Facts
Diane Steele owned a home in the Diamond Farm development, which was managed by the Association. While in accordance with the Association’s declaration of covenants, conditions and restrictions, the Association must obtain at least two-thirds of the members’ total votes to increase annual assessments, assessment increases in 2007, 2011, and 2014 did not receive the requisite two-thirds vote for approval. Consequently, Steele ceased making payments. The Association brought suit seeking unpaid assessments and attorney’s fees. Steele’s defense was that she did not owe dues for the amounts of increases imposed without the supermajority required under the Declaration of Covenants.
The district court entered judgment in Steele’s favor because the Association failed to establish the amount of dues owed. On appeal, the circuit court ruled in favor of the Association and the Supreme Court affirmed, holding (1) the ultra vires statute (arguing that the association lacked the power or capacity to do some act) and the doctrine of equitable estoppel operated as a bar to Steele’s defense that the Association’s fee increase were invalid; and (2) the circuit court did not abuse its discretion in awarding $1,257.60 in attorney’s fees.
Issues
- Whether the Association’s raising of dues constituted an “ultra vires” act?
- Whether Steele’s action, of continuing to pay the increased assessments since their passage, constituted acquiescence or ratification of the increases?
- Whether Steele’s nine-year delay in asserting her rights was unreasonable?
Court of Appeals of Maryland
On appeal, the Association claimed that the argument that it lacked power or capacity to increase dues was embedded in the ultra vires statute. Because the statute has specific criteria for bringing ultra vires claims, the Association asserted that Steele’s defense was precluded on procedural grounds. The Court agreed, explaining that the plain language of the statute required Steele to raise an argument regarding lack of power or capacity in a proceeding to enjoin the Association, which she failed to do. In other words, the ultra vires statute required that Steele pursue a derivative action, as a condition precedent, to enjoin the Association from improperly raising assessments.
The Court also determined that Steele’s claims were precluded on two separate grounds, the ultra vires statute and application of equitable estoppel. The Court explained that Steele decided not to challenge the validity of the dues increases, despite having access to the newsletters informing her of fee increases in 2003, 2007, 2011, and 2014, that she could have attended open Board meetings during which the assessment vote occurred, and that she could have requested Association records at any time. The Court did not discuss whether Steele’s continued payments constituted acquiescence of the increases.
Lessons Learned
- Homeowners could face some procedural hurdles when attempting to sue Associations for improper dues increases if not done timely.
- For those of you who think the Association “won” keep in mind that it was embroiled in litigation for three years and the case was heard at three separate court levels: the trial court, the appellate court and the supreme court. I doubt the $1,257 got anywhere near covering the attorney fees that the Association expended, which could have been 100 times the amount awarded.
- FOLLOW YOUR DOCUMENTS – if a certain number of votes are required to increase dues, ensure that you are complying with those requirements to avoid suit.
Steele v. Diamond Farm Homes Corp., 464 Md. 364 (2019).
