Michigan Court of Appeals dismisses condominium bylaw enforcement case after lawsuit approval deemed improper
As previously discussed in HB 4446 allows Michigan Condominium Associations to enforce restrictions and defend lawsuits, it is not uncommon for developers to insert anti-lawsuit provisions into condominium documents that later have drastic consequences for Michigan condominium associations. In Sawgrass Ridge Condominium Association v Louis J Alarie, et. al., unpublished opinion of the Court of Appeals, issued January 9, 2018 (Docket No. 335144), the Court of Appeals reversed the trial court and dismissed a condominium association’s lawsuit to enforce the condominium bylaws after the proper process was not followed to ratify the filing of the lawsuit.
The Sawgrass Ridge Condominium Association (the “Association”) filed a complaint against co-owners who violated the condominium bylaws by modifying their deck without the written approval of the board of directors. Specifically at issue was Article VI, Section 2 of the condominium bylaws, which provided as follows:
No co-owner shall make alterations in the exterior appearance or make structural modifications to any unit (including interior walls through or in which there exist easements for support or utilities) or make changes in any of the common elements, limited or general, without the express written approval of the Board of Directors’ including, but not limited to, exterior painting or the erection of antennas, lights, aerials, awning, doors, shutters or other exterior attachments to common element walls between units which, in any way, impair sound conditioning qualifies of the wall. The Board of Directors may approve only such modifications as do not impair the soundness, safety, utility or appearance of the Condominium.
The Association filed a motion for summary disposition and the co-owners argued that the Association did not follow the proper process for approving the lawsuit under the condominium bylaws. The trial court held that the Association was authorized to file the lawsuit as a majority of the co-owners signed a consent resolution outside of a meeting to approve the lawsuit. The trial court granted summary disposition in favor of the Association and found that the co-owner have violated the condominium bylaws.
The Court of Appeals reversed the trial court on the basis that the Association did not follow the proper procedure in approving or ratifying the lawsuit. The Court of Appeals held that Article III, Section 4 of the condominium bylaws contained the following requirement:
Any civil action proposed by the Board of Directors on behalf of the Association, other than for the collection of delinquent assessments, shall be subject to prior approval of a majority of the co-owners. After the first annual meeting of the members of the Association, the foregoing percentage requirements shall be determined without regard to any units which may be owned by the Developer.
Accordingly, given the plain language of the condominium bylaws, the Court of Appeals held that co-owner approval was required, in addition to board approval, to file a lawsuit to enforce the condominium bylaws. The Court of Appeals also indicated that the formalities required to authorize the lawsuit would also need to be followed in order to later ratify the filing of the lawsuit. Specifically, the condominium bylaws contained the following co-owner approval requirement:
Unless otherwise provided, any action which could be authorized at a meeting of the members, shall be authorized by any affirmative vote of more than fifty (50%) percent. The foregoing statement and any other provision of the Master Deed, these By-laws or the corporate By-laws requiring the approval of a majority (or other stated percentage) of the members or co-owners shall be construed to mean, unless otherwise specifically stated, a majority (or other stated percentage) in number (and not value) of the votes cast by those qualified to vote and present in person or by proxy (or written vote, if applicable) at a given meeting of the members of the Association duly called and held.
The Court held that the above provision required a vote during an association meeting. Given that the Association circulated a petition outside of a meeting, and obtained the approval of a majority of co-owners to ratify the filing of the lawsuit outside of a meeting, the court held that such approval was invalid. The Court of Appeals also noted that MCL 450.2407(3), which was cited in the consent resolution, did not apply as the Association did not obtain unanimous consent of the co-owners and the governing documents did not permit an action without a meeting.
The result of this case may have been different had the Association updated its Articles of Incorporation. MCL 450.2407(1) provides as follows:
(1) The articles of incorporation may provide that any action the shareholders or members are required or permitted by this act to take at an annual or special meeting may be taken without a meeting, without prior notice, and without a vote, if written consents, setting forth the action taken, are signed and dated by the holders of outstanding shares or members or their proxies that have not less than the minimum number of votes that is necessary to authorize or take the action at a meeting at which all shares or members entitled to vote on the action were present and voted. The corporation shall give prompt notice of any corporate action taken without a meeting by less than unanimous written consent to those shareholders or members that did not consent to the action in writing.
Accordingly, Michigan condominium associations should review their Articles of Incorporation, which can be found online at the LARA website, to determine if they have a provision that allows for them to take actions outside of a meeting. While taking a vote outside of a meeting is certainly more convenient, it will only count if the requirements of MCL 450.2407(1) have been satisfied, unless unanimous consent has been obtained.
Finally, this case demonstrates the importance of enacting HB 4446. If enacted, HB 4446 would make it illegal to include provisions in condominium documents that required a condominium association’s board of directors to enforce routine bylaw violations. We urge you to contact your state representative, advise them that you support HB 4446 or can contact JimRunestad@house.mi.gov, the chair of the Judiciary Committee, and request that the judiciary committee vote HB 4446 out of committee.
Kevin Hirzel is the Managing Member of Hirzel Law, PLC and concentrates his practice on commercial litigation, community association law, condominium law, Fair Housing Act compliance, homeowners association and real estate law. Mr. Hirzel is a fellow in the College of Community Association Lawyers, a prestigious designation given to less than 175 attorneys in the country. He has been a Michigan Super Lawyer’s Rising Star in Real Estate Law from 2013-2018, an award given to only 2.5% of the attorneys in Michigan each year. Mr. Hirzel was named an Up & Coming Lawyer by Michigan Lawyer’s Weekly in 2015, an award given to only 30 attorneys in Michigan each year. He represents community associations, condominium associations, cooperatives, homeowners associations, property owners and property managers throughout Michigan. He may be reached at (248) 478-1800 or firstname.lastname@example.org.