Canyon Custom Home Builders Inc. v. Somerset Condo. Ass'n

• Decision Date: 31 January 2022
• Docket Number: 20-CV-1327
• Parties: CANYON CUSTOM HOME BUILDERS, INC., et al., Plaintiffs, v. SOMERSET CONDOMINIUM ASSOCIATION, INC., Defendant.
• Court: U.S. District Court — Eastern District of Wisconsin

CANYON CUSTOM HOME BUILDERS, INC., et al., Plaintiffs,
v.
SOMERSET CONDOMINIUM ASSOCIATION, INC., Defendant.

No. 20-CV-1327

United States District Court, E.D. Wisconsin

January 31, 2022

DECISION AND ORDER

WILLIAM E. DUFFIN, U.S. MAGISTRATE JUDGE

1. Procedural History

Canyon Custom Home Builders, Inc. and Sheri W. Greenberg^[1] seek to purchase and develop eight vacant lots that are part of the Somerset Condominium Association. Canyon, however, will not proceed unless it confirms the Association's rules do not bar its plans. Having failed to obtain the Association's approval of its plans, Canyon asks the court to declare that it does not need the Association's approval. (ECF No. 25.)

All parties have consented to this court in accordance with 28 U.S.C. 636(c). (ECF Nos. 10, 11.) The court has jurisdiction pursuant to 28 U.S.C. § 1332. The court previously found that Canyon presented a justiciable controversy and had standing to seek a

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declaratory judgment. Canyon Custom Home Builders v. Somerset Condo. Ass'n, No. 20-CV-1327, 2021 U.S. Dist. LEXIS 250821 (E.D. Wis. Feb. 26, 2021).

Canyon seeks summary judgment because, it argues, the Association does not have the authority to reject Canyon's plans. (ECF No. 36 at 1.) The briefing on this motion is complete, and the matter is ready for resolution.

2. Facts

Somerset was created in 1977 when the Developer, Lake Geneva Bath and Tennis Club, Inc., recorded a declaration. (ECF No. 47, ¶1.) In doing so, the Developer divided the property into units, which eventually totaled 37. (ECF No. 41, §§ 3, 9.) While most of the lots were designated for the development of single-family homes, the lots that Canyon seeks to develop-units 1-4 and 28-31-were designated for the development of multi-family buildings. (ECF No. 47, ¶¶ 4, 5, 10.)

The Declaration created an association comprised of all the unit owners. (ECF No. 39-1 at 20, § 6.01.) The Association was governed by and acted through a board. (ECF No. 39-1 at 20, §§ 6.01, 6.02.^[2]) The Board was empowered to take various actions, including to create certain rules for the "maintenance, conservation and beautification" of the Condominium property and the "health, comfort, safety, and general welfare" of the Condominium property's occupants. (ECF No. 47, ¶¶ 14-15.)

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The Declaration included a provision requiring the Developer to approve new construction of undeveloped "Individual Grounds." (ECF No. 47, ¶ 20.) Although the Developer could assign this authority to the Board, it never did so. (ECF No. 47, ¶ 21.)

In 1997 the Association approved Design Review Guidelines and created a Design Review Committee. (ECF No. 47, ¶¶ 36-41; see also ECF No. 39-13 at 3.) Although the minutes of the meeting adopting the Guidelines reflect an intent to amend the Declaration to incorporate the Guidelines (ECF No. 47, ¶ 40), the Board did not follow the procedures necessary for amending the Declaration (which required approval of three-fourths of the unit owners, notice to all mortgagees, and recording with the county), and the Declaration was not actually amended. (ECF No. 47, ¶¶ 41-42.) The Guidelines were modified in 2006 (ECF No. 47, ¶¶ 43-45) and again in 2012 (ECF No. 47, ¶¶ 46-51), but again the Declaration was not amended to include the Guidelines (ECF No. 47, ¶ 47).

3. Summary Judgment Standard

"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A fact is "material" only if it "might affect the outcome of the suit" and a dispute is "genuine" only if a reasonable factfinder could return a verdict for the non-movant. Anderson v. Liberty Lobby Inc., 477U.S. 242, 248 (1986). In resolving a motion for summary judgment, the court is to "construe all evidence and draw all reasonable inferences from the evidence in" favor of the non-movant. E.Y. v. United States, 758 F.3d 861, 863 (7th Cir. 2014)

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(citing Gil v. Reed, 535 F.3d 551, 556 (7th Cir. 2008); Del Raso v. United States, 244 F.3d 567, 570 (7th Cir. 2001)). "The controlling question is whether a reasonable trier of fact could find in favor of the non-moving party on the evidence submitted in support of and [in] opposition to the motion for summary judgment." White v. City of Chi, 829 F.3d 837, 841 (7th Cir. 2016).

4. Analysis

4.1. The Board's Authority

Canyon argues that the power to exercise architectural control over the development of condominium units is not and never has been a power of the Association under the Declaration. (ECF No. 37 at 13.) Rather, under § 14.13 of the Declaration only the Developer has the right to consider and approve proposals for the construction of structures in the condominium. (ECF No. 37 at 10.) Although the Declaration authorized the Developer to assign this authority to the Board, the Developer did not do so. (ECF No. 37 at 11.) And unlike Association powers, which the Developer maintained for a period of time before they automatically transferred to the Association, the Developer's right of architectural control did not automatically transfer to the Association. (ECF No. 37 at 13.)

Rather than acknowledging that, to develop the lots at issue, it needs the approval of the Developer (which presumably is defunct (ECF No. 25, ¶19)), Canyon argues that the Developer's authority to exercise architectural control under § 14.13 of the Declaration

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has expired pursuant to state law.^[3] (ECF No. 37 at 13.) And although the Developer's authority to exercise architectural control has expired, Canyon contends that the allocation of control to the Developer in the Declaration blocks the Association from now exercising that control. In other words, aside from the handful of restrictions included in the Declaration regarding obstruction of common elements, hazardous uses and waste, awnings, canopies, shutters, antennas, animals, nuisances, impairment of the structural integrity of buildings, laundry, garbage, baby carriages, playpens, bicycles, wagons, business activities, alterations of common elements, parking, occupancy, rentals, exterior lighting, grills, draperies, curtains, screens, and motor vehicles (ECF No. 39-2 at 4-6, § 8.01), there are no limits on what may be built on condominium property. In Canyon's view, if the Association wants to impose limits on what may be built on condominium property, it must amend the Declaration (ECF No. 37 at 14), which requires approval by at least three-fourths of all the owners, notice to all mortgagees, and recording with the county (ECF No. 39-2 at 17, § 14.07).

Canyon accurately notes that courts have often stated that Wisconsin's public policy favors the free use of property. (ECF No. 37 at 11-12 (citing Pertzsch v. Upper Oconomowoc Lake Ass'n 2001 WI.App. 232, ¶17, 248 N.W.2d 829, 635 N.W.2d 829; Dodge v. Carauna, 127 Wis.2d 62, 65, 377 N.W.2d 208, 210 (Ct. App. 1985); Crowley v. Knapp, 94 Wis.2d 421, 434, 288 N.W.2d 815, 822 (1980)).)

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However, none of the cases it cites for this general principle involved the unique property ownership arrangement of a condominium. "Condominium ownership is a statutory creation that obligates individual owners to relinquish rights they might otherwise enjoy in other types of real property ownership." Apple Valley Gardens Ass'n v. MacHutta, 2009 WI 28, ¶ 17, 316 Wis.2d 85, 96, 763 N.W.2d 126, 131.

Under Wisconsin's Condominium Ownership Act, "[t]he provisions of any condominium instruments and bylaws filed under [the Act] shall be liberally construed to facilitate the creation and operation of the condominium." Wis.Stat. 703.30(2). Similarly, the Declaration itself states that its provisions "shall be liberally construed to effectuate its purpose of creating a uniform plan for the development and operation of a first class condominium residential development." (ECF No. 39-2 at 17, § 14.10.)

The only construction of the Declaration that is consistent with these provisions is that the Association was permitted to exercise architectural control after the Developer was no longer able to do so. To read the initial, temporary allocation of architectural control to the Developer as a bar to the Association later exercising such authority unless it amended the Declaration is unreasonable and inconsistent with the Declaration's stated purpose of "creating a uniform plan for the development" of the condominium. (See also ECF No. 39-1 at 1 (noting that the Declaration is intended "for the purpose of enhancing

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and protecting the value, desirability, appearance, and aesthetics of the property.").) Architectural control is integral to ensuring uniformity of the development.

The Association's powers were not limited to those specified in the Declaration. The Declaration explicitly authorized the Board to exercise other powers provided by law. (ECF No. 39-1 at 22, § 6.07.) Wisconsin's Condominium Ownership Act provides that an association has the authority, "[s]ubject to any restrictions and limitations specified by the declaration," to "[g]rant or withhold approval of any action by a unit owner or other person which would change the exterior appearance of the unit or of any other portion of the condominium." Wis.Stat. § 703.15(3)(b)7.

The Association chose to exercise this authority through the enactment of rules. Just as Wisconsin law authorizes condominium associations to enact rules, see Wis. Stat. § 703.10(1), the Declaration so authorizes the Association (ECF No. 39-1 at 22, § 6.07(e)). And Canyon concedes as much. (ECF No. 49 at 1.) The Act does not state that an association can exercise architectural control only through its bylaws or declaration. By not specifying how such architectural control may be exercised, the implication is that an association may do so through either its declaration, bylaws, or rules.

An association, however, cannot...