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Stuck with the Tab: Initiating Suit Over “Common Elements” Without Association Approval can Lead to Unit Owners Covering Unexpected Attorney Fees

IMPRESSION: Unit owners who initiate litigation over common elements do not necessarily recoup attorney fees from the association—even when their lawsuit is successful, and benefits the association as a whole.

DETAILS: A shared sewer system in Adams County, Wisconsin, was the focus of a recent dispute between the Sunset Condominiums at Northern Bay Owners Association (“Sunset Condo Assoc.”), and a unit owner of the Sunset Condominiums. Larson v. Castle at the Bay, LLC, 2018 WI App 71, 384 Wis.2d 633, 2018 WL 5307100.  Prior to 2013, the area’s local sewage system was mutually utilized by neighboring developments Timber Shores and Castle at the Bay—despite being considered a common element of Sunset Condominiums.  In 2013, Castle at the Bay declared partial ownership of the sewer system, and proceeded to impose a usage fee upon Sunset Condo Assoc. Rather than respond by threatening litigation, the Sunset Condo Assoc. chose a two-tiered amicable and less expensive approach: (1) agree to shared ownership of the sewer system; and (2) consent to Castle at the Bay’s obligatory usage fees. 

However, this resolution was unacceptable to a particular unit owner who elected to initiate litigation on his own dime after being unable to convince Sunset Condo Assoc. to fight.  Following an extended legal battle, the unit owner ultimately succeeded in obtaining a declaratory judgment which held, “the sewer system [at issue] is owned by the Sunset Condominium owners”; and moreover, “is a ‘common element’ of the condominium as that term is used in WIS. STAT. ch. 703, the Condominium Ownership Act.”[1] Larson, at ¶ 3 (emphasis added).  As a result, the unit owner further sought to recover associated legal costs and attorney fees from the Sunset Condo Assoc.  Pointedly, the trial court disagreed—reasoning that even if the unit owner was entitled to recover costs, the request would be denied because said costs consisted of unreasonable attorney fees.   A subsequent appeal ensued.

The crux of the unit owner’s appellate argument was based on Wis. Stat. § 703.14(1), which states among other things, “the common elements are subject to mutual rights of support, access, use and enjoyment by all unit owners.” Honing in on “mutual rights of support,” the unit owner argued other Sunset Condominium unit owners are required to cover his litigation costs because § 703.14(1) prohibits evading liability for providing financial support of “common elements.” The court of appeals felt differently, and reasoned that because the Sunset Condo Assoc. elected to forego litigation on the matter, no statutory language permitted a single condominium unit owner, or subset of owners, to consume association funds against the wishes of the association, and then collect reimbursement from all unit owners.

Next addressed was the unit owner’s claim under his theory that tenants-in-common (unit owners of Sunset Condominiums) were owners of a common element (the sewer system), and since he had taken reasonable and necessary action to preserve the sewer system, the Restatement Of Restitution § 105 supported his claim for reimbursement of legal fees.  The court rejected this argument because it found that the unit owner and the rest of the Sunset Condominium owners did not share the status of “tenants-in-common” owners of the association’s common elements.

The unit owner’s third argument was that of unjust enrichment; in that, he believed Sunset Condominium owners received a benefit under an income based approach, due to an expert witness valuation of the sewer system. He argued that Sunset Condominium unit owner’s theoretical benefit received in replacing the existing sewer system would exceed the cost of litigation per unit, and therefore the Sunset Condo Assoc. was unjustly enriched by the unit owner’s successful lawsuit.  The court found this theory flawed because the argument assumed the other unit owners “sat on their hands” idly as spectators during the pending dispute.  However, the court found the Sunset Condominium unit owners—through the Sunset Condo. Assoc.—engaged in affordable negotiation which avoided the high risk and expense of litigation.

The unit owner’s final argument for reimbursement was brought under the Common Fund Doctrine which the court found inapplicable to the pending dispute because a valid measure of a benefit to the other Sunset Condominium unit owners must be presented, and “traceable with some accuracy”; and since the unit owner failed to do so under his preceding “unjust enrichment” argument, the threshold standard could not be achieved. Further, the court failed to construe the Sunset Condominium unit owners as “free riders,” who played no part in the matter.  As previously stated, the court found that, collectively, Sunset Condominium unit owners affirmatively opposed litigation and chose the more cost effective mode of alternative dispute resolution.

TAKEAWAY:  When an association and its unit owners disagree over matters dealing with common elements, the literal majority usually prevails.  Generally, when it comes to lawsuits involving multiple plaintiff condominium unit owners, there is financial safety in numbers.  Granted, an impassioned unit owner may be tempted to stand in defiance, fight the power, and litigate over a common element lone wolf-style; but be conscious—even obtaining successful results which benefit the association and all unit owners run the risk of not being be reimbursed…especially if the majority initially chose to handle the dispute in a less contentious and less expensive manner.

[1] “‘Common elements’ mean all of a condominium except its units.” Wis. Stat. § 703.02 (2015).

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