Saturday, December 16, 2006

A Weekend of Leading Cases

This weekend I'm devoting myself, among other things, to starting a summary of leading Utah cases involving community associations; many of this weekend's cases will deal with construction defects. I hope you find these summaries useful, and invite and encourage you to add your own comments.

Snow Flower HOA v. Snowflower

31 P.3d 576 (Ut. Ct. App. 2001)

The Snowflower case was another construction defect case with an unfortunate outcome for the association and its members. In Snowflower, the Association discovered construction defects in connection with a remodelling project; their claims against the developer were all thrown out by the Utah Court of Appels, based largely upon the "economic loss rule" and the absence, in Utah, of implied warranties of habitablity and fitness.

The Snowflower case did not create any shocking new law in Utah, and its conclusion was rather predictable, given the then-existing status of the "economic loss rule" in Utah and the length of time that had elapsed since construction. Time will tell, however, whether or not the Snowflower case remains viable following the recent developments in case law presented by Hermansen and Yazd.

Johannessen v. Canyon Road Towers Assoc.

57 P.3d 1119 (Utah 2002)

In the Johannessen case, the Utah Court of Appeals set aside an agreement, made by an association's board, to reduce the assessments on one unit below the amount as required by the association's declaration. In setting aside the agreement, the Court affirmed what appears in this author's mind to be obvious -- that any change of that magnitude requires a vote of a supermajority of the association's members.

In Johannessen, the sellers of a penthouse condominium somehow managed to convince their sellers and the association's board to reduce the assessments due from the unit, but the declaration was never amended. Several years later, the board realized they had exceeded their authority, and sought to assess the proper amount.

The Johannessens sued. The court of appeals held against the Johannessens on several basis; most principally the fact that they had knowingly purchased into a condominium association, and thus had constructive notice of the condominium act and the condominium declaration. Therefore, they could not reasonably have relied upon the board's improper reduction of the assessments without a vote of the membership.

View Condominium v. MSICO

91 P.3d 1042 (Utah 2006)

Reedeker v. Salisbury

952 P.2d 577 (Utah 1998)

Brickyard Homeowners' Assoc. v. Gibbons Realty Co.

668 P.2d 535 (Utah 1983)

Brickyard, which involved numerous alleged defects in the construction of a condominium project, is significant in that it seemingly established, without question, that an association had standing to assert claims involving common areas, and claims involving more than one unit, by the association.

In the case, the Court declined to adopt the defendants’ desired result that all unit owners be required to be joined as parties. The Court stated:

In a nutshell, inasmuch as res judicata could be relied upon in any subsequent action by the defendants against them, we see no basis for concern that they will be exposed to multiple and inconsistent judgments. Nothing would be gained by forcing a class action upon the Brickyard Condominium unit owners nor in requiring that each of them be made parties as the statute offers a less burdensome alternative for legal representation.

Brickyard affirmed the association’s right to pursue claims based upon implied warranties and fraud, based upon the earlier case of Management Committee of Graystone Pines HOA v. Graystone Pines, Inc., 652 P.2d 896 (Utah 1982).

American Towers v. CCI Mechanical, et. al.

930 P.2d 1182 (Utah 1996)

The American Towers opinion, dealing with an association's right to pursue developers and contractors for construction defects, put a disastrous impediment - "the economic loss rule" - in the way of associations' efforts to seek redress for poor construction. Fortunately, the underpinnings of American Towers have been limited by several subsequent cases, and the viability of the opinion is questionable. Because of its historical significance, however, a review of the case is warranted.

The first claim for relief which was rejected in American Towers was the association's claims for breach of contract and warranty. The court held that the association was not a party to any contracts with the contractors, and held that the association was not a clearly intended third-party beneficiary of the contracts between the developer and the contractors.

Next, the Court discarded the association's negligence claims based upon the determination that negligence claims cannot stand for purely economic losses resulting from negligence, in the absence of physical harm to persons or other property. The Court held that the association's (and the owners) damages were all economic in nature, and thus should be protected by contracts agreed to between the parties.

The Court's determination that the association was not entitled to sue under the contracts to which they were not parties, followed by the preclusion of a negligence claim, effectively left associations with few, if any methods of recourse against builders. American Towers left the option of pursuing developers, but developers often insulate themselves from liability through the use of limited liability companies that are disolved at the end of construction. Naively, the court suggested that "A buyer can avoid economic loss resulting from defective construction by obtaining a thorough inspection of the property prior to purchase and then by either obtaining insurance or by negotiating a warranty or reduction in price to reflect the risk of any hidden defects."

Lastly, the Court rejected the imposition of an implied warranty of habitability in condominiums, again based upon the naive determination that "a condominium homeowners' association typically oversees the management, maintenance, and operation of the units. The potential buyer can contact this association, which is equipped to know of respond to, and guard against defects in the complex." In making this assertion, the Court closed its eyes to the reality that the association is inevitably controlled by the developer/seller during the initial sales period, and it is often conflicted from "responding to" defects.

Fortunately, the subsequent opinions of Hermansen and Yazd have significantly cut back upon the pronouncements of American Towers, and associations do, in fact, now have options and remedies available when construction defects are discovered.

Sunday, December 10, 2006

A Long Past Due Update

Two months ago, I made my last post on this blog, with an intention to update with the American Towers case. As you may have gathered, things have been a bit busy.

I have, finally, revamped the UtahCondoLaw web page, which is the sister page to this blog, and, quite frankly, its reason for being. Take a visit, and I will endeavor to focus my efforts back onto this blog for a while.

Wednesday, October 11, 2006

Polygamy, or an HOA?

Jeffs Issues Edict to Followers
October 11th, 2006 @ 7:31am

(KSL News) A crucial witness in the Warren Jeffs criminal case has filed a civil lawsuit against him.

Lawyers for the woman, identified as M.J., confirmed she is "Jane Doe Number 4" in the Washington County case against Jeffs.

M.J. claims she was forced into a polygamous marriage with an older man.

During a hearing Tuesday, Jeffs issued a new edict to his followers: "Do not sign your name to any document for property that has already been consecrated to God."

This latest proclamation could complicate plans to reform the 110-million dollar United Effort Plan Trust. A judge is just days away from approving a historic change to the trust by signing a proposed reform plan that would create individual property owners.

Non-FLDS members would likely be the first to receive property, and FLDS member who don't sign the papers would live under a homeowners association.

Hmmm. Polygamy under a theocracy, or living in an HOA? How long do I have to decide?

Friday, September 15, 2006

Case of the Week - Yazd v. Woodside Homes

One of my goals on this blog (and time will tell if I achieve it) will be to summarize a court case of note. There are lots of interesting cases out there; many from Utah, and many more from other states. I'll try to get in at least one a week, focussing on more timely cases, and leading, eventually, to a summary of all of the leading Utah community association cases.

This week's case is a recent case that doesn't deal directly with community associations, but that should be of significant benefit to Utah associations. It's a construction defect case that affirms that the Utah appelate courts are back on the right track in construction law.

The case, Yazd v. Woodside Homes Corporation, 2006 UT 47, dealt with a home built on collapsible soil. Evidence showed that the seller of the soil, the LDS Church, had purchased the property for construction of a church, but abandoned those plans and sold the property when a soils report revealed the presence of the unsuitable soil. The report did not evaluate the suitability of the soil for residential construction. Woodside bought the property; the sales contract said that the report would be made available. Woodside claimed it never saw the report.

Woodside had its own soil study prepared after it bought the lots, and their study also affirmed the presence of collapsible soil. Woodside came up with a plan that was intended to compensate for these conditions. They then sold the lot, but they did not disclose the contents of the reports.

The buyers moved in in September 1995, and the settling became evident within the following year. When they tried to sell the home in 2002, their purchaser discovered the need for major repairs.

The Court evaluated the duty owed by evaluating the nature of duties as established by law. "Legal duty," the court stated, "is the product of policy judgments applied to relationships. The Court noted that they had never explicitly recognized that a duty is owed to buyers of new homes by builder-contractors.

However, in Yazd, the Court explicitly extended the duty of a builder-contractor in a direct action for recovery brought by a home buyer. The Court noted "Modern home construction requires a high degree of knowledge and expertise, including knowledge of soil conditions....the disparity in skill and knowledge between home buyers and builder-contractors leads buyers to rely on the builder-contractor's expertise."

The Court's opinion is significant, because it seems to obliterate, indirectly, the holding in the earlier opinion of American Towers , a prior holding by the Court which had seemingly precluded associations from bringing claims against builders with whom they had no privity.

Barring any major developments in the next week, the American Towers case will be reviewed next week.

Thursday, September 14, 2006

New Flag Restrictions Explained

Several weeks ago, President Bush signed the "Freedom to Display the American Flag Act of 2005". This looks to me like it could alternatively be named the "Another Way to Sue Your HOA Act", but the College of Community Association Lawyers has recently prepared some guidance on compliance.

CAI members can access the guidance through this link:

CCAL Flag Act Guidance

Utah community associations also need to keep Utah Code Ann. Chapter 57-24 in mind; that statute appears to go further than the federal act.

Communicating with clients and others

On this blog, I intend to periodically post some of the more interesting questions and answers that come my way, as well as news items of interest. Sometimes the items may be posted without further comment, on other occassions I may insert my own comments or thoughts.

You, as the reader, can also post your comments and thoughts, although I'm going to moderate all of the proposed posts, and I reserve the right to reject posts for whatever reason I want.

Saturday, September 09, 2006


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