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Laurel Road Homeowners Association, Inc. v. Freas

Commonwealth Court of Pennsylvania

July 26, 2018

Laurel Road Homeowners Association, Inc., Appellant
v.
William E. Freas and Nancy Freas Laurel Road Homeowners Association, Inc.
v.
William E. Freas and Nancy Freas, Appellants

          Argued: June 4, 2018

          BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge HONORABLE PATRICIA A. McCULLOUGH, Judge HONORABLE CHRISTINE FIZZANO CANNON, Judge

          OPINION

          PATRICIA A. MCCULLOUGH, JUDGE

         In these cross-appeals, Laurel Road Homeowners Association, Inc. (Association), plaintiff below, and William E. Freas and Nancy Freas (the Declarants or the Freas), defendants below, appeal from the February 21, 2017 orders of the Court of Common Pleas of Chester County (trial court) denying their motions for post-trial relief following the decision and verdict entered by the trial court in favor of the Association on Count I and in favor of the Declarants on Counts II and III and awarding the Association damages.

         Background

         We briefly discuss the facts and proceedings below to the extent they are relevant to the legal issues presented. The Association is a not-for-profit corporation[1]and it is the mandatory unit owners' association for a nine-unit planned community known as Ridings at Newlin. The Freas were the developers and declarants of the community and the trial court made numerous findings concerning their performance of duties in this capacity. As illustrative examples, the Declarants "did not allow for unit owners to participate in the governance of the Association or have members of the executive board elected by unit owners"; "did not keep any financial records for the Association"; "did not prepare annual financial statements for the Association"; "did not make financial and other records available for examination by any [u]nit [o]wner and authorized agents"; "did not hold meetings of the Association that included the attendance by unit owners"; "did not create and maintain a reserve fund for the Association"; "did not call a Special Meeting of the Association to secure [u]nit [o]wner approval for the transfer of control of the Association from the Declarants to the unit owners"; "sought to amend the Declaration without providing any explanation of the impact of that Amendment to Declaration to the unit owners, which included the removal of a declared unit and a reapportionment of the common expense liability"; "transferred the common title and ownership to a common area prior to the completion of the common area or the involvement of the unit owners in the operation of the Association"; and "excluded [the Association] from knowledge of all aspects of the operation of the Association and its ongoing obligations prior to January 14, 2016." (Findings of Fact (F.F.) Nos. 17-23, 33, 48.)

         On November 11, 2006, the Declarants began executing deeds and transferring title of the individual lots or units to third-party purchasers and all the units were sold by July 9, 2010. However, the Declarants did not relinquish control to the Association until January 2014. (F.F. No. 64.)

         On March 9, 2015, the Association filed a three-count complaint, alleging that the Declarants engaged in malfeasance and/or misfeasance during the period when they solely and exclusively developed the planned community and controlled the Association. In Count I, the Association proceeded on the common law theory that the Declarants failed to exercise good faith and/or breached fiduciary duties and also violated statutory provisions of the Uniform Planned Community Act (UPCA);[2] Count II asserted that the Declarants breached the statutory warranty against structural defects in common areas conferred by section 5411 of the UPCA, 68 Pa.C.S. §5411; and Count III advanced a claim for assessments pursuant to common law contract principles and violations of the UPCA. (Trial court op. at 1.)

         Following a bench trial, the trial court concluded that Count II failed as a matter of law because Ridings at Newlin qualified as a "small planned community" under section 5102(a)(1) of the UPCA; therefore, only certain delineated sections of the UPCA were applicable. Because the warranty protection in section 5411 was not one of the applicable enumerated sections, the trial court concluded that section 5411 could not serve as basis for a cause of action. (Trial court op. at 19, 31.) The trial court also determined that Count III, which alleged that the Declarants failed to pay common assessments as required by the UPCA, failed for the same reason. To the extent that the claim for assessments was cognizable as a matter of common law contract, the trial court determined that provisions of the Declaration indicated that the Declarants had no duty to pay the assessments. (Trial court op. at 28-32.)

         On the claim that the trial court found meritorious, Count I, the trial court dismissed it insofar as it alleged violations of statutory duties under the UPCA, again finding that the pertinent provisions of the statute did not apply to Ridings at Newlin per 5102(a)(1) of the UPCA. Citing Little Mountain Community Association, Inc. v. Southern Columbia Corp., 92 A.3d 1191 (Pa. Super. 2014), the trial court also rejected the Association's attempt to state a claim under section 6.20 of the Restatement (Third) of Property, Restatement (Third) Property: Servitudes §6.20 (Am. Law Inst. 2000) [hereinafter Restatement], noting that this section, to date, has not been adopted as law in Pennsylvania. However, the trial court read Little Mountain Community Association as opening the door for a legal conclusion that the Declarants nevertheless owed the Association a common law fiduciary duty. Concluding that the Association surrendered substantial control to the Declarants with respect to Ridings at Newlin in the pertinent time frame, and that the Declarants exercised this control, the trial court found that a confidential relationship existed between the two, thus giving rise to fiduciary duties owed by the Declarants. (Trial court op. at 19-22, 31-32.)

         The trial court then found that the Declarants committed "numerous" actionable breaches of their fiduciary duties and classified them into two general categories: failure to properly manage and operate the Association and failure to complete necessary common areas. More specifically, the trial court found that the Declarants filed, created, and/or drafted a Declaration, three sets of Bylaws, and plats and plans that contained multiple deficiencies; failed to keep operational records and provided the unit owners with deficient community documents; and failed to maintain and complete the common area private roadway. In awarding $59, 588.00 in damages, the trial court relied on expert testimony proffered by the Association and itemized its monetary award as follows: $31, 588.00 to repair the common area private roadway, $6, 500.00 to replace and/amend the existing Declaration, $6, 500.00 for drafting the revised Bylaws, and $15, 000.00 to replace the subdivision plans. In so determining, the trial court found no merit in the Declarants' assertions that the sum was too uncertain or speculative to support the award or was not supported by sufficient evidence. (Trial court op. at 22-28, 31-32; F.F. Nos. 52, 54, 57, 78-85.)

         After completion of post-trial proceedings, both the Association and the Declarants filed appeals that were transferred to this Court. These appeals are docketed at Nos. 960 and 961 C.D. 2017, respectively.

         Discussion [3]

         In its brief, the Association raises two issues for review, asking whether the trial court erred (1) in concluding that Ridings at Newlin was excepted from wholesale application of the UPCA pursuant to section 5102(a)(1) of the UPCA, and (2) in determining that the Declarants were not obligated to pay the common assessments.

         In their brief, the Declarants raise two issues for review, asking whether the trial court erred (1) in concluding that a confidential/fiduciary relationship existed between the Association and them, and (2) in determining that the award of damages was supported by sufficient, competent evidence and was not against the weight of the evidence.

          The Association's Appeal

         The Association argues that the trial court erred in concluding that Ridings at Newlin was excepted from full application of the UPCA because it fell within the ambit of section 5102(a)(1) and, consequently, could receive only limited protection under the statute.

         Entitled "Applicability," section 5102(a)(1) provides in pertinent part:

(a) General rule. - This subpart [i.e., the UPCA] applies to all planned communities created within this Commonwealth after the effective date of this subpart; but, if:
(1) such a planned community contains no more than 12 units and is not subject to any rights under section 5215 (relating to subdivision or conversion of units) to subdivide units or to convert into common elements or under section 5211 (relating to conversion and expansion of flexible planned communities) to add additional real estate, create units or limited common elements within convertible real estate or withdraw real estate, it is subject only to sections 5105 (relating to separate titles and taxation), 5106 (relating to applicability of local ordinances, regulations and building codes), 5107 (relating to eminent domain) and 5218 (relating to easement to facilitate completion, conversion and expansion) unless the declaration provides that the entire subpart is applicable . . . .

68 Pa.C.S. §5102(a)(1) (emphasis added).

         In contrast, subsection (a)(2) creates another exception where:

a planned community, regardless of the number of units, has common elements or limited common elements which include only storm water management facilities and related devices, real estate containing signage, lighting, landscaping, gates, walls, fences or monuments or open space and is not subject to any rights under section 5215 or under section 5211, it shall be subject only to the sections listed in paragraph (1), the provisions of sections 5103 (relating to definitions), 5104 (relating to variation by agreement), 5105, 5106, 5107, 5108 (relating to supplemental general principles of law applicable), 5109 (relating to construction against implicit repeal), 5110 (relating to uniformity of application and construction), 5111 (relating to severability), 5112 (relating to unconscionable agreement or term of contract), 5113 (relating to obligation of good faith) and 5114 (relating to remedies to be liberally administered) and the provisions of Chapter 53 (relating to management of planned community) and sections 5407 (relating to resales of units), 5408 (relating to escrow of deposits), 5409 (relating to release of liens) and 5411 (relating to warranty against structural defects) unless the declaration provides that the entire subpart is applicable.

68 Pa.C.S. §5102(a)(2).

         Significantly, before the trial court, the Association argued that Ridings at Newlin did not meet the requirements for this particular exception "because it has an important, additional common element-a private road." (Trial court op. at 16-17.) The trial court agreed, and so do we. Although this provision accounts for a planned community "regardless of the number of units," the exception is based upon the limited nature of the common elements. On the other hand, subsection (a)(1) is based upon the number of units in a planned community. This distinction is what differentiates subsection (a)(1) from subsection (a)(2) and renders the two mutually exclusive.

         Here, the trial court determined that, in the planned community at Ridings at Newlin, there were undisputedly nine units. (Trial court op. at 18.) The Association does not contend that the Declaration permits a unit to be subdivided into two or more units, common elements, or a combination of both under section 5215 of the UPCA. 68 Pa.C.S. §5215.[4] Nor does the Association argue that the Declaration contains an explicit reservation for options to create additional units, limited common elements, or a combination of both, within convertible real estate, or to add additional real estate to the planned ...


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