Opinion
EF2020-68068
07-28-2020
John B. ZOLLO and Kathryn Zollo, Plaintiffs, v. ADIRONDACK LODGES HOMEOWNERS ASSOCIATION, INC. and Adirondack Lodges Homeowners Association Board of Directors, Defendants.
Law Offices of John B. Zollo, P.C., Smithtown (John B. Zollo, of counsel), for plaintiffs. Wilson Elser Moskowitz Edelman & Dicker LLP, Albany (Peter Lauricella and Christopher A. Priore, of counsel), for defendants.
Law Offices of John B. Zollo, P.C., Smithtown (John B. Zollo, of counsel), for plaintiffs.
Wilson Elser Moskowitz Edelman & Dicker LLP, Albany (Peter Lauricella and Christopher A. Priore, of counsel), for defendants.
Robert J. Muller, J.
On July 27, 2020 the Court entered an Order to Show Cause which, following oral argument, granted a temporary restraining order following a hearing in compliance with Uniform Rules for Trial Courts ( 22 NYCRR) § 202.7 (f) and pending a future hearing on the application for a preliminary injunction in this declaratory judgment action. In order to offer guidance to the parties the Court sets forth its analysis of the facts upon which this temporary restraint has been informed.
Plaintiffs John B. Zollo and Kathryn Zollo are the owners of a residential lot known as "Lot 1" in the Mill Creek Subdivision on the shores of Schroon Lake in the Town of Horicon, Warren County. This property is subject to a certain "Restated Declaration of Protective Covenants, Conditions, Restrictions, Easements, Charges and Liens" (hereinafter Declaration) enforced by Adirondack Lodges Homeowners Association, Inc. (hereinafter the HOA), a non-profit corporation governing 24 residential lots and 58 townhouse units.
The residential lots are apparently also subject to the Declaration and By-Laws of the Mill Creek Homeowners Association, Inc., but these regulations are not relevant to the instant action.
Pursuant to § 5.01 of the Declaration, the owner of each residential lot and townhouse unit is responsible for paying "[a]nnual [a]ssessments of charges for the maintenance and operation of the [p]roperty; and [sp]ecial assessments for capital improvements." § 5.03 of the Declaration — which pertains to maintenance assessments — states as follows:
"The purpose of the [m]aintenance [a]ssessments shall be to fund the maintenance, repair, replacement and improvement of the [p]roperty and the promotion of the recreation, safety and welfare of the [o]wners, including but not limited to [t]he facilities included in [§] 6.01 hereof ...; [l]egal, architectural, engineering and other professional fees and disbursements; and [s]uch other needs as may arise and which the Board of Directors deems appropriate or desirable."
§ 6.01 of the Declaration then provides that "all maintenance, repair and replacement of the [b]uildings ... and the maintenance, repair and replacement of the roadways, walkways, signage, if any, septic and water systems, tennis courts, beach, harbor[sic] and all property up to the exterior foundations of the [u]nits, and the exterior of the [t]ownhouse [u]nits, including the decks and roofs and all other [HOA p]roperty shall be the responsibility of ... the [HOA]."
§ 5.06 of the Declaration — which pertains to special assessments — provides as follows:
"[T]he [HOA] may levy a [s]pecial [a]ssessment for the purpose of defraying, in whole or in part, the cost of any capital improvements, including without limitation, the construction, reconstruction, replacement or repair of a capital nature to the [p]roperty, including the necessary fixtures and personal property related thereto. Any [s]pecial [a]ssessment for the construction (rather than reconstruction or replacement of any capital improvement, or for any [s]pecial [a]ssessment amounting to more than twenty-five percent (25%) of the then current amount of annual [m]aintenance [a]ssessments, the consent of [o]wners by an affirmative vote of sixty percent (60%) of the [a]uthorized [v]otes cast in person or by proxy by those owners to be subject to such [s]pecial [a]ssessment at a meeting duly called for this purpose, must be obtained. Written notice of such meeting shall be sent to all [o]wners to be subject to such [s]pecial [a]ssessment at least thirty (30) days in advance, setting forth the purpose of the meeting."
On or about May 1, 2020, defendant Adirondack Lodges Homeowners Association Board of Directors (hereinafter the Board) sent an invoice to plaintiffs, as well as all other HOA members, for an "A3 Capital Assessment" in the amount of $3,750.00. According to plaintiffs, the annual maintenance assessment is $250.00, this invoice reflecting a special assessment of $3,500.00. Plaintiffs contend that this special assessment is intended to fund a capital improvement, namely reconstruction of the boat harbor wall which — pursuant to § 15.03 of the Declaration — provides boat slips for the owners of Lots 5, 6, 7, 8 and 9 in the HOA, as well as the owner of another residential lot and the owners of all townhouse units. Pursuant to § 15.01 of the Declaration, the owners of Lots 1, 2, 3 and 4 have docking rights on a separate parcel of land within the HOA and "shall have no boat rights to the [boat h]arbour area adjacent to Mill Creek." Plaintiffs contend that the boat harbor reconstruction project has a total cost of $1,200,000.00, and that defendants were required to hold a meeting pursuant to § 5.06 of the Declaration to secure the required vote and consent of 60% of all HOA members before imposing the special assessment. Plaintiffs refused to pay the special assessment and the HOA then imposed late fees.
§ 1.01 (y) of the Declaration defines a "[m]ember" of the HOA as "[t]he [o]wner of a [u]nit" [Declaration, at p 4]. § 1.01 (w) then defines "unit" as including both residential lots and townhouse units.
Plaintiffs also contend that — in furtherance of going forward with the boat harbor project — the Board retained the services of engineering firm C.T. Male Associates (hereinafter C.T. Male) without securing any competitive bids. According to plaintiffs, the President of the Board, Michael Sposili, is the Executive Director of Alumni Relations and College Events for Skidmore College and "C.T. Male has worked on major projects for [the] College and has a professional relationship with the College." Plaintiffs contend that the Board failed to obtain competitive bids "in large part because of the professional relationship between Sposili, Skidmore College and C.T. Male."
Plaintiffs commenced this action by the filing of a summons and complaint on July 22, 2020, seeking a declaratory judgment that imposition of the $3,500.00 portion of the assessment is invalid. Plaintiffs also assert several causes of action for breach of fiduciary duty in connection with imposition of the assessment and the retainer of C.T. Male. Presently before the Court is plaintiffs' motion by Order to Show Cause — filed simultaneously with the summons and complaint — which seeks a preliminary injunction prohibiting defendants from imposing special assessments or late fees on HOA members to repair and reconstruct the boat harbor wall without securing the required vote and consent of 60% of the HOA members. Plaintiffs also request a TRO pending the return date of the motion which not only prohibits the imposition of the assessment, but also enjoins the Board from awarding any contracts or authorizing any work to be performed on the boat harbor — including engineering work — until such time as a meeting is held and a formal vote taken. This application for a TRO is addressed herein, with the merits of the motion to be addressed following the later return date.
In order to expedite the briefing for argument the Court accepted defense counsel's correspondence dated June 24, 2020, which correspondence was sent to plaintiffs prior to commencement of the action and outlines defendants' position relative to the assessment and the retainer of C.T. Male. Insofar as the assessment is concerned, counsel for defendants states as follows:
"[T]he [HOA] offering plan ... established two operating budgets. Those budgets are: (i) Schedule ‘A-2’ for [t]ownhome-specific operations and infrastructure such as the roads, exterior of the [t]ownhome buildings, the roofs, water system, and septic system ...; and (ii) Schedule ‘-3’ for operations and infrastructure of the ‘menities,’ including the harbor [sic]."
Counsel then states that
"maintenance, repair, and replacement of the [h]arbor [sic] has (as is required under the Declaration) been funded directly from issued annual A-3 Maintenance Assessments. To the extent the [h]arbor [sic] requires a repair or replacement, the Board can fund that effort by way of an annual [m]aintenance [a]ssessment. Nothing in the Declaration requires the Board to issue a ‘[s]pecial [a]ssessment’ under these circumstances."
Although there is nothing in this correspondence to indicate the expected cost of repair to the boat harbor wall, at oral argument counsel confirms that plaintiffs' estimate of $1,200,000.00 is accurate. At this early juncture the Court finds this to be in the apparent realm of a capital improvement — as opposed to annual maintenance.
In any event, insofar as C.T. Male is concerned, counsel states as follows:
"In or around 2018 the Board solicited two proposals from structural engineering firms for a preliminary study of the [h]arbor [sic] to determine the necessary course of action for ensuring the integrity, operation and maintenance of the [h]arbor [sic] going forward. The two bidders were: C.T. Male ... and Thornton Thomasetti....
"Ultimately, it was determined by the Board that C.T. Male would be the successful bidder as a result of several factors, including but not limited to: (i) its proposal was more comprehensive than [Thomasetti's]; and (ii) C.T. Male was seen as having an effective working relationship with the Adirondack Park Agency, exemplified by [its] work as engineer of record on the Frontier Town redevelopment project....
"To be crystal clear, no Board member has a ‘relationship’ with C.T. Male such that they were treated differently or more favorable in the Board's deliberation over the two bids received for the project."
A TRO "achieves[ ] the salutary purpose of maintaining the status quo" ( Pantel v. Workmen's Circle/Arbetter Ring Branch 281 , 289 A.D.2d 917, 918 [2001] ; see Matter of New York State Crime Victims Bd. v. Jackson , 4 A.D.3d 710 [2004] ) and "may be granted pending a hearing for a preliminary injunction where it appears that immediate and irreparable injury, loss or damage will result unless the defendant[s are] restrained before the hearing can be had" ( CPLR 6301 ; see Pantel v. Workmen's Circle/Arbetter Ring Branch 281 , 289 A.D.2d at 918 ).
Here, the immediate and irreparable injury sought to be avoided appears to be largely monetary. Plaintiffs wish to avoid payment of the $3,500.00 assessment and the late fees which have now been imposed by the HOA, alleging that the assessment violates the terms of the Declaration. Again, at this early juncture there is not sufficient information to determine whether the assessment constitutes a special assessment in violation of the Declaration — as plaintiffs contend — or a maintenance assessment authorized by the Declaration — as defendants contend. Indeed, this issue is at the very heart of the dispute.
At argument the Court was assured that construction on the boat harbor project is not imminent but that the HOA may be planning to impose additional assessments with respect to the project in the near future. In this posture the temporary restraining order is granted to the extent that defendants are prohibited from taking any enforcement action against plaintiffs or any other HOA members who refused to pay the $3,500.00 assessment pending the outcome of this motion. Notably, seventy six of the seventy eight HOA members have paid this assessment and the association is holding approximately $266,000.00 in its accounts. The $3,500.00 portion of the assessments already paid to the HOA shall be held in defense counsel's escrow account pending the outcome of the motion with the temporary restraining being otherwise denied.
IT IS SO ORDERED
The above constitutes the Decision and Order of this Court.