Arapaho Owners Ass'n, Inc. v. Alpert

• Decision Date: 10 July 2015
• Docket Number: No. 14–120.,14–120.
• Citation: 128 A.3d 397
• Parties: ARAPAHO OWNERS ASSOCIATION, INC. and Mark Kattalia v. Linna ALPERT, et al.
• Court: Vermont Supreme Court

128 A.3d 397

ARAPAHO OWNERS ASSOCIATION, INC. and Mark Kattalia

v.Linna ALPERT, et al.

No. 14–120.

Supreme Court of Vermont.

July 10, 2015.

Paul S. Gillies of Tarrant, Gillies, Merriman & Richardson, Montpelier, for Plaintiffs–Appellants.

Jon S. Readnour of Readnour Associates, P.C., Rutland, for Defendants–Appellees.

Present: SKOGLUND and ROBINSON, JJ., and PEARSON and TOMASI, Supr. JJ., and MORRIS, Supr. J. (Ret.), Specially Assigned.

SKOGLUND, J.

¶ 1. Initially, this case appeared to require reconciliation of language in a condominium declaration, the Vermont Condominium Ownership Act (VCOA), and the Vermont Common Interest Ownership Act (VCIOA). After untangling the facts and the statutes, however, we resolve the matter in a more straightforward manner. We affirm.

¶ 2. The case began its journey through the legal system when the Board of Directors of the Arapaho Owners Association (BOD), appellant here, petitioned for a declaratory judgment seeking to reform the condominium's declaration to reflect the actual number of condominium units built and to allocate ownership interests among the units. The following facts are necessary to an understanding of the issues presented.

¶ 3. The Arapaho Village Condominium (Arapaho Village) in Ludlow, Vermont, was created in 1979, pursuant to the VCOA. 27 V.S.A. §§ 1301 –1365. According to the Declaration of Condominium (Declaration), when initially conceived, Arapaho Village was to consist of fifty units. However, fifty-four units were actually built: five of the planned units each were subdivided into two "split" units, and one planned townhouse unit, 23F, was never built. Unfortunately, the master schedule of units known as Schedule D, a provision of the Declaration, was never amended to reflect the number of units built.

¶ 4. Sometime around 2008, issues were raised to the BOD concerning a disparity in assessments of common expenses, the claim being that owners of similar units were not paying the appropriate share of the same. In addition, there existed potential questions concerning marketability of title due to the subdivision of certain units and the inclusion in the Declaration of the planned unit that was never built. The BOD created a committee of owners to look at the issues and propose solutions. The committee recommended that the BOD put two amendments to the Declaration before the unit owners. The first proposed to amend the Declaration to reflect the number of units that were actually built and to recalculate each unit's ownership share. The second amendment proposed to change the formula for allocation of common expenses. The voting results brought further controversy.

¶ 5. The first amendment, which would recalculate ownership share, required 100% approval by a vote of the unit owners, which it failed to achieve. The question of whether the amendment to the common-expenses allocation was adopted was muddled by the inconsistency created by the existence of the fifty-four units. Relying on Article 15 of the Declaration, which provides that any provision in the Declaration may be amended by a 75% vote of all unit owners, the BOD believed only a 75% affirmative ownership-interest vote was required for the adoption of a new allocation formula. According to the BOD, the amendment received votes representing over 75% of the total ownership interest of units actually constructed, but less than 75% of the scheduled ownership interests, due to the absence of anyone voting the allocated interest of un-built Unit 23F. Notwithstanding the uncertainty of the voting results, the BOD declared the vote legally sufficient and prepared a document captioned "Amendment to Declaration of Unit Ownership of Arapaho Village Condominium Reallocating Annual Common Expenses" (2010 Schedule D) and filed it in the Ludlow land records.

¶ 6. Attorneys were summoned. Apparently, the BOD was informed by its counsel that the 2010 Schedule D was not legal, as it violated §§ 1306(b) and 1310 of the VCOA. Further, the failure of the first amendment left the title problem unresolved.

¶ 7. The BOD, on behalf of the Association, brought an action in the superior court seeking to reform the Declaration to reflect the units actually built and to restate each unit's ownership share in the common areas according to the new formula that allegedly was adopted in the second amendment. The BOD in its complaint also sought a declaratory judgment to clear title to the existing units. Several owners of the split units, appellees here, opposed the request for reformation, and also filed a counterclaim seeking a declaration that the second amendment failed because it, like the first amendment, required unanimous approval under VCOA § 1306(b). Appellees in their counterclaim also sought an injunction and money damages, claiming their assessments had been illegally increased by the new formula. The BOD filed a motion for partial summary judgment on the reformation issue, and appellees filed a cross-motion for summary judgment seeking a ruling as a matter of law that the second amendment did not pass.

¶ 8. In its decision, the trial court noted that all parties agreed the percentage of undivided interest for a unit owner had a permanent nature that could not be altered without the consent of all of the unit owners. Thus, there was no dispute the amendment to change the ownership shares failed because it did not receive unanimous consent as required by § 1306(b) of the VCOA.¹ In considering the effectiveness of the second amendment, which attempted to create a new formula for assessments of common expenses, the court recognized that the analysis required "unraveling the tangled interplay between the Arapaho Village declaration and two separate condominium acts: the VCOA, and the newer [Vermont] Common Interest Ownership Act [VCIOA], 27A V.S.A. §§ 1–101 et seq., which became effective in 1999."²

¶ 9. The court first considered Article 7 of the Declaration, which, as noted above, provided that common expenses would be allocated according to the same value-based formula that determines the ownership interest of each unit in the common areas. The court also looked at Article 15 of the Declaration, which provides that any provision in the Declaration may be amended by a 75% vote of all unit owners. While appellees argued that Arapaho Village could not amend the formula used to allocate common expenses except by the unanimous-consent requirement set forth in the VCOA § 1306(b), the court disagreed. The court opined that § 1306(b) applied only to an amendment that would alter each unit's declared ownership share of the common areas, and not to an amendment such as one that changed the allocation formula formerly prescribed by § 1310. Finding no procedural requirement stated in § 1310,³ the court reasoned that Arapaho Village could amend its Declaration to adopt a new allocation formula for common expenses so long as the amendment is approved by more than 75% of the unit owners.

¶ 10. Then the court folded in consideration of the VCIOA, which became effective in 1999. The VCIOA made a major adjustment to association management by permitting associations to choose different formulas for allocating common expenses and not limiting them to the traditional "value" calculation. Comments, 27A V.S.A. § 2–107. The court found that, under the VCIOA, Arapaho could amend its declaration to state a new formula for the allocation of common expenses, even though that was not possible under the VCOA § 1310. Id. § 1–206(a).⁴ With this understanding, the court denied appellees' motion for partial summary judgment.

¶ 11. The court also denied the BOD's motion for partial summary judgment, which sought reformation of the Declaration to reflect the actual number of units that were built and to restate each unit owner's ownership share of common expenses according to the amended formula as proposed. The court held that reformation would only be appropriate if there was evidence to determine the original intent of the parties. The court suggested that, if reformation was appropriate at all, the percentage interest in the common areas had to be calculated according to "some formula that was agreed upon by the parties prior to the mistake—most likely the ‘value’ formula."

¶ 12. Appellees filed a motion for reconsideration, in which they argued, for the first time, that the VCIOA does not permit amendments to the allocation of common expenses by anything less than unanimous consent. The court denied the motion.

¶ 13. The BOD next sought summary judgment on the question of whether the second proposed amendment (regarding allocation of common expenses) received the number of votes necessary for approval. Appellees, in their response, argued again that the VCIOA § 2–117(d) requires unanimous consent for amendments to the allocation of common expenses. They filed their own motion for partial summary judgment. With a different judge presiding, the court then concluded that the original summary judgment ruling was flawed. It held that VCIOA required that any amendment to the Declaration to use a formula other than the value formula for allocating common expenses be unanimous under § 2–117(d). And, so, the court concluded that the second amendment (to change the formula for allocating common expenses) did not receive the necessary number of votes for approval.

¶ 14. Further, the court agreed with the first summary judgment decision that the equitable powers of the court to reform an erroneous condominium declaration could be used only to give effect to the original bargain that was struck between the developer and the unit owners. Thus, the second amendment could not be ratified by resort to equitable principles. The court granted appellees' motion for summary judgment, holding that the second amendment did not receive the number of votes necessary for approval and that the certification of amendment was void.

¶ 15. Next, the BOD filed a motion for further...