Oberbillig v. West Grand Towers Condo. Ass'n

• Decision Date: 16 December 2011
• Docket Number: No. 09–1097.,09–1097.
• Citation: 807 N.W.2d 143
• Parties: Robert OBERBILLIG and Patricia Oberbillig and Frank Scaglione and Melba Scaglione, Appellees, v. WEST GRAND TOWERS CONDOMINIUM ASSOCIATION, Appellant.
• Court: Iowa Supreme Court

807 N.W.2d 143

Robert OBERBILLIG and Patricia Oberbillig and Frank Scaglione and Melba Scaglione, Appellees,

v.WEST GRAND TOWERS CONDOMINIUM ASSOCIATION, Appellant.

No. 09–1097.

Supreme Court of Iowa.

Dec. 16, 2011.

Thomas G. Fisher, Jr. of Parrish Kruidenier Dunn Boles Gribble Parrish Gentry & Fisher, L.L.P., Des Moines, for appellant.

Robert C. Oberbillig, Des Moines, for appellees.

WATERMAN, Justice.

Several condominium owners brought this test case to enforce their interpretation of the condominium association's bylaw requiring the preapproval of a supermajority of owners to authorize certain expenditures exceeding $25,000. We review the resulting district court ruling that voided a unanimous decision of the elected board of directors of the nonprofit West Grand Towers Condominium Association. The board approved necessary but nonemergency repairs to the Association's parking garage without a full vote by its members. The board action followed much study, a series of meetings over several years to which all member condominium owners were invited, and a legal opinion that no member vote was required. The repairs were completed at a cost of over $200,000, eight times greater than the $25,000 threshold in the bylaw.

The owners of eighty-three of the eighty-seven condominium units voluntarily paid their respective shares of the assessment for the garage repairs. Plaintiffs, Robert and Patricia Oberbillig and Frank and Melba Scaglione, owners of the remaining four units and 4.8% of the common area, withheld payment to preserve their right to challenge the expenditure. The plaintiffs sued for a judicial declaration that the board's violation of the bylaw's preapproval requirement excused their obligation to pay. All member-owners, including the plaintiffs, have continued to use the parking garage. The Association counterclaimed against plaintiffs to collect their share of the completed repairs and for attorney fees. The case was submitted on stipulated facts for a nonjury trial. The district court accepted plaintiffs' interpretation of the bylaw, rejected the Association's defenses, declined to uphold the board's actions under the business judgment rule, and denied the counterclaim. The Association appealed.

We hold the business judgment rule applies to the governance decisions of the board of this nonprofit condominium owners association when the board acts within its authority. We conclude the bylaw at issue is ambiguous and defer to the board's authority under the governing declaration to decide questions of interpretation or application of the bylaws. Accordingly, we reverse the district court and remand for entry of judgment for the Association and for further proceedings on its counterclaim.

I. Background Facts and Proceedings.

This case concerns the West Grand Towers, an eleven-story building with eighty-seven residential condominium units at 3663 Grand Avenue in Des Moines. Its common areas include a pool, attached clubhouse, and a two-level heated parking garage. The defendant, West Grand Towers Condominium Association, is a nonprofit corporation organized under Iowa Code chapter 504 as a membership corporation for the “maintenance, repair, replacement, administration, and operation” of West Grand Towers. West Grand Towers is a horizontal property (condominium) regime formed under Iowa Code chapter 499B. The Oberbilligs own Unit 506 and an undivided 1.310% interest in the common areas. Robert Oberbillig is an attorney who has lived in West Grand Towers since 1981. Frank and Melba Scaglione own Units 906–907 and Unit 108; they live in Units 906–907 and rent out Unit 108. The Scagliones own an undivided 3.491% interest in the common areas.

The governing documents for the Association are its “declaration” and bylaws. The owners of the condominium units are voting members of the Association and own undivided percentages of the common areas, including the pool, clubhouse, and parking garage. The members elect a six-person board of directors who must be unit owners or the spouse of a unit owner. The directors have enumerated powers and duties that include providing “for the maintenance, repair, and replacement of the Common Elements and payments therefor....” Common elements are defined to include the parking garage.

Article V of the Bylaws governs assessments and spells out the board's obligation to prepare annual budgets and determine assessments for common-element expenditures. The crux of this case is the interpretation of Section 6 entitled “Expenditures”:

Except for the management agreement described in Article II, Section 8(c) hereof and expenditures and contracts specifically authorized by the Declaration and Bylaws, the board shall not approve any expenditure in excess of Twenty-five Thousand Dollars ($25,000), unless required for emergency repair, protection or operation of the Common Elements or Limited Common Element, nor enter any contract for more than five (5) years without the prior approval of two-thirds (2/3) of the total ownership of the Common Elements.

(Emphasis added.) Also at issue is the meaning and effect of paragraph 6(g) of the Declaration entitled “Board's Determination Binding”:

In the event of any dispute or disagreement between any Unit Owners relating to the Property, or any questions of interpretation or application of the provisions of the Declaration or Bylaws, such dispute or disagreement shall be submitted to the Board. The determination of such dispute or disagreement by the Board shall be binding on each and all such Unit Owners, subject to the right of Unit Owners to seek other remedies provided by law after such determination by the Board.

(Emphasis added.) ¹

Paragraph 13(a) of the Declaration requires unit owners to pay their proportionate share of the common expenses. This requirement is implemented by Article V, Section 7 of the Bylaws, which begins, “It shall be the duty of every Unit Owner to pay his proportionate share of the common expenses....” This bylaw further provides that unpaid common expenses plus interest constitute a lien and that the board may sue to foreclose the lien and recover reasonable attorney fees.

The condition of the parking garage had been a concern of the board since at least March 2003. In July of that year, the board requested an engineering study of the lower garage after large pieces of cement were dislodged. Less than two months later, the board received a report that cracks in the upper floor of the garage should be repaired to stop leaks to the lower floor. Board discussions concerning how to repair the garage continued for several years. Anticipating costly repairs, the board commissioned a financial study on funding in 2006 by Financial Advisors, Inc. The “Reserve Study” was shared with the membership in the spring of 2007.

In August 2007, consulting engineers, Shuck–Britson, provided a “parking garage structural condition study.” The study detailed problems with “numerous cracks” as well as “areas of spalling and delamination” and corrosion of the steel reinforcing the concrete. The report recommended a combination of removal of “the deteriorated, unsound concrete and replacement with a dense concrete mix,” and “repairs to the concrete beams, concrete joints, and concrete columns [which] will consist of concrete patching and epoxy crack injection. The deteriorated concrete will be chipped out and replaced with a dense concrete mix.” This study included a preliminary cost estimate of $191,188. The board received three bids for garage repairs ranging between $150,000 and $200,000.

Garage repairs were discussed by Association members and the board at a meeting on November 26. Members expressed differing views of whether garage repairs exceeding $25,000 required a membership vote. Accordingly, before the December board meeting, the board president sought a legal opinion from an attorney and former board member who owned units in the building—Thomas G. Fisher, Sr.² Based on Fisher's legal opinion, the board concluded it need not ask for a vote on the garage repair, “since the garage (by definition in the Declaration) is a Common Element, and the protection and operation of the Common Elements are exempt from the requirement of a vote by members of the Association under Article V, Section 6, the Bylaws of the Board.” Members were informed at the December 16 meeting that garage repairs would begin in the spring and that the board “will be moving ahead with bids and letting of contracts.” The requirement for a vote was again discussed at this meeting. Mr. Oberbillig stated, “[W]hen the heat exchanger failed and was replaced at a cost of $380,000, which was clearly an emergency, a membership vote was taken.” Melba Scaglione objected to a further assessment.

The board provided an update to the members at a meeting on February 25, 2008. The board reported it had received firm bids in the range of $160,000 plus a fifteen percent contingency. The minutes of the meeting stated in part:

There was discussion about the need for resident vote on the garage expenditure. Duane Jones [board president] indicated that the bylaws indicate, and it was a unanimous view of the board, that no vote is needed on this because it is maintenance of common areas. Stahl moved and Grundleger seconded and it was unanimously approved that we proceed with letting of the contracts for this project.... Barbara Grundleger then moved for a special assessment to fund the garage and this was passed unanimously.

The garage repairs began that spring and were completed that summer. The assessment levied for the garage repairs was $200,000. All members of the Association fully paid their proportionate share for the garage costs, except plaintiffs. The parties stipulated that the amount assessed for the Oberbilligs is $2620 plus interest; the amount assessed for the Scagliones is $6982 plus interest. At oral argument Oberbillig noted he had paid every other...