Grant Obtains a No Cause of Action Verdict in Federal Court

Greg Grant 2013colorGreg Grant of the Traverse City office recently obtained a no cause of action verdict in an excessive force trial in federal court.  Mr. Grant represented four corrections officers whom the plaintiff alleged used excessive force against him while he was inmate in a Michigan county jail.  Specifically, the plaintiff claimed that he was maced twice and tasered twice while locked in his cell.

The evidence at trial demonstrated that the plaintiff failed to follow verbal commands and was assaultive toward one of the officers.  The key to winning at trial was proving that the officers acted in accordance with jail policies and practices to preserve internal order and discipline, and to maintain institutional security.

Greg Grant, an attorney in our Traverse City office, focuses his practice on municipal law, employment and labor law, maritime law, insurance defense, and litigation.  He may be reached at (231) 922-1888 or ggrant@cmda-law.com.

Cross Obtains Favorable Arbitration Award for Concert Promoter

 After a prolonged dispute, Matt Cross obtained an arbitration award for a valued client, a Detroit-based concert promoter.  The promoter paid the producer of the show a $40,000 deposit in five installments to perform its show in Detroit last year.  The producer pulled out last minute and refused to return the promoter’s deposit, citing the promoter’s failure to timely pay two of the five scheduled payments.  Mr. Cross convinced the arbitrator that the producer waived any breach on the part of the promoter and the arbitrator returned an award in favor of the promoter for the full deposit amount plus attorney’s fees and costs. 

Matt Cross is an attorney in our Traverse City office where he focuses his practice on business law, insurance defense, law enforcement defense and litigation, and municipal law. He may be reached at (231) 922-1888 or mcross@cmda-law.com.

New Tools for Asset Protection and Estate Planning

Gerry Davis 2016Individuals in Michigan seeking to protect assets from creditors no longer have to transfer their assets to Delaware, Nevada or Alaska.  Effective February 5, 2017, the Qualified Dispositions in Trust Act, Domestic Asset Protection Trusts, Public Act 330 of 2016, will allow the owner of trust assets to retain and protect his or her assets from creditors, while still retaining the power to direct investment decisions, the power to veto distribution from the trust (including to himself), the power to receive income, and the right to remove and replace a trustee.  The owner may also retain a special Power of Appointment to direct how the assets will be distributed upon the owner’s death.

While the owner retains some powers and interest, this is still a discretionary trust, so the owner must give up control over his assets to an independent trustee whom the owner does not control.

This is especially useful for people with large estates that can be targets of lawsuits such as doctors, business owners, those with a high public profiles, entertainers, developers and business investors.

However, pursuant to the Uniform Fraudulent Transfer Act, if a transfer is deemed fraudulent it can be set aside, including transfers to a Domestic Asset Protection Trust.  In law, if the disposition was made with actual intent to hinder, delay, or defraud any creditor of the debtor, that transfer can be set aside and the assets therefore reached by creditors.  In addition, the assets in the trust are not protected in a divorce action, if the assets were transferred to the trust 30 or fewer days before the marriage.

There are certain requirements that must be satisfied for the protections to be enforceable, including a two-year waiting period from the date the assets are transferred to the trust, and as stated, the trustee must be an independent third party who has total control over the distributions, such as a bank with trust powers or a trust company.

Therefore, it is important that the trust be set up early before liability attaches.  For example, once a tenant defaults on a lease and a claim of personal liability attaches as guarantor, the trust would already have to be in place, or it will likely be deemed a fraudulent transfer.  Thus, the trust must be created prior to any creditor claims being filed against the assets or the creator of the trust, particularly in view of the minimum two-year waiting period required between the time the trust is created and the protections under the trust are asserted, as from a judgment, court order or even a claim of a creditor capable of being reduced to a judgment against the creator of the trust.

With this valuable new tool, debtors and potential debtors, such as tenants under leases, or purchasers of major equipment or real estate, risk having their entire estate wiped out from circumstances they cannot control and are now afforded protection at least to the extent that the assets are subject to a validly created Domestic Asset Protection Trust.

As two-thirds of the states do not offer this type of protection, Michigan will likely be a haven to protect assets from creditors’ seizure.

Gerald C. Davis is a partner in our Livonia office where he concentrates his practice on corporate and business law, leveraged buy-outs, company reorganization and refinancing, analyzing investments for joint ventures, intellectual property, and drafting loan agreements. He may be reached at (734) 261-2400 or gdavis@cmda-law.com.

Transparency breeds Legitimacy: 3 Tips for your Condominium Association to Avoid a Lawsuit

Kevin Hirzel_8x10@300Many condominium board members volunteer to serve their condominium association for altruistic purposes. While often well intentioned, it is not uncommon for board members to not have any training that would make them aware of potential pitfalls that commonly entangle a condominium association in litigation. In other instances, co-owners may have self-interested motives for serving on a board that cloud their business judgment. Under either scenario, a condominium association can be subject to a lawsuit if it is not operated properly. As will be discussed below, lack of transparency is one of the most common reasons for co-owner lawsuits against condominium associations. The three most common reasons for a lawsuit against a condominium association related to transparency issues are 1) failing to prepare adequate financial statements 2) failing to respond to requests to inspect the books and records of the condominium association and 3) failing to hold elections.

Failing to prepare adequate financial statements

One of the most common sources of angst for co-owners is not knowing how their assessments are being spent. Accordingly, the first step to keeping co-owners happy is to prepare financial statements on an annual basis and have them audited or reviewed. MCL 559.157 requires a Michigan condominium association with annual revenues in excess of $20,000 to have its financial statements independently audited or reviewed by a certified public accountant on an annual basis. A condominium association may opt out of having a CPA perform an audit or review of the books, records and financial statements if a majority of the co-owners approve not having the CPA perform the audit or review. However, unless such a vote is conducted, a condominium should ensure that an audit or review is performed, and not just a compilation.

Additionally, MCL 559.154(5) of the Michigan Condominium Act and MCL 450.2901 of the Michigan Nonprofit Corporation require a condominium to prepare a financial statement for the preceding fiscal year and distribute the same at least once a year. While MCL 559.154(5) indicates that the contents of the financial statement can be defined by the condominium association, MCL 450.2901 requires the statements to include, at the very least, an income statement, year-end balance sheet and a statement of the source and application of funds. When condominium associations fail to prepare financial statements, and have them audited or reviewed by a CPA, this often creates concern and suspicion amongst the co-owners. Accordingly, complying with the above requirements demonstrates that the condominium association is being operated in a transparent manner and is recommended to avoid a lawsuit.

Failing to respond to requests to inspect books and records

Another common problem for co-owners is not being able to see how their money is spent. In Michigan, MCL 559.157 of the Michigan Condominium Act requires that the “…books, records, contracts, and financial statements concerning the administration and operation of the condominium” be available for examination by the co-owners at convenient times. MCL 450.2487 of the Michigan Nonprofit Corporation Act also allows for a co-owner, either in person, by attorney, or through another agent to inspect the books and records of the condominium association after providing a written demand. The written demand must describe a proper purpose for the inspection and specify the records that the co-owner desires to inspect. If the request is made by an attorney, or agent of the co-owner, the written demand must include a power of attorney or other writing that authorizes the attorney or agent to perform the inspection. In the event that the condominium association does not permit an inspection within five business days after a demand is received, a co-owner may file an action in the circuit court to compel an inspection of the books and records of the association. A condominium association may place reasonable restrictions on an inspection. However, if a court orders an inspection, a court may also order the condominium association to pay the co-owner’s costs, including reasonable attorney’s fees, unless the association can demonstrate that it had a good faith reasonable basis for the denial. Accordingly, it is extremely important for a condominium association and/or is managing agent to provide a timely response to a request for inspection of records. While inspections can be denied in certain circumstances, it is not uncommon for condominium associations that completely ignore requests to inspect the books and records to be sued.

Failing to elect co-owner directors

MCL 559.152 provides a formula for electing directors when control of the condominium association is transitioned from the developer. MCL 559.152 provides in pertinent part:

(2) Not later than 120 days after conveyance of legal or equitable title to nondeveloper co-owners of 25% of the units that may be created, at least 1 director and not less than 25% of the board of directors of the association of co-owners shall be elected by nondeveloper co-owners. Not later than 120 days after conveyance of legal or equitable title to nondeveloper co-owners of 50% of the units that may be created, not less than 33-1/3% of the board of directors shall be elected by nondeveloper co-owners. Not later than 120 days after conveyance of legal or equitable title to nondeveloper co-owners of 75% of the units that may be created, and before conveyance of 90% of such units, the nondeveloper co-owners shall elect all directors on the board, except that the developer shall have the right to designate at least 1 director as long as the developer owns and offers for sale at least 10% of the units in the project or as long as 10% of the units remain that may be created.

(3) Notwithstanding the formula provided in subsection (2), 54 months after the first conveyance of legal or equitable title to a nondeveloper co-owner of a unit in the project, if title to not less than 75% of the units that may be created has not been conveyed, the nondeveloper co-owners have the right to elect, as provided in the condominium documents, a number of members of the board of directors of the association of co-owners equal to the percentage of units they hold and the developer has the right to elect, as provided in the condominium documents, a number of members of the board equal to the percentage of units which are owned by the developer and for which all assessments are payable by the developer.

Often times a new condominium association will not elect directors in compliance with the timelines set forth above. Moreover, even after control of the association is transitioned from the developer to a co-owner board, co-owners do not always hold regular elections despite being required to do so. MCL 450.2402 provides as follows:

A corporation shall hold an annual meeting of its shareholders or members, to elect directors and conduct any other business that may come before the meeting, on a date designated in the bylaws, unless the shareholders or members act by written consent under section 407 or by ballot under section 408 or 409…. If the annual meeting is not held on the date designated for the meeting, the board shall cause the meeting to be held as soon after that date as is convenient. If the annual meeting is not held for 90 days after the date designated for the meeting, or if no date is designated for 15 months after formation of the corporation or after its last annual meeting, the circuit court for the county in which the principal place of business or registered office of the corporation is located,…may summarily order that the corporation hold the meeting or the election, or both….

In certain circumstances, whether due to co-owner apathy or a desire to maintain control, boards will not have annual elections or will not have fair elections. Accordingly, having regular and fair elections is another good way to keep the co-owners happy and for condominium associations to avoid a lawsuit.

Conclusion

Preparing proper financial statements, responding to co-owner requests to inspect the books and records and having regular elections is essential for a condominium association to run smoothly. While it is certainly possible for co-owners to abuse the above processes, transparency is typically the best policy as it not only keeps the co-owners happy but also keeps the condominium association’s legal fees down.

Kevin Hirzel is a partner in our Livonia and Clinton Township offices and leads the Community Association Practice Group. He frequently represents Builders, Community Associations, Condominium Associations, Cooperatives, Co-Owners, Developers, Homeowner Associations, Investors, Property Owners and Property Managers throughout the State of Michigan. He may be reached at (734) 261-2400 or khirzel@cmda-law.com.

Please view The Michigan Community Association Law Blog at http://micondolaw.com for additional resources on Michigan Community Association Law.

An Important Lesson for Condominium Developers

brandan-hallaq-profile-photoOn December 15, 2016, the Michigan Court of Appeals issued an unpublished opinion in the matter of Woodland Estates, LLC v. City of Sterling Heights and County of Macomb. The Woodland Estates case should be taken as a warning to developers. This case illustrates the importance of obtaining legal advice from an attorney throughout all stages of the development process. The Developer in this case may have been able to recoup a substantial sum of money from the Government if it had asserted its rights in a timely fashion. Real estate developers must take considerable care to ensure that they act diligently in pursuing their rights as time is of the essence.

BACKGROUND

Woodland Estates, LLC (the “Developer”) filed a lawsuit against the City of Sterling Heights and the County of Macomb (the “Government”) regarding a Condominium Project located in Sterling Heights, MI. The case centered on the Developer’s allegation that it was entitled to monetary compensation from the Government based on an inverse condemnation theory. Inverse condemnation is a term used to describe a situation in which the government takes private property but fails to pay the compensation required by the Fifth Amendment of the Constitution. As a result, the property owner typically has to sue to obtain the required just compensation.

In 2003 the Developer purchased a five-acre parcel of property in Sterling Heights upon which the Condominium Project was to be developed. When the Developer attempted to obtain permission from the Government to develop the property, the Government informed the Developer that a portion of the property (a 92-foot wide tract of land across the property) could not be developed because the Government anticipated that land would be used in a future expansion of 18 mile road. This left the Developer with a five-acre parcel of property upon which only 3.88 acres could be developed for the Condominium Project (the remaining 1.12 acres was left undeveloped and reserved for the Government’s eventual expansion of the road).

The Master Deed of the Condominium Project was recorded on February 6, 2006. The legal description of the property contained in the Master Deed included the 3.88 acres of land that could be developed as well as the 1.12 acres of land that could not be developed. One month later, the Developer recorded a Consent to Submission of Real Property to Condominium Project which essentially stated that the Developer was giving consent for the entire property to be governed by the Master Deed. The Consent to Submission also contained the same legal description of the property including both the 3.88 acres that could be developed and the 1.12 acres that could not be developed. The Developer filed the lawsuit against the Government on December 30, 2014 claiming that the Government was required to compensate the Developer under an inverse condemnation theory.

THE COURT’S DECISION

The Trial Court originally granted the Government’s request for dismissal on the basis that the six-year statute of limitations for pursuing an inverse condemnation claim had run. The Developer then appealed and the Court of Appeals affirmed the Trial Court’s decision. The Appellate Court ruled on the following arguments brought forth by the Developer:

Whether the application of a statute of limitations defense to an inverse condemnation claim is constitutional; and

If a statute of limitations defense is constitutional, as applied to an inverse condemnation claim, whether the appropriate limitations period should be six years or fifteen years.

The Court first ruled on the constitutional issue and stated that the Michigan Supreme Court as well as the United States Supreme Court have both held it constitutionally permissible to apply a statute of limitations to a constitutional claim. The Court cited the cases of Hart v. Detroit, 416 Mich 488, 503; 331 NW2d 438 (1982); United States v. Dickinson, 331 US 745, 747; 67 S Ct 1382; 91 L Ed 1789 (1947); and Block v. North Dakota ex rel Bd of Univ & Sch Lands, 461 US 273, 292; 103 S Ct 1811; 75 L Ed 2d 840 (1983) as authority.

Moving next to the question of whether the appropriate limitations period was six years or fifteen years, the Court stated

… the proper statute of limitations for an inverse condemnation claim is either six years pursuant to MCL 600.5813 and Hart, 416 Mich at 503, where the plaintiff does not maintain an interest in the property, or 15 years pursuant to MCL 600.5801(4) and Difronzo, 166 Mich App at 153-154, where the plaintiff does maintain an ownership interest.

The Court went on to explain that under the Michigan Condominium Act, condominium projects are made up of only two things: condominium units and common elements. Based on the language contained in the Master Deed and the Michigan Condominium Act, the Court held that the 1.12 acres of land reserved for the Government was classified as “general common element” land in the Condominium Project. Accordingly, that land is owned equally among the co-owners of the Condominium Project pursuant to the Master Deed.

The Court further stated that since the Developer was not a co-owner (since it did not own any units in the Condominium Project) it did not have any ownership interest in the property at issue. Therefore, the Court held that the appropriate statute of limitations period was six years. Because the Developer filed the Consent to Submission in March of 2006, the statute of limitations ran in March of 2012 and the Trial Court correctly dismissed the Developer’s lawsuit against the Government.

CONCLUSION

As previously mentioned, the Woodland Estates case should be taken as a warning to developers. Because the Developer did not obtain adequate and timely legal advice at the time it acquired the property, the Developer lost a significant amount of money. In fact, the amount of compensation owed by the Government to the Developer would be easy to calculate since the Condominium Project was initially intended to contain 17 or 18 units as opposed to the 11 that were developed and sold as a result of the inability to build on the 1.12 acres reserved for the Government. Accordingly, experienced real estate attorneys should be consulted from the beginning of the process through the end.

Brandan Hallaq is an attorney in our Livonia office where he focuses his practice in the areas of business and real estate law. He may be reached at (734) 261-2400 or bhallaq@cmda-law.com.