Suttons Bay Yacht Village Condo Assn v. Bd of Rep of Port Sutton

STATE OF MICHIGAN

COURT OF APPEALS

SUTTONS BAY YACHT VILLAGE UNPUBLISHED
CONDOMINIUM ASSOCIATION and MARSHA May 19, 2016
HOLTZ,

Plaintiffs/Counter-Defendants-
Appellants,

v No. 325327
Leelanau Circuit Court
BOARD OF REPRESENTATIVES OF PORT LC No. 2013-009207-CH
SUTTON COMMUNITY, PORT SUTTON
CONDOMINIUM ASSOCIATION, SUTTONS
BAY YACHT CLUB CONDOMINIUM
ASSOCIATION, BAY CLIFF ESTATES
CONDOMINIUM ASSOCIATION, JOHN
NEHIL, ERIC RAY, and SHELLY DENNY,

Defendants/Counter-Plaintiffs-
Appellees,
and

D. DOUGLAS ALEXANDER,

Defendant-Appellee.

Before: O’BRIEN, P.J., and K. F. KELLY and FORT HOOD, JJ.

PER CURIAM.

This dispute involves a community of four condominium associations governed by an
informal board made up of the presidents of the individual condominium associations. Plaintiffs
Suttons Bay Yacht Village Condominium Association (Yacht Village) and Marsha Holtz, Yacht
Village’s president, filed suit against defendants, the other condominium associations and their
presidents—Port Sutton Condominium Association (Port Sutton), Suttons Bay Yacht Club
Condominium Association (Yacht Club), Bay Cliff Estates Condominium Association (Bay
Cliff), John Nehil, Eric Ray, and Denny Shelly—as well as the informal board, Board of
Representatives of Port Sutton Community (the Board), contesting the Board’s legal existence
and authority to take certain actions. Additionally, plaintiffs’ complaint included allegations

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against defendant D. Douglas Alexander, an attorney who has represented the Board since the
1990s. Plaintiffs alleged that Alexander violated both the rules of professional conduct and state
and federal debt collection acts in his representation of both plaintiffs and defendants. Plaintiffs
appeal as of right the trial court’s order dismissing their complaint in its entirety, entering a
judgment of no cause of action in favor of defendants and Alexander, and declaring legal and
valid certain documents that established the Board and the Board’s subsequent actions.

I. BACKGROUND

The Port Sutton Community was established in 1982 pursuant to a declaration of
covenants, conditions, and restrictions that was recorded in the Leelanau County Records. The
Community was to consist of “one or more separate residential condominium projects” with all
owners within the Community utilizing, maintaining, and supporting certain easements,
improvements, and amenities comprising “Community Areas.”1 Maintenance and capital
improvements were to be covered by annual and special assessments to each property owner in
the Community. Of the 160 maximum allowable dwelling units, 109 were developed within four
separate condominium associations: Port Sutton, Yacht Club, Yacht Village, and Bay Cliff.2

Pursuant to the declaration, there were means in which residents of the Port Sutton
Community could assign and delegate their rights, duties and responsibilities under the
declaration, including assignment “to the condominium associations collectively of which the
Owners of all Dwelling Units in the Port Sutton Community may be members.” On December
26, 1996, the declarant3 executed an assignment, effective January 1, 1997, pursuant to this
section. The assignment provided:

Each Association shall appoint one voting representative to the informal Board of
Representatives of the Port Sutton Community. Each voting representative shall
be entitled to cast that number of votes which represents the number of dwelling
units within the Condominium represented by him/her; provided, that if no
dwelling units have yet been completed in the Condominium represented, the
voting representative shall be entitled to cast one vote.

As a result of the assignment, the Board was created in 1997 and assumed responsibility for
governing the Port Sutton Community. In September 1997, the Board met and noted that “[a]ll

1
“Community Areas” was defined to possibly, but “not necessarily include or be limited to the
main connector road . . ., gate houses . . ., a security system, a water retention basin, a greenbelt
area, a septic system, private water supply system, irrigation and street lighting systems . . . .”
2
A fifth condominium association, Harbor Heights Condominium Association, was originally a
member of the Community, but was never developed and dissolved in 2011 for non-filing of
annual reports.
3
The declaration was executed by Earl Ennis Building and Development Company, Inc. The
company subsequently assigned its interests to Harbor Club Properties, Inc.

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associations have co-owner and Board majority approval of RESOLUTIONS appointing current
board members to act on their behalf.” Over time, the declaration was amended multiple times,
both before and after the assignment became effective.

Beginning in 2012, disputes between Yacht Village and the Board began to arise over
nonpayment of an annual maintenance assessment; Yacht Village eventually paid the 2012
assessment. In 2013, Yacht Village again failed to pay the assessment, and also objected to a
proposed supplement to the declaration that would establish Community Area easements for tree
trimming and removal. Although Holtz, as Yacht Village’s president, voted against the
supplement, it was passed with approval from Yacht Club, Bay Cliff, and Port Sutton. The
disputed supplement was recorded on August 12, 2013. Shortly thereafter, Alexander received
correspondence from plaintiffs’ counsel disputing the Board’s authority.

On December 13, 2013, Yacht Village and Holtz, both individually, and on behalf of all
dwelling unit owners in the Port Sutton Community, filed suit against defendants and Alexander
alleging multiple counts stemming from the enactment and recording of all supplemental
declarations after the assignment; the enactment and collection of various assessments; and
Alexander’s actions with respect to providing legal counsel to the separate associations and the
Board. The association defendants counterclaimed, seeking, among other things, a declaratory
judgment that the assignment was proper, the Community’s form of government was consistent
with the declaration and Michigan law, and the actions of the Board were legally valid and in
conformity with the declaration. The trial court eventually granted defendants’ summary
disposition in regard to all claims, and dismissed plaintiffs’ entire complaint with prejudice. The
trial court then entered an order granting declaratory judgment in favor of defendants, and Yacht
Village was “permanently enjoined from taking action that interferes with or prevents the
Board[]’s proper administration or enforcement of the Supplemental Declarations.” Plaintiffs
now appeal.

II. ANALYSIS

On appeal, plaintiffs argue that the trial court erred in granting summary disposition. We
review a trial court’s decision on a motion for summary disposition de novo. Auto Club Group
Ins Co v Burchell, 249 Mich App 468, 479; 642 NW2d 406 (2002).

A. AN UNINCORPORATED ASSOCIATION IS A LEGAL ENTITY

Plaintiffs first contend that the trial court erred in concluding that an unincorporated
voluntary association is a legal entity. We disagree.

Plaintiffs concede that various statutes mention “unincorporated association” or
“voluntary association.” Plaintiffs contend, however, that a voluntary unincorporated association
is not a legal entity because neither MCL 600.2051, nor any other Michigan statute, expressly
declares an unincorporated association to be “an ‘artificial person’, i.e. a legal entity.” Contrary
to plaintiffs’ argument, we hold that Michigan caselaw and statutory law support the conclusion
that an unincorporated association is a legal entity.

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 In Mason v Finch, 28 Mich 282 (1873), the Supreme Court considered a case in which an
“unincorporated society” was argued to have merged into a subsequently created corporation.
Id. at 283. A dispute arose over whether certain property was owned by the corporation or the
association. Id. The Court concluded that because the members of the association had not
unanimously agreed to become a corporation, and the association had continued to exist, holding
separate meetings, officer, property, and members, the corporation and the association were not
legally identical and, therefore, the property remained with the unincorporated society. Id. at
284-285. Moreover, it held that “[i]t would not be competent for the Legislature, and no attempt
has been made by it, as we think, to compel any person or society to become incorporated
without its assent.” Id. at 285. Thus, under Mason, unincorporated associations can hold
property and exist separate and apart from corporations that are subsequently created by
members of the association.

The Supreme Court reaffirmed this holding in Detroit Society for the Study & Prevention
of Tuberculosis v Detroit Society for the Study & Prevention of Tuberculosis, 167 Mich 102, 132
NW 547 (1911), when it concluded that certain funds donated to the unincorporated organization
continued to be owned by that organization and not the subsequently created corporation and that
the association could not be deemed to have merged into the corporation without unanimous
assent of the association. Id. at 106. In follows that, in each case, for an unincorporated
association to hold property and to be deemed to exist separate and apart from a corporation, it
must legally exist. We further note, with approval, that in its opinion, the trial court referenced
many examples of Michigan caselaw in which unincorporated voluntary associations “have
legally owned property, maintained bank accounts, transacted business, entered into contracts,
served as trust beneficiary, sought declaratory rulings, challenge tax decisions, obtained
injunctive relief, and enforced building restrictions.”

Turning to Michigan statutes, MCL 600.2051(2) provides, “A partnership, partnership
association, or any unincorporated voluntary association having a distinguishing name may sue
or be sued in its partnership or association name, or in the names of any of its members designed
as such or both.” MCL 339.720(1)(e), part of the Occupational Code, MCL 339.101 et seq.,
which deals with public accounting, defines “firm” as “a corporation, partnership, limited
liability company, unincorporated association, sole proprietorship operating under an assumed
name, or other legal entity.” (Emphasis added.) The inclusion of “or other legal entity” at the
end of the list means that all of the prior examples, including “unincorporated association” are
also legal entities.

This conclusion is both consistent with and buttressed by MCL 445.902(1)(d), which
defines “person” for purposes of the Michigan Consumer Protection Act, MCL 445.901 et seq.,
as “a natural person, corporation, limited liability company, trust, partnership, incorporated or
unincorporated association, or other legal entity.” MCL 15.304(3), involving whether contracts
between legislators and the state or political subdivisions constitute a conflict of interest,
expressly notes that contracts between the state or a political subdivision and “[a] firm,
partnership, or other unincorporated association, in which a legislator or state officer is a partner,
member, or employee” do not create a substantial conflict of interest. MCL 15.304(3)(b)(ii). Cf.
MCL 380.620(5)(b)(ii) (for school board members and administrators). Such a statement
requires that unincorporated associations have the capacity to contract and, therefore, must be

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legal entities. See also MCL 125.2812 (including unincorporated associations in the definition
for “applicant”).

Most notably, MCL 450.2313 provides that, unless expressly prohibited by a
corporation’s bylaws or articles of incorporation, an unincorporated association “may be a
shareholder or member of a corporation,” MCL 450.2313(1), and “possesses and may exercise
all the rights, powers, privileges, and liabilities of individual shareholders or members,” MCL
450.2313(2). Again, an unincorporated association must be a legal entity to be able to do so.

We also note that when MCL 440.3110 of the Uniform Commercial Code was revised,
one of the reasons was cited as:

Vestigial theories relating to the lack of “legal entity” of partnerships and various
forms of unincorporated associations—such as labor unions and business trusts—
make it the part of wisdom to specify that instruments made payable to such
groups are order paper payable as designated and not bearer paper (subsection
(1)(g)). As in the case of incorporated associations, any person having authority
from the partnership or association to whose order the instrument is payable may
indorse or otherwise deal with the instrument. [Comment 4, Comments of
National Conference of Commissioners and American Law Institute.]

The fact that these theories are referred to as “vestigial,” i.e. a remaining trace amount or
functionless, suggests that such references in older caselaw are simply remnants of legal theories
to which modern caselaw and statutes no longer adhere. Considering the language and
implications of both the cited caselaw and statutes, the trial court did not err in concluding that
an unincorporated voluntary association was a legal entity.

B. THE BOARD IS AN UNINCORPORATED VOLUNTARY ASSOCIATION

Plaintiffs next contend that the appointment of four people to an informal board did not
transform the Board into an unincorporated voluntary association. Plaintiffs note that all
Michigan non-profit corporations are required to have a formal board of directors, but those
boards are not associations or entities separate and apart from the organization. However, the
trial court’s decision that the Board in this case was an unincorporated voluntary association did
not transform every board ever created into such an organization, nor did its legal reasoning
require such a conclusion. Instead, whether any group constitutes an unincorporated association
requires not simply agreement in the description as such, but “associated, mutual, action of
individuals.” Walters v Pittsburgh & Lake Angeline Iron Co, 201 Mich 379, 383-384; 167 NW
834 (1918).

This Court previously held “ ‘Association,’ not being a technical word or term of art,
must be given its customary or ordinary meaning when interpreted by this Court for purposes of
subsection (a).” John v John, 47 Mich App 413, 416; 209 NW2d 536 (1973). The Court went
on to define association as: “The act of a number of persons in uniting together for some special
purpose or business. The persons so joining. It is a word of vague meaning used to indicate a
collection of persons who have joined together for a certain object.” Id. at 418, quoting Black’s
Law Dictionary (4th ed), p 156. Plaintiffs, relying on this language, argue that the assignment

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“did not create an association; it was not an act of persons uniting . . . It did not create an
organization or a society.” To the contrary, this is precisely what the assignment did. It created
a collection of persons—one from each of the associations—who joined together for a certain
objective—the oversight and care of the shared Community Areas of the Port Sutton
Community.

Finally, plaintiffs assert that an association cannot exist absent a constitution, articles of
agreement, bylaws, or rules governing its conduct of business. Plaintiffs rely on MCL
500.2630,4 which permits various entities, including unincorporated associations, to apply to the
insurance commissioner for a license. MCL 500.2630(1). There is no question that MCL
500.2630 requires submission of a constitution, articles of agreement or association, and bylaws
and rules governing the conduct of its business, but that is limited to those unincorporated
associations that seek to obtain an insurance license. There is no statute or caselaw that requires
any particular documents or agreements for an unincorporated association to exist.

Here, the assignment established intent to create a group of people (the informal Board)
to manage the declarant’s rights and responsibilities which were assigned collectively to all of
the associations. The assignment provided a method for choosing the members of the Board—
one from each association for equal representation—and provided a method for accounting for
every owners’ vote—weighted voting by the members of the association equal to the number of
dwelling units in the representative member’s association. Finally, there was evidence that all of
the associations had “co-owner and Board majority approval” of such governance. Under these
circumstances, the record supports the trial court’s conclusion that the Board was an
unincorporated voluntary association.

C. THE BOARD HAD LEGAL AUTHORITY TO TAKE ACTION

Plaintiffs next argue that even assuming the Board “had any validity” and could be
considered an association, the association only had four members based on the express terms of
the assignment, precluding the remaining 105 owners from being members of the association.
Plaintiffs posit that “[t]here is simply no authority of any kind for the proposition that the
members of an ‘association’ have any right or ability to impose their will or otherwise exercise
any authority over people who are not members of that association.” Plaintiffs’ claim ignores
evidence that all of the co-owners in the associations and the boards of those associations
expressly approved resolutions “appointing current board members to act on their behalf.” Thus,
all co-owners received the opportunity to determine whether they agreed with the representative
form of governance created in the assignment and, having so accepted, approved resolutions to
that effect.

Plaintiffs assert that an association can only derive its authority from its constitution and
bylaws and reiterates that no such documents exist in this case, but the cases cited by plaintiffs

4
Plaintiffs actually cite MCL 500.2360 for this premise, but there is no such statute.
Presumably, plaintiffs meant MCL 500.2630.

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are from 1875 and 1912. Given the lack of more recent authority, we suspect that these cases
may well be “vestigial” remnants that no longer have any application given that unincorporated
associations are considered legal entities, discussed supra. Plaintiffs point to no statute that
requires any such documents exist in order for an unincorporated association to take action.
Here, the Board derives its existence and representative form of governance from the
assignment, and its authority is derived from both the assignment and the resolutions passed by
the associations granting the Board the authority to act on their behalf.

Plaintiffs have not presented any authority that suggests that the co-owners and
associations could not agree to this form of governance, or that, even in the face of such an
express agreement, such authority cannot exist. Indeed, the fact that the Board’s actions were
uncontested for 17 years is evidence supporting the fact that all of the owners and associations
were content with this form of governance and acquiesced to the Board’s authority. The trial
court properly found that the Board had the legal authority to act on behalf of all of the owners in
the associations.

D. REPRESENTATIVE GOVERNANCE BY AN ASSOCIATION WAS PERMITTED

Plaintiffs assert that, under the terms of the assignment, a non-profit community
association was the only organization to which the Declarant could assign its rights. The parties
and the trial court all agree that the declaration provided three options to the declarant for
assignment of its rights, and that the declarant expressly selected the second of those options.
Plaintiffs’ argument is that because the second option—“to the condominium associations
collectively”—did not expressly include the ability to create any type of organization, the
declarant lacked authority to create the Board. However, we agree with defendants and the trial
court that the absence of a specific mandate does not prohibit members from agreeing on a form
of government that is not specifically required or precluded. By appointing members to the
Board and passing resolutions granting it the authority to act in the manner expressed in the
assignment, the associations can be deemed to have created the Board as a representative form of
government to make the collective governance by the associations as granted in the assignment
less wieldy. Construing the facts in this manner, the declarant’s lack of express authority to
create any organization other than a nonprofit corporation is irrelevant.

Plaintiffs contend that the meeting minutes are “meaningless” because they do not state
in what respect or for what purposes the Board is supposed to act on their behalf. To paraphrase
from plaintiffs’ own brief, it would be impossible to expressly articulate by name all of the
purposes for which the Board had been authorized to act. Plaintiffs argue that, even if the
meeting minutes were intended to give such authority to the Board, “it would not be effective
until such time as the Declaration was amended accordingly, which it never was,” but provide no
authority for this proposition. Moreover, their argument that no prospective buyer would have
notice of this “ratification” and would take their property free of such a claim ignores that both
the assignment and the subsequent supplements are all recorded documents which would be
within any purchaser’s chain of title and would put them on notice of the existence of the Board
and its authority to take action on behalf of the associations and their members.

E. ESTOPPEL

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 Plaintiffs next argue that the trial court erred when it concluded that plaintiffs were
estopped from arguing that the Board had no lawful authority based on plaintiffs’ participation in
the governance for the last 17 years. Plaintiffs concede that “for many years the Community ran
smoothly” and assert that it was only recently, when they were “excluded” and their “input
disregarded” that the associations were no longer exercising the Declarant’s former rights and
duties “collectively.” The record reveals that Yacht Village was represented on the Board by
Holtz and that they participated in all of the decisions that plaintiffs now seek to repeal. Only
during passage of the final supplemental declaration, involving the trimming of trees on the
boundary between Bay Cliff and Yacht Village, did plaintiff express anything other than consent.
Moreover, Holtz was present at the Board meetings and voted against the supplemental
declaration. Thus, plaintiffs were not excluded; Yacht Village was simply out voted.

Plaintiffs contend that the only thing they acquiesced to was “that the rights and duties of
the Declarant with respect to the Community were assumed by the Associations collectively.”
However, plaintiffs fail to explain how the representative government established by the
Declarant and adopted by the associations is not collective action. Collective action does not
mean, nor does it require unanimity. Collective simply means “denoting a number of persons or
things considered as one group or whole” or “involving all members of a group as distinct from
its individuals.” Merriam-Webster’s Collegiate Dictionary (2014). Indeed, all owners are still
provided with a vote by their representative, and we do not agree with plaintiffs’ contention that
this form of governance is not collective.

Plaintiffs correctly contend that estoppel requires a party to induce another party to
believe facts, for that other party to justifiably rely and act on that belief, and for the other party
to be prejudiced if the first party was allowed to deny the existence of those facts. AFSCME v
Bank One, 267 Mich App 281, 293; 705 NW2d 355 (2005). Plaintiffs assert, however, that
Yacht Village did not induce the other associations to believe that the Board had authority, but
that Alexander induced all of the associations, Yacht Village included, to believe that fact.
Having concluded that the Board did, in fact, have the authority to act, plaintiffs’ claim rings
hollow. Instead, as the trial court found, Yacht Village, and Holtz as its representative on the
Board, acquiesced to the Board assuming the former rights and duties of the Declarant and taking
action consistent therewith on behalf of the associations through the votes of the representative
members. Plaintiffs admit that they relied on the advice of counsel. That plaintiffs ultimately,
and incorrectly, believed that counsel’s determination that the Board had authority to act was
wrong did nothing to change the fact that they took action consistent the Board having the
authority to execute and record supplements to the declaration and took no action contrary to this
position for 17 years. As the trial court noted in its opinion, a board member who acquiesces or
participates in business transactions may not later challenge the validity of the transactions in
court. See Camden v Kaufman, 240 Mich App 389; 613 NW2d 335 (2000) (shareholder
precluded from contesting merger in court where he approved the transaction). Thus, the trial
court did not err in its determination that plaintiffs were estopped from claiming that the Board
lacked authority or that the disputed supplements were invalid special assessments.

F. REMAINING CLAIMS

Plaintiffs’ remaining claims regarding the invalidity of the supplemental declarations
executed by the Board, the invalidity of the assessments, and alleged breaches of fiduciary duties
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by the Board members are all premised on plaintiffs’ arguments that the Board was a non-entity
without power or authority to act. Having concluded that the trial court’s determinations on the
legal existence and authority of the Board and the propriety of estoppel were supported by the
record, none of these claims have merit. Similarly, because plaintiffs’ claims against Alexander
were premised on their position that the Board was a non-entity that lacked legal authority, the
trial court’s determination that Alexander made no false, deceptive or misleading statements
must be affirmed.5

Affirmed.

/s/ Colleen A. O’Brien
/s/ Kirsten Frank Kelly
/s/ Karen M. Fort Hood

5
Having affirmed the trial court’s decision, plaintiffs’ arguments regarding the trial court’s
dismissal of its motion for class certification are moot.

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