Adverse Domination Doctrine Tolls Statute of Limitations on DC Condominium Association Legal Claims During Period of Developer Control

When Condo Association Board is Controlled by Declarant

Adverse Domination Doctrine Tolls Statute of Limitations on DC Condominium Association Legal Claims Against Declarants During Period of Developer Control

 “Under the adverse domination doctrine the statute of limitations may be tolled as to a legal claims a DC condominium association has against a condominium declarant arising during the period of developer control.”

by Nicholas D. Cowie of Cowie Law Group, Maryland and Washington DC Condominium and HOA Attorneys

All Washington DC condominiums experience an initial “period of declarant control,” during which a condominium developer or “declarant” controls the condominium association by appointing its own employees and representatives to serve as the initial board of directors for the condominium association. During this period, the declarant directs the actions of a DC condominium association through its declarant-appointed board members. There is an inherent conflict of interest in such a situation because the declarant-appointed board members cannot, as a practical matter, be expected to cause a condominium association to investigate, uncover or pursue association legal claims against a declarant who employs them. Nonetheless, it is the board of directors’ fiduciary duty to investigate and pursue Washington DC condominium association legal claims against the declarant that they participate in or become aware of, such as declarant misuse of association funds or the existence of common elements construction deficiencies caused by the declarant’s defective construction of the condominium.

Under these circumstances, an equitable legal principle known as the “adverse domination doctrine, tolls, or stops, the running of the statute of limitations on a Washington DC condominium association’s legal claims against the declarant until such time as a the association is able to act independently. Independence occurs when a majority of the Board of Directors is made up of resident unit owners (i.e.,  a majority  consisting of non-declarant affiliated, unit owner-elected board members).

The adverse domination doctrine acknowledges the fact that a condominium association, as a legal entity, can only act through its board members, and when the board members controlling the association are beholden to the declarant, they cannot be expected to take legal action against themselves or their declarant employer. Moreover, under the adverse domination doctrine there is a rebuttable presumption that a condominium association cannot have legal or actual knowledge of the declarant’s wrongdoing imputed to it through its board members so long as the condominium association is under the control of the declarant-appointed members of the board of directors. Even if the declarant appointed board members are fully aware that the condominium association has a claim against the declarant, that knowledge is not imputed to the condominium association. As such, the statue limitations periods based on such knowledge will not begin running on legal claims against the declarant until the condominium association becomes independent of declarant control.

Relying in part on Maryland law, Federal Courts for the District of Columbia have concluded that the DC Court of Appeals would recognize the doctrine of adverse domination as an exception to the running of the statute of limitations. In re Greater Southeast Community Hospital Corp. I v. Tuft, 353 B.R.324, 351-53 (Bankr. D.D.C. 2006). See also, BDO Seidman, LLP v. Morgan, Lewis & Bockus, LLP, 2017 WL 4892435 at p. 7 (D.C. Supr.) (Trial Order) (although the D.C. “Court of Appeals has not considered this doctrine, [the Superior Court of the District of Columbia] sees a good argument for using it in proper circumstances….”); and BCCI Holdings (Luxembourg), S.A. v. Clifford, 964 F.Supp. 468, 481, n. 9 (D.D.C. 1997) (it is “appropriate to construe D.C. law” as tolling claims under the adverse domination doctrine as against both the board of director members who control the corporation and “corporate outsiders” who benefit from their control by avoiding for actionable conduct).

In that the Courts of the District of Columbia often look to Maryland common law as authoritative, it is worth noting that the United States District Court for the District of Maryland held that under Maryland law, the adverse domination doctrine created a rebuttable presumption that the statute of limitations did not begin to run on the claims of a condominium association and an HOA against the community developer during the time period that those associations were under the control of developer-appointed board members. Greenspring Quarry Association, Inc., the Beazer Homes, Corp., 2017 WL 2733935 (not reported) (D. Md.).

For an article regarding transition from the period of developer control, see Developer Transition for Washington DC Condominiums 

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NOTE ON TERMINOLOGY

Under the District of Columbia Condominium Act, a condominium association is known as a “unit owners’ association,” and the board of directors of a unit owners’ association is known as an “executive board.” For purposes of convenience, the more common terms “condominium association” and “board of directors” are used in the article.

NOTE ON LEGAL ADVICE

This Article should not be relied upon as a legal advice applicable to any specific case concerning Washington DC condominium association legal claims arising during the period of Developer control. The individual facts of each case need to be analyzed to determine the application of law. Contact the Washington DC Condominium attorneys at Cowie Law Group, P.C. for a consultation relative to your specific situation.