Opinion ID: 2099863
Heading Depth: 1
Heading Rank: 5

Heading: The Bylaws, Fiduciary Duty and Powers Of The Board

Text: Mrs. Kelley contends that the Board violated the Broadmoor's bylaws, breached its fiduciary duty to its members, and exceeded its powers in imposing a surcharge to discourage rentals. The Broadmoor points to the broad powers given to the Board by both the contract and the bylaws. Mrs. Kelley relies on §§ 47 and 68 of the bylaws to advance her position. Both of these sections preclude the Board from enacting rules that are inconsistent with or adversely affect rights under the contract. Since, as we have determined, the contract grants no valuable equity right of rental, the surcharge could not be inconsistent with or adversely affect such a non-existent right. Sections 21, 47, 50, 61 and 62 of the bylaws make it exceedingly clear that the Board has broad powers with respect to the management and operation of the Broadmoor. Section 21 states: The property and business of the Corporation shall be managed by a Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute, the Certificate of Incorporation or these Bylaws directed or required to be exercised or done by the members. Section 47 provides: The Board may from time to make appropriate rules and regulations controlling use of apartments, garage spaces, lobbies and commonspaces and facilities, including the ground and walks and all member[s], their families, guests, employees and subleases, shall comply with such rules and regulations. No such rule or regulation shall be inconsistent with or adversely affect rights and obligations in use contracts. Mrs. Kelley makes no argument based upon § 50 of the bylaws which addresses the method for calculating and imposing monthly and special assessments on members of the cooperative. [5] Section 61 of the bylaws provides in part: The right of occupancy under the use contract is, nevertheless, a matter of discretionary decision of the Board of Directors and every transfer to resident membership, with its right of occupancy as defined in the use contract, is subject to the approval of the Board of Directors. Section 62, set forth above, conditions leasing and subleasing on the approval of the Board. The question before us is whether the surcharge imposed by the Board extended beyond these broad powers and represented a breach of fiduciary duty owed to Mrs. Kelley. The Broadmoor argues that according to D.C.Code § 29-1141, this question must be resolved in accordance with the business judgment rule because it is a Delaware corporation. D.C.Code § 29-1141 (1991 repl.) reads in pertinent part: A foreign corporation or association operating on a cooperative basis and complying with the applicable laws of the state wherein it is organized shall be entitled to do business in the District of Columbia as a foreign cooperative corporation or association, shall govern itself in accordance with its bylaws and the laws of the state wherein it is organized. In Snowden v. Benning Heights Co-op., Inc., 557 A.2d 151, 152 (D.C.1989), we said that the pertinent words of this statutory provision appear unambiguous, and the legislative history indicates the clarity of the D.C. Council's intent. We went on to hold that D.C.Code § 29-1141 allows a foreign cooperative to govern itself according to its bylaws and the laws of the state where it was incorporated. . . . Id. at 154. The court addressed concerns of District residents who did not wish to be subjected to the law of another jurisdiction by stating that cooperative members' rights are protected by the bylaws of the cooperative association and by the provisions of their occupancy agreements, each of which will be personally known to the member. Id. Accordingly, to the extent that we can determine it, Delaware law controls in resolving the issue concerning the imposition of a rental surcharge on an owner who leases her cooperative apartment. The applicable Delaware statutory law appears to be the Delaware Unit Property Act (Del. C. § 25-2201 et seq. ). Section 2209 of that law states: Each unit owner shall comply with the code of regulations and with such rules governing the details of the use and operation of the property and the use of the common elements as may be in effect from time to time and with the covenants, conditions and restrictions set forth in the declaration or in the deed to his unit or in the declaration plan. Section 25-2202(2) defines code of regulations as such governing regulations as are adopted pursuant to this chapter for the regulation and management of the property, including such amendments thereof as may be adopted from time to time. The term code of regulations appears to cover the bylaws of the cooperative. [6] Under the Delaware law, we look first to the bylaws to determine the validity of the Board's actions. In Hibbert v. Hollywood Park, Inc., 457 A.2d 339, 343 (Del.1983), the Delaware Supreme Court said that: [I]f the bylaw is unambiguous in its language, we do not proceed to interpret it or to search for the parties' intent behind the bylaw.... We only construe the bylaw as it is written, and we give language which is clear, simple, and unambiguous the force and effect required.... Words and phrases used in a bylaw are to be given their commonly accepted meaning unless the context clearly requires a different one or unless legal phrases having a special meaning are used. (Citations omitted). Under the Broadmoor bylaws, actions taken by the Board must be lawful and appropriate. Section 21 of the bylaws empowers the Board to do all such lawful acts and things as are by statute, Certificate of Incorporation or these Bylaws directed or required to be exercised or done by the members. Section 47 authorizes the Board to make appropriate rules and regulations controlling use of apartments.... The meaning of the word appropriate as used in the bylaws may be determined by reference to § 8(7) of the contract, in which the Broadmoor agrees generally, to do and perform all other acts reasonably required to insure the sound operation of the Co-operative and to protect the investment of its members. In the context of the contract and bylaws, appropriate means reasonable. Hence, we review the surcharge imposed on rentals to determine whether it is reasonable. In that regard, we are bound by the record before us and the arguments preserved in the trial court. Mrs. Kelley argues that the surcharge was not only unreasonable but also subjective and discriminatory. She suggests events that could result from the surcharge, including: non-competitive rental rates, forced sales, adverse tax consequences, and adverse impact on State Department and other government personnel who spend tours of duty overseas. The problem with Mrs. Kelley's position is that it is based on conjecture and speculation. She presented no affidavits to indicate that such events were probable. Nor did she present any affidavit or Board minutes to rebut the affidavit of Sandra McFeeley, Esq., President of the Board. Ms. McFeeley's affidavit addressed the purpose of the surcharge and why it was necessary to protect the investment of [the Broadmoor's] members. See § 8(7) of the contract. The surcharge is designed to promote owner occupancy. One of the ways to accomplish this objective is to discourage the use of individual units as rental investment property. Moreover, new owner occupancy depends on the ability of prospective owners to secure proper financing. Ms. McFeeley's affidavit explained the difficulty of securing a Federal National Mortgage Association (Fannie Mae) mortgage if twenty to thirty percent of the apartments were rental units. It also stated that Broadmoor would not be eligible for Fannie Mae financing if more than thirty percent of the units were rented. To her affidavit was attached a copy of a Fannie Mae document containing some of its regulations. Finally, the affidavit explained that if less than fifty percent of the Broadmoor apartments are not used as a primary residence, the Association loses all of the available homestead exception, and receives no credit whatsoever for not using municipal trash collection. [7] Mrs. Kelley suggests that [o]lder people and handicapped people are most likely to suffer the adverse impact of the surcharge regulation. We have previously recognized that a regulation may be unreasonable if it has an unfair or disproportionate impact on only certain unit owners. Johnson v. Hobson, 505 A.2d 1313, 1318 (D.C.1986). However, there is no evidence in the record to indicate that the surcharge has a disproportionate impact on older people or the handicapped, or is unfair to them. In a similar vein, Mrs. Kelley argues that one class of owners (owners/occupants) has imposed a regulation which discriminates financially against another class (owners/renters), and that the Board's action is unreasonable under Thanasoulis v. Winston Towers 200 Ass'n., Inc., 110 N.J. 650, 542 A.2d 900 (1988). [8] Thanasoulis is inapposite because it involved a charge affecting common elements of the association, and its imposition was directly governed by a specific provision in the condominium's master deed, as well as a provision of the New Jersey Condominium Act. Here the rental surcharge does not affect common elements and there is nothing in the contract or bylaws which directly addresses a surcharge. Mrs. Kelley also maintains that the rental surcharge to which she is being subjected would be $400 in the first year and $2,000 by the fifth year, and that she would be subsidizing those who own and occupy their apartments. She has presented no affidavits substantiating these conclusory statements. [9] On the record before us we cannot say that a $5 or $25 monthly rental surcharge is unreasonable, subjective or discriminatory. Therefore, we affirm the trial court's orders of June 1 and June 30, 1995. As a matter of law, the Broadmoor was entitled to summary judgment on the issues presented. For the foregoing reasons, we affirm the judgment of the trial court. Affirmed.