Not-for-Profit Corporations: Fourth Department Affirms Summary Judgment Award in Favor of Homeowners Association, its Board of Directors, and Sponsor


April 9, 2018

Schaefer v. Chautauqua Escapes Ass’n, Inc. (N.Y. App. Div. 4th Dept.)

Maurice L. Sykes, Esq. and Aalok J. Karambelkar, Esq.

 

In Schaefer, the plaintiffs, as lot owners in the Chautauqua Escapes residential subdivision, brought an action against the Homeowners Association and its Board of Directors seeking damages for breach of contract and breach of fiduciary duty, and seeking additional injunctive relief with respect to the Board’s dealings with Camp Chautauqua (the Sponsor that originally developed the subdivision and incorporated the Association). Plaintiffs sought damages for various unpaid assessments for the 1999–2015 period, for increasing payments to the Sponsor (6 cents per lot) for water costs based on competitive rates and estimates as opposed to actual expenses, and for an alleged failure by the Sponsor to keep an amenity (lodge building) in good repair as required by the Declaration and the Use of Facilities Agreement. Plaintiffs, purporting to be acting on behalf of the Homeowners’ Association, also brought a derivative action against the Sponsor for breach of contract, alleging damages for much of the same.

 

The Fourth Department affirmed the decision of the Supreme Court, County of Chautauqua, finding that Section 11.03 of the Declaration of Protective Covenants, Conditions, Restrictions, Easements, Charges and Liens (which provides that “[n]o liability shall attach to the Sponsor[,] the Association (or any officer, director, employee, Member, agent, committee or committee member) or to any other person or organization for failure to enforce the provisions of the Declaration”) precludes any recovery against the Association and its Board of Directors.

 

The Fourth Department also found that the plaintiffs lacked standing to bring a derivative action against the Sponsor, albeit for reasons different from those relied on by the trial Court below. The Court found that plaintiffs lacked standing to bring such an action on behalf of the Homeowners’ Association because Section 623(a) of the Not-For-Profit Corporation Law (which requires that a derivative action be brought by at least 5% of the Association members) was not satisfied.  The Court further found that plaintiffs’ claim for past-due assessments (based on the Board’s waiver in 1999 of assessments on two lots owned by the Sponsor) was time-barred by the six-year statute of limitations. The Court’s decision implies the Board’s minutes (contained in the record evidence) demonstrated that the decision to waive those assessments amounted to a permanent waiver, as opposed to a temporary one that was renewed annually.