By Greg Ellison
(Oct. 17, 2019) The OPA Board of Directors voted 4-3 against a motion to have attorneys develop language for collection of legal fees tied to court actions for non-collection matters after cost-benefit questions were raised during its meeting earlier this month.
The proposal was among a handful of recommendations discussed during the board meeting on Oct. 2, including replacing resolution M-01 with newly crafted M-10 for more timely enforcement of violations for non-compliance with OPA Declaration of Restrictions guidelines.
While providing background for the motion, board member Frank Daly noted numerous declaration of restrictions for individual sections of Ocean Pines do not provide the legal ability to recover costs stemming from court actions to obtain compliance with covenant violations.
While voicing support in principal for recovering legal costs, board member Larry Perrone questioned the upfront investment involved versus the potential return.
“My question is what’s this going to cost us?” he said.
Perrone said amending the declaration of restrictions would likely require a majority vote of each impacted section in Ocean Pines.
“There has to be a 50 percent approval rate by each section in the association to approve the declaration of restrictions or to approve this change,” he said. “If in fact that’s the case what’s that going to cost us and are we really going to recover those fees anyway?”
Daly said based on an opinion from OPA attorney Jeremy Tucker the amended language would need to be approved by each association section whose declaration of restrictions does not currently allow for collection of attorney fees for non-collection enforcement actions.
An initial review by Tucker found 20 association sections without the legal guidelines included in its specific declaration of restrictions, with a dozen other areas allowing the potential.
“You need an instrument with a signature on it from the majority of people that vote in [a] section [to] incorporate that change in the declaration of restrictions,” he said.
Daly conjectured the costs would be on par with conducting an election in the sections in question.
The proposal traces back to a motion approved at the board meeting on June 1 to develop language for changing the declaration of restrictions to authorize a fine schedule for non-compliance violations.
General Manager John Viola established a workgroup to delve into the matter, which also included Daly, Architectural Review Committee chairperson Lisa Schwartz and Dino McCurdy with OPA Compliance, Permits and Inspections.
The group focused on developing methods to obtain compliance with declaration of restrictions when normal processes fail.
The group ended up concluding that fines, while effective in many instances, would not resolve all cases.
The group proposed legal counsel craft wording enabling the association to recoup fees associated with obtaining a court order to force compliance.
OPA President Doug Parks, while highlighting the potential costs involved in developing the legal verbiage, noted earlier in the meeting Daly had estimated only a miniscule number of non-compliance cases reach the court level.
“At what point if we’re going to make a fairly large investment in making this happen, if we’re only talking about dealing with 0.02 percent of our homeowners is it worth it?” he said.
Conversely, Parks recognized the need for a mechanism to enhance enforcement and proposed sending the matter to the Bylaws & Resolutions Committee for further research.
“How do we make that align with what’s in the DRs before we make the investment,” he said. “We may find something out based on their expertise and research that may be able to help us control the costs if we decide to move forward.”
Board member Dr. Colette Horn cut to the bottom line.
“Do we have any idea what these attorney costs are that we are going to recover per case?” she said.
Daly said the potential costs present a dilemma.
“Counsel in writing said the range of a court order could be up to $50,000,” he said. “They said their experience is normally it is $12,000-$18,000.”
The final tally is tied to numerous variables, Daly said.
“It depends on number one the degree of fight the violator has,” he said. “If they retain an attorney and you go through depositions and … discovery … and they decide to fight … you could get into the upper numbers.”
In practice the outcomes are usually far different, Daly said.
“When you get into these situations and you go to the initial court order … the violators typically want to settle before they get before the judge,” he said.
Daly said the matter boils down to an issue of risk.
“Counsel has been asked point blank … are these numbers wrong and nobody has disputed that we could hit the upper limit,” he said.
Noting the motion was originally targeting 26 cases; Daly said that figure has subsequently been reduced.
“The question is how much risk do we want to take because there are [currently] 17 cases,” he said.
Daly estimated each case would cost on average about $1,000.
Board member Tom Janasek noted out of that small number several cases pre-date the current board membership.
“How much money have we spent so far on attorneys’ fees?” he said.
Perrone confirmed those costs are continuing to be tracked and also noted from past experience the viability of recouping court costs is unlikely.
“In my own career I’ve been involved with hundreds of litigation cases and the reality of it is the majority … are going to be settled,” he said.
In practice, Perrone said the association would likely waive attorney or court fees to obtain homeowner compliance.
“That will happen if the attorney knows what he’s doing for the homeowner,” he said. “That’s what they’re going to look for to resolve the case.”
Perrone restated his earlier questions about end costs for adopting the language in multiple association sections.
“What’s the reality of us recovering any of those fees?” he said.
Daly said the essential question surrounds the boards’ appetite for the potential risk of not having legal means to recoup court and attorney costs.
“Let’s say we spend $17,000 to clean up everything and have right now zero cases outstanding,” he said. “We’ve done our job as a homeowners association and … the 8,452 assessment payers have all contributed [and] that’s part of the dues.”
The potential fiscal impact of inaction is not without consequence, Daly said.
“Where things will hit the fan is if you have [a case] that goes to the Maryland Court of Appeals and it costs us in six figures,” he said. “The legal fees go through the ceiling and we haven’t taken the steps necessary to recover the costs if the judge would feel compelled to give them to us.”
In his guidance on the topic, Tucker said Maryland adheres to the common law, “American Rule,” which generally does not award attorney fees to the prevailing party unless permitted, in this instance, by statute.
Janasek questioned Perrone on the relevancy of past negotiations in his professional career involving waiving fees.
“At this point we can’t charge fees [so] we don’t have an opportunity to negotiate,” he said. “