Opinion
No. CV08 4031022S
October 17, 2008
MEMORANDUM OF DECISION RE MOTION TO REARGUE
BACKGROUND
This action arises out of a dispute between the plaintiff condominium association and the defendant, a unit owner and member of the association, concerning construction and a planned change of use on the defendant's property. This decision follows a prior decision issued by the court (Meadow, J.) on June 5, 2008, in which the court denied the plaintiff's motion to continue an ex parte injunction originally ordered by the court (Silbert, J.) on April 29, 2008. On June 24, 2008, the plaintiff filed a motion to reargue the court's decision to deny the temporary injunction.
At a hearing held on August 4, 2008, concerning the plaintiff's motion to reargue, the court requested that the parties file briefs limited to the following issue: whether the court should grant the plaintiff's application to enjoin the defendant from performing any work or construction for the purpose of or with the intent of creating a child daycare and recreation center, on the ground that such use would be in violation of the plaintiff association's governing documents and the association's denial of the defendant's change of use request. In accordance with the court's order, the defendant filed its response to the plaintiff's motion to reargue on August 18, and the plaintiff filed a memorandum of law in support of its motion on August 25.
DISCUSSION
The heart of this dispute lies in a matter of law, namely: by what standard should the court review a decision of a condominium association ostensibly made pursuant to its governing documents? In Part I of this decision, the court will briefly restate the relevant facts that now require the court to address this question of law. In Part II of this decision, the court will lay out the case law that guides the court's decision and apply the facts of this case to the governing standards.
I
The court's decision of June 5, 2008, set forth the court's findings on a number of factual issues. The court assumes familiarity with those findings, but will restate those facts that pertain to the present issue for convenience and clarity. The findings of fact described below are controlling on this matter.
The defendant, SKF Leeder Hill, LLC (SKF), is a unit owner and member of the plaintiff Powder Farm Park Association, Inc. (Powder Farm), a non-residential condominium association. The other three unit owners are, or were at the time this dispute arose, Milso Industries (Milso), Pipeology, and Citatrella. The association is governed by a condominium declaration, by-laws and regulations (governing documents) (Exh. 3). The governing documents contain the following relevant sections:
Condominium Declaration, Article X, Section 10.1(a): Each Unit is restricted to light industrial use and appurtenant general office. Absolutely no residential or retail use shall be permitted. In addition, all uses shall comply with the uses permitted under the Zoning Regulations of the Town of Hamden.
Condominium Declaration, Article XXIV, Section 24.1: All Unit Owners, tenants, mortgagees and occupants of Units shall comply with the Declaration. The acceptance of a deed or the exercise of any incident of ownership or the entering into of a lease or the entering into occupancy of a Unit constitutes agreement that the provisions of the Declaration are accepted and ratified by such Unit Owner, tenant, mortgagee or occupant, and all such provisions are covenants running with the land and shall bind any Persons having at any time any interest or estate in such Unit.
Condominium Declaration, Article XXIV, Section 24.2: "The Executive Board may adopt Rules regarding the use and occupancy of Units, Common Elements, and Limited Common Elements and the activities of occupants, subject to Notice and Comment.
Association By-Laws, Article II, Section 2.2: "The Executive Board may act in all instances on behalf of the Association, except as provided in the Declaration, the By-Laws, or the Act. The Executive Board shall have the powers and duties necessary for the administration of the affairs of the Association and of the Common Interest Community which shall include, but not be limited to, the following: . ."
Association By-Laws, Article II, Section 2.12: At all meetings of the Executive Board, a majority of the members shall constitute a quorum for the transaction of business, and the votes of a majority of the members present at a meeting at which a quorum is present shall constitute the decision of the meeting . . .
Association By-Laws, Article III, Section 3.9: "Except as otherwise provided in these By-Laws, the Unit Owners present in person or by proxy, at any meeting of Unit Owners shall constitute a quorum at all meetings of the Unit Owners."
Association By-Laws, Article III, Section 3.10: "The Vote of a Majority of the Unit Owners present in person or by proxy at a meeting at which a quorum shall be present shall be binding upon all Unit Owners for all purposes except where in the Declation [sic] or these By-Laws or by law, a higher percentage Vote is required."
Rules and Regulations, Article I, Section A.2.: Each Unit shall be used only as a light industrial and appurtenant office use as provided for in the Declaration or except as otherwise approved pursuant to the Declaration.
On May 11, 2007, the Executive Board (EB) convened a meeting to consider a request by SKF to change the use of its property to a daycare center. By a 2-1 vote, the EB granted a conditional approval for SKF to change its use. On this date, the EB was comprised of Scott Pontone of Milso, Tim Huntington for Citatrella, and Craig Perigard of Pipeology. Pontone and Huntington voted in favor of granting the conditional approval, and Perigard voted against it. (Exh. A). In its approval, the EB set forth the following relevant conditions, in a document titled "Conditions for Approval of SKF Change of Use" (Exh. A, emphasis as in original):
The association would only grant conditional approval of the proposed change of use prior to Town approval. Final association approval will be required, and will be considered after review of Town approval. Any association approval limited exclusively to use change expressly requested by SKF, and no other.
Prior Town approval of special permit for changed use required. SKF is subject to and bound by all terms and conditions of such approval, and failure to comply with any terms or conditions at any time is ground for immediate association termination or suspension of approval of SKF use, in association's discretion.
If Town approval is obtained for such a change of use, a copy of the Town approval will be given promptly to the executive board of the association to review. If any condition imposed by the Town would adversely impact upon the association or would interfere with the normal operation or business of the association or any of its unit owners, or cause additional cost or expense to the association or any of the unit owners, the association can vote to rescind its conditional approval.
The EB clearly required SKF to obtain final approval from the association after obtaining Town approval for the proposed change of use. Although the EB's conditional approval contains limitations that would hint at converting the conditional changed use to a permanent changed use depending on the Town's requirements, it explicitly requires "final association approval." Furthermore, the requirement for final association approval was restated prominently in the body of an email titled "EB Meeting Minutes" and sent to each of the unit owners on May 23 and 24, 2008 (Exh. A).
SKF subsequently obtained approval for a special permit from the Hamden Planning and Zoning Commission (Exh. B). On August 15, 2007, after SKF had obtained the special permit, an EB meeting was held to address SKF's request for a final decision concerning the change of use. The EB recommended against approval by a 2-0 vote. The record is unclear as to the composition of the EB at this juncture. Conflicting testimony was provided by Richard Lipuma — who, at various points over the course of the past two years, acted as consultant to the EB, secretary of the EB, property manager of the association, and eventually a member of the EB — as to whether he was a voting member of the EB on August 15, 2007. The court finds that the most credible piece of evidence on this issue is a near-contemporaneous email sent by Lipuma to each of the unit owners and the association's attorney on August 16, 2007, one day after the EB meeting in which the EB recommended against approval (Exh. 4). The email states that EB members Scott Pontone and Craig Perigard voted against approval and EB member Tim Huntington was unavailable (Exh. 4). Thus, the EB had the same member composition as at the time of the EB vote to grant conditional approval on May 11, 2007, and Lipuma was not a voting member at that time. The composition of the EB is of some significance, as SKF has provided credible evidence of a conflict of interest between Lipuma and SKF prior to this vote.
On September 6, 2007, the four unit owners voted 3-1 against final approval, with SKF casting the only vote in favor (Exh. 5). Despite the failure to obtain approval from the unit owners, SKF acquired additional work permits from Hamden and commenced construction. On April 9, 2008, the association's counsel sent SKF a cease and desist letter (Exh. 1). The plaintiff's application for an ex parte injunction was granted on April 29, 2008 (Silbert, J.).
II A. Standard of Judicial Review of Condominium Association Decisions
The initial legal issue before the court concerns the weight to give to the association's decisions to first conditionally grant and then deny approval of SKF's requested change of use. Connecticut appellate courts have not authoritatively established the appropriate standard for judicial review of a condominium association's action, therefore the court may "look for guidance to other jurisdictions that have considered" the issue. Weldy v. Northbrook Condominium Association, Inc., 279 Conn. 728, 737, 904 A.2d 188 (2006). There are two prevailing standards in other jurisdictions. The first is a general reasonableness test. In short, it requires that the actions of the governing body of a condominium be reasonable. 31 C.J.S. 276, Estates § 259 (2008). In assessing reasonableness, the court balances the rights of an individual unit owner against the rights of the community. Id. The second standard utilizes an analogy to the business judgment rule, under which a court will only review whether board action was authorized, and whether it was taken in good faith and in furtherance of legitimate condominium interests. Id.; see Levandusky v. One Fifth Avenue Apartment Corp., 75 N.Y.2d 530, 538, 553 N.E.2d 1317, 554 N.Y.S.2d 807 (1990). As with the business judgment rule in corporate contexts, the court will only prohibit authorized action when it finds that there has been fraud, self-dealing, or unconscionable conduct. Id.; 31 C.J.S. 276, Estates § 259 (2008).
In this case, the plaintiff argues for the application of a business judgment rule analogy, and suggests that the Connecticut Supreme Court hinted at its approval in Weldy v. Northbrook Condominium Association, Inc., 279 Conn. 728, 904 A.2d 188 (2006). The defendant argues that the business judgment rule should not be applied because it has not previously been applied in this context by Connecticut courts, and that even if this court should decide that it is the appropriate standard, that it should not be used in this case because there are conflicts of interest that undermine its applicability.
In Weldy v. Northbrook Condominium Association, Inc., 279 Conn. 728, 904 A.2d 188 (2006), the Supreme Court addressed for the first time the power of a condominium association's board of directors to enact rules and regulations governing a condominium community. The Weldy decision is not directly applicable to this case, where the question concerns the appropriate standard of judicial review when evaluating condominium association decisions, although it may be noted that the Weldy court took a favorable view towards a broad interpretation of association powers derived from an association's governing documents: "[A] broad view of the powers delegated to the condominium's board of directors is consistent with the principle inherent in the condominium concept . . . that to promote the health, happiness, and peace of mind of the majority of the unit owners since they are living in such close proximity and using facilities in common, each unit owner must give up a certain degree of freedom of choice which he might otherwise enjoy in separate, privately owned property. Condominium unit owners comprise a little democratic sub society of necessity more restrictive as it pertains to [the] use of condominium property than may be existent outside the condominium organization." Id., 737-38.
The court agrees with the defendant that the business judgment rule, insofar as it has been defined and applied previously by Connecticut courts to insulate corporate directors from liability for business decisions, should not be applied in this instance. However, the business judgment rule by analogy is appropriately applied to review decisions of a condominium association. This court agrees with the reasoning of the Court of Appeals of New York in Levandusky v. One Fifth Avenue Apartment Corp., supra, 75 N.Y.2d 530, and its progeny cases, see, e.g., 40 W. 67th St. Corp. v. Pullman, 100 N.Y.2d 147, 790 N.E.2d 1174, 760 N.Y.S.2d 745 (2003) (reaffirming core holding of Levandusky).
In Rosenfield v. Metals Selling Corp., 229 Conn. 771, 785-87, 643 A.2d 1253 (1994), the Supreme Court explained the business judgment rule as follows: "The business judgment rule insulates corporate directors from liability for business decisions within the power of the corporation for which the directors have exercised due care . . . The business judgment doctrine [is] a rule of law that insulates business decisions from most forms of review . . . The business judgment rule expresses a sensible policy of judicial noninterference with business decisions made in circumstances free from serious conflicts of interest between management, which makes the decisions, and the corporation's shareholders. Not only do businessmen know more about business than judges do, but competition in the product and labor markets and in the market for corporate control provides sufficient punishment for businessmen who commit more than their share of business mistakes." (Citations omitted; internal quotation marks omitted.)
In Levandusky, the court addressed the "legal question of what standard of review should apply when a board of directors of a cooperative corporation seeks to enforce a matter of building policy against a tenant shareholder." Levandusky v. One Fifth Avenue Apartment Corp., supra, 75 N.Y.2d 533. The court noted that "a standard for judicial review of the actions of a cooperative or condominium governing board must be sensitive to a variety of concerns — sometimes competing concerns. Even when the governing board acts within the scope of its authority, some check on its potential powers to regulate residents' conduct, life-style and property rights is necessary to protect individual residents from abusive exercise, notwithstanding that the residents have, to an extent, consented to be regulated and even selected their representatives . . . At the same time, the chosen standard of review should not undermine the purposes for which the residential community and its governing structure were formed: protection of the interest of the entire community of residents in an environment managed by the board for the common benefit. We conclude that these goals are best served by a standard of review that is analogous to the business judgment rule applied by courts to determine challenges to decisions made by corporate directors . . . So long as the board acts for the purposes of the cooperative, within the scope of its authority and in good faith, courts will not substitute their judgment for the board's. Stated somewhat differently, unless a resident challenging the board's action is able to demonstrate a breach of this duty, judicial review is not available." (Citations omitted.) Id., 537-38.
The court provided the following rationale for choosing the business judgment rule analogy over the reasonableness test: "The difference between the reasonableness test and the rule we adopt is twofold. First — unlike the business judgment rule, which places on the owner seeking review the burden to demonstrate a breach of the board's fiduciary duty — reasonableness review requires the board to demonstrate that its decision was reasonable. Second, although in practice a certain amount of deference appears to be accorded to board decisions, reasonableness review permits — indeed, in theory requires — the court itself to evaluate the merits or wisdom of the board's decision. The more limited judicial review embodied in the business judgment rule is preferable . . . Even if decisions of a cooperative board do not generally involve expertise beyond the usual ken of the judiciary, at the least board members will possess experience of the peculiar needs of their building and its residents not shared by the court." (Citation omitted.) Levandusky v. One Fifth Avenue Apartment Corp., supra, 75 N.Y.2d 539.
The court continued: "Several related concerns persuade us that such a rule should apply here. As this case exemplifies, board decisions concerning what residents may or may not do with their living space may be highly charged and emotional. A cooperative or condominium is by nature a myriad of often competing views regarding personal living space, and decisions taken to benefit the collective interest may be unpalatable to one resident or another, creating the prospect that board decisions will be subjected to undue court involvement and judicial second-guessing. Allowing an owner who is simply dissatisfied with particular board action a second opportunity to reopen the matter completely before a court, which — generally without knowing the property — may or may not agree with the reasonableness of the board's determination, threatens the stability of the common living arrangement." Levandusky v. One Fifth Avenue Apartment Corp., supra, 75 N.Y.2d 539-40.
"Moreover, the prospect that each board decision may be subjected to full judicial review hampers the effectiveness of the board's managing authority. The business judgment rule protects the board's business decisions and managerial authority from indiscriminate attack. At the same time, it permits review of improper decisions, as when the challenger demonstrates that the board's action has no legitimate relationship to the welfare of the cooperative, deliberately singles out individuals for harmful treatment, is taken without notice or consideration of the relevant facts, or is beyond the scope of the board's authority." Levandusky v. One Fifth Avenue Apartment Corp., supra, 75 N.Y.2d 540.
In one Connecticut case, Gallo v. Parke, Superior Court, judicial district of Hartford, Docket No. CV 03 0826885S (September 30, 2003, Shapiro, J.) (35 Conn. L. Rptr. 570), the court rejected the application of the business judgment rule by analogy to a condominium association's decision. In Gallo, however, the context was different: a unit owner sought to enforce an appurtenant covenant in superior court — a covenant it believed the board was failing to enforce — and the association's declaration expressly reserved to lot owners the right to enforce covenants via civil action. The Gallo court distinguished Levandusky on the ground that the unit owners in Levandusky consented to board governance, while the Gallo members were not so constrained, at least on the subject of court access to enforce appurtenant covenants. The court held that "under these circumstances, the business judgment rule is not applicable to the issues before the court." The Gallo decision is well reasoned, but not applicable to this case given the factual differences, such as the binding language of the association's declaration, and distinct legal posture.
Applying the business judgment rule by analogy to this case, and because SKF has effectively challenged the association's decisions on the following grounds, the court will review whether the association had authority to act to grant and deny approval of a change of use, whether the association's actions had a legitimate relationship to the welfare of the association, and whether the actions were invalidated by conflicts of interest.
With regards to the association's authority to act, the plaintiff argues that the defendant should not be permitted to use its property as a daycare center because it would be in express violation of the governing documents — particularly Article X, Section 10.1(a) of the declaration restricting use to "light industrial" — as well as the votes of the EB and the unit owners. The defendant argues that the governing documents only prohibit residential use, that the plaintiff approved the changed use in May of 2007, and that the Town's granting of SKF's special permit application demonstrates that the daycare use is consistent with the industrial use permitted generally in the zone.
The court holds that the association had the authority both to grant conditional approval and to deny final approval of the defendant's proposed change of use. Pursuant to the governing documents, the EB and unit owners have the power to administer the affairs of the association and bind unit members by their votes. Article X, Section 10.1(a) of the association's declaration plainly restricts each unit to "light industrial use and appurtenant general office." Notwithstanding the defendant's argument to the contrary, the absolute prohibition on residential and retail use in the subsequent sentence does nothing to diminish the import of the language restricting use to "light industrial."
The fact that the defendant twice sought the association's approval strongly suggests that it believed its proposed use required such approval. Furthermore, the court is not persuaded by the defendant's argument that it should gauge the definition of "light industrial" by whether or not the town approved its special permit application. The fact that a special zoning permit was required in an industrial district hedges against the defendant's argument that a daycare by definition is a light industrial use — if a special permit is required, then it may reasonably be inferred that the use would not ordinarily qualify as "industrial" in the first instance. While the Hamden planning and zoning commission may have decided that a daycare use would be consistent with the zoning of the surrounding area, it does not mean that a daycare is a light industrial use.
As the definition of "light industrial" is not clear from the context, the court looks to the dictionary definitions from the time the governing documents were drafted for guidance. R.T. Vanderbilt Co., Inc. v. Continental Casualty Co., 273 Conn. 448, 463-65, 870 A.2d 1048 (2005). The American Heritage Dictionary of the English Language (2d College Ed. 1985) defines "industry" as: "(1) The commercial production and sale of goods and services; (2) A specific branch of manufacture and trade." Although the term "industry" in this instance is modified by the term "light," it is clear to the court that a children's daycare and recreation center is simply too distinct from production or manufacturing to fall within even the broadest definition of "industry." As a result, because the defendant's proposed use fell outside the scope of the use restrictions in the governing documents and required association approval, the association was within its authority to consider and make decisions regarding the defendant's change of use request.
The defendant also challenges the legitimacy of the association's decision, arguing that the EB was improperly motivated when it denied the final change of use request. Pursuant to the business judgment rule analogy, it is only appropriate to examine whether there was a legitimate relationship to the welfare of the association; the court will not attempt to discern the motives behind the association's decision. In this case, the EB and unit owners voted on a matter concerning the use of the community property, a matter brought to them by a unit owner, and were acting within their authority in enforcing the terms of their association governing documents, as discussed above. The manner in which members use community property that is clearly restricted by the governing documents is necessarily a matter that concerns the welfare of the association. Therefore, the court will not examine the motives that the defendant alleges were behind the association decisions or the reasonableness of the association's decisions.
As the defendant has presented evidence regarding a conflict of interest between Richard Lipuma and SKF, the court will address that issue because a conflict of interest may invalidate or void a vote or transaction in which a conflicted party is involved. See Murphy v. Wakelee, 247 Conn. 396, 402-04, 721 A.2d 1181 (1998). The court, in its prior decision in this matter, found the testimony of Jeffrey Alexander, SKF's representative, to be more credible than that of the association's jack-of-all-trades, Richard Lipuma. The court adheres to this opinion, and finds that it is more likely than not that Lipuma had conflicts of interest that would have rendered any action by him in this process to be improper or unreliable. However, Lipuma was not one of the voting members of the EB, nor was he a unit owner, when those two bodies voted against final approval of the defendant's proposed change of use. Because Lipuma did not hold a vote, the votes of the EB and the unit owners were not directly tainted by his conflicts of interest. The EB's recommendation to deny SKF's final approval was ratified by all three of the other unit owners and that vote is binding on the association members pursuant to the association's governing documents. This court should not, and will not, substitute its judgment for that of the association's EB and unit owners where those parties have acted within their authority and where the only evidence of a conflict of interest concerns a non-voting member of the EB.
B. Injunctive Relief
Having concluded that the plaintiff acted within its authority and for the welfare of the association in denying the defendant's proposed change of use, the only remaining question is the proper remedy for the defendant's failure to comply with the association's decision. The plaintiff has requested that a temporary injunction enter against the defendant because the plaintiff is seeking to enforce a restrictive covenant, while the defendant argues that damages may be an adequate remedy for a violation of a restrictive covenant, and that an injunction is inappropriate where the balance of the equities favors the defendant.
"A party seeking injunctive relief has the burden of alleging and proving irreparable harm and lack of an adequate remedy at law." Lydall v. Ruschmeyer, 282 Conn. 209, 236, 919 A.2d 421 (2007). "[T]he general rule requiring that substantial irreparable injury must threaten before an injunction will issue is subject to an exception. A restrictive covenant may be enforced by injunction without a showing that violation of the covenant will cause harm to the plaintiff, so long as such relief is not inequitable." Hartford Electric Light Co. v. Levitz, 173 Conn. 15, 22, 376 A.2d 381 (1977). "When presented with a violation of a restrictive covenant, the court is obligated to enforce the covenant unless the defendant can show that enforcement would be inequitable." Gino's Pizza of East Hartford, Inc. v. Kaplan, 193 Conn. 135, 139, 475 A.2d 305 (1984).
The defendant's argument that an injunction would be inequitable hinges on the allegedly improper motivations of the EB and its secretary/consultant Lipuma in deciding to deny the final approval after granting the initial approval. For the reasons discussed in Part IIA., supra, the court will not attempt to discern the motivations of the EB where it acted within its authority and its recommendation against final approval was properly voted upon by all of the unit owners. While Lipuma may have had a conflict of interest with SKF, he did not vote and thus cannot diminish the validity of those votes. Lipuma's involvement does not rise to the level where it would be inequitable to grant injunctive relief.
The defendant's argument that damages are an adequate remedy is unavailing, as damages would not address the ongoing nature of the defendant's violation of the association's governing documents and decisions. The court, in its prior decision, was persuaded that the defendant should not be required to stop nearly-completed work on allegedly common elements of the association. Any construction work negatively impacting allegedly common elements and causing a diminution in property value could properly be compensated by damages, and an injunction would not enter to the extent that there was a risk of injury if the defendant was not permitted to complete work on the floor of its unit. The court adheres to that portion of its prior opinion concerning denying an injunction for alleged interference with common elements, but now holds that the ongoing and planned future violation of the association's governing documents and executive decisions concerning the change of use is an injury of a nature, one that cannot be remedied by damages.
CT Page 16651
CONCLUSION
The defendant agreed to be bound by the terms of the association when it became a unit owner and member of the association. The defendant initially pursued its desired outcome for a change of use via the association's managerial mechanisms, as evidenced by its request for both the initial conditional and final approval of the change of use, and the association acted in accordance with its governing documents. The court will not overrule a condominium association's decision to enforce its restrictive covenants pursuant to validly exercised authority. As the defendant willfully ignored the association's decision despite having contractually bound itself to adhere to such decision, this court will enforce the vote of the unit owners and temporarily enjoin the defendant from performing further work or construction for the purpose of creating a child daycare and recreation center.