Court says Unit Owners Association an adequate representative in Star City case

CHARLESTON – The state Supreme Court has ruled on six certified questions regarding the relationship between condominium owners and their unit owners association in a lawsuit alleging damages against various individuals and corporations involved in the construction and sale of the condominiums.

The questions were submitted by the Circuit Court of Monongalia County and answered by the state's high court on March 28.

The plaintiff and petitioner in the case, University Commons Riverside Home Owners Association, Inc., is a condominium owners’ association that brought suit on its own behalf and on behalf of its members “seeking damages arising from the alleged defective development, negligent construction, and misleading marketing of the University Commons Riverside Condominium Complex located in Star City, West Virginia,” the opinion states.

The defendants and third-party defendants include University Commons Morgantown, LLC, Koehler Development, LLC, Collegiate Homes, Inc., Richard Koehler, Frank Koehler, Adam Sharp, Richard Dunlap, O.C. Cluss Professional Services, LLC, R.E. Crawford Construction, Inc., Pozzuto and Sons, Inc., Building Code Enforcement Official of Star City, Herron Engineering, Inc., Eagle Interiors, Inc., BUH Construction, Triad Engineering, Inc. and Universal Forest Products.

“The Complex consists of 84 individually-owned units that are currently owned by approximately 147 individuals and/or entities. These individuals and entities are the members of the HOA," the opinion says.

“The HOA filed this action on February 13, 2009, asserting claims for breach of express and implied warranty of quality, failure to comply with public offering statement requirements, material omission in promotional materials, failure to complete and restore, negligence, strict liability, and breach of implied warranties of merchantability, fitness and habitability. The individual unit owners were not named as individual plaintiffs in the complaint."

Discovery in the lawsuit went on for nearly three years. During this time, according to the HOA, the parties took 44 depositions and certified more than 30 experts. Fifteen individual unit owners were deposed.

The questions arose out of the effort by some of the respondents to have all the unit owners joined as plaintiffs under Rule 19 of the West Virginia Rules of Civil Procedure.

The respondents asserted that it became apparent during discovery that many of the individual unit owners were seeking damages related to defects specific to their individual units. The respondents were concerned that the individual unit owners would have the right to assert individual claims if they were not satisfied with the outcome of the suit.

The HOA opposed the motion to join the unit owners and filed a protective order seeking its right to bring suit on behalf of its members for all claims asserted in the complaint.

The circuit court granted the respondents’ motion to join the unit owners and denied the HOA’s protective order. The circuit court then certified these questions to the Court:

(1) Is a Unit Owners’ Association an adequate representative when a lawsuit is instituted by a Unit Owners’ Association on behalf of two or more unit owners pursuant to W. Va. Code § 36B-3-102(a)(4) and the damages sought include unit specific damages affecting only individual units?

(2) If the Unit Owners’ Association is an adequate representative to institute litigation pursuant to W. Va. Code § 36B-3-102(a)(4) on behalf of individual unit owners for unit specific damages affecting only individual units, is a unit owner nonetheless a necessary and indispensable party pursuant to Rule 19 of the West Virginia Rules of Civil Procedure?

(3) If individual unit owners are not named Plaintiffs in a lawsuit instituted on their behalf by a Unit Owners’ Association and are not necessary and indispensable parties to the suit, does the Association have the authority under [W. Va. Code] § 36B-3-102(a)(4) to settle and release any and all claims of the unit owners when said individual unit owners have been provided reasonable notice of, and have made no objection to, said settlement and release? If so, what constitutes sufficient notice?

(4) Whether matters pertaining to a unit owners’ claim for lost rent or inability to rent are matters that affect the common interest community for which the Unit Owners’ Association may institute litigation pursuant to [W. Va. Code] § 36B-3-102(a)(4)?

(5) Pursuant to [W. Va. Code] § 36B-3-102(a)(4), what constitutes a “matter affecting the common interest community” and what constitutes a “unit specific” element?

(6) Is a representative example of unit owners sufficient to offer deposition testimony and trial testimony in this matter to establish defects and damages that are common to all units?

Noting that the circuit court answered the first question in the negative, the court began its analysis.

“The plain language of West Virginia Code § 36B-3-102(a)(4) permits a unit Owners’ association to bring an action not only on its own behalf but on behalf of ‘two or more unit owners.’ The only limitation on that action is that it must be one that ‘affect[s] the common interest community,'" the court wrote.

“Given the fact that a unit is a physical portion of the common interest community, it necessarily follows that damages only affecting individual units are nonetheless matters affecting the common interest community. Thus, the HOA may assert claims on behalf of two or more unit owners for damages specific to individual units.

“Although we have determined that the HOA has the authority to pursue all of the claims at issue in this case pursuant to West Virginia Code § 36B-3-102(a)(4), the fact remains that the claims involve damages to both the common elements of the Complex and individual units.

“Moreover, having carefully reviewed all of the statutory provisions, this Court is cognizant of the fact that the Act provides no guidance or mechanism to handle these types of cases and, further, offers no procedure to be utilized to approve any type of settlement.

“Given these facts, this Court finds that the most prudent approach from this point forward is to proceed in accordance with Rule 26 of the West Virginia Trial Court Rules.”

“Having concluded that this case should proceed under Rule 26, we need not answer the remaining certified questions. To the extent necessary, the issues raised in those questions can be addressed by the Mass Litigation Panel.

“For the reasons set forth above, this Court finds it only necessary to answer the following certified question:

Is a Unit Owners’ Association an adequate representative when a lawsuit is instituted by a Unit Owners’ Association on behalf of two or more unit owners pursuant to W. Va. Code § 36B-3102(a)(4) and the damages sought include unit specific damages affecting only individual units?

Answer: Yes.”

The Court then sent the case back to the circuit court with instructions to the circuit court to file a Motion to Refer to the Mass Litigation Panel, “as provided by Rule 26.06,” with the Court so that the appropriate procedural action can be taken."