 6

Posted:

Hi Jean,
It's been a couple of weeks since your original posting so things may have been settled by now (hopefully amicably!) but, if you don't mind, I'd like to throw in my 2cents as it were.
A bit of background; I'm Scottish with an American wife, and together we own a property in Colorado that comes under a Property Owners Association. As in your case, our POA is exempted from all but your stated provisions of the CCIOA. We have butted heads with the board on a number of issues in the past, but thankfully nothing went further than threatening letters which were refuted by our attorney. We have recently had a 'regime change' and the majority of the new board appear to be real and reasonable people!

Please note that what follows is merely my opinion, and I have in the past been accused of "applying logic to an illogical world"!

The key point of your issue is that:
1. the property owners in question DO have the right to display political signs under the provision of 38-33.3-106 (assuming of course that the maximum dimensions of the signs complied with any local, probably county, ordinances and the time frame allowed, 45 days before and 7 days after the election date)

Other points will largely depend on what is stated within your own associations Covenants and By-Laws, given that you are not covered by the rest of CCIOA.
1. Do the covenants or bylaws provide for free access to a member’s property by board members or officers of the board?
- In our sub-division, for example, they do not, therefore the board member would be guilty of trespass had this incident happened with us.
2. Is there an indemnity clause for board member within your Covenants and Bylaws?
3. If so, are there any stated grounds for removal of this indemnity?
- In our subdivision, for example, board members (and 'officers of the board') have indemnity, unless they were guilty of gross negligence or willful misconduct.
Now IMHO, these conditions effectively render the 'indemnity clause' worthless. A board has the duty to know, and understand, the relevant legislation. If they proceed with a case (especially after seeking legal council) that is deemed frivolous then they must be guilty of one or the other; either they didn't know - in which case they were negligent, or they did know but pursued it anyway - in which case it is willful misconduct.
4. Do the Covenants and Bylaws make any statement about who shall bear the costs of legal action to enforce?
- This is one of the areas where not being covered by the rest of the CCIOA puts the homeowner at a distinct disadvantage. CCIOA over-rules any Covenant or Bylaw by essentially stating that in the event of legal action the prevailing party will be awarded their costs. As you are not covered by this section of CCIOA then what is stated in your Covenants and Bylaws still holds sway, and I have yet to see any of those that do not burden the homeowner with the costs.
However, again IMHO, if your covenants have similar indemnity, and removal of, clauses, then I would have thought that there would be grounds for a counter suit to recover costs (from the individual concerned - not the association. i.e. the board members own pockets) should the board lose the case. I would also assume that to be successful with this one would have to state this fully in the response to any original suit.

Just my thoughts on the subject, I wish you good luck.

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