Statutory Civil Damages for Covenant Violations Requires Actual Damages

In a case of first impression, today the Houston Court of Appeals, 14th District, issued its opinion in KBG Investments, LLC v. Greenspoint Property Owners’ Association, Inc. The court held that in order to recover civil damages under Property Code Section 202.004(c), an association has to plead and prove actual damages. Although the court upheld injunctive relief on the association’s covenant enforcement claim in the lawsuit, it modified the trial court’s judgment awarding statutory civil damages because the association failed to prove any actual damages.

The trial court had awarded $10,400 under Section 202.004(c), which provides that a court may assess “civil damages for the violation of a restrictive covenant in an amount not to exceed $200 for each day of the violation.” In reaching its decision to modify the trial court award, the appellate court relied on Chapter 41 of the Texas Civil Practice and Remedies Code. Chapter 41 governs exemplary damages and requires a claimant to prove actual damages in more than a nominal amount in order to recover exemplary damages (See Section 41.004(a)). Relying on other appellate court decisions, the court concluded that civil damages under Section 202.004(c) are punitive in nature and, therefore, Chapter 41 applies. Associations should take note and be sure to include proof of actual damages with any claim under Section 202.004(c).

A copy of the opinion is available on the court website under Case No. 14-14-00484-CV: http://www.txcourts.gov/14thcoa.aspx.

 

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New State Laws Effective as of September 1st

The 2015 Texas Legislative Session brought new changes to statutes affecting owners associations in a myriad of topics. For the complete text of the new statutes, visit the link at http://www.capitol.state.tx.us/BillLookup/BillNumber.aspx . Below are the highlights:

  1. HB 745. Transportation Code Section 430.002 has been amended to allow an association to install solar-powered LED stop signs.
  1. HB 939. Section 202.019 has been added to the Property Code regulating standby electric generators.
  1. HB 1072. Property Code Section 209.00591(b) has been amended to place a 20 year limit on a conviction that can prevent a member from serving on the board.
  1. HB 1455. Chapter 82 of the Property Code has been amended to add Section 82.119 and 82.120, addressing procedures for condominium associations in initiating construction defects litigation.
  1. HB 2489. Section 209.016 has been added to the Property Code regulating lease restrictions, prohibiting association approval of tenants and association requirement of a credit report or lease application.
  1. HB 3089. (Applies to Bexar County only) Subchapter B has been added to Health and Safety Code Chapter 766 regulating fire protection sprinkler systems in high-rise buildings.
  1. SB 862. Section 209.00592 of the Property Code has been amended to establish that an association is not required to provide more than one voting method as along as an owner may vote by absentee ballot or proxy.
  1. SB 864. Section 209.058 of the Property Code has been amended to allow secret ballot voting with certain procedural requirements.
  1. SB 1168. This omnibus bill mainly amended Chapter 209 of the Property Code. Here are the highlights of the bill:

a.The biggest change of the entire legislative session was the   amendment of Section 209.0092(a), which appears to provide a statutory power of sale to conduct a non-judicial foreclosure to an association whose governing documents provide for the right of foreclosure.

b. Section 209.0091 has been amended to modify procedures regarding pre-foreclosure notice to lienholders.

c. Sections 209.0062 and 0064 have been amended modifying the requirements of payment plans.

d. Sections 209.002, 209.0051 209.00593 and 209.0041 have been amended regarding the development period.

e. Section 209.002 has been amended to provide for notices by verified mail, and Section 209.0042 has been added regarding association/owner agreements regarding methods of notice.

f. Section 209.0041 has been amended clarifying the required vote to amend declarations.

g. Section 209.051 has been amended regarding board meetings.

h. Sections 209.00592, 209.00593, 209.00594, 209.0056, 209.0057, 209.0058 and 209.0059 have been amended regarding election procedures.

i. Section 209.00591 has been amended to allow bylaws to require directors to reside in the subdivision so long as all of the directors are not required to be residents.

j. Section 209.006 has been amended to create two categories of covenant violations – curable and uncurable, and modifies the notice requirements for enforcement.

k.  Adds Chapter 213 to the Property Code regulating the process of eliminating a golf course or country club restriction on land that can be re-developed.

  1. SB 1626. Section 202.010(a) of the Property Code has been amended to limit the size of a development to less than 51 units for a developer to be allowed to restrict the installation of solar energy devices.
  1. SB 1852. (Applies to Polk, San Jacinto and Trinity Counties only) Section 211.002 of the Property Code has been amended to regulate the procedure for amendments to restrictions.

31 Bills Affecting Owners Associations Under Consideration by Texas Legislature

Thirty-one bills affecting property owners associations have been filed in the 84th Texas legislative session, which officially ends June 1, 2015. Sixteen of the bills were heard before committee on April 14, 2015. Although some of the bills intend to tweak and fix existing statutes, many propose brand new laws.

Bills heard on the 14th include: HB 971 and 1072 (Board qualifications); HB 1178 (prohibits exclusive fuel contracts); HB 2147 and SB 864 (restores secret ballot voting); HB 2148 and SB 862 (voting methods); HB 2594 (redevelopment of golf courses/country clubs); HB 2797 and SB 1168 (omnibus bill for subdivisions); HB 3460 (flags); HB 3539 and SB 1626 (solar devices); HB 3089 (high rise fire sprinklers); SB 1852 (Chapter 211).

Bills heard before the 14th include HB 748 (liquid propane tanks) and HB 2999 (firearms and ammunition). Two bills are out of committee, waiting on a vote in the House: HB 745 (solar powered stop signs) and HB 939 (electric generators). The remaining eleven bills have not yet gone to hearing:

HJR 125 and 55 (proposes constitutional amendment prohibiting associations from interference with free exercise of religion): HB 1335 (attorneys’ fees cap in foreclosure); HB 1442 (tree removal); HB 1455 and SB 834 (condominium litigation); HB 2489 (prevents association from requiring copies of leases, charging fees for rental units and interviewing tenants); SB 283 (condominium foreclosure); SB 284 (foreclosure); and SB 1244 and SB 1535 (reducing vote needed for amendment to declaration).

View the complete text of pending bills and their current status at the Texas Legislature Online website:

http://www.legis.state.tx.us/Home.aspx

 

It’s a Bird! It’s a Plane! It’s a — Drone?

Below is an article that was recently published in the Dallas/ Ft. Worth Community Associations Institute Chapter magazine, Community Contact, Winter 2014: 

It’s a Bird! It’s a Plane! It’s a – – Drone?

by Julie E. Blend

You may have recently sightedadrone flying over Texas airspace, especially if you follow college football. A University of Texas student was arrested for flying a drone over Darrell K. Royal – Texas Memorial Stadium during the first home football game last fall. The incident raises the application of the newly enacted Texas Privacy Act. The Act, which governs Unmanned Aircraft (commonly referred to as unmanned aerial vehicles, or “UAVs”), became effective September 1, 2013. Drone usage will undoubtedly increase with announcements by companies such as Amazon of plans to use drones for commercial delivery service. Although it is predicted the FAA will not meet its congressional deadline of September 2015 to adopt safety regulations integrating commercial drones into U.S. airspace, the age of the drone is fast approaching.  The Association for Unmanned Vehicle Systems International predicts in Texas alone, over 5,000 jobs will be created by drone technology with almost 1.1 billion dollars pumped into the state’s economy by 2017. Associations are wise to anticipate the need for implementing rules regulating the use of drones in their communities and preparing for this inevitability.

Most states have considered adopting drone legislation. Texas’ Act, found in Chapter 423 of the Government Code, is the most detailed state statute and has been dubbed the outlier as it allows broad usage of drones by law enforcement. The Act addresses privacy concerns and creates a misdemeanor for the capturing of images by UAVs intended to “conduct surveillance” of a certain person or private property. Violators face criminal charges and civil monetary penalties. In general, the Act does not apply if the drone captures images of public property, or private property with the consent of the owner. There are several exceptions to the Act. For example, real estate brokers are allowed to use drones in the marketing or sale of property, as generally are professors for research, and utility and pipeline operators for inspections and maintenance. Some experts question whether the Act may be subject to constitutional challenge on the grounds that its restrictive nature infringes on certain First Amendment rights.

Last November the National Association of Realtors issued a policy statement that current FAA regulations prohibit the use of UAVs in marketing real estate. It also announced its support of a new FAA regulatory structure for the future commercial use of UAVs in the real estate industry. The FAA issued a press release as well in late November regarding the National Transportation Safety Board’s recent decision in Huerta v. Pirker, which found that UAVs are legally considered “aircraft.” FAA’s anticipated commercial regulations are part of the Next Generation Air Transportation System (“NextGen”).   NextGen is a new national airspace system to be adopted in stages by 2025. Plans for NextGen will improve air traffic control by moving from the ground-based system to a satellite-based system.

So what does the buzz over drones mean for community associations? Associations will need to address the new technology from the standpoint of its inevitable use in the commercial context and the exposure to liabilities this may create. Currently owner drone usage is limited to hobbyists, subject to FAA regulations. Regardless of the purpose of the drone (business or pleasure) privacy is a big concern, especially since a primary use of drones is to transport cameras to out of reach places. Noise and safety are other considerations to take into account. An association will have authority to implement rules and restrictions to regulate the use of drones by owners, tenants and guests. Given the Texas Privacy Act’s express carve-out for real estate brokers, associations should acknowledge the use of drones in brokers’ efforts to sell or purchase a lot or unit in crafting an association policy. In reaching beyond its own community, however, associations may need to seek the help of the local municipality if drone use on neighboring property becomes problematic.

For subdivisions, an association can address concerns by limiting hobbyist use to the owner’s own lot with a prohibition in common areas. In the townhome and condominium setting, drone space is more of a challenge. Associations may need to consider imposing further reasonable restrictions to protect privacy, minimize safety hazards and avoid nuisance. Other measures include consulting a community association insurance professional to ensure coverage for personal injury and property damage that could take place due to the presence of a drone in the community. Owners who operate drones should be required to present proof of UAV insurance coverage.

Although your association may not currently have drone hobbyists, when FAA regulations are in place and the wave of commercial use begins, drones will become more commonplace.   In addition to big players like Amazon, many local companies intend to enter the market for the new technology. For instance, SkyLVL based in Dallas, is an aerial technology company focused on marketing and media production that specializes in commercial real estate services. The sky is the limit for the number of industries that will utilize drones. Communities located near commercial properties with heavy drone usage may face new challenges.

Planning is required for owners quick to adopt the new commercial drone delivery options that are anticipated. Developers may need to design “drone delivery sites” for inclusion in plans or plats. Associations may need to designate drone sites as part of the common areas, or limited common elements for condominium owners. Management and the association should be in agreement on procedures for the commercial use of drones in the course of the association’s business. Perhaps UPS will fly brown drones delivering office supplies, or a coffee traveler and donuts to the onsite management office. Drones may even replace the postal carrier.

Instead of ignoring change, we should be prepared to embrace it. Keep an eye out for new FAA regulations and legislation at the federal and state level. Be prepared with proper insurance and a plan for rules and regulations. Maintain communication with management and your local municipality about potential problem areas created by drones. The question for associations is not if they must deal with drones, but when.

 

 

Condominium Owner May Carry Visible Handgun in Common Areas

A recent Texas court opinion has clarified that a condominium owner may legally carry a handgun in the common areas without violating the unlawful carrying of weapons statute. The Court of Criminal Appeals issued the holding in Chiarini v. State, construing Texas Penal Code Section 46.02. Mr. Chiarini, a unit owner, did a walk through on the common areas with a handgun in a holster on his leg. He was convicted of violating the unlawful carry statute. The court of appeals held that the common areas of a condominium complex are considered a unit owner’s “own premises” under the statute because of the owner’s undivided interest in the common elements.

The laws surrounding guns begin with the Second Amendment of the United States Constitution’s right to bear arms. The Texas Constitution (like most state constitutions) also provides the right to bear arms, subject to the power of the state legislature to regulate the wearing of arms. Texas statutes governing firearms are extremely complex. Legislation includes (like many states) Castle Doctrine and Stand Your Ground statutes (found in Chapter 9 of the Texas Penal Code). The Castle Doctrine generally allows a person to use deadly force as self -defense to an assault, with a presumption that the use of force is reasonable when an intruder is entering their occupied “habitation,“ vehicle, or place of business. The Penal Code defines habitation as a structure adapted for overnight accommodation, including each structure connected with it. In Texas, the Stand Your Ground clause of the statute provides there is no duty to retreat if the person is in a place where they have a right to be.

For the condominium owner, in light of the Chiarini v. State case the Stand Your Ground no duty to retreat extends to the common areas of the condominium project. What about the question of whether or not a unit owner may benefit from the presumption of reasonableness for the use of force from the Castle Doctrine statute? If the owner is present in the unit and the other requirements of the statute are met, the owner will have the presumption of reasonableness. What if the owner is beyond his own unit on the common areas? The definition of “habitation” must be considered. The answer depends on how connected the particular part of the common element is to the owner’s unit. If it is the owner’s limited common element patio/balcony, the presumption is more likely to apply than if the location in question is the common area parking lot.

Anti-SLAPP in Depth

Last October, the Fitzmaurice Anti-SLAPP opinion was published from the 14th District Court of Appeals in Houston (see October 2013 blog entry).  Below is an article discussing further Anti-SLAPP applications in the community association context that was recently published in the Dallas/ Ft. Worth Community Associations Institute Chapter magazine, Community Contact, Winter, 2013:

Out of the Frying Pan:  How Anti-SLAPP Protects You From Spicy Lawsuits

By Julie E. Blend, Esq.

Dealey Zimmermann Clark Malouf & Blend, PC

 

Anti-SLAPP Defined

The adoption of anti-SLAPP statutes has become increasingly prevalent and now over half of the fifty states have them.  SLAPP stands for “Strategic Lawsuits Against Public Participation.”  Texas adopted its anti-SLAPP statute, the Texas Citizens’ Participation Act (“TCPA”), in 2011.  In general, the purpose of Anti-SLAPP statutes is to prevent costly litigation that is initiated solely for the purpose of silencing free speech.    The TCPA is designed to: “safeguard the constitutional rights of persons to petition, speak freely, associate freely, and otherwise participate in government  . . .” Tex. Civ. Prac. & Rem. Code § 27.002.

The TCPA allows a defendant in a defamation-type lawsuit to file a motion to dismiss a meritless lawsuit if it relates to the defendant’s constitutional rights.  Exercising the right of free speech is defined as “a communication made in connection with a matter of public concern.”  If the plaintiff in the lawsuit can present clear evidence of its claim, then the court may not dismiss the lawsuit.  The court may award attorneys’ fees to the prevailing party on the motion to dismiss.    The court may also impose sanctions against the plaintiff for bringing the SLAPP lawsuit.  The 2013 83rd legislative session added an amendment to Chapter 51 of the Civil Practice and Remedies Code providing a quick appeal process (an interlocutory appeal) from the denial of such a motion to dismiss.  This new law provides further protection to a SLAPP defendant in the event that a trial court denies a motion to dismiss brought under the TCPA.

The financial penalty for a SLAPP suit can be substantial.  Last year a Dallas County judge awarded $ 15,000 in sanctions and over $ 15,000 in attorneys’ fees against a mortgage lender for bringing a defamation suit based upon negative comments posted online.  The plaintiff filing the SLAPP lawsuit is not the only party that can be penalized.  If the defendant files a frivolous motion to dismiss pursuant to the TCPA, then the plaintiff can be awarded attorneys’ fees.  A lawsuit or counterclaim to an existing lawsuit, and any motion to dismiss brought under the TCPA, must be carefully considered by your attorney for anti-SLAPP application to avoid incurring costs for sanctions and attorneys’ fees awards.

How Anti-SLAPP Applies to Community Associations

What does the TCPA have to do with community associations?  Generally, complaints vocalized against a community association can be constitutionally protected.  This means a defamation-type lawsuit brought by an association could be subject to dismissal under the TCPA.  On the flip side, defamation suits by owners or others complaining of statements made by an association or its board members can be dismissed under the TCPA as well.  A recent Texas Court of Appeals opinion applied the TCPA to require dismissal of a defamation lawsuit and an award of attorneys’ fees against the owner’s representative who sued Remington Forest Subdivision Homeowners Association and its former board members.  The plaintiff had assisted with a petition drive to recall board members.  She sued the Association based upon the declaratory judgment lawsuit it had filed in connection with the new board, and for negative comments posted on Facebook by former board members.  The court held that communications made in the Association’s   lawsuit were privileged, and that the plaintiff’s mere reference to “lies” spread on Facebook did not meet her burden of clear evidence.

If a homeowners’ association is involved, does the TCPA always apply?  No.  It will depend upon whether the circumstances relate to the rights of free speech, to petition, or of association.  Texas courts, however, broadly construe the application of the TCPA.  The TCPA is more likely to apply in Texas than in states that have a strict construction of their anti-SLAPP statute.  As Texas’ anti-SLAPP statute is only two years old, other states with broadly construed anti-SLAPP statutes, such as California, provide guidance on how the TCPA might be applied to owners’ associations in Texas. Many California SLAPP lawsuits involving common interest communities have made their way to the appellate courts and although not controlling law in Texas, could be used by analogy in a Texas lawsuit.

The TCPA defines the right to petition to include communications regarding  “a public meeting dealing with a public purpose.” Under the California anti-SLAPP statute, similar language describing protected activity includes statements in a public forum that concern a matter of public interest.  A California case held that statements made at an association meeting and in a newsletter published by a group of owners qualified as a public forum that concerned matters of public interest.  The court found that public interest included “private conduct that impacts a broad segment of society.”  The court accordingly dismissed a former manager’s defamation lawsuit against board members, owners and the private homeowners’ association journalism club affiliated with an association of over 3,000 members.

A board member filing a defamation lawsuit may be subject to a higher burden to present evidence for each element of their claim as required by the TCPA.  In this situation, the board member is considered a “limited-purpose public figure.”  In Vice v. Kasprzak, a Houston Court of Appeals held that a board president, as a limited-purpose public figure, had to prove the defendants committed defamation with actual malice.  The court defined limited-purpose public figure as a person who “thrust themselves to the forefront of particular public controversies . . .” The court based its finding on the fact that owners in an association with over 2,000 homes had an ongoing dispute with the association that had been reported in local newspapers, the plaintiff had a substantial role in the controversy because he acted as board president at the same time as acting as the developer’s attorney, and the defamatory statements (alleging conflict of interest), related to the plaintiff’s dual role as president of the board and counsel to the developer.

Anti-SLAPP and Association/Owner Private Communications  

What if the facts underlying the lawsuit do not relate to a meeting, publication, or petition process?  A clue that the TCPA may apply under those circumstances is the cause of action asserted in the lawsuit.  Claims for defamation, libel and slander are most likely to trigger application of the statute. A California court found that the public interest requirement was not met in a breach of fiduciary duty lawsuit, because the alleged protected statements were only made in mundane correspondence between the association’s attorney and the plaintiff owner.  Because the association defendant filed a motion to dismiss under the anti-SLAPP statute when grounds did not exist, the court awarded attorneys’ fees to the plaintiff.

What about covenant enforcement litigation?   One California case held that an owner’s suit against the association for breach of contract and fiduciary duty related to architectural guideline disputes did not trigger anti-SLAPP.  The same California court, however, in another architectural control committee issue suit, Ruiz v. Harbor View Community Association, did apply the statute.  The difference was that the cause of action in Ruiz included libel, and the public interest requirement was met because multiple plaintiff owners alleged the association had engaged in selective covenant enforcement.  The court noted the lawsuit was based upon letters that called the acts of the board “arbitrary and capricious,” and alleged harassing behavior that took place at board meetings.  This was enough for the anti-SLAPP statute to apply even though the basis for the suit was interaction between the association and just a few owners.

What about a pure collection lawsuit?  A California court declined application of the anti-SLAPP statute in an association suit for delinquent assessments.   The delinquent owner sought dismissal, arguing that the suit was filed in retaliation to the owner’s criticism of the board.  The court held that the motion should be denied because the purpose of the lawsuit was to collect assessments, and not to chill the constitutional rights of the defendant.  Under the TCPA, the court may find that the suit was brought to deter the exercise of constitutional rights.  Texas courts, therefore, may look to the purpose of the underlying lawsuit in ruling on a TCPA motion to dismiss.

Even if a defamation-type claim is not alleged, the TCPA can still apply.  A California association filed suit for declaratory relief and attorneys’ fees against an owner seeking the court’s interpretation of its governing documents.  No claims for defamation were brought at all.  The court held that the suit related to the defendant’s right of free speech in criticizing the board’s decisions regarding maintenance responsibility for balconies and siding.  The court relied upon the fact that the association’s attorney had threatened to sue the owner if she continued to request financial information and refused to sign a confidentiality agreement.  Associations should be careful in responding to owner criticism not to trigger the potential application of the anti-SLAPP statute in the event that the association decides to file a lawsuit.

Anti-SLAPP Statute Applied to Homeowners’ Association – Related Lawsuit

In an opinion out of the 14th District Court of Appeals in Houston this month, the Texas anti-SLAPP statute (the Texas Citizen’s Participation Act) was applied to a homeowners’ association – related defamation claim.  In the case of Fitzmaurice v. Jones,  ousted board members were sued for defamation and business disparagement.  The Court held that the Texas Citizen’s Participation Act (TCPA) protected the SLAPP (Strategic Lawsuits Against Public Participation) defendants from the lawsuit because it related to the “right to petition.”

Jones had assisted homeowners in the Remington Forest Subdivision Homeowners Association with a petition drive to recall board members and replace them with a new board.  Jones sued the former board members based on “negative comments . . .posted on Facebook and various misinformation spread about [her] in the community . . . and because . . . she was sued along with the new board . . . by the [association].”   The lower court denied the defendants’ motion to dismiss the lawsuit filed pursuant to the TCPA protections afforded to defendants in a SLAPP suit.

The Court of Appeals reversed the lower court based upon the mandate of the TCPA that a lawsuit shall be dismissed if the defendant shows it relates to “the party’s exercise of: (1) the right of free speech; (2) the right to petition; or (3) the right of association.”  The Court of Appeals held that the plaintiff had not met her burden to present “clear and specific evidence a prima facie case for each essential element of the claim in question.”  The Court of Appeals pointed out that any communications made in anticipation of, or during, a lawsuit are privileged, and cannot serve as grounds for a defamation claim.  As to the Facebook comments, the Court noted that a passing reference without attached evidence of statements does not meet the plaintiff’s burden.  The Court of Appeals sent the case back to the trial court to award statutory attorneys’ fees to the defendants, and to dismiss the suit.

The full opinion is available here.  http://caselaw.findlaw.com/tx-court-of-appeals/1646703.html