Michigan Court rules that association is not required to maintain road to township standards

In McGue v Glenbrook Beach Association, unpublished opinion of the Court of Appeals, issued March 6, 2018 (Docket No. 337785), the Michigan Court of Appeals upheld the trial court’s dismissal of an owner’s claim against a Michigan Summer Resort Owners Association for failing to maintain the roads in the subdivision according to the township ordinance.

In this case, James McGue was the owner of a lot in a subdivision located on Half Moon Lake in Washtenaw County, Michigan.  The Glenbrook Beach Association was incorporated under the Michigan Summer Resort Owners Corporation Act, MCL 455.201 et seq. in 1947 to govern the subdivision (hereafter, “the association”). Unlike a traditional condominium association or homeowners association, the association was a “quasi-municipal body authorized by law to buy, improve, sell and lease lands; to exercise certain police powers over the land owned by the association and land within its jurisdiction, and to provide penalties for the violation of bylaws established under police powers.”  McGue alleged that the roads in the subdivision were substandard and dangerous.  He requested that the association’s board fix the roads, but the association took no action.  McGue filed a complaint alleging the following claims:

  1. Violation of the association’s obligation to comply with applicable Dexter Township road ordinances.
  2. Breach of contract resulting from the association’s alleged failure to provide for the care and maintenance of its roads in the subdivision as set forth in the association’s governing documents.
  3. Oppression and violation of the Michigan Business Corporation Act (hereafter, “the BCA”), MCL 450.1101 et seq, against the trustees for failing to maintain the roads in the subdivision.

The Association and the individual trustees argued that ordering the association to comply with McGue’s request for relief would put the association in an impossible position. First, it would cost approximately $600,000 to comply with the Dexter Township road ordinances. As a summer resort, the association was bound by MCL 455.219, which provided in pertinent part:

(1) The board of trustees may require that the members of a corporation pay annual dues and special assessments for any purpose authorized under this act. All of the following apply to an assessment of annual dues or a special assessment under this subsection:

(a) The approval of the members under subsection (2) is required.

(b) With the approval of the members under subsection (2), the board of trustees shall prescribe the time and manner of payment and manner of collection of the annual dues or special assessment.

(c) With the approval of the members under subsection (2), the board of trustees may provide that delinquent annual dues or assessments shall become a lien upon the land of the delinquent member and may provide the manner and method of enforcing that lien.

(2) Unless the members by a vote of a majority of all of the members have by resolution specifically provided for approval by a majority of the votes cast by the members voting, the vote of a majority of all of the members of the corporation is required to approve an action of the board under subsection (1).

Accordingly, MCL 455.219 precluded the board from collecting an annual assessment or levying special assessments without a majority vote of the members of the association.  The association was also not in a position to sell property in order to raise funds with a majority vote of the members as well.  MCL 455.205 provides as follows:

The trustees of such corporation, when thereunto authorized, by majority vote of the members of such corporation voting thereon at any annual meeting, or any special meeting called expressly for that purpose, by a general by-law, adopted and recorded, may sell, mortgage, give, grant, convey and lease said lands or any part or portion thereof, upon such terms and subject to such reservations and restrictions as may be deemed advisable.

Moreover, the Dexter Township ordinances required each road to be at least 66 feet wide.  None of the association’s roads were 66 feet wide as originally constructed. Accordingly, this would have required the association to condemn additional property to expand the size of the road.  While the association initially challenged whether McGue was a member of the association, and had standing to bring the lawsuit, the court of appeals ultimately held that McGue was a member of the association.  However, the court of appeals ultimately upheld the dismissal of McGue’s claims for the other reasons as will be discussed below.

McGue did not have standing to enforce the road ordinances against the association.

McGue argued that he and his wife were forced to routinely access their lot over the inadequate and dangerous roads in the subdivision.  McGue argued that they had a substantial interest in the enforcement of the Dexter Township road ordinances.  In order to have standing to enforce the zoning ordinance, McGue was required to demonstrate that he would “be detrimentally affected in a manner different from the citizenry at large” if the ordinances were not enforced against defendants.  While the court held that the association may exist for the benefit of its members, including McGue, that the Dexter Township road ordinances did not exist for their personal benefit.  Rather, the roads ordinances set minimum standards that would equally benefit anyone who drove on roads, regardless of whether they were members of the association or not. Accordingly, the court held that McGue lacked a “a “substantial interest, that will be detrimentally affected in a manner different from the citizenry at large” as McGue’s interests were no different than anyone else who drove on the road.

The association did not breach the articles of incorporation or bylaws as these documents did not require the association to maintain the roads according to a specific standard.

McGue argued that the governing documents required the association and trustees to maintain the roads according to the local road ordinances.  The court of appeals agreed that the association’s articles of incorporation and bylaws made it generally responsible to maintain the roads. Specifically, Article III of the articles of incorporation stated that the association was formed to “promote the comfort, health and general welfare of Glenbrook Beach Association,” “to take over the care and maintenance of the … roads,” to carry on the business necessary to effectuate the association’s purposes, and to “protect and promote the health and welfare of the Glenbrook Beach Association.” Article IV provides for a board of seven trustees to manage the association’s affairs, and Bylaws III, section 6, authorizes the board to “exercise all of the powers of the Association,” which includes “the management and control of the business and property of the Association.”

However, the court concluded that nothing in the association’s governing documents obligated the association to maintain the roads to any specific quality standards or the road ordinances. The court concluded that the articles of incorporation and bylaws formed the contract between the association and its members.  The court indicated that since neither the articles of incorporation nor the bylaws obligated the association to maintain its roads in compliance with Dexter Township’s road ordinances, that the association’s board had discretion to determine how the roads should be maintained.

The trustees did not breach a duty to McGue as they were not obligated to maintain the roads under a specific standard.

McGue argued that the individual trustees on the association’s board breached their duties to maintain the roads according to the standards set forth in the articles of incorporation and bylaws.  McGue argued that this breach of duty constituted oppression under MCL 450.1489.  Similar to MCL 450.2489, the section of the Michigan Nonprofit Corporation Act that typically applies to condominium and homeowners associations, MCL 459.1489 allows for a shareholder of a corporation to bring an action in the circuit court “to establish that the acts of the directors or those in control of the corporation are illegal, fraudulent, or willfully unfair and oppressive to the corporation or to the shareholder.”  MCL 459.1489 defines “willfully unfair and oppressive” conduct as “a continuing course of conduct or a significant action or a serious of actions that substantially interferes with the rights or interests of the member or shareholder.  The term does not include conduct or actions that are permitted by an agreement, the articles of incorporation, the bylaws or a consistently applied written corporate policy or procedure.”  The Court of Appeals affirmed the dismissal of this claim as it determined that the conduct of the association’s trustees was not illegal, fraudulent or willfully unfair and oppressive as they did not violate the articles of incorporation or bylaws in making decisions related to the road maintenance.

Conclusion

            The lessons learned from McGue v Glenbrook Beach Association, unpublished opinion of the Court of Appeals, issued March 6, 2018 (Docket No. 337785) are not only applicable to summer resorts, but also to Michigan condominium associations and homeowners associations.

  1. Generally speaking, members of a community association will not have standing to enforce local ordinances. Rather, absent special circumstances, the courts have indicated that ordinance enforcement should be left to the municipality.  However, community associations and association members may be able to enforce standards contained in the bylaws of a condominium association, homeowners association or summer resort if the bylaws require compliance with local ordinances.
  2. Absent any express language in the governing documents that requires compliance with municipal standards, an association’s board of directors will be able to exercise their business judgment in determining how to best maintain common areas and common elements. Community associations that desires express standards of maintenance should amend their governing documents to include such standards.
  3. A board of directors must be familiar with its bylaws and enforce the documents as written. In this case, the association’s compliance with the articles of incorporation and bylaws proved to be a successful defense to an oppression claim.  However, board members who ignore the requirements contained in the articles of incorporation, bylaws, declaration, master deed or rules may end up on the wrong side of an oppression claim.

 

 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 kevin@hirzellaw.com.