M. Serota v. London-Towne HOA
M. Serota v. London-Towne HOA - 2073 C.D. 2016
Pa. Commw. Ct.Apr 27, 2017Background
- London-Towne is a 70-unit planned community governed by a recorded Declaration (1979) that granted Class A owners one vote per lot; Bylaws (1998) state each unit is entitled to a single vote and that two officers/board members must prepare/execute/certify/record Declaration amendments.
- Article X, §3 of the Declaration prescribes amendment thresholds (90% initially, 75% thereafter) and requires recording.
- In 2014 the Association recorded an amendment to change voting from one vote per lot to one vote per owner regardless of number of lots owned; forms signed by owners erroneously referenced Article X, §3 (not Article IV, §2).
- Plaintiff Serota owned 12 lots and alleged the Amendment reduced his voting power from 12 votes to 1; he sued for declaratory and injunctive relief asserting the Amendment was invalid.
- The trial court granted judgment on the pleadings for Serota, holding the Amendment was not authorized by the Planned Community Act or by preexisting corporate authority because it diminished property/contractual rights and thus was invalid.
Issues
| Issue | Serota's Argument | Association's Argument | Held |
|---|---|---|---|
| Whether the Amendment changing voting strength was authorized under the Planned Community Act §5219(d) | §5219(d) prohibits altering voting strength without unanimous consent of affected owners; unanimous consent lacked, so Amendment invalid under the Act | §5102(b)/(d) and Declaration procedures control; Section 5219(d) does not invalidate preexisting declaration amendment provisions for pre-Act communities | Held: §5219(d) applies to amendments and the Amendment changed voting strength without unanimous consent and therefore was not authorized under the Act alone; other pre-Act law must authorize the result |
| Whether pre-Act law (NPCL) authorized the Amendment (i.e., whether the Association could amend to diminish members’ voting rights) | NPCL cannot be used to diminish property/contractual rights acquired under the Declaration; Schaad/Huddleson prohibit unilateral impairment of such rights | NPCL (former §7901) broadly authorized non-profit corporations to amend articles/governing documents; thus Association had authority to amend voting rules | Held: Schaad/Huddleson apply; voting rights here are property/contractual interests running with the land and cannot be diminished without affected owners’ consent, so NPCL did not authorize the Amendment |
| Whether procedural defects (forms referencing wrong article; executed/recorded only by President) invalidated the Amendment under the Bylaws/Declaration | Forms referenced wrong provision and Amendment was executed/certified by only the President, violating Bylaws requiring two officers — defects support invalidation | Association said proposed amendment text accompanied the forms and multiple board members signed the forms attached to the recorded amendment | Held: Trial court relied on procedural defects among other grounds; appellate decision affirmed on substantive grounds (did not need to decide all procedural issues) |
| Whether voting rights here are purely internal governance (alterable) or contractual/property rights (protected) | Voting rights are contractual/property rights tied to lots, affect pecuniary interests (assessments, proportional financial liability) and thus are protected | Voting is internal governance and not a pecuniary property right; amendment to bylaws/articles should be permissible under corporate amendment power | Held: Voting here is a fundamental right tied to owners’ pecuniary interests and the Declaration; thus it is protected and cannot be altered without consent of affected owners |
Key Cases Cited
- Schaad v. Hotel Easton Co., 87 A.2d 227 (Pa. 1952) (corporation cannot amend governing documents to impair substantial property or contractual rights of shareholders without consent)
- Bechtold v. Coleman Realty Co., 79 A.2d 661 (Pa. 1951) (distinction between internal governance provisions and contractual provisions vesting property rights in shareholders)
- Roblin v. Supreme Tent of the Knights of Maccabees of the World, 112 A. 70 (Pa. 1920) (limitations on corporate power to abrogate vested rights)
- Reifsnyder v. Pittsburgh Outdoor Adver. Co., 173 A.2d 319 (Pa. 1961) (voting rights are basic and fundamental to shareholders)
- Huddleson v. Lake Watawga Property Owners Ass'n, 76 A.3d 68 (Pa. Cmwlth. 2013) (applying Schaad to homeowner association: cannot alter provisions affecting property/contractual rights without consent)