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Novak v. St. Maxent-Wimberly House Condominium, Inc.

United States District Court, E.D. Louisiana

April 11, 2019

TODD NOVAK, ET AL.
v.
ST. MAXENT-WIMBERLY HOUSE CONDOMINIUM, INC., ET AL.

         SECTION: “J” (3)

          ORDER AND REASONS

          Carl J. Barbier, United States district Judge.

         Before the Court are cross motions for summary judgment filed by plaintiffs, Todd and Kate Novak, and defendants, St. Maxent-Wimberly House Condominium, Inc., Michael Skinner, Cynthia Cunningham, Ross Henry, Henry Insurance Services, Inc., Kevin Cunningham, and State Farm Fire and Casualty Company (collectively, “Defendants”). The motions are:

a Motion for Partial Summary Judgment Regarding Breach of By-laws Regarding Arbitration and Accounting (Rec. Doc. 95) submitted by Plaintiffs and opposed by Defendants (Rec. Doc. 100);
a partial Rule 56 Motion for Summary Judgment (Rec. Doc. 112) submitted by Defendants and opposed by Plaintiffs (Rec. Doc. 114)[1];
and a Motion for Partial Summary Judgment for Misrepresentation and Breach of Contract in Violation of the By-Laws and Louisiana Condominium Act (Rec. Doc. 137) submitted by Plaintiffs and opposed by Defendants (Rec. Doc. 151).

         Considering the motions, the memoranda, the record, and the law, the Court finds Plaintiffs' motions shall be DENIED and Defendants' motion shall be GRANTED in part and DENIED in part.

         FACTS AND PROCEDURAL HISTORY

         This litigation devolved from a dispute over the Plaintiffs' right to short-term lease a condominium unit they purchased in the French Quarter. The Novaks are school teachers who work in California; their plan was to buy a French Quarter condo unit which they could use as a vacation home during summer break but lease during the regular school year when they would be teaching in California.[2]

         On February 16 of 2015, in pursuit of their plan to buy a summer retreat which would also turn a profit, the Plaintiffs agreed to purchase one of the five units that make up St. Maxent-Wimberly House (the “House”).[3] The House is a 150-year-old French Quarter residence located on Governor Nichols Street.[4] It was made into a condominium in 1990 in accordance with the Louisiana Condominium Act, La. R.S. 9:1121.101, et seq.

         The Novaks purchased their unit, Unit 1, from Jenny and Michael Tilbury for $379, 000 through an “as is, ” no warranty, cash sale.[5] The purchase agreement gave the Novaks 14 days in which they could inspect the property and terminate the sale based on the results of the inspection.[6] The Novaks exercised this right and hired Henry & Hatchett Inspection Services to inspect the House. Henry & Hatchett concluded the building to be in “fair to good condition, ”[7] and the Novaks went ahead and executed their purchase of Unit 1 through an Act of Cash Sale on March 30, 2015.[8]

         After ownership of Unit 1 transferred, tensions began to rise between the Novaks and the association tasked with managing and regulating the condominium, St. Maxent-Wimberly Condominium, Inc. (“St. Maxent”), which is controlled by a board of directors (the “Board”).[9] Plaintiffs allege that after they purchased their unit, the Board informed Plaintiffs that the By-Laws had previously been amended to prohibit leases of less than one year.[10] Although there is evidence that the Board voted to make this change in 2006, the amendment was never recorded in the conveyance records of Orleans Parish, as required by the By-Laws.[11] Nevertheless, it appears that it was the Board's position that leases for less than a year were prohibited.[12] This short-term rental prohibition was obviously an obstacle to the Novaks' plan to lease the unit nine months out of the year, and the Novaks communicated their dissatisfaction with the short-term rental rule.

         In August of 2015, Cynthia Cunningham informed Kate Novak that the Board would consider allowing the Novaks to rent their unit for 6-months but that it would require a vote from the Board.[13] The Novaks never followed up with the Board, because they felt it was “not a very safe place to rent to somebody” due to newly discovered problems with mold and several episodes of vandalism the Novaks experienced.[14] Despite these alleged concerns, the Novaks did make several short-term rentals of their unit. Kate Novak testified that she and her husband used the online marketplace Airbnb to rent their unit for short periods that not only violated St. Maxent's By-Laws but also were illegal pursuant to a 60-day minimum rental period set by the Vieux Carré Commission.[15] The Novaks were fined by the Commission for violating the short-term rental restriction.[16]

         Relations between the Novaks and the other members of St. Maxent did not improve. In the fall of 2015, the Novaks allegedly requested to examine St. Maxent's books in accordance with the By-Laws, a request the Board denied.[17] In January of 2016, the Novaks allegedly demanded an accounting of St. Maxent's finances again. They also allege they asked for arbitration pursuant to the By-Laws. The relevant section, § 6.02, states, “In the event there is any dispute among the Unit Owners or among the members of the Board which is not reconciled by a vote pursuant to these By-Laws, such dispute shall be submitted to arbitration under the Louisiana Arbitration Act.”[18]

         On February 12, 2016, the unit owners (then, Michael Skinner, Cynthia Cunningham, Ross Henry, Ehab Zagzoug, and Kate Novak) and the Board (same, except Kate Novak refused to act as a director) had their annual meeting.[19] A majority of the Board and unit owners voted to amend the By-Laws by adopting a 1-year lease restriction.[20] The amendment was recorded by the Clerk of Court for the Parish of Orleans on April 19, 2016.[21]

         In March of 2016, the Novaks hired Gurtler Bros. Consultants, Inc. to inspect the common areas of the house. The Gurtler report concludes that deferred maintenance had caused various common parts of the House to fall into disrepair.[22]The Novaks then hired Kotter & Associates to create an estimate of the costs to repair alleged defects in the building.[23]

         The Novaks then initiated this litigation by filing a Petition to Enforce Agreement to Arbitrate and to Compel Arbitration (Rec. Doc. 1) on May 23, 2016, naming St. Maxent, Michael Skinner, Cynthia Cunningham, Ross Henry, and State Farm as defendants. The Petition asks for relief in the form of an order compelling defendants to submit to arbitration. Plaintiffs subsequently obtained new counsel and filed their First Supplemental and Amended Complaint (Rec. Doc. 13). The first sentence of the Amended Complaint states that Plaintiffs “withdraw their request for arbitration.” Plaintiffs then filed a Second Supplemental and Amended Complaint (Rec. Doc. 53), this one “meant to replace all previous complaints and demands.” This complaint pleads seventeen causes of action, including an allegation of civil conspiracy amongst St. Maxent, the Board members, the realtors, and the Tilburys.

         Following this amendment to the pleadings, the parties engaged in extensive motion practice. The Court granted summary judgment in favor of the realtors and the Tilburys; only St. Maxent., its board members, and their insurers remain as defendants in this case.

         STANDARD OF LAW

         Summary judgment is appropriate when “the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (citing Fed.R.Civ.P. 56); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994). When assessing whether a dispute as to any material fact exists, a court considers “all of the evidence in the record but refrains from making credibility determinations or weighing the evidence.” Delta & Pine Land Co. v. Nationwide Agribusiness Ins. Co., 530 F.3d 395, 398 (5th Cir. 2008). All reasonable inferences are drawn in favor of the nonmoving party, but a party cannot defeat summary judgment with conclusory allegations or unsubstantiated assertions. Little, 37 F.3d at 1075. A court ultimately must be satisfied that “a reasonable jury could not return a verdict for the nonmoving party.” Delta, 530 F.3d at 399.

         If the dispositive issue is one on which the moving party will bear the burden of proof at trial, the moving party “must come forward with evidence which would ‘entitle it to a directed verdict if the evidence went uncontroverted at trial.'” Int'l Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1264-65 (5th Cir. 1991). The nonmoving party can then defeat the motion by either countering with sufficient evidence of its own, or “showing that the moving party's evidence is so sheer that it may not persuade the reasonable fact-finder to return a verdict in favor of the moving party.” Id. at 1265.

         If the dispositive issue is one on which the nonmoving party will bear the burden of proof at trial, the moving party may satisfy its burden by merely pointing out that the evidence in the record is insufficient with respect to an essential element of the nonmoving party's claim. See Celotex, 477 U.S. at 325. The burden then shifts to the nonmoving party, who must, by submitting or referring to evidence, set out specific facts showing that a genuine issue exists. See Id. at 324. The nonmovant may not rest upon the pleadings but must identify specific facts that establish a genuine issue for trial. See, e.g., Id. at 325; Little, 37 F.3d at 1075.

         DISCUSSION

         This case has been needlessly complicated by the Plaintiffs' unwieldy Second Amended Complaint, which meanders for 227 paragraphs. At its essence, Plaintiffs' grievance is simply that St. Maxent is not maintaining the House and is not keeping sufficient documentation for the association members to determine what is being expended on maintenance, all in violation of the By-Laws and the Louisiana Condominium Act. This case should be as easy as determining (1) whether St. Maxent breached these duties as they are clearly set forth in the Act, and if so, (2) whether these breaches resulted in provable damage, presumably in the form of lost rents or a diminution in the value of the Novaks' unit.

         This case has been far from easy because Plaintiffs allege, for example, that a “failure to maintain and repair the building” gives rise to not just a cause of action under the By-Laws or the Act, but also claims of negligent or intentional or fraudulent misrepresentation (causes of action 9, 10), intentional or tortious interference with contract (11), intentional or tortious interference with business (12), breach of fiduciary obligation (13), civil conspiracy (16), as well as a derivative action by the Novaks on behalf of St. Maxent (17). Plaintiffs further complicate matters by challenging in their complaint whether the association even constitutes an incorporated entity and by claiming the “Purported Board of Directors of St. Maxent” and St. Maxent's board members are liable individually. The Court begins by reviewing the statutory provisions controlling the administration of condominiums before resolving Plaintiffs' motions, and finally the Defendants' motion.

         I. The Louisiana Condominium Act

         The Louisiana Condominium Act defines “condominium” as “the property regime under which portions of immovable property are subject to individual ownership and the remainder thereof is owned in indivision by such unit owners.” La. R.S. 9:1121.103(1). An “association, ”-such as St. Maxent-is defined as “a corporation, or unincorporated association, owned by or composed of the unit owners and through which the unit owners manage and regulate the condominium.” La. R.S. 9:1121.103(8). By law, every association's membership consists exclusively of all of its unit owners. La. R.S. 9:1123.101. If the association is incorporated, it may be as a for-profit corporation, or a non-profit corporation as St. Maxent is. Id. In the case it is a corporation, the association is controlled by a board of directors. Pursuant to the Act, St. Maxent's board has the power to: “adopt and amend bylaws and rules and regulations;” “adopt and amend budgets for revenues, expenditures, and reserves and make and collect assessments for common expenses from unit owners;” “regulate the use, maintenance, repair, replacement, and modification of common elements;” “exercise any other powers conferred by the declaration or bylaws;” and “exercise any other powers necessary and proper for the governance and operation of the association.” See La. R.S. 9:1123.102.

         Consistent with scope of the association's powers, it is “responsible for maintenance, repair, and replacement of the common elements” and for keeping “financial records sufficiently detailed to enable the association to comply” with its maintenance obligation. La. R.S. 9:1123.107, 9:1123.108. “All financial and other records shall be made reasonably available for examination by any unit owner and his authorized agents.” La. R.S. 9:1123.108. Thus, the “Act imposes a legal obligation upon condominium associations to maintain, repair, or replace the common elements of the condominium building, ” FIE, LLC v. New Jax Condo Assn., Inc., 241 So.3d 372, 392 (La.App. 4th Cir. 2018), and St. Maxent may be sued for its failure to satisfy this or its record-keeping obligations as a condominium association incorporated as a non-profit corporation. See id.; see also La. Civ. Code art. 24. St. Maxent's board, however, “is not a juridical person and lacks the requisite procedural capacity” to be sued. Wells v. Fandal, 136 So.3d 83, 91 (La.App. 5th Cir. 2014). While, the board of directors is the decision-maker charged with steering an incorporated association, it is not recognized as an entity to be held separately liable from the association. Id. Furthermore, while the liability of individual directors of all corporations is limited, the liability of directors acting on behalf of condominium associations is limited by a specific statute:

A person who serves as a director, officer, or trustee of a homeowners association and who is not compensated for such services on a salary basis shall not be individually liable for any act or omission resulting in damage or injury, arising out of the exercise of his judgment in the formation and implementation of policy while acting as a director, officer, or trustee of that association, or arising out of the management of the affairs of that association, provided he was acting in good faith and within ...

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