Recent SC Case on Enforceability of Liquidated Damages

Originally posted on February 27, 2012 by Ryan

The South Carolina Court of Appeals in Erie Ins. Co. v. Winter Constr. Co., 393 S.C. 455, 713 S.E.2d 318 (Ct. App. 2011), held that the administrative burden provision in a Subcontract was enforceable.  The provision provided:

If SUBCONTRACTOR fails to cure an event of default within seventy-two (72) hours after receipt of written notice of default by WINTER to SUBCONTRACTOR, WINTER may, without prejudice to any of [its] other rights or remedies, terminate the employment of SUBCONTRACTOR and [ . . .] WINTER shall be entitled to charge all reasonable costs incurred in this regard (including attorney[‘s] fees) plus an allowance for administrative burden equal to fifteen percent (15%) to the account of SUBCONTRACTOR.

The Subcontractor, Fountain Electric, agreed to each provision of the Subcontract and even initialed every page.  Fountain Electric defaulted and Erie, its surety, made a demand against Winter for payment of remaining contract balances.  Winter withheld $350,000 based on the administrative burden provision.

Erie filed suit against Winter for breach of contract.  Erie argued that the liquidated damages provision is an unenforceable penalty and that it was entitled to attorney’s fees.  The trial court granted Erie’s motion for summary judgment on the issue that the provision was unenforceable.

On appeal, the court reversed the trial court’s holding and determined that the provision was enforceable.  The appellate court based its analysis on the test set forth in Tate v. LeMaster, 231 S.C. 429, 441, 99 S.E.2d 39, 45-6 (1957):

Implicit in the meaning of ‘liquidated damages’ is the idea of compensation; in that of ‘penalty,’ the idea of punishment. Thus, where the sum stipulated is reasonably intended by the parties as the predetermined measure of compensation for actual damages that might be sustained by reason of nonperformance, the stipulation is for liquidated damages; and where the stipulation is not based upon actual damages in the contemplation of the parties, but is intended to provide punishment for breach of the contract, the sum stipulated is a penalty.

The court determined that the provision of the subcontract was clearly meant to compensate Winter for administrative costs in the event that Erie failed to complete the work on time.  The court held that it would be impossible to determine the actual and consequential damages resulting from a subcontractor default, so a liquidated damages provision was appropriate.  The sliding scale approach of the administrative burden clause was a “reasonable and fair liquidated damages provision.”  In light of both contract interpretation and public policy the court upheld the provision as enforceable.

This site and any information contained herein is for informational purposes only and should not be construed as legal advice.  Seek a competent attorney for advice on any legal matter.

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ADA Pool Regulations and Community Associations

Originally posted on February 22, 2012 by Ryan

In 2010, the Department of Justice (DOJ) issued revised requirements for the Americans with Disabilities Act (ADA) regarding accessible swimming pools.  In light of these new regulations, many community associations have approached me with questions regarding their association’s compliance.  This article seeks to address those concerns and provide a brief summary of the scope of the 2010 Standards for Accessible Design.

The ADA strives to provide equal opportunity to people with disabilities.  Title II of the ADA applies to state and local government services and Title III applies to public accommodations and commercial facilities.  The updated swimming pool accessibility provisions are intended to affect all newly constructed, altered and existing swimming pools with very limited exceptions.  However, privately owned community associations are generally not encompassed under the ADA.
Title III defines a public accommodation as a facility owned by a private entity whose operations affect commerce. In order to fall under the purview of the ADA, a community association must be engaged in commerce.  This would include, by way of example, selling memberships to the general public, providing a place of lodging to the public (e.g. hotels, “condotels,” and resorts), offering swimming lessons to the general public, or hosting swim meets or events where the public is invited to access the pool.
If the community association is a public accommodation, there must be an accessible means of entry and exit on all newly constructed and altered swimming pools, wading pools and spas on or after March 15, 2012.  Existing pools must be brought into compliance to the extent that it is readily achievable on or after March 15, 2012.  This readily achievable standard takes into consideration financial constraints and overall feasibility.
Larger pools, those with more than 300 linear feet of pool wall, are required to have two accessible means of entry, one of which must be a sloped entry.  Smaller pools are only required to have one accessible means of entry, which can be either a lift or a sloped entry.  Public accommodations also must consider maintenance and staff training as it relates to the accessible features.  Tax credits and deductions are available through the IRS for small businesses making these accessible means of entry.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice.  Seek a competent attorney for advice on any legal matter.

Association Meetings Must be Properly Noticed

Originally posted on December 12, 2011 by Ryan

Bd. of Managers of Park Regent Condo. v. Park Regent Assoc., No. 2009-04227, N.Y. Supr. Ct., App. Div., March 30, 2010.

A condominium regime in New York was recently involved in litigation over the validity of an association member annual meeting. Several unit owners called the meeting and purported to elect a new board of managers for their regime. The board of managers in place prior to the meeting brought suit for a declaratory judgment that the meeting was invalid for lack of proper notice; therefore no new board members were elected. A unit owner also sued past and current board members for fraud and breach of fiduciary duty. The trial court held that the unnoticed meeting was invalid and issued a permanent injunction against the board members elected at the meeting, preventing them from acting as members of the board. The appeals court affirmed this holding.

The individual unit owner later amended his complaint to recover attorney’s fees and expenses, as permitted in the regime’s governing documents. This motion was also granted.

In sum, when associations fail to properly give notice of member meetings and board meetings very costly results may follow. Associations should closely read their governing documents for notice requirements and follow these requirements to the letter. Contact an attorney for help in complying with your governing documents.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Ambiguous Covenant Construed to Permit Pet Bird

Originally posted on December 12, 2011 by Ryan

Breakwater Cove Condo. Ass’n v. Chin, No. A-1420-09T3, N.J. Super. Ct., App. Div., Dec. 2, 2010.

A unit owner at Breakwater Cove kept two birds in her unit. The association informed her that she was in violation of the master deed and her birds were a nuisance to other owners. The Master Deed provides: “No bird, reptile or animal of any kind shall be raised, bred or kept in any unit or anywhere else upon the property except that dogs, cats or other household pets are permitted, not to exceed two in the aggregate, provided they are not kept, bred or maintained for any commercial purpose, are housed within the unit and abide by all applicable rules and regulations. No outside dog pens, runs or yards shall be permitted.”

The association pursued alternative dispute resolution with a mediator in hopes of resolving the dispute. When mediation did not resolve the issue, the association sued the owner. The trial court sided with the association, finding that the owner’s birds did not qualify as “other household pets” under the master deed. The trial judge also determined that the birds were a nuisance based on testimony of other owners.

On appeal, the court determined that the pet policy in the master deed was ambiguous because it is reasonably susceptible to two meanings. The court held that based on this ambiguity, the covenant did not provide fair notice to unit owners and could not be upheld.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice.  Seek a competent attorney for advice on any legal matter.

Association Can Enforce Zoning Regulations

Originally posted on December 12, 2011 by Ryan

Ariyan v. Pine Orchard Ass’n, Inc., No. CV084034207S, Conn. Super. Ct., Dec. 3, 2010.

The court in this case held that the Pine Orchard Association had the authority to enforce zoning regulations within the association.  Ariyan began constructing a gazebo on her lot, which is zoned with a 20-foot rear setback. Behind her lot is a private, unimproved right-of-way.  Ariyan did not initially seek approval of the zoning board before starting construction.  However, she eventually did submit an application for a permit, which was denied.  She later submitted a second application for a permit and that was also denied based on the setback requirement.

Ariyan then submitted a variance request for the setback requirement, arguing that because there was no barrier between her property and the private right-of-way, the gazebo would not be noticeable if it violated the required setback requirement.  Her variance was also denied, and was shortly followed with a cease and desist order for the partially constructed gazebo.  Ariyan was asked to remove the gazebo.  After the Zoning Board of Appeals upheld the decision, Ariyan appealed to the Connecticut Superior Court.

Ariyan argued on appeal that the decision was illegal, arbitrary and an abuse of discretion.  She based most of her argument on the fact that the regulations did not define “structure.”  The court found this unconvincing and held that “structure” is defined using its common and usual meaning.  The court also held that the appeal lacked merit because zoning regulators are required to apply the regulations when appropriate, and the fact that the gazebo would not obstruct her neighbors’ views was irrelevant.

This site and any information herein is intended for informational purposes only and should not be construed as legal advice.  Seek a competent attorney for advice on any legal matter.

Limited Home Warranty Waived Implied Warranty of Habitability

Originally posted on December 12, 2011 by Ryan

Jones v. Centex Homes, 189 Ohio App. 3d 668 (2010).

The Joneses entered into a sales agreement with Centex Homes for the construction of a new home.  The agreement included a Limited Home Warranty provision covering defects in materials and workmanship.  The provision also contained a clause purporting to waive any and all express or implied warranties of habitability or fitness.

Under the law in most states, a new homebuilder impliedly warrants to a purchaser that the home is structurally safe and free from defects.  In some states, it is incredibly difficult if not impossible to disclaim this warranty.  However, both the trial court and court of appeals in this Ohio case found that the buyers contractually waived their claims by virtue of the Limited Home Warranty.

The court of appeals seemed to place great emphasis on the fact that the Joneses were in their 30s and 40s and made the conscious decision to enter into this agreement without the aid of an attorney.  The court relied on basic contract principles of freedom of contract and the presumption that a party reads what he signs.  The court also noted that although the Limited Home Warranty provision was not emphasized in the contract, it was also not hidden or in small font.  Because the language was clear and unambiguous and because the parties voluntarily entered into the agreement, the court upheld the waiver as the homebuyers’ exclusive remedy.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice.  Seek a competent attorney for advice on any legal matter.