Opinion
19-P-1566
12-14-2020
GERFMAN GLOBAL, LLC v. IRENE KERSHAW, trustee, & others.
NOTICE: Summary decisions issued by the Appeals Court pursuant to M.A.C. Rule 23.0, as appearing in 97 Mass. App. Ct. 1017 (2020) (formerly known as rule 1:28, as amended by 73 Mass. App. Ct. 1001 [2009]), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 23.0 or rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent. See Chace v. Curran, 71 Mass. App. Ct. 258, 260 n.4 (2008).
MEMORANDUM AND ORDER PURSUANT TO RULE 23.0
This case involves a dispute concerning the Nautica condominium development in Charlestown. The condominium consists of eight buildings containing 117 residential units and an underground parking garage. In addition to the residential units, the condominium includes two commercial units. These are the NPS Parking Garage Unit and the Commercial Parking Unit (parking garage units). The plaintiff, Gerfman Global, LLC (Gerfman), owns the parking garage units. The board of trustees of the Nautica Leasehold Condominium Trust, the unit owners' association for the condominium, has five members, one of whom was, at all relevant times, Matthew Hoffman, a member of Gerfman and one of the managers of the garages at Nautica.
The suit in this case was brought by Gerfman against the four other trustees in their capacities as trustees of the Nautica Leasehold Condominium Trust. Gerfman sought a declaration that the master deed for the condominium, along with two phasing amendments and the declaration of trust, requires the trustees to account separately for income and expenses associated with two distinct budget categories referred to in the relevant documents as the condominium common elements (CCE) and the residential common elements (RCE). As will be described in more detail below, the expenses in each category are ultimately borne by certain unit owners in different proportions. Gerfman contends that, beginning in January 2013, because of the way expenses were assessed with respect to these two categories, the trustees impermissibly shifted RCE expenses onto the owner of the parking garage units, Gerfman. Following a bench trial, a judge of the Superior Court found in Gerfman's favor, and the defendants now appeal. Gerfman filed a cross appeal that is discussed in more detail below.
1. Background. We need not recite in detail the facts found by the trial judge, which are well known to the parties and contained in a very detailed and thoughtful opinion by the judge. Section 7 of the master deed, as amended, contains both a description of the common areas and facilities and a provision setting out the mechanisms by which the costs and expenses of those areas and facilities shall be assessed among the unit owners. First there is the CCE. The CCE includes the leasehold estate in the land and the rights to the "Chelsea Street center island and City Square Tunnel wall landscaped area," as more fully described in the relevant documents, together with the benefit of and subject to all other rights and easements referred to in the master deed and an exhibit attached thereto. It also includes "[a]ll conduits, ducts, pipes, plumbing, wiring, chimneys, flues, equipment, fixtures, machinery and other facilities for the furnishing of utility services or waste removal to the Units, except for any of the foregoing which are part of the [RCE]." It also includes "[a]ll other elements and features of the Condominium property shown on the Site Plans, excepting only the Units themselves and the [RCE]."
RCE is defined broadly in the master deed. The full text is available to the parties and in the judge's decision below but, to give an example, the RCE contains all of the buildings, except the residential units themselves, "[t]he exterior landscaping, patio, sidewalks, walkways, lighting devices (and wires and poles serving same), planters, bollards, benches and other improvements located on the surface of the Land and shown on the Site Plan," except "the driveways to the Parking Garage and above-grade enclosures of such stairwells and stairs which are part of the [CCE]." The RCE includes "conduits, ducts, pipes, plumbing, wiring, chimneys, flues, equipment, fixtures, machinery and other facilities for the furnishing of utility services or waste removal" that are exclusively used by one or more of the residential units, the "[i]nstallations of central services such as power, light, drains, hot and cold water, vents, heating, air conditioning, and heating and air conditioning lines," to the extent those installations serve more than one residential unit, and the condominium office, lobby, and janitor's storage room, among other things.
The master deed assigns a percentage interest in the CCE to each unit in the condominium, including the parking garage units. The parking garage units have a combined 17.967 percent interest in the CCE; the residential units have the remaining 82.033 percent interest in the CCE.
By contrast, the master deed assigns a percentage interest in the RCE only to each residential unit in the condominium. Put another way, the residential unit owners share one hundred percent of the costs of the RCE but only about eight-two percent of the costs of the CCE.
There is no separate category for common expenses that relate solely to the two parking garage units, if there are any. Slightly more than eighty-two percent of those costs are borne by the residential unit owners because they are CCE expenses. The master deed provides that "[a]ll costs and expenses incurred in the maintenance and operation (including utility and cleaning costs) applicable to the [CCE] and the repair and/or replacement thereof shall be borne by the owners of the Residential Units and the Parking Garage Units." It provides that "[a]ll costs and expenses incurred in the maintenance and operation (including utility and cleaning costs) applicable to the [RCE] and the repair and/or replacement thereof shall be borne solely by the owners of the Residential Units, the owners of the Parking Garage Units having no liability therefor."
Section 5.4(b) of the declaration of trust provides that at least thirty days prior to commencement of each fiscal year "the Board of Trustees shall estimate the common expenses expected to be incurred during such fiscal year . . . and after taking into account any undistributed common profits from prior years, shall determine the assessments to be made for such fiscal year on account of common expenses. Such estimates, accounting for undistributed common profits and assessment(s), shall be done separately for the (i) expenses related to the [CCE] and expenses identified herein on in the Master Deed as 'Condominium Common Expenses', (ii) expenses related to the [RCE] and expenses identified herein or in the Master Deed as 'Residential Common Expenses.'"
The original developer of Nautica sold all of the residential units but retained ownership of the parking garage units. It operated the lower level of the parking garage as a public parking facility beginning on or around 2001. The developer hired a management company, which until 2008 allocated to the CCE only the costs of Nautica's hazard insurance policy. All other condominium expenses were allocated to the RCE. The original management company did not segregate income and expenses associated with the CCE from income and expenses associated with the RCE. The developer sold the parking garage units to Gerfman in 2006. In 2008, Nautica hired a new property manager, which continued the practice of allocating only the costs of the hazard insurance policy to the CCE. These clear underallocations to the CCE formed the backdrop of this action, although they are not relevant to the dispute currently before us.
Beginning in 2013, the management company, on behalf of the trustees, changed its practice. The trustees essentially took the position that any expense that related in any way to the parking garage units would be allocated entirely to the CCE and assessed against all unit owners, including Gerfman. The trustees also have not calculated unit owners' reserve obligations in accordance with their respective shares of interest in the CCE and RCE. In addition, the trustees have not maintained reserve accounts for the CCE and RCE separately. The judge found that reserve assessments to the residential unit owners since 2013 were based upon the following calculation: the management company combined RCE and CCE expenses and then assessed a ten percent contribution for reserves to the residential unit owners. Payments received from unit owners to CCE and RCE reserves were not segregated in the records maintained by the trustees, making it impossible to determine how much money was being held in the CCE reserve account versus the RCE reserve account at any given time.
Gerfman stopped paying the bills that it received monthly from the trustees in January 2013, with Hoffman making clear to the other trustees Gerfman's objection to the new allocation method. After Gerfman failed to pay for several months, the trustees stopped sending bills, and in October 2013, Gerfman brought this suit.
The judge concluded that the trustees' practices were not in compliance with the condominium's governing documents, particularly section 5.4 of the declaration of trust, G. L. c. 183A, industry custom, and the reasonable norm of standard practice. The judge also evaluated the current method of allocation to the RCE and CCE. The judge found that since January 2013, the trustees had taken the position that any common condominium expense or cost that included any CCE component would be allocated entirely to the CCE. An example given by the judge was that "if a superintendent spends a small fraction of his or her time overseeing CCE areas such as utility rooms, stairwells and ramps, while the vast majority of his or her time is spent on resident requests for maintenance and other forms of servicing residential buildings, then the Trustees will assign 100% of the superintendent cost to the CCE budget." The judge found that "[t]his method of allocation clearly shifts expenses and costs related to residential repairs and maintenance onto Gerfman, the commercial unit owner." The judge heard testimony, which he credited, that expenses that fall into both categories can be allocated between the CCE and RCE budgets and that this procedure is a common industry practice. Gerfman's expert in property management, Robert McBride, testified as an example that it is standard industry practice for a condominium property manager to request two bids in order to segregate items such as snow removal expenses between CCE areas (in this case, primarily the garage ramps) and RCE areas (including all of the walkways, which require more hand shoveling). McBride further testified that industry custom and good practice require that the condominium budget should reflect such a practice by the inclusion of separate line items such as snow removal for CCE areas and snow removal for RCE areas. The judge concluded that this is what the condominium documents require. The judge also concluded that "indivisible" expenses should be allocated to the CCE, but that expenses incurred specifically for RCE areas, by contrast, should be allocated to the RCE. As an example, the judge looked at fire alarm costs, noting that there are some indivisible alarm expenses, and some alarm expenses incurred specifically for RCE areas. The judge specifically found that common expenses such as "Nautica's legal fees, office expense, professional consultants and property management costs," can be divided and budgeted separately between the CCE and RCE, and that they have to be divided and budgeted in that way in order to comply with the controlling documents and standard industry practice.
The judge ruled that the language of the master deed and the declaration of trust are clear, and that therefore no deference is afforded to the defendants in their decisions to assess RCE related costs to Gerfman under a reasonableness standard or the business judgment rule. The judge ruled that under the plain language of the governing documents, maintenance and operation charges incurred in connection with the items specifically identified as the RCE cannot be assessed to the owner of the parking garage units, Gerfman. The judge ruled that segregating costs associated with the maintenance and operation of RCE components from those associated with the CCE can be done, and that segregation is required under the governing documents.
The judge issued a declaration "that the governing documents require the Trustee to distinguish between CCE and RCE within each line item of the budget and for purposes of any allocation of costs and expenses to CCE and RCE; that the documents require the Trustees to establish separate reserve funds for CCE and RCE; and that the documents require the Trustees to establish and maintain separate, segregated accounts for CCE and RCE for the period from January 2013 to the present, and prospectively." The judge also declared that assessments charged to Gerfman under the current method were invalid and that assessments made subsequent to May 5, 2016, were unenforceable. The judge also denied the trustees' counterclaim for attorney's fees.
2. Discussion. On appeal, the trustees argue that the judge's findings and judgment lead to the draconian result of the residential units owners being forced to bear virtually all the common area expenses of the condominium, even though Gerfman as the owner of the parking garage units substantially benefits therefrom. The trustees agree "that the Condominium's governing documents require it to specifically identify and exclude from the general budget expenses exclusively related to the maintenance and operation of the RCE." What they contest before us is the judge's determination that expenses that do not relate solely to the RCE must be allocated between the RCE and CCE rather than simply being treated as CCE expenses. They argue that these are, instead, shared costs that should be allocated to the CCE.
The trustees argue that, in addition to being contrary to the condominium's governing documents, this system of requiring the volunteer trustees to distinguish between the RCE and CCE within every line item of the budget, where services typically overlap and benefit the condominium and its unit owners as a whole, will be onerous, and that it will lead to an absurd result where residential unit owners effectively subsidize any and all common expenses related to the CCE. The trustees note that the residential unit owners pay one hundred percent of the RCE and about eight-two percent of the CCE. They argue that they should not be required to pay one hundred percent of an allocated portion of the expenses related to the CCE, and about eighty-two percent of the remainder of those costs.
We see no error in the judge's construction of section 5.4 of the declaration of trust to require expenses that can be allocated to the RCE and CCE to be so allocated, and for those costs to be assessed as described in his judgment. Under section 5.4(b), the estimates made by the trustee as the basis for the annual assessment to unit owners "shall be done separately for the (i) expenses related to the [CCE] and expenses identified herein or in the Master Deed as 'Condominium Common Expenses', (ii) expenses related to the [RCE] and expense identified herein or in the Master Deed as 'Residential Common Expenses.'"
Particularly in light of the expert testimony that was credited by the judge, we cannot say that his factual findings that certain expenses can be so allocated, and that it is standard industry practice to do so, were clearly erroneous. We note that the judge was quite clear that there is a category of indivisible expense that need not be allocated between the CCE and RCE and that may be treated as a CCE expense. To the extent that the trustees argue that this is not only an incorrect reading of the documents, or unduly burdensome, both of which contentions we think are refuted by the judge's detailed decision, or that this is an absurd result, we cannot agree. This arrangement and these percentages were clearly set out in the condominium documents at the time that each unit owner made his or her purchase. We do not see how we can say that any such arrangement is "absurd."
Beyond affirming the decision of the judge, which made findings of fact with respect to certain expenses being allocable between the RCE and CCE, we express no opinion about whether any particular expense is or might be allocable or indivisible.
We do note that the trustees argue that the condominium documents are inconsistent with the condominium act, which provides in relevant part that "all common expenses shall be assessed against all units . . . in accordance with their respective percentages of undivided interest in the common areas and facilities," but which permits assessment of expenses relating to limited common areas only as follows: "[T]he organization of unit owners may assess the cost in maintaining, repairing or replacing a limited common area and facility, solely to the owner of the unit to which a limited common area and facility is appurtenant, allocated, or designated, and such assessment shall be enforceable as a common expense assessment under this chapter." G. L. c. 183A, § 6. The trustees argue that it is only in circumstances where one individual unit owner has a right to exclude other owners from a portion of the common areas and facilities that that owner may be separately assessed common area expenses in connection with such exclusive use. The argument in essence is that, notwithstanding the purported undivided percentage shares in the various common areas set out in the governing documents of the condominium, the assessments have been structured unfairly so that the parking garage unit owners -- originally, of course, the developer itself, who drafted the documents -- are not assessed for a wide range of expenses from which they benefit, including upkeep of areas that they are entitled to use under the condominium documents, including by way of the easements those documents create. While this argument is interesting, it was not raised below, and therefore it is waived. Consequently, we express no opinion on its merit.
In its cross appeal, Gerfman insists that it should be able to recover any overpayment above the proper assessment for the CCE, from the period beginning on January 1, 2013, through May 5, 2016. As the judge noted, the trustees first provided written notice to Gerfman of the arrearages due under its 2013, 2014, 2015, and 2016 assessments in 2016, the latter three on May 4, 2016, which Gerfman paid under protest on May 5, 2016.
Under Blood v. Edgar's, Inc., 36 Mass. App. Ct. 402, 406 (1994), in order to recover improper over assessments, a plaintiff must pay them when due, which he or she can do while preserving his or her rights by making the payment "under protest." In holding that the payments made under protest on May 5, 2016, were inadequate to preserve Gerfman's right to recover any portion that was overpaid, the judge cited Blood. This necessarily reflects a conclusion, since the noted payments were under protest, that they were not timely made.
In its cross appeal, Gerfman contends that as it made the payment immediately upon receiving the written statement from the trustees, it was timely made. We see no error in the judge's conclusion to the contrary. As provided in the condominium documents, the actual assessments are made thirty days prior to the beginning of the fiscal year. They are made by the board of trustees, on which a member of the plaintiff Gerfman sits. Bills are apparently sent out monthly during the year to unit owners, presumably requesting payment of one-twelfth of that year's assessment. In this case, Gerfman failed to pay the bills that were sent to it under the then current method for allocating common expenses in January, February, March, and April 2013, at which point Gerfman through Hoffman made clear its objection to the trustees. Where a member of Gerfman, Hoffman, was necessarily aware of the assessments each year as they were made, and was aware that payments were due, we cannot say that the judge erred in concluding that the payment here, made many months or years after payments were due, was not timely, though payment was made by Gerfman immediately after receiving a requested bill for arrearages.
The trustees make no arguments with respect to the judge's conclusion that they are not entitled to attorney's fees. G. L. c. 183A, § 6, and the master deed permit the recovery of legal fees only when incurred in an action to collect unpaid assessments. The judge ruled that "the counterclaim in this case, at essence, is not a collection action . . . [I]ts true nature is a request for a declaration of rights counter to Gerfman's declaratory judgment action. Neither the statute nor the controlling condominium documents contemplate the imposition of attorneys' fees in the circumstances presented here." Gerfman contends in its cross appeal that the trustees have not returned the $63,183 that Gerfman paid for legal fees incurred by the trustees between September 2013 and April 2016, assertedly for work done on this case, and that we should order it returned. But, as with other relief Gerfman seeks for what it claims has not been done since judgment entered, this appeal is not the appropriate forum in which to seek any such relief -- or, for that matter, any finding of fact with respect to the posttrial events alleged by Gerfman -- in the first instance. Of course, we consequently express no opinion on the propriety of any such relief.
Gerfman's own request for attorney's fees is denied.
Judgment affirmed.
By the Court (Rubin, Desmond & Englander, JJ.),
The panelists are listed in order of seniority.
/s/
Clerk Entered: December 14, 2020.