M. Serota v. London-Towne HOA ( 2017 )

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Matthew Serota :
:
v. : No. 2073 C.D. 2016
: Argued: April 6, 2017
London-Towne Homeowners :
Association, :
Appellant :
BEFORE: HONORABLE RENÉE COHN JUBELIRER, Judge
HONORABLE PATRICIA A. McCULLOUGH, Judge
HONORABLE ANNE E. COVEY, Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY
JUDGE COHN JUBELIRER FILED: April 27, 2017
London-Towne Homeowners Association (Association) appeals from the
January 5, 2016 Order of the Court of Common Pleas of Allegheny County
(common pleas) that granted Matthew Serota’s (Serota) Motion for Partial
Judgment on the Pleadings (Motion) and entered judgment in Serota’s favor on
counts I and II of Serota’s Complaint and Civil Action (Complaint).1 The
Complaint sought declaratory judgment and injunctive relief in order to invalidate
the Association’s amendment (Amendment) to the Declaration of Covenants,
1
On February 23, 2017, Serota filed an Application for Relief requesting expedited
consideration of this matter, to which the Association did not object, which this Court granted by
Order dated March 8, 2017.
Conditions, and Restrictions (Declaration) of the London-Towne Plan of Lots
(Community). The Amendment provided that, instead of one vote per lot/unit, the
Association would count one vote per owner without regard to the number of
lots/units owned. On appeal, the Association argues that common pleas erred in
declaring the Amendment invalid, null and void because it had the authority,
pursuant to the Declaration and the Nonprofit Corporation Law of 19882 (NPCL)
to make the Amendment. Discerning no error, we affirm.
I. Background
The Community is a planned community of 70 townhouses that was
recorded on June 13, 1978. The Association, along with the developer/declarant,
Concept Realty Enterprises, Inc. (Declarant), filed the Declaration with the
Recorder’s Office of Allegheny County on June 26, 1979. The Declaration was
recorded in Deed Book Volume 6125, page 513, and contains the following
language:
NOW, THEREFORE, Declarant hereby declares that all of the
Numbered Lots in the London-Towne Plan of Lots and all future
subdivisions thereto shall be held, sold and conveyed subject to the
following Restrictions, Covenants and Conditions which are for the
purposes of protecting the value and desirability of, and which shall
2
15 Pa. C.S. §§ 5101-5998. Although the Association cites to the NPCL, it relies on the
provisions applicable to non-profit corporations from 1972 to 1988, when those provisions were
renumbered by the NPCL. The Association relies upon 15 Pa. C.S. § 7901(a) (1972), which
provided, in relevant part, that a non-profit corporation could amend its articles “(2) [t]o modify
any provision of the articles relating to its term of existence” and “(5) [i]n any and as many other
respects as desired.” These provisions were renumbered as 15 Pa. C.S. § 5911(a) in 1998 and
remained the same until 2013, when (a)(5) was amended to read “[t]o make any and as many
other changes as desired.” 15 Pa. C.S. § 5911(a)(5). For ease of reference, we will cite to this
provision as the Association does in its brief as Section 7901 of the NPCL, 15 Pa. C.S. § 7901
(1972).
2
run with the said Numbered Lots and be binding on all parties having
any right, title or interest in the Numbered Lots, their heirs, successors
and assigns, and shall inure to the benefit of each owner thereof.
(R.R. at a18.) Article IV, Sections 1 and 2 of the Declaration address membership
and voting rights and provide, in relevant part:
Section 1. Every Owner of a Lot which is subject to assessments
shall be a member of the Association. Membership shall be
appurtenant to and may not be separated from ownership of any
Lot subject to assessment.
Section 2. . . . Class A members shall be all Owners, with the
exception of the Declarant, and shall be entitled to one (1) vote for
each Lot owned. . . .
(Id. at a21.) Article X, Section 3 of the Declaration addresses Amendments and
states, in pertinent part:
The covenants and restrictions of this Declaration shall run with and
bind the land, for a term of twenty (20) years from the date this
Declaration is recorded, and after which time they shall be
automatically extended for successive periods of ten (10) years, unless
by a unanimous vote of all Owners joined in by the mortgagees, if
any, it is agreed to terminate. This Declaration may be amended
during the first twenty (20) years by an instrument signed by not less
than ninety (90%) per cent of the Lot Owners, and thereafter by an
instrument signed by not less than seventy-five (75%) per cent of the
Lot Owners. Any amendment must be recorded.
(Id. at a32.) Article X, Section 1 of the Declaration provides:
. . . [A]ny owner[] shall also have the right to enforce, by any
proceeding at law or in equity, all restrictions, conditions, covenants,
reservations, liens and charges now or hereinafter imposed by the
provisions of this Declaration. . . .
(Id. at a31.) In 1998, the Association adopted the Bylaws of London Towne
Homeowners Association (Bylaws), Article 1, Section 1.1 of which states:
3
These Bylaws provide for the governance of the Association pursuant
to the requirements of §5306 of the Pennsylvania Uniform Planned
Community Act[3 (Act), 68 Pa. C.S. § 5306], with respect to the
Community created by the recording of the Declaration among the
land records . . . in Deed Book Vol. 6125 at Page 513.
(R.R. at a34.) Article I, Section 1.5 of the Bylaws provides that “[e]xcept as
expressly provided [in the Bylaws], in the Declaration, or in the Act,” the
provisions of the NPCL govern the Association. (Id.) Article II, Section 2.8 of the
Bylaws governs voting and states: “[e]ach Unit shall be entitled to a single vote at
3
Section 5306 of the Act provides:
(a) Mandatory provisions.--The bylaws of the association shall provide for all of
the following:
(1) The number of members of the executive board and the titles of the officers
of the association.
(2) Election by the executive board of a president, treasurer, secretary and any
other officers of the association the bylaws specify.
(3) The qualifications, powers and duties, terms of office and manner of
electing and removing executive board members and officers and filling
vacancies.
(4) Which, if any, of its powers the executive board or officers may delegate to
other persons or to a managing agent.
(5) Which of its officers may prepare, execute, certify and record amendments
to the declaration on behalf of the association.
(6) The method of amending the bylaws.
(b) Other provisions.--Subject to the provisions of the declaration, the bylaws
may provide for any other matters the association deems necessary and
appropriate.
68 Pa. C.S. § 5306.
4
all meetings of the Association.” (Id. at a36.) Amending the Declaration is
addressed in Article VII, Section 7.2 of the Bylaws, which provides:
Any two (2) officers or Executive Board members of the Association
may prepare, execute, certify and record [A]mendments to the
Declaration properly adopted by the Unit Owners on behalf of the
Association.
(Id. at a47.)
Serota is a Class A member and owns 12 lots in the Community each with a
townhome.4 (Compl. ¶¶ 3-4, 6, 24.5) Prior to October 17, 2014, he could cast 12
votes on any Association matter. (Id. ¶ 52.) Beginning in August 2014, other
Association members sought to amend Article IV, Section 2 of the Declaration
(addressing Class A member voting rights), changing the one vote per lot owned
rule to add: “. . . When more than one (1) Lot is owned by the same Owner, that
Owner shall be a member, but in no event shall more than one (1) vote be cast with
respect to any number of Lots owned by that Owner.” (Compl. ¶¶ 31-34; R.R. at
a81.) At the time it was proposed, the Amendment would have reduced Serota’s
voting strength from 12 out of 70 votes to 1 out of 59 votes. These owners
collected forms, which were attached to the Complaint as Exhibit C (Forms), and
which on their face stated only “Homeowners in Agreement to Amendment Article
X General Provisions, Section 3,” the unit number, printed name, and signature of
the person signing the Form. (Compl. ¶ 35; Ex. C, R.R. at a51-a79.) Serota and
several other owners did not consent to the effort to amend the Declaration, and no
4
Serota resides in New York, and between December 2009 and July 2014, he
individually acquired 11 properties, and he and his wife acquired the 12th property. (Compl. ¶¶
2-5.) He subsequently acquired three additional lots after October 17, 2014.
5
The Complaint and attached exhibits can be found at pages a3 to a115 of the
Reproduced Record.
5
more than 53 owners out of the 59 owners signed these Forms. (Compl. ¶¶ 36-37.)
On October 17, 2014, the Association, recorded the Amendment with the
Allegheny County Department of Real Estate in Deed Book 15768, page 552.
(Compl. ¶ 38; R.R. at a81.) The recorded Amendment indicated that it was
amending Article IV, Section 2 of the Declaration, not Article X, Section 3. (R.R.
at a81.) Additionally, the Amendment was executed and certified by only the
Association’s President. (Compl. ¶ 39; R.R. at a81.) Without advising Serota that
the Amendment had been recorded, the Association refused to record more than
one vote from Serota at its next meeting. (Compl. ¶¶ 45-48.)
II. Proceedings before Common Pleas
Serota filed the Complaint asserting that the Amendment was invalid raising
four arguments. First, the Amendment violated the Association’s Bylaws because
the Forms signed by the owners agreeing to amend the Declaration incorrectly
referenced an amendment of Article X, Section 3, instead of Article IV, Section 2.
(Compl. ¶ 56.) Second, the Amendment was executed and recorded only by the
Association’s President, and the Bylaws require that two Association officers or
executive board members must “prepare, execute, certify and record” any
amendment to the Declaration. (Compl. ¶ 57.) Third, the Amendment violated
Section 5219(d) of the Act, 68 Pa. C.S. § 5219(d) (emphasis added), which
provides that “without unanimous consent of all unit owners affected, no
amendment may create or increase special declarant rights, [or] alter . . . voting
strength in the association allocated to a unit,” because it was not passed with the
unanimous consent of all of the Community’s unit owners. (Compl. ¶ 55.) Fourth,
the Amendment is contrary to Serota’s contractual rights to one vote per unit
6
owned, acquired through the Declaration and the Bylaws, and the NPCL because it
diminishes Serota’s property and contractual rights without his consent. (Id. ¶¶ 58-
59, 61.) For these reasons, Serota sought a declaration that the Amendment was
invalid and that he was entitled to one vote for each unit he owned. (Id. ¶ 60,
Count I Wherefore Clause.) Serota also requested injunctive relief to prevent the
Association from enforcing the Amendment and requiring the Association to
remove the Amendment from the Association’s books and records, as well as
Allegheny County’s records. (Compl. ¶¶ 64-66, Count II Wherefore Clause.)
The Association filed an Answer,6 stating that Section 5219(d) conflicts with
the procedures set forth for amending the Declaration in Article X, Section 3 of the
Declaration, which authorizes such amendments with a 75% vote of the owners.
(Answer ¶¶ 9, 15, 26.) The Association further asserted that, pursuant to Section
5102 of the Act, 68 Pa. C.S. § 5102, Section 5219 of the Act does not apply
because the Community was created prior to the Act’s effective date. (Answer ¶¶
9, 15-16, 55.) With respect to the claims that the owners did not know what they
were amending, the Association averred that the proposed Amendment was
attached to the Forms when presented to the owners for their signature. (Id. ¶¶ 33-
35, 56.) The Association also averred that the Amendment was properly executed
and recorded because it was executed by four board members when they signed the
Forms agreeing to the Amendment that were then attached to the recorded
Amendment. (Id. ¶¶ 39, 57.) Finally, the Association replied that the Amendment
did not interfere with any of Serota’s property or contractual rights. (Id. ¶¶ 58-59.)
6
The Association also filed counterclaims, which were related to Serota’s actions when
he was the President of the Association’s Board and to which Serota had filed an Answer and
New Matter. However, the Association voluntarily discontinued those claims without prejudice
so that the Order became a final appealable order.
7
Serota filed the Motion with a brief in support, and the Association filed a
brief in opposition. Following oral argument, common pleas granted the Motion,
entered judgment in Serota’s favor, and directed the Association take certain
actions in removing the Amendment from the Association’s books and Allegheny
County’s records. Thereafter, in its opinion in support of its Order, common pleas
explained that the Amendment was invalid for several reasons.
First, the Amendment was executed and recorded by only the Association’s
President. However, the Bylaws require that two officers or executive board
members must “prepare, execute, certify and record” any amendment to the
Declaration. (Common pleas op. (Op.) at 5-6.)
Second, the Association did not include any New Matter in its Answer and
did not plead any specific facts describing how or when the proposed Amendment
was disseminated to the owners, that the owners were aware that they were
agreeing to amend Article IV, Section 2 of the Declaration, rather than Article X,
Section 3, or that the owners actually read the proposed Amendment prior to
signing such that they actually “adopted” that Amendment as required by the
Declaration. (Op. at 6-7.) Common pleas noted that the Association, at oral
argument, acknowledged that the forms signed by the owners erroneously
referenced a different portion of the Declaration than the one being amended. (Id.
at 7.)
Third, the Declaration’s amendment procedures did not supersede Section
5219(d) of the Act because the Association had agreed to be bound by the Act in
its Bylaws, and, at the time the Act and Bylaws became effective, the Declaration
would have required 90 percent of the owners to agree to amend the Declaration,
not the 75 percent that would have become effective in 1999. (Op. at 10.)
8
Common pleas further held that the Association incorrectly assumed that a non-
profit corporation could alter Serota’s voting rights without his consent by
amending its governing document even though those rights were set forth in the
Declaration, run with and bind the land, and are enforceable in law and equity.
(Id.) After reviewing precedent rejecting attempted amendments to a corporation’s
governing documents that infringed upon or limited existing contractual or
property rights, including, Schaad v. Hotel Easton Company, 87 A.2d 227 (Pa.
1952), Roblin v. Supreme Tent of the Knights of Maccabees of the World, 112 A.
70 (Pa. 1920), and Huddleson v. Lake Watawga Property Owners Association, 76
A.3d 68 (Pa. Cmwlth. 2013), common pleas held that such principles applied to the
NPCL and the Association. (Op. at 11-12.) Common pleas concluded that Serota
had obtained a property and/or contractual right to have one vote for each lot he
owned through the Declaration as it existed when he acquired the lots, and the
Association could not, by amending its governing documents, diminish those rights
without his consent. (Id. at 12.) The Association now appeals.
III. Discussion
“Our review of [common pleas’] decision granting a motion for judgment on
the pleadings considers whether the court committed an error of law or whether
unresolved questions of material fact remain outstanding.” Pfister v. City of Phila.,
963 A.2d 593, 596 n.7 (Pa. Cmwlth. 2009). Rule 1034 of the Pennsylvania Rules
of Civil Procedure provides that, “[a]fter the relevant pleadings are closed, but
within such time as not to unreasonably delay the trial, any party may move for
judgment on the pleadings” and “[t]he court shall enter judgment or order as shall
be proper on the pleadings.” Pa. R.C.P. No. 1034. Relevant here, the pleadings
9
include the complaint and an answer and any documents properly attached thereto.
Pfister, 963 A.2d at 597. “[T]he party moving for judgment on the pleadings must
admit the truth of all the allegations of his adversary and the untruth of any of his
own allegations that have been denied by the opposing party.” Id. (citations
omitted). If there are material facts in dispute, judgment on the pleadings cannot
be entered. Id.The Association argues common pleas erred in invalidating the Amendment
because Section 5219(d)(1) of the Act does not apply and because the NPCL gave
it the authority to enact the Amendment. In particular, it argues that Section
5219(d)(1) does not apply pursuant to Section 5102(b) of the Act because under
the latter provision, Section 5219 cannot “invalidate specific provisions contained
in existing provisions of the declaration.” 68 Pa. C.S. § 5102(b). The Association
further asserts that it had the authority to enact the Amendment under Section
7901(a) of the NPCL. It maintains that the principles set forth in Schaad, and
applied by this Court to non-profit corporations in Huddleson, are inapplicable
because they apply only to the amendment of a corporation’s governing documents
that would impair a substantial property and/or contractual right involving a
pecuniary interest, and no such right was involved here.
Serota responds the attempted Amendment is not valid under either Section
5219(d) of the Act or any law in place prior to the Act’s enactment. He argues that
pursuant to Section 5102(d)(1)(i) of the Act, in order for the Amendment to be
valid, it had to be authorized by some body of law, either the Act or some law that
predated the Act. Serota maintains that Section 5219(d) of the Act requires any
amendment affecting voting strength to be by unanimous consent, which did not
occur here, and that, pursuant to Schaad and Huddleson, the NPCL does not allow
10
a non-profit corporation to amend its governing documents to diminish the voting
power of another member without that member’s consent.
The Community and Association were established before the Act was
enacted and, therefore, we must review the Act’s provisions regarding when it may
be applied retroactively. Sections 5102(b) and (d) of the Act address the
retroactive application of the Act and state, in pertinent part:
(b) Except as provided in subsection (c) [(which is not applicable to
the Community)], section[] . . . 5219 (relating to amendment of
declaration), . . . appl[ies] to all planned communities created in this
Commonwealth before the effective date of this subpart; but th[at]
section[] appl[ies] only with respect to events and circumstances
occurring after the effective date of this subpart and do[es] not
invalidate specific provisions contained in existing provisions of the
declaration, bylaws or plats and plans of those planned communities.
....
(d) Amendments to declarations, bylaws, plats and plans.--
(1) In the case of amendments to the declaration, bylaws and plats and
plans of any planned community created before the effective date of
this subpart:
(i) If the result accomplished by the amendment was permitted by
law prior to this subpart, the amendment may be made either in
accordance with that law, in which case that law applies to that
amendment, or may be made under this subpart.
(ii) If the result accomplished by the amendment is permitted by
this subpart and was not permitted by law prior to this subpart,
the amendment may be made under this subpart.
(2) An amendment to the declaration, bylaws or plats and plans
authorized by this subsection to be made under this subpart must be
adopted in conformity with applicable law and with the procedures
and requirements specified by the document being amended. If any
such amendment grants to any person any rights, powers or privileges
permitted by this subpart, all correlative obligations, liabilities and
restrictions in this subpart also apply to that person.
11
68 Pa. C.S. § 5102(b), (d) (italicized emphasis added). Reading these provisions
together, they provide that if there was an existing provision in a declaration that
predated the Act related to amending that declaration, the Act’s provisions would
not supersede that provision automatically (Section 5102(b)); however, where an
amendment to the declaration, bylaws, or plat is proposed, the result of that
amendment must be authorized either by the Act or some other law that existed
prior to the Act’s enactment (Section 5102(d)). Because this matter involves an
amendment to the Declaration, we will apply Section 5102(d) to determine if the
Association was authorized to enact the Amendment by either the Act or some
other law.
Section 5219(d)(1) of the Act governs amendments to, inter alia, a planned
community’s declaration and provides, in relevant part:
(1) Except to the extent expressly permitted or required by other
provisions of this subpart, without unanimous consent of all unit
owners affected, no amendment may . . . change the . . . voting
strength in the association allocated to a unit or the uses to which any
unit is restricted. . . .
68 Pa. C.S. § 5219(d)(1) (emphasis added). The Amendment to the Declaration
changed the voting strength of Serota’s units without unanimous consent and,
therefore, was not authorized by the plain language of Section 5219(d) of the Act.
Thus, in order for the result of the Amendment to be “in accordance with th[e]
law” as required by Section 5102(d)(1)(i) of the Act, some other law that existed
prior to the Act must provide authority for the Amendment.
The Association argues that Section 7901 of the NPCL provides the
necessary authority for the Amendment. At the time of the Association’s creation,
a non-profit corporation could amend its articles to “modify any provision of the
12
articles relating to its term of existence” or “[i]n any and as many other respects as
desired.” 15 Pa. C.S. § 7901(a)(2), (5) (1972). However, in Schaad, which
involved a for-profit corporation, the Supreme Court held that a subsequent
amendment to a corporation’s governing documents, there the corporation’s
bylaws, could not diminish the substantial property or contractual rights that a
shareholder had acquired, under previously existing bylaws, other governing
documents, or the shares themselves, without the shareholder’s consent. Schaad,
87 A.2d at 229-30. The Court further held that the general reservation of a
corporation to amend its bylaws cannot be construed as permitting the abrogation
of the substantial property or contractual rights of its shareholders without the
shareholders’ consent. Id. (citing Bechtold v. Coleman Realty Co., 79 A.2d 661,
663 (Pa. 1951); Roblin, 112 A. at 70). This Court, in Huddleson, applied Schaad’s
reasoning to a homeowner’s association incorporated under the NPCL. In doing
so, we held that “provisions affecting property or contractual rights cannot be
repealed or altered without the consent of the parties whose interests are thereby
impaired.” Huddleson, 76 A.3d at 72 (quoting Schaad, 87 A.2d at 230). While the
question in Huddleson involved amendments that required a property owner to pay
assessments for her property who was otherwise not obligated to do so, this
Court’s application of Schaad to a homeowner’s association is applicable to the
present matter.
The Association asserts that the Amendment did not impair the type of rights
involved in Schaad because voting rights are a matter of internal governance and
do not involve any pecuniary interest. Corporate provisions may, generally, be
divided into “those that are mere regulations governing the conduct of the internal
affairs of the corporation” and those that are “in the nature of a contract [that is]
13
designed to vest property rights inter se[7] among all stockholders.” Bechtold, 79
A.2d at 663. The former “may be repealed, altered and amended at the will of the
majority unless a greater vote is required by” the document or a statute; the latter
“cannot be repealed or changed without the consent of the other parties whose
rights are affected.” Id.
The voting rights sought to be changed by the Association through the
Amendment in this case fall within the latter provision, which may not be altered
without the consent of the parties whose rights would be affected. Voting rights
are considered the basic and fundamental right of a shareholder. Reifsnyder v.
Pittsburgh Outdoor Adver. Co., 173 A.2d 319, 322 & n.8 (Pa. 1961). Serota
obtained the right to one vote for each lot owned through the Declaration and
Bylaws that were in the existence at the time he acquired those lots. (Article IV,
Section 2 of the Declaration, R.R. at a21; Article II, Section 2.8 of the Bylaws,
R.R. at a36.) These rights, by the terms of the Declaration, run with the land and
are “binding on all parties having any right, title or interest in the Numbered Lots,
their heirs, successors and assigns, and shall inure to the benefit of each owner
thereof.” (R.R. at a18.) These documents are, in effect, contracts between the
Association and its members and the members with each other. Moreover,
although the Association argues there is no pecuniary interest involved in an
owner’s voting rights, Serota, as the owner of at least 12 units, must pay
assessments, fees, and charges on each of those units. Prior to the Amendment,
Serota had a proportional vote in the financial decisions of the Association that
represented the financial impact such decisions would have on his 12 units. The
7
“Inter se” is defined as “(Of a right or duty) owed between the parties rather than to
others.” Black’s Law Dictionary 896 (9th ed. 2009).
14
diminishment of that proportional say in the financial decisions and the financial
impact he will experience as a result does involve his pecuniary interests. For
these reasons, common pleas did not err in relying on Schaad and Huddleson to
invalidate the Amendment.8
IV. Conclusion
Common pleas did not err in concluding that the Amendment was invalid
because it was not authorized under the Act or the NPCL. Accordingly, the Order
is affirmed.
_____________________________________
RENÉE COHN JUBELIRER, Judge
8
Because we conclude that the Amendment is invalid for these reasons, we will not
address whether the Amendment also is invalid because it was only executed and recorded by the
Association’s President.
15
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Matthew Serota :
:
v. : No. 2073 C.D. 2016
:
London-Towne Homeowners :
Association, :
Appellant :
ORDER
NOW, April 27, 2017, the Order of the Court of Common Pleas of
Allegheny County, entered in the above-captioned matter, is hereby AFFIRMED.
_____________________________________
RENÉE COHN JUBELIRER, Judge