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CCOC Decision Summary

#23-08, Livingstone v. Parkside Community Association (October 28, 2008) (Panel: Fleischer, Gannon, Vergagni)

The homeowner (HO) filed a complaint to prevent the homeowner association (HOA) from forcing her to close her child day-care center, which she operated out of her home.The HOA claimed that it had adopted a rule prohibiting all day-care centers in the community in compliance with the standards established in the Maryland Homeowners Association Act.

The evidence at the hearing showed that at the time the HO bought her new home, the HOA rule specifically permitted homes to be used as day-care centers provided that the homeowner gave a 30-day notice of intent to open a day-care center.In July, 2007, the HO began the process of establishing a day-care center by applying for (and obtaining) licenses and by applying to the HOA for permission.Later that year, the HOA, at the request of some of the other residents, began the process of amending its Bylaws to prohibit day-care centers.Such a proceeding is specifically permitted, and strictly regulated by, Section 11B-111.1 of the Homeowners Association Act.The HO sued the HOA in the Circuit Court to prevent adoption of the new rule, but her case was eventually dismissed "without prejudice" and the HOA then formally and properly adopted the amendment by a vote of 22 to 2, with 58% of all the members voting in favor; and the amendment was recorded in the land records.In spite of the adoption of the amendment prohibiting day-care centers, the HO began to operate a day-care center in her home.

The hearing panel held that the HOA properly adopted the Bylaw amendment that prohibited day-care centers, and that although the amendment imposed a substantial hardship on the HO, who had spent $7000 on her business and who had no other source of income, the amendment complied with a State law specifically permitting homeowner associations to ban day-care centers, whether or not they were currently in operation.The panel noted that the HO proceeded with her plans to open the center, and to spend money on it, with full knowledge of the HOA's intention to prohibit the business.She also made contracts with all her customers after the prohibition was formally adopted.The panel said it was not free "to balance the equities" in deciding whether to allow enforcement of a rule properly adopted under State law, and that it also did not have the jurisdiction to second-guess the wisdom of the membership's decision to adopt the new rule.The panel dismissed the HO's complaint with prejudice and denied all the relief she requested.

The hearing panel then ruled upon the HOA's motion that the HO be ordered to pay $14,000 for the HOA's legal fees, on the grounds that under Section 10B-13(d) of the Montgomery County Code, her complaint was "frivolous" and maintained in bad faith.The hearing panel agreed to award attorney fees under that law.The hearing panel noted that although the HO was not a lawyer, she was still required to have some legal basis for her complaint.She filed her complaint with the CCOC after being informed, in the Circuit Court action, that the HOA was relying on the specific provisions of Section 11B-111.1 of the Homeowners Association Act, and after the HOA voted to adopt the prohibition.She also rejected the offer of mediation of the complaint.The panel concluded that "Although Ms. Livingstone may subjectively have felt that application of the amendment to her was unfair, the Maryland statute on point is clear and explicit.. . . Her filing of a complaint in the face of the statute was objectively lacking in good faith."

The panel then took up the issue of the proper amount of attorney fees, as is required by Section 10B-13(d) of the CountyCode.The panel applied the "lodestar" test set out by the Maryland Court of Appeals in Friolo v. Frankel, 373 Md. 501(2003).The panel reduced the hourly rate claimed by the attorneys from $315 to $245 because it felt that the case was not novel and did not present issues requiring great skill.It also reduced the total number of hours billed for from 50 hours to 10, concluding that there was some duplication of effort and because the attorneys were already familiar with the case, having dealt with the dispute in the Circuit Court before it came to the CCOC.The panel therefore ordered the HO to pay the sum of $2450 to the HOA.

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