#02-12, Kessler v. Leaman Farm HOA (February 25, 2013) (Panel: Alkon, Farrar, Dubin; Farrar and Dubin for the majority, Alkon dissented)

The homeowners appealed a ruling of the HOA that they must remove a privacy screen they installed on their deck without permission.  The HOA defended its ruling on the grounds that the screen was incompatible with the overall design of the community.

The homeowner had been the president of the HOA and had participated in its board of directors actions on several architectural change applications.  While president, he applied for, and received, permission to construct a deck on his house.  While the construction was in progress, he directed the contractor to add a privacy screen to part of the deck.  The screen was solid wood 8 feet high.  He did not apply for permission to add the screen.  Once the deck and screen were completed, neighbors complained about it, and the homeowner, in his capacity as president of the board, convened a public meeting of the board to discuss the issue.  At the meeting, the homeowner made an oral application for the privacy screen, although the HOA rules required all requests to be in writing.  There was a long discussion of the privacy screen, including comments by neighbors unfavorable to the screen.  The board did not insist on a written application.  At the end of the discussion—about 45 minutes long—the board held a vote on the oral application.  The homeowner, as president of the board, voted in favor of his application but a majority of the board voted against it.  A few days later the board sent a written notice to the homeowner confirming that the application was denied and that the homeowner must remove the screen.  The notice did not state why the application was denied.

The evidence also showed that the HOA’s Declaration of Covenants stated that when the association denied an architectural change request, it must give notice of its decision within 60 days after receiving the application, and that if it failed to meet that deadline, the application was deemed to be approved.  In addition, there was an architectural guideline, which stated that if the HOA denied an application, it must state why, and that a member whose application was denied could request a detailed statement as to why it was denied.  The guidelines, however, did not state that an application was deemed to be approved if the HOA did not give a reason for its denial within the 60 day deadline.

The homeowner waited until the 60 day deadline had passed, and on the 61^st day he notified his association that because it did not state a reason for its denial within 60 days within 60 days after it received his application, it was in violation of the governing documents and therefore it had approved his application for the privacy panels.

The hearing panel upheld the HOA.  The panel noted that the HOA had complied with the Declaration of Covenants by giving written notice within 60 days that the application was denied.  The panel agreed that the HOA had violated the guidelines by not stating a reason for the denial, but the panel concluded that the Covenant requiring written notice within 60 days, and the guideline requiring a state reason, were two distinct rules and should be read separately, not together.  No covenant or guideline stated that the application must be deemed approved if the association failed to state a reason.  Moreover, the guidelines stated that if a homeowner wanted more information on why an application was denied, he had the right to ask for clarification.  The homeowner here never did so.

The panel said that there was no automatic penalty for violation of the guideline.  Instead, the penalty, if any, would have to depend on the facts of the case.  In this case, there was no harm to the homeowner from the failure to state a reason, because he had already constructed the privacy panels, and because he was present at the meeting to discuss the panels, at which the general trend of the comments was that the panels were unsightly and ugly.

But the panel also considered the issue of whether there should be a penalty in light of the fact that at the time of the dispute, the homeowner was not only a member of the HOA’s board of directors but also its president.  As a director, the homeowner owed a duty of loyalty and good faith to his association.  The panel said that this duty meant that the homeowner must place the interests of the HOA above his own personal or private interests.  The panel noted that the homeowner not only knew the architectural requirements of his community but that he ignored them several times in his own affairs.  Moreover, the panel noted that the homeowner apparently believed in his interpretation of the governing documents that they required the association to state a reason for its denial of an application within 60 days or the application was approved.  However, rather than to bring this interpretation to the attention of the board in a timely fashion, he said nothing and allowed his association to make a mistake that he could have prevented.  He then attempted to take advantage of the association’s mistake for his own personal benefit.

The panel held that the homeowner could not take advantage of a mistake he knowingly allowed his association to make.  “If the fiduciary duty of a director is to mean anything at all, it must mean that the director endeavor to act in the best interest of the community, and this means he must place the association’s best interests above his own private interests.  If he cannot do so, he must resign. . . As a member of the Association’s Board, Kessler had a fiduciary interest to help ensure that the Association properly followed its own rules.  He also had a duty to prevent the Association from either taking action or failing to take action when he knew the Association would violate its own rules as a result.  He attempted to benefit directly from a mistake that he allowed his own board to make.  This was self-dealing on his part.  This panel declines to tolerate or excuse such behavior by a director of a common  ownership community.”

The panel ordered the HOA to give the homeowner a written statement of the reasons for which it rejected his application for privacy panels.  It went on to order the homeowner to remove the panels, and to reimburse the HOA for its legal costs to enforce the governing documents.  The governing documents provided that if the HOA had to take legal action to enforce its rules, then the person violating the rules had to reimburse it for its costs and legal fees.

In a separate ruling (#02-12 Attorney Fees Award), the panel applied the reasoning of the Maryland Court of Appeals in Monmouth Meadows HOA v. Hamilton and ordered the homeowners to pay $8542 to the HOA as reimbursement for its legal fees.