Real Property Notes Blog
Condo Not Obligated to Arbitrate, Not Barred from Suing to Enforce Condo Documents
Copperfield Villas Assn. v Tuer, an unpublished Michigan Court of Appeals opinion, the condominium association filed a two-count complaint against the co-owners. The first count sought an injunction regarding various bylaw violations the owner had committed. The second count sought a declaration that a mandatory arbitration provision in the condominium bylaws was invalid. The co-owner demanded arbitration and, when the association demurred, filed an answer and motion for summary disposition, arguing both that the arbitration provision was enforceable and that a litigation preapproval provision in the documents barred the lawsuit because the association had not obtained approval from the members prior to filing the lawsuit. The preapproval clause contained exceptions for collection of assessments or enforcement of the bylaws. The association had not obtained approval from the members for the second count of the complaint for declaratory relief.
The association amended the complaint to remove the second count, and then filed a response to the summary disposition motion. The response argued that the preapproval clause issue was moot because the association had dropped the second count, and defended against the claim for arbitration by arguing that the arbitration clause was contrary to the MI Condominium Act and therefore unenforceable. After argument, the court dismissed the complaint without prejudice, allowing the association time to seek member approval. The association appealed.
The Court of Appeals reversed in part, affirmed in part, and remanded the case back to the trial court.
MCL 559.154 requires condominium bylaws to contain a provision for arbitration “at the election and consent of the parties.” The court construed this to mean that bylaws must contain a provision for arbitration only if all parties agree to arbitrate. However, the bylaw provision at issue mandated arbitration upon demand of only one party. The court held that this was in conflict with the Act and, since the bylaws provided that in event of conflict the Act controls, the bylaw provision was unenforceable. The court affirmed the circuit court determination that the arbitration clause was enforceable.
However, the circuit court determination that the association needed approval before seeking to enforce the bylaws was reversed, because of the exception. The case was remanded to the trial court for continued proceedings.
Complaint Dismissed Against Law Firm and Managing Agent over Condominium Lien Foreclosure
In Bates v Green Farms Condominium Assn, a published opinion from the 6th Circuit Court of Appeals, a condominium association retained a law firm to record and foreclose a condominium lien against the Plaintiffs’ condominium unit. After losing the unit to foreclosure, the Plaintiffs filed suit against the association, its law firm, and its managing agent alleging a violation of the Federal Fair Debt Collection Practices Act. The defendants file a motion to dismiss the complaint for failure to state a claim, which the trial court granted. Dismissal was affirmed on appeal.
The Fair Debt Collection Practices Act has a complex definition of "debt collector.” There are general debt collectors whose primary purpose is to collect debts or which regularly collects the debts of another. There are other persons described who are exempt under the act. And there is unique definition that applies to enforcers of security interests. The United States Supreme Court, in Obduskey v McCarthy & Holthus, LLP, held that law firms that assist in foreclosing mortgages fall within the limited definition, and requirements, of enforcers of security interests.
The complaint alleged that the firm wrongfully recorded a lien against the condominium unit, and that the law firm falsely represented the character, amount, or legal status of their dues. The complaint contained no allegations about the principal business or activities of either the law firm or the managing agent sufficient to bring them within the general definition. Because the factual allegations all pertained to actions taken to foreclose the lien (including recording the lien, which the court found to be part of the statutory process), the law firm fell within the unique definition, and the plaintiffs failed to allege any wrongful conduct pertaining to security interest enforcers.
While a seeming victory for law firms, it would appear that, had the complaint made a few additional factual allegations about the general business of the law firm as a debt collector, the case would have survived the motion to dismiss.