Goodson v Cairns, an unpublished Michigan Court of Appeals opinion, reviewed protracted litigation in the Macomb County Circuit Court regarding many issues, including receiverships, derivative actions under the Michigan Nonprofit Corporation Act, interpretation of the condominium documents, and the validity of elections and assessments. As relevant to this blog, the court addressed whether two provisions of the condominium documents prohibited a condominium association from defending itself in litigation.
Article II Section 2d of the condominium bylaws provided that the board had no authority to levy an assessment or to incur any legal expenses or attorney fees other than an action to collect assessments or enforce the bylaws, except as specifically authorized under Article XXIII of the condominium bylaws. Article XXIII contained provisions similar to that enforced in Tuscany Grove v Gasperoni, providing that the (rather onerous) requirements apply to “the Association’s commencement of any civil action other than an action to enforce these Bylaws or to collect delinquent assessments.” The plaintiff contended that these two provisions read together prohibited the association from assessing members to pay for defense of his case, or from hiring an attorney.
The trial court clearly struggled with this issue, issuing three orders (two on motions for reconsideration). Ultimately, the trial court held that reading these provisions in such a way as to prohibit the association from defending itself raised due process issues.
The court of appeals noted that, while Article XXIII required compliance before commencement of litigation, notably it did not require compliance before defending litigation started against the association. The court also held that the association’s right to due process would be implicated if it were prohibited from defending itself.
These “Judicial Claims and Actions” provisions are popular among developers, because of the belief that it discourages litigation over construction defects and other claims. Most of these provisions, like the one in this case, apply to the commencement of litigation and not to defense. However, the author has encountered one set of condominium bylaws which purports to require co-owner approval even for defense of an action filed against the association. Should that association ever be sued, this case lends support that such a prohibition would be a violation of the association’s right to due process.