Court rules in favor of MI Condo Association related to amendment of bylaws, compliance with parliamentary procedure and director compensation related to website

Vidolich v Saline Northview Condominium Association, unpublished opinion of the Court of Appeals, issued December 5, 2017 (Docket No. No. 334579), involved a lengthy battle between Vidolich, a co-owner in the Northview Condominium, and the Saline Northview Condominium Association (the “Association”). Vidolich was a member of the Association’s board until he resigned over a procedural dispute and he was the Association’s website designer and operator until he deleted the website and replaced it with what he concedes was a “gripe site” when the Association wished to take control of the website itself. Vidolich contended that he was an advocate for the co-owners and had made numerous efforts to vindicate the legal rights of condominium members, ensure that the Association follows the law and obtain outstanding payments for website hosting and services, inter alia. The Association asserted that Vidolich has waged a tireless vendetta of harassment and antagonism. At issue was the following:

Whether the Association’s board of directions could amend the condominium bylaws to include a reducing quorum requirement without a co-owner vote?

Whether action taken at an annual meeting is invalidated as a result of failing to strictly follow Robert’s Rules of Order?

Whether a board member is entitled to payment for maintaining an Association website and who is the owner of the website?

As will be discussed below, the court of appeals agreed with the Association and after Vidolich’s third trip to the court of appeals, the court of appeals held that “Vidolich’s claims are without merit, some without even arguable merit.” Accordingly, the court of appeals not only affirmed the trial court, but also remanded the case to the trial court to determine whether sanctions should be imposed under a variety of court rules and statutes.

The Association’s board of directions could amend the condominium bylaws to include a reducing quorum requirement without a co-owner vote.

            MCL 559.190 provides in pertinent part:

(1)The condominium documents may be amended without the consent of co-owners or mortgagees if the amendment does not materially alter or change the rights of a co-owner or mortgagee and if the condominium documents contain a reservation of the right to amend for that purpose to the developer or the association of co-owners. An amendment that does not materially change the rights of a co-owner or mortgagee includes, but is not limited to, a modification of the types and sizes of unsold condominium units and their appurtenant limited common elements.

(2) Except as provided in this section, the master deed, bylaws, and condominium subdivision plan may be amended, even if the amendment will materially alter or change the rights of the co-owners or mortgagees, with the consent of not less than 2/3 of the votes of the co-owners and mortgagees. A mortgagee shall have 1 vote for each mortgage held. The 2/3 majority required in this section may not be increased by the terms of the condominium documents, and a provision in any condominium documents that requires the consent of a greater proportion of co-owners or mortgagees for the purposes described in this subsection is void and is superseded by this subsection. Mortgagees are not required to appear at any meeting of co-owners except that their approval shall be solicited through written ballots. Any mortgagee ballots not returned within 90 days of mailing shall be counted as approval for the change.

Consistent with MCL 559.190, the condominium bylaws provided the Association’s board of directors with authority to amend the bylaws “provided that such amendments do not materially alter or change the rights of co-owners, mortgagees or other interested parties.” The bylaws, as originally enacted, provided a quorum requirement of 30% of the co-owners, in person or by proxy, for Association meetings. According to board members, the Association had regular difficulty obtaining that quorum. In May of 2013, the Association’s board, without a vote of the co-owners, enacted a “First Amendment” that added the following language to the quorum requirement:

If a quorum shall not be present at any meeting, the members present may adjourn the meeting for not more than thirty (30) days, and the quorum for said rescheduled meeting shall be one-half (1/2) of that required at the preceding meeting.

Vidolich argued that the amendment required a co-owner vote as it materially amended the rights of the co-owners. The court of appeals disagreed and held that the amendment’s reduction of quorum requirements was strictly contingent on an insufficient number of co-owners desiring to exercise any rights at all. The court held that the only even arguable right the amendment affected was a hypothetical right to contribute to the prevention of an annual meeting from occurring by refraining from attending, which was not a right articulated anywhere in the bylaws. The amendment precluded no one from attending a meeting, and it affected none of the provisions calling for votes of all co-owners. Because the only way the quorum can be reduced is for the co-owners to voluntarily relinquish any potential rights, this cannot “materially” alter them.

The Association’s failure to strictly comply with Robert’s Rules of Order was not actionable and the board could adopt “standing rules.”

As with many condominium associations, the condominium bylaws provided that “meetings of the Association shall be conducted in accordance with Sturgis’’ Code of Parliamentary Procedure, Robert’s Rules of Order or some other generally recognized manual of parliamentary procedure when not otherwise in conflict with the Condominium documents or the laws of the State of Michigan.” Vidolich argued that the board violated the bylaws by adopting certain “standing rules” without a vote of the co-owners, among other things.

The court of appeals held that the phrase “in accordance with” is not necessarily synonymous with “following” or “in total compliance with.” The court found the phrase “in accordance with” sufficiently vague and amenable to multiple understandings in this matter and on these facts that some construction is necessary.  The court ruled it would make no sense to require unthinking and mechanical enslavement to a massive, complex tome of formal conduct under all circumstances as doing so may well be an invitation to disaster. To the extent the phrase “in accordance with” is somewhat vague, prohibiting the board from exercising flexibility and adaptability in running meetings would be an absurd result. The court held that only reasonable interpretation of the bylaw provision at issue is that a hypertechnical adherence to every minutia within Robert’s Rules of Order is not required, and therefore “failing to follow Robert’s Rules of Order” is not per se actionable unless the departure is a significant one. Accordingly, the court held that the Association could legally adopt  “standing rules” to govern its annual meeting.

Vidolich was not entitled to compensation for creating or maintaining the “Association website”

Vidolich argued that the Association failed to compensate him for services he rendered developing and hosting the “Association’s website.” Vidolich registered the domain name “saline-northview.org” in September of 2003, in anticipation of running for election to the Association’s board, and he created a demonstration website at that time. The Association was undisputedly not involved in the website at that point, and it never owned the domain name. Vidolich was subsequently elected to the board, where he became the board’s secretary, and he subsequently maintained the website at saline-northview.org for the Association. Board meeting minutes reflect that Vidolich advised the board that it would have to either accept advertising on the site or pay for the costs to host it. The Association chose the latter, and until 2013, Vidolich billed the Association for hosting costs, and the Association paid those invoices.

Vidolich submitted his last invoice for hosting costs on August 28, 2013, covering July 2013 through July 2014, for $184.00. This last invoice was not paid. On September 11, 2013, the president of the Association’s board asked Vidolich to turn the website over to the Association, and, according to the president, he offered to pay at least some of the outstanding invoice. Vidolich instead promptly filed a claim against the Association in small claims court seeking damages in the amount of one cent, and he also deleted all Association content from the website and replaced it with what he tacitly concedes was a “gripe site.” Initially, the replacement content consisted of a notice to the effect that the condominium and board members were being sued in Federal court “for failure to follow the Northview Association By-Laws, the Michigan Condominium Act, and the Michigan Freedom of Information Act”; it also, notably, provided those board members’ home addresses and telephone numbers. A week later, Vidolich replaced the lawsuit notice with a notice that Northview had failed to pay its costs and was uninterested in purchasing the domain, so it was for sale “and the value of a ten year old domain to spammers, puts the value of the domain at over $6,000.” By September 30, 2013, Vidolich replaced the sale notice with links to a “demand letter.” He dismissed his claim in small claims court on October 1, 2013.

The court held that it was a long-standing principle that one cannot gratuitously perform a service or confer a benefit and require compensation or legally impose a duty. Eakins v American White-Bronze Co, 75 Mich 568, 571; 42 NW2d 982 (1889); Staffney v Michigan Millers Mut Ins Co, 140 Mich App 85, 90; 362 NW2d 897 (1985).  Accordingly, the court held that Vidolich was not entitled to a fee for developing the website.

Additionally, the court held that Vidolich apparently deleted the website altogether on September 11, 2013, which barred payment on the $184.00 invoice. The court held that the Association actually received only $23.63 worth of the billed “services.” However, the court held that Vidolich was not entitled to bill for his services even if there was a contract as he was the first party to breach it, and thus he would only be able to maintain an action for a subsequent breach if his had not been “substantial.” Michaels v Amway Corp, 206 Mich App 644, 650; 522 NW2d 703 (1994). Accordingly, the court held that Vidolich’s breach was substantial and that he could not maintain a claim for breach of contract after he submitted the first substantial breach.

CONCLUSION

The court of appeals concluded by indicating that “Vidolich’s claims are without merit, some egregiously so and clearly pursued for improper purposes.” The court of appeals affirmed the trial court, but remanded the case to determine whether the Association was entitled to case evaluation sanctions or an award of attorney’s fees and costs resulting from Vidolich’s failed attempt at a derivative action. Accordingly, whether you are a co-owner or a condominium association, Vidolich v Saline Northview Condominium Association, unpublished opinion of the Court of Appeals, issued December 5, 2017 (Docket No. No. 334579) demonstrates the importance of hiring counsel that will pursue legitimate claims and not pursue claims merely for the purposes of harassment.  Additionally, condominium associations should also take note of the following:

1.If the condominium association is having difficulty obtaining quorum, the board of directors may want to consider amending the condominium bylaws to include a reducing quorum requirement so that the condominium association can transact business based upon the co-owners that desire to participate.

2. A court will invalidate an action of a condominium association only if there is a substantial departure from Robert’s Rules of Order or other form of parliamentary procedure. If a condominium association adopts standing rules or generally follows parliamentary procedure, the courts will likely uphold actions taken at an association meeting.

3. Associations and directors should come to clear agreements regarding website ownership and hosting. The fact that Vidolich was a member of the board did not mean that the Association owned the website that he individually created. Rather, the Association compensated him for hosting and maintaining the website and after the relationship between Vidolich and the Association went sour, the “Association website” became a gripe website. Condominium associations should consider amending their bylaws or adopt rules that prevent co-owners from developing “gripe sites” and it is preferable that the Association, as opposed to an individual director or officer, is the owner of any Association websites.

Kevin Hirzel is a Michigan Community Association attorney who concentrates his practice on commercial litigation, community association law, condominium law, construction law and real estate law. Mr. Hirzel has been a Super Lawyer’s Rising Star in Real Estate Law from 2013-2017, an award given to only 2.5% of the attorneys in Michigan each year. He was named an Up & Coming Lawyer by Michigan Lawyer’s Weekly in 2015, an award given to only 30 attorneys in Michigan each year. Mr. Hirzel is a fellow in the College of Community Association Lawyers, a designation given to less than 175 attorneys in the country. He represents community associations, condominium associations, cooperatives, homeowners associations, property owners and property managers throughout Michigan. He may be reached at (734) 261-2400 or khirzel@cmda-law.com.