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McGill v. Lion Place Condo. Ass'n

Supreme Court of Nebraska

June 12, 2015


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Appeal from the District Court for Douglas County: PETER C. BATAILLON, Judge.

Dean F. Suing and David A. Castello, of Katskee, Henatsch & Suing, for appellant.

Justin D. Eichmann, of Bradford & Coenen, L.L.C., for appellee Paul F. McGill.

Michael S. Kennedy, of Kennedy Law Firm, P.C., L.L.O., for appellee Lion Place Condominium Association.



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[291 Neb. 72] Cassel, J.


This appeal was taken from a judgment invalidating the sale of limited common elements of a condominium governed by the Nebraska Condominium Act[1] and awarding attorney fees, expenses, and court costs. We address two primary issues. First, we conclude that despite the absence of statutory authority, equity allows a derivative suit on behalf of an unincorporated unit owners association. Second, we interpret the governing statute[2] to require both approval by 80 percent of the votes in the association and unanimous agreement by the owners of units to which the limited common elements are allocated. But only an award of attorney fees and costs is authorized by the relevant statute.[3] It does not permit the [291 Neb. 73] recovery of expenses. We vacate the award of costs and expenses and remand

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the cause for determination of the taxable costs. Because we find no merit to the other issues raised in the appeal, we otherwise affirm the judgment of the district court.


1. Development of Condominium

Paul F. McGill developed Lion Place Condominium with Michael L. Henery. The recorded " Declaration of Condominium Property Regime" established 16 units, consisting of 12 residential and 4 commercial units. Henery purchased the commercial units, and McGill purchased four of the residential units.

The declaration allocated certain common elements as limited common elements for the exclusive use of the commercial units. These limited common elements consisted of " [a]ll [c]ommon [e]lements in the basement level and first floor." Under Nebraska law, " [c]ommon elements" include " all portions of a condominium other than the units." [4] A " [l]imited common element" is any " portion of the common elements allocated . . . for the exclusive use of one or more but fewer than all of the units." [5]

To govern the condominium, the declaration established an unincorporated association, composed of all of the unit owners. Each unit owner was granted one vote for each unit owned, except that the owner of the basement commercial unit was granted three votes. Although the association was granted " all of the powers necessary to govern" the condominium, an " [e]xecutive [b]oard" of five unit owners was created to act on the association's behalf and to administer its affairs.

[291 Neb. 74] 2. Henery's Purchase of Limited Common Elements

In 2008, Henery offered to pay $35,000 to purchase the limited common elements adjacent to his commercial units. The minutes of a July 2008 meeting of the association reveal that Henery's offer may have been the " key" to financing repairs to the exterior of the condominium building. At a meeting in September, the association agreed to withhold approval of Henery's offer until its next meeting in order to facilitate other offers. However, " [e]very [one]" agreed to sell the limited common elements and to accept the highest offer.

McGill also sought to purchase the limited common elements and offered $36,000. Upon learning of McGill's offer, Henery immediately countered with an offer of $36,000, plus the payment of all closing costs and related expenses. At a meeting in December 2008, the association ultimately voted to accept Henery's second offer. As we explain below, the heart of the controversy is the sufficiency of the vote at the December 2008 meeting.

In May 2009, Henery and the president of the association signed a purchase agreement for a portion of the limited common elements adjacent to Henery's commercial units. And in order to transfer the limited common elements to Henery, the president signed an amendment to the condominium declaration, modifying the boundaries of three of Henery's commercial units to incorporate the limited common elements. The president then reconveyed the modified commercial units to Henery via a warranty deed.

3. McGill's First Action

In January 2010, McGill filed an action in the district court for Douglas County against Henery and the association, challenging

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the sale of the limited common elements. The 2010 action was dismissed upon the association's motion for judgment on the pleadings. The district court determined that McGill lacked standing as an individual to bring the action. It observed that McGill had failed to demonstrate how he was [291 Neb. 75] injured by the sale to Henery, because the limited common elements had always been allocated to Henery's commercial units. And the court further denied McGill leave to amend his complaint, observing that a lack of standing could not be remedied by amendment.

4. Present Action

(a) Pleadings and Pretrial Proceedings

After the dismissal of the 2010 action, McGill filed a second action against Henery and the association in the district court for Douglas County. And McGill again challenged the sale of the limited common elements. However, in contrast to the 2010 action, McGill brought the second action " on his own behalf, as well as on behalf of all other members of the [a]ssociation similarly situated, derivatively in the right of and for the benefit of the [a]ssociation." And he asserted that he had made demand upon the association to initiate proceedings regarding the sale, but that the executive board had refused.

Both Henery and the association moved to dismiss on the basis that the second action was barred by the dismissal of the 2010 action. The district court overruled the motions, observing that the 2010 action was dismissed due to McGill's lack of standing as an individual. But the second action was brought derivatively on behalf of the association. Thus, the court determined that while any suit in McGill's individual capacity was barred, a derivative action was appropriate.

Each party subsequently moved for summary judgment. At the summary judgment hearing, the district court received McGill's deposition testimony. In his deposition, McGill indicated that prior to the sale, Henery had been using the limited common elements adjacent to Henery's commercial units. McGill believed that Henery should be paying rent, and McGill complained of Henery's use of the limited common elements to the president of the association. In an affidavit, Henery explained that he sought to incorporate the limited common [291 Neb. 76] elements into his commercial units in order to " avoid any confusion or conflict."

McGill further explained that he had been interested in purchasing the limited common elements and that the sale to Henery " was not done right." McGill had made an offer and included everything that Henery had proposed. But McGill believed that the limited common elements were going to be auctioned, and his offer was only his " beginning bid." McGill also believed that Henery should have paid market value, because the limited common elements had been appraised for $88,000.

The district court overruled each of the motions for summary judgment. Henery subsequently filed a second motion for summary judgment, claiming that McGill could not maintain a derivative action on behalf of the association, because it was unincorporated. The district court rejected Henery's argument and overruled the motion. The court observed that while a derivative action is generally associated with a corporation, " there is nothing that prevents it from being brought on behalf of a partnership, a limited liability company, or some type of other unincorporated association."

(b) Trial

The matter proceeded to trial, and the district court received evidence regarding the December 2008 approval of the sale to Henery. According to the treasurer of the

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association, all of the unit owners voted in favor of Henery's offer except McGill and another unit owner. However, the treasurer could not remember if an absent unit owner had been represented by a proxy. Thus, the treasurer testified that out of a possible 18 votes, 13 or 14 votes were cast in favor of the sale.

Henery also testified and clarified the circumstances of the vote. According to Henery, the absent unit owner had been represented by a proxy. Henery testified that there were " 14 votes voted for the sale and four votes against."

[291 Neb. 77] 5. District Court's Judgment

After trial, the district court entered an order finding that the sale and conveyance were void. The court determined that under the Nebraska Condominium Act, the sale required the approval of 80 percent of the association. But at most, only 77.7 percent of the association approved the sale. Further, the act required an agreement signed by the requisite number of unit owners. But no evidence of such an agreement had been offered by Henery or the association. Consequently, the court concluded that the sale was void and that title to the limited common elements remained ...

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