By: Scott Eriksen, Esq.
In the condominium world, fines are always a hot topic. Most condominium documents permit associations to impose fines when owners or their tenants run afoul of use restrictions. For example: Is a unit owner’s dog darting around the common area without a leash? Fine. (Well, not ‘fine’ – rather, impose a fine.) Tenant smoking in the common areas? Fine. Parking violations, improper use of pools or other amenities, littering? Fine, fine, fine. It is fairly routine for associations to fine unit owners and so many may wonder: What is the likelihood of collecting the fine? This question especially springs to mind when the fine may appear to be ‘excessive.’
The ability to collect ‘excessive’ fines was recently the subject of Reed v. Zipcar, Inc., 2012 U.S. Dist. LEXIS 106371, 1-20 (D. Mass. July 31, 2012). Naomi Reed, a Zipcar customer, filed a class action against Zipcar. Zipcar, as most city-dwellers know, provides “wheels when you want them” in the form of a car-sharing service. To become a Zipcar member, customers sign an agreement by which they promise, among other things, to pay a fee if they fail to return a car on time.
In her complaint, Ms. Reed claimed that she incurred excessive fees when she was late to return a vehicle. Reed challenged the late fees on three grounds: first, that they were an “unlawful penalty”; second, that they unjustly enriched Zipcar at the expense of its customers; and, finally that they constituted a violation of the Massachusetts Consumer Protection Act (“c. 93A”).
On a hearing on Zipcar’s motion to dismiss, Judge Gorton quickly disposed of Reed’s first two claims, but gave notable attention to the c. 93A claim. Ms. Reed argued two theories in support of her c. 93A claim. The first theory was that the late fees were “grossly disproportionate” to the damages to Zipcar. The court disagreed. Unlike Ms. Reed, the court thought that quantifying Zipcar’s damages from late vehicle returns would not be an easy task. Noting it would not be “as simple as multiplying the minutes late by an hourly charge…” the court considered that Zipcar would also have to factor in “expenses associated with managing the logistics of late returns … and the reputational harm caused by the frequent late return of vehicles.” Without being able to demonstrate what a “reasonable” harm might be for a late vehicle return, the court held that Reed could not show that the actual late fees were “grossly disproportionate.”
Ms. Reed’s second theory was that the late fees were “unconscionable.” Again the court disagreed. Judge Gorton found that the fees were not “procedurally unconscionable” since Zipcar was simply enforcing the terms of its membership agreement. The court also held that the late fees were not “substantively unreasonable” simply because they were higher than those of Zipcar’s competitors.
Before wrapping up its c. 93A analysis, the court also noted that Zipcar had “good reason for charging high late fees.” This reason, according to the court, was that the company’s “continued success in the burgeoning car-sharing market” depended on its reputation for living up to its slogan and delivering “wheels when you want them.” Thus, in the end, despite giving credit to Reed’s deft attempt, Judge Gorton resolved that “just as one cannot get blood from a stone, some allegations, no matter how well articulated, do not give rise to a claim for relief.”
Now, if you have made it this far you have no doubt noticed that the Reed case has literally nothing to do with condominiums. At first glance, the case may not seem at all relevant for associations. Contract and c. 93A claims generally fall flat in the condominium arena, and we have yet to see an association participating in the car-sharing game. However, in its analysis of Reed’s c. 93A claim, the Court raises a number of arguments which may serve as useful precedent in an action to defend condominium fines:
1. First, to successfully contend that fines are “grossly disproportionate” may require some showing of what a “reasonable” fine would be. In many cases, this would no doubt be difficult to establish. Consider the following: when an owner violates a rule that requires cars to be removed from parking areas in the event of a snowstorm, what is a “reasonable” measure of the damages for such violation? The calculus is arguably more complicated than the simple cost of clearing snow from around the spot after the fact. For example, there are administrative costs associated with each step of the fine process – identifying the vehicle, informing the Board/property manager, removing the vehicle, clearing the snow, imposing the fine, following up, etc. In an isolated incident these costs may be quantifiable, but for an association dealing with multiple offenders, the determination may not be so simple.
2. Second, it should come as no surprise that an individual may not generally allege that fines are “unconscionable” where the individual “freely agreed” to subject himself to the same by purchasing the condominium unit.
3. Finally, like Zipcar, most condominium associations have a good reason for imposing fines. A successful association is a harmonious association. Abiding by the same rules as your neighbors should not be onerous; nevertheless, it is our experience that the occasional unit owner needs a gentle reminder of this courtesy and obligation. Fines – for better or worse – are a useful tool in ensuring that each owner is aware of and abides by the rules to which they have agreed to live by.
While this article may seem light-humored, we do not mean to belittle the decision of whether imposing fines – as opposed to a written warning or some other action – is a proper first course of action in response to a violation. Furthermore, even if fines are permissible under the condominium documents, it is important for any association to be consistent in the application and pursuit of the same. We strongly recommend that the Board or property manager contact counsel regarding how best to deal with any serious or repeated violations of the condominium documents.