Legal Case Studies July 2013

A Homeowners’ Association has the implicit authority to place reasonable restrictions on common areas, including a lake, even though the Recorded Declaration did not specifically give those powers to the Association.

Ripsch v. Goose Lake Association, 2013 Ill.App.3d (120319) (May 2013). In a case of first impression for the courts, a question arose as to whether a Homeowners’ Association had the right to enforce a rule that it adopted prohibiting certain types of boats on a lake that was within the common area of the subdivision, even though this power was not granted in the recorded covenants of the Association. Ripsch was a homeowner within the Association who owned a large pontoon boat which rested on three pontoons rather than the usual two. Ripsch used this boat on the lake. The Association attempted to prohibit the use of three-pontoon boats on the lake by adopting a rule prohibiting the use of such boats on the lake. When Ripsch purchased his property, the only thing of record that placed restrictions on the use of the property was a document entitled “Protective Covenants and Restrictions,” but none of the restrictions involved the type of boat that could or could not be used on the lake. The Association enacted a set of bylaws. One of the bylaws stated that members of the Association shall abide by the “current Goose Lake Association Rules.” 

During his ownership of the property, the Board promulgated rules regarding the use of the lake, including a rule prohibiting pontoon boats with more than two pontoons. The homeowner contended that the restrictions could not be applied to him because they were not restrictions recorded of record and that the Declaration that was recorded did not grant authority to the Board to place restrictions upon the use of the lake. The Court, however, found in favor of the Homeowners’ Association stating that a “Homeowners’ Association has the responsibility of administering the common property for the common good of its members; it must have the implicit power to make reasonable regulations regarding the use of the common property. To hold otherwise would be to adopt the absurd conclusion that the Association was given the responsibility of caring for the common property but was given no authority to control the use of that property.”

$2.7 million default judgment was awarded to the Key West Association of Realtors® because of copyright infringement by a party using MLS data on his own website.

As reported by Stacy Moncrieff, of Realtor® Magazine in the May 30, 2013 Daily Real Estate News in the case of Key West Association of Realtors® v. Robert Allen doing business as, the United States District Court for the Southern District of Florida found in favor of Key West Association of Realtors® (“KWAR”). According to the original complaint filed in October of 2011, KWAR had been a local Realtors® Association in the lower Florida Keys for over 30 years. KWAR operated a multiple listing service for its Realtor® members. KWAR Realtor® members could obtain a restrictive license for the use of the search feature and display a portion of the information from the MLS on the broker’s individual website through an internet data exchange. However, all right, title, and interest to the MLS and its contents is owned solely by KWAR. The Defendant was not a member of KWAR. However, he operated a commercial website which consisted almost entirely of content, data, and images reproduced from a feed from KWAR’s MLS without having any authorization to do so. According to the complaint, KWAR asserted that the Defendant had been using the unauthorized content since 2008. In December of 2010, KWAR sent a Cease and Desist letter to the Defendant and demanded that the infringing material be removed from his website. KWAR asserted in its complaint that the Defendant ignored the Cease and Desist letter and continued to use the MLS materials without authority. The Court found that there was copyright infringement and ruled in favor of KWAR. The purpose of the high damage amount was to deter further copyright infringement by the Defendant. According to the Judge, “Absent the maximum statutory award of damages, future potential infringers of Plaintiff’s MLS copyrights will only see the potential benefit of high commissions from ill-gotten leads. As such, the maximum statutory damage amount is necessitated to deter the future conduct of Defendant Allen and others.”  It should be noted that the Defendant in this case did not defend the case against him and made no arguments to the court. KWAR was awarded a default judgment.

Massachusetts’ highest court rules that lawsuit against Broker for providing inaccurate zoning information can proceed.

DeWolfe v. Hinghan Centre, Ltd., 985 N.E.2d 1187 (April 2013). In this case the Sellers listed their home for sale with the Broker. Seller told the Broker that the property was zoned “Business B.”  Relying on this information, the Broker then advertised the property as being zoned Business B. The Buyer, after noticing the Broker’s advertisement, toured the home. He was a professional hairdresser and wished to open a hair salon. The Buyer told the real estate agent that he was considering opening the property as a six station hair salon. The Buyer looked at the MLS listing for the property that the Broker had prepared. The listing stated that the property was zoned “Business B.”  The Broker had also provided a copy of the local zoning ordinance describing the “Business B” classification, which the Buyer reviewed. The Buyer and Seller entered into a contract for Buyer to purchase the property. One of the paragraphs of the Contract entitled “Warranties and Representations” stated:
The Buyer acknowledges that the Buyer has not been influenced to enter into this transaction nor has he relied upon any warranties or representations not set forth or incorporated in this agreement or previously made in writing, except for the following additional warranties and representations, if any, made by either the Seller or the broker:  NONE.
The property was conveyed in December 2004 to the Buyer. In January/February of 2005, the Buyer learned that the property was zoned “Residential B” rather than “Business B” and that a six station hair salon was not a permitted use of the property. The Buyer sued the Broker for misrepresentation saying that the representation had been that the property was zoned Business B when in fact it was zoned Residential B. The Broker claimed she was not responsible because a Broker has no duty to investigate the zoning designation of the property before making representations. Second, even if the Broker did have a duty to investigate the zoning designation, the “Warranties and Representations” clause in the agreement, quoted above, relieved the Broker of any liability because it essentially stated that the Buyer was not relying upon any representation or warranty except for what is in the sales agreement. Under Massachusetts common law, a Broker may ordinarily rely on the information provided by the Seller making representations about property, but a Broker is not insulated from all liability simply by relying on the Seller. The Trial Court, however, found in favor of the Broker and granted Summary Judgment to the Broker. The case was then appealed to the Appellate Court and eventually to the highest State Court. This Court held that even though a Broker may sometimes rely upon information given to her by a Seller, “a Broker has a duty to exercise reasonable care in making representations as to a property’s zoning designation. Where, as here, the misrepresentations were based on information provided by the Seller, the question turns on whether it was reasonable in the circumstances to rely upon such information, a question to be determined by the trier of fact.”  The Court ruled that Summary Judgment by the Trial Court was an error and sent the case back to the Trial Court for trial to determine whether or not the Broker had exercised reasonable care. The Court further held that, “The exculpatory clause in the purchase and sale agreement does not preclude the Buyer’s reliance on prior written representations.”  In other words, because the Broker had made written advertisements stating that the property was zoned Business B, the warranties and representations clause of the agreement did not insulate the Broker from liability and that the Buyer could rely upon the Broker’s previous written advertisement as being a representation regarding the property. In Illinois there may be no duty to investigate the zoning classification as that is public information but if you make affirmative representations you want to make sure they are accurate. 