Court of Appeals Rules against Condominium Association, Strictly Enforces Bylaws “Anti-Lawsuit” Restriction

The Michigan Court of Appeals recently rendered yet another decision against a condominium association strictly enforcing a lawsuit restriction contained in the association’s bylaws. In Sawgrass Ridge Condominium Association v Louis and Marilyn Alarie (“Alaries”) the association’s board of directors authorized the filing of a lawsuit against co-owners Alaries for failing to obtain written authorization from the board prior to making alterations to their deck.  The Alaries contended that the action must be dismissed because the board failed to properly procure authority to commence the lawsuit under the bylaws, which required the board to first hold a meeting and obtain approval by a vote of a majority of the co-owners.  The board admittedly did not follow the procedure set forth in the bylaws prior to commencing the lawsuit.  However, the board asserted that its acts were authorized by a majority of the co-owners by adoption of a consent resolution ratifying the board’s acts after the suit was commenced, in which notice and meeting requirements were purportedly waived. 

The trial court ruled in favor of the association, finding that the “after the fact” consent resolution served as proper ratification of the board’s acts, as allowed by the Michigan Nonprofit Corporation Act.  On appeal by the Alaries, the Michigan Court of Appeals reversed the decision of the trial court, finding that the subsequent adoption of a consent resolution by a majority of the co-owners without holding a meeting was not an effective method to ratify the acts of the board.  The court reasoned that under Michigan law, the subsequent ratification of an act of the board must follow the same formalities as required for the prior authorization of that act.  Thus, because the bylaws required the board to hold a meeting and obtain a vote of a majority of the co-owners to authorize the commencement a lawsuit, so too must the board hold a meeting and obtain a vote of a majority of the co-owners to ratify the prior commencement of a lawsuit.

The Court of Appeals’ decision in Sawgrass aligns with its recent trend toward strictly enforcing anti-suit provisions in bylaws.  As we recently noted, House Bill 4446 was introduced to the Michigan House of Representatives to amend the Michigan Condominium Act.  If passed into law, the Bill would nullify any provision in an association’s governing documents that requires a vote of the association members to “assert, defend, or settle claims on behalf of all co-owners in connection with the common elements or the enforcement of the condominium documents” with some limited exceptions.  The Bill is undergoing revisions amid concerns that it unfairly favors condominium developers.

The recent court trend underscores the importance of following procedures set forth in association bylaws when authorizing legal action.  Unless House Bill 4446 or a similar piece of legislation is passed, it is evident that the courts will strictly enforce anti-suit clauses or restrictions.  The association’s board of directors should assess whether an amendment to the bylaws should be sought to eliminate any clauses that may unreasonably impair the association’s ability to authorize legal actions.

Gregory J. Fioritto is a partner with the firm.  He has extensive experience in community association law and has been with the firm since 2003.  Greg’s particular expertise in community association law includes document amendments, collections, parliamentary procedure, corporate governance, developer disputes, insurance duties, and intellectual property matters.

You can reach Greg at our Plymouth office at 734-459-0062 or via email at gfioritto@zdfattorneys.com.

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