The issue presented in this case is whether a "poison pill" inserted in condominium by-laws that requires a Condominium Board to obtain an 80% vote (among other things) of all unit owners prior to commencing litigation against third parties, e.g. the condominium developer: (1) violates the Massachusetts Condominium Act or is overreaching, (2) contravenes public policy, and/or (3) violates the Massachusetts Declaration of Rights.
In 2014, the Condominium Trust filed suit against the Developer, its related management and construction entities and some contractors alleging that there were significant construction defects. Prior to initiating suit, the Condominium Trust and its then counsel and opposing counsel entered into a tolling agreement, which purported to toll all statutes of limitations and repose. Suit was only filed after the tolling agreement was terminated. This is significant because the statute of repose for construction defects claims in Massachusetts is six years.
At the time the suit was filed, more than 6 years after the condominium was constructed, the Developer and/or his affiliates, still owned more than 20% of the units, making compliance with the 80% litigation consent vote impossible. The developer's retention of more than 20% of the units more than 6 years after completion of the condominium, acts a mechanism to effectively allow the developer to run out the clock. As alleged in the Complaint, the Condominium Trust did obtain the permission of more than 50% of the unit owners to proceed with the litigation.
Out of an abundance of caution, the Condominium Trust included a count for declaratory judgment in the Complaint alleging that the anti-litigation provision was unenforceable and void on public policy. To that end, the Condominium Trust affirmatively moved for partial summary judgment to authorize it to proceed with the lawsuit. The Condominium Trust did not attempt to go through the exercise of undertaking a futile vote to convince the developer to authorize itself to be sued.
The Court initially granted the motion, holding that because the Developer owned 20% of the units, all that was required was that the Condominium Trust obtain 80% of the votes of non-developer affiliated units (or non-interested units). However, the Court held that the anti-litigation provision was otherwise enforceable and did not violate public policy. The Condominium Trust moved for reconsideration of that Order and the Court did reconsider the Order, however, not in the way that the Condominium Trust wanted. Instead, the Court decided that the provision was enforceable as written, to wit: that an 80% vote of all unit owners, including developer affiliated and owned units were also required before proceeding with litigation.
The Developer and the other Defendants filed a Motion to Dismiss the case, for failure to comply with the anti-litigation provision. The Court issued an initial decision once again holding that the provision did not violate public policy and issued a Decision dismissing the Condominium Trust's lawsuit and this appeal followed.
The anti-litigation provision and the Decision issued in this case provides an effective roadmap for developers in Massachusetts to avoid liability for construction defects and/or other developer misdeeds. In the construction defect arena, if a developer is patient enough to retain a sufficient block of units (or has the foresight to retain or collect voting proxies) it has the ability to run out the clock (the statute of repose) on construction defect claims. If the Appeals Court or the Massachusetts Supreme Judicial Court do not address this developer practice, condominium associations in Massachusetts will find it increasingly difficult to commence litigation against developers.
Amicus Brief
Prior Rulings:
Superior Court Memorandum of Decision and Order on Defendants' Motion for Reconsideration and Request for a Hearing
Superior Court Memorandum and Order on Defendants' Motions to Dismiss
Superior Court Memorandum and Order on Defendants' Motions to Dismiss - Hearing Postponed
Brief Authors: Mr. Henry Goodman, Esq. and Ms. Ellen Shapiro, Esq.
CAI Amicus Review Committee: Robert Diamond, Esq., Chair of Amicus Committee, Gary Kessler, Esq. (CA), Steven Sugarman, Esq. (PA)