Ratner v. Vill. Square at Pico Condo. Owners Ass'n, Inc. ( 2012 )

Ratner v. Vill. Square at Pico Condo. Owners Ass’n, Inc., No. 91-2-11 Rdcv (Teachout, J., Aug. 28, 2012)
[The text of this Vermont trial court opinion is unofficial. It has been reformatted from the original. The accuracy of the text and the
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STATE OF VERMONT
SUPERIOR COURT CIVIL DIVISION
Rutland Unit Docket No. 91-2-11 Rdcv
MARCIA RATNER,
Plaintiff
v.
VILLAGE SQUARE AT PICO CONDOMINIUM OWNERS ASS’N, INC., et al.,
Defendants
DECISION
DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
This matter is before the Court on Defendants’ Motion for Summary Judgment,
filed May 1, 2012. Oral argument was held on the motion on July 19, 2012. Defendants
were represented by Robert R. McKearin, Esq. Plaintiff Marcia Ratner represented
herself.
Facts
As Plaintiff Marcia Ratner is the nonmoving party, these facts are presented in the
light most favorable to her. Plaintiff’s suit is based on the alleged failure of Defendants,
including the Village Square at Pico Condominium Owners Association, Inc.
(“Association”) and three members of the Association’s Board of Directors (“Board”), to
maintain adequate reserve funds for the maintenance of the buildings comprising the
Village Square at Pico (“Village Square”) condominium development. The failure to
maintain these reserve funds allegedly resulted in the need for special assessments.
Plaintiff asserts that this failure supports claims under a variety of legal theories including
negligence, fraud, breach of fiduciary duty, and bad faith.
Plaintiff owns a unit in the Village Square condominium development. Plaintiff
purchased her unit on November 21, 2001. As part of the sale process, Plaintiff received a
Certificate of Resale, a copy of the Condominium Declaration (“Declaration”), a copy of
the Association’s bylaws, and a balance sheet addressing the Association’s finances on
November 17, 2001. The Declaration expressly provides authority for the Board to levy
special assessments if there are inadequate funds available to cover the repair of common
areas. Under the Declaration, unit owners are obligated to pay these special assessments,
and the Association has the authority to initiate a foreclosure action if they are not paid.
On December 7, 2004, the Board notified the unit owners including Plaintiff that
a special assessment was to be levied for roof repair work, and would be in effect from
January of 2005 through June of 2007. The need for special assessments continued,
however, and they did not end in 2007.
In 2007, several unit owners including Plaintiff were without hot water for an
extended period of time. Due to this hot water shortage as well as her opposition to the
special assessments, Plaintiff stopped paying all of her condominium assessments in
October 2007. In response, the Association brought a foreclosure action against Plaintiff.
On December 28, 2010, this Court awarded the Association $38,061.08 in damages Ms.
Ratner and awarded Ms. Ratner a setoff in the amount of $3000 to compensate for the
deprivation of hot water over a 10 month period.
Plaintiff initiated the present action by filing a Complaint on February 14, 2011.
The Complaint asserts that the Association as well as two current and one former member
of the Association’s Board had harmed her by failing to fund the reserve account in an
adequate manner so as to prevent the need for special assessments to pay for
condominium repairs.
Analysis
Defendants now move for summary judgment. They present two major lines of
argument. First, they argue that because Ms. Ratner’s claims are undifferentiated from
the claims of other unit owners, she does not have standing to bring this suit. Second,
they argue that her claims are time barred by the statute of limitations.
Standing
Ms. Ratner brings this suit as an individual unit owner in the Village Square
condominium developments against its Association and multiple Association Board
members. To have standing to pursue such a direct action, Ms. Ratner must allege a harm
that is separate and distinct from other unit owners or a wrong involving a contractual
right of hers that exists independently of any right of the corporation. See Bovee v.
Lyndonville Sav. Bank & Trust Co., 174 Vt. 507, 508 (2002) (mem.).
Ms. Ratner alleges that the Association failed to maintain adequate reserve funds
and that this failure necessitated the levying of special assessments. These claims
necessarily involve all of the unit owners at Village Square. The special assessments,
which Ms. Ratner argues were unnecessary, were imposed equally on all unit owners.
Thus, the alleged injury stemming from the failure to maintain proper reserves is not
unique to Ms. Ratner. As such, Ms. Ratner lacks standing to bring this direct action.
Ms. Ratner attempts to avoid this conclusion by arguing that the failure to
maintain adequate reserves “uniquely benefited or harmed each homeowner.” The basis
for this argument appears to be that longstanding unit owner derived a greater benefit
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from the lower Association fees before the imposition of the special assessments in
January 2005 and that unit owners, such as Ms. Ratner, who purchased their units at a
later date were harmed by the pre-existing policy of low Association fees that led to
inadequate reserve funds and the corresponding imposition of special assessments. This
argument ignores that the fact that Ms. Ratner, at a minimum, is similarly situation to any
unit owners who purchased their units after she purchased hers. According to the
undisputed evidence, at least 60 units have been sold since 2004, and additional units
were likely sold between 2001 and 2004. These new unit owners all stand in the same
shoes as Ms. Ratner with regard to bearing the burden of the special assessments without
receiving the benefit of the years of ownership with low Association fees.
The theoretical uniqueness of the precise moment in time when Ms. Ratner
purchased her unit cannot give her standing to bring this suit. In Bovee, the Vermont
Supreme Court considered and rejected the argument that different shareholders in a
corporation suffered unique injuries because of the differing lengths of time that they
held their shares. See Bovee v. Lyndonville Sav. Bank & Trust Co., 174 Vt. 507, 509
(2002) (mem.) As in Bovee, the individual unit owners here all suffered the same general
injury if the Association failed to maintain adequate reserves. The fact that the individual
dollar amount of the injury may have varied from owner to owner is not sufficient to
allow Ms. Ratner to bring this direct action.
Ms. Ratner’s claims of breach of fiduciary duty are also insufficient to give her
standing to sue. She asserts that because each director owes a duty of undivided loyalty
that any breach of this duty creates an individual injury as to each homeowner. This is an
incorrect understanding of Vermont law.
The fiduciary duty imposed on directors of a corporation, which is the same duty
imposed on the Association Board members, requires that they act “in good faith, with the
care an ordinarily prudent person in a like position would exercise under similar circumstances,
and in manner that they reasonably believe[] to be in the best interest of the corporation.”
11B V.S.A. § 8.30. The best interest of the corporation (i.e. the Association) may not
always be synonymous with the best interest of all the shareholders (i.e. each individual
unit owner). When these interests conflict, it is clear that a director owes the fiduciary
duty to the corporation as a whole and not the individual shareholder. See, e.g., Poliquin
v. Sapp, 390 N.E.2d 974, 977 (Ill. App. Ct. 1979) (holding that any breach of a fiduciary
duty by directors would result in injury to the corporation and shareholders as a whole).
Therefore, any breach of fiduciary duty by the Board members here injured the entire
Association as opposed to an individual unit owner such as Ms. Ratner. The alleged
injury is thus collective and does not provide a basis for Ms. Ratner, as one of many
Village Square unit owners, to bring her suit.
Statute of Limitations
Defendants argue that even if Ms. Ratner had standing to pursue her suit, it is
barred by the statute of limitations. This suit is governed by the general six-year statute of
limitations applicable to civil actions. 12 V.S.A. § 511. Ms. Ratner filed her Complaint
on February 14, 2011. Therefore, if her claims accrued anytime before February 14,
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2005, her suit is time barred. The Vermont Supreme Court has set out the general
principles regarding the accrual of claims as follows:
[A] cause of action is generally said to accrue upon the discovery
of facts constituting the basis of the cause of action or the existence of
facts sufficient to put a person of ordinary intelligence and prudence on
inquiry which, if pursued, would lead to the discovery. Thus, the statute of
limitation begins to run when the plaintiff has notice of information that
would put a reasonable person on inquiry, and the plaintiff is ultimately
chargeable with notice of all the facts that could have been obtained by the
exercise of reasonable diligence in prosecuting the inquiry.
Kaplan v. Morgan Stanley & Co., 2009 VT 78, ¶ 7, 186 Vt. 605, citing Agency of
Natural Resources v. Towns, 168 Vt. 449, 452 (1998).. As the quotation makes
clear, the time when the claim accrued is not judged by Ms. Ratner’s subjective
discovery of the facts but rather by an objective standard based on when a
reasonable person would have discovered the relevant facts.
Defendants argue that the latest possible date that Ms. Ratner would have
been put on inquiry notice was in December 2004. At that point, Ms. Ratner had
actual notice that a special assessment would be levied to cover roof repairs. This
is precisely the injury that she claims that she has suffered: the Association’s
reserve funds were inadequate to pay for the roof repairs, so a special assessment
needed to be levied. Although it is more than conceivable that Ms. Ratner’s claim
actually accrued earlier, such as when she received the financial documentation
accompanying the purchase of her unit in November 2001, showing the amount of
available reserves, the Court concludes that the present claims accrued no later
than December 2004 when Ms. Ratner received actual notice of the particulars of
the special assessment for roof repairs.
Nevertheless, Ms. Ratner argues that a single special assessment was not
sufficient to put her on notice that the reserves may have been inadequate. She
notes that the special assessment was originally scheduled to end in 2007, yet the
special assessments have continued beyond that date. She contends that it was not
until the 2007 combination of this failure of the special assessments to end and
her hot water outage that she should have been aware of her potential claims
against Defendants. Ms. Ratner’s argument misapprehends the nature of her
claims. The crux of her suit is not that she was unfairly charged for any one
needed repair, but that the Association failed to maintain adequate reserves to
cover all necessary repairs. The accrual of the suit thus turns on when a
reasonable person would be put on notice that the reserves were potentially
insufficient to cover the necessary repairs.
At the latest, a reasonable person would be on notice of this problem at the
latest at the point when the first special assessment was actually assessed in
December of 2004, because this is the point when the potential injury became a
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reality for owners. Although Ms. Ratner could not know the full extent of all
possible future special assessments at this time, the inability to calculate all
damages does not stop the statute of limitations from running. See Fritzeen v.
Gravel, 2003 VT 54, ¶ 14, 175 Vt. 537 (mem.) (holding that the statute of
limitations began running when plaintiffs had sufficient information to be aware
of defendant’s negligence even though all potential damages could not yet be
calculated at that point). Even if Ms. Ratner had standing to bring this direct
action against Defendants, her suit is time barred because it was not filed within
six years of December 2004, when, at the latest, her claims accrued.1
ORDER
Defendant’s Motion for Summary Judgment is granted
Dated at Rutland this 27th day of August, 2012.
____________________________
Hon. Mary Miles Teachout
Superior Judge
1
Based on the Court’s disposition of the standing and statute of limitations issues, the Court need not reach
Defendants’ contention that this suit must be dismissed as to Defendant Richard Fowler because of his
death during the pendency of this litigation.
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