background and legal proceedings to date

On September 15, 2017, Plaintiff, DMF Associates, Inc. ("DMF"), the owner of commercial property at 34026 Coastal Highway, Bethany Beach, Delaware (the "property"), submitted an application to the Middlesex Beach Association ("Association") seeking its approval to erect a 100 square foot, free-standing digital sign ("DMF sign") for the property's tenant, Norman Law Firm ("the Law Firm"). [Griffin, 2018] [1]

Steven Norman ("Norman"), on behalf of the Law Firm, presented to the Association's Board ("Board") about the DMF sign on September 16, 2017. On September 18, 2017, Board President Geoff Sella ("Sella") emailed Judy Bennett ("Bennett"), a co-owner of DMF, stating that the Board concluded an existing sign on the property would need to be removed and that the DMF sign was denied pending more research on the "issue of the illumination." Norman asked about the Board's "illumination" concerns on September 26, 2017, to which Sella responded by highlighting specific portions of the Middlesex Beach Covenants ("Covenants") pertaining to signs, including Sections 5.2(a) (prohibiting flashing signs, except time-and-temperature signs) and (b) (prohibiting animated signs), and Sections 5.1 and 7.8(d) (requiring "no more than two (2) sides or facings, back to back" for the one ground sign). Sella reiterated that the permit was declined because the Board needed to determine "the illumination issues." Norman responded that the DMF sign requested has "advanced capabilities to turn off flashing and animation capabilities," and can "modify its brightness to assure its compatibility with the surrounding neighborhood adjustable to the hour of the day."? Sella's October 16, 2017, response to Bennett confirmed that the permit request was denied because of illumination and the presence of a second ground sign on the property, and asked Bennett to submit a new request reflecting that existing ground signs will be removed and only one ground sign will remain, noting the "Board has only approved illuminated signs that change once every 24 hours. [Griffin, 2018] [1]

Norman attended an October 21,2017, Board meeting which he contended that using "illumination" as the reason for denial was arbitrary and that there was no deed restriction that authorized the limitation that the sign content could change only once every 24 hours." The Law Firm applied for and obtained a sign permit from Sussex County Planning and Zoning Commission on October 26, 2017. On November 11, 2017, the Board approved the DMF sign, subject to the conditions that the two existing ground signs be removed and the message on the sign be changed only once every 24 hours ("the 24-hour condition"), since the sign will not have time-or-temperature messages." [Griffin, 2018] [1]

On December 26, 2017, the Law Firm filed a complaint, which was amended on January 26, 2018, to add DMF as a plaintiff, seeking a declaratory judgment that the Law Firm and DMF can install a sign without complying with the 24-hour condition, because the DMF sign is not a flashing sign prohibited by Section 5.2(d). Plaintiffs contend the Covenants are not clear and precise related to digital signs and were enforced arbitrarily and capriciously. The Association filed its answer on February 9, 2018, asserting that the Covenants prohibit continuously changing signs, except for time-and-temperature signs and the one commercial sign that was previously approved subject to the 24-hour condition ("Hickman sign"). It also argues the Covenants allow the Board to consider the suitability, appearance and harmony of the DMF sign with its surroundings, and the compatibility of the DMF sign with other signs in the commercial area and with the adjoining residential area. [Griffin, 2018] [1]

Plaintiffs moved for summary judgment on February 7, 2018. The Association's February 28,2018, response and cross-motion for summary judgment focus on the tenant's lack of standing because only Association members, defined as property owners in the Covenants, can enforce a violation of the Covenants; the owner's lack of standing because of its purported acquiescence in the 24-hour condition; and the "reasoned, non-arbitrary basis" for the 24-hour condition. In their March 16, 2018, reply and answer to the cross-motion, Plaintiffs assert that DMF was identified on the sign application as the property owner, the Association allowed Norman's direct involvement in the process, the sign would not be incompatible since there is no common scheme of signs, and Bennett did not acquiesce in the Board's adoption of the 24-hour condition for the Hickman sign. [Griffin, 2018] [1]

On February 28, 2018, DMF submitted a revised sign application to the Association requesting approval for the sign with square footage of 100.4 square feet (increased from the 100 square foot sign previously requested), which was denied by the Association as exceeding a ground sign's maximum size, in a March 7, 2018 letter from its counsel. The letter also stated that the denial replaced any previous decisions on earlier versions of the DMF sign application. On April 4, 2018, the Association filed its reply in support of its cross-motion, reiterating its earlier arguments and claiming the matter is moot because the DMF sign is prohibited on other objective grounds, namely that the sign exceeds the maximum size allowed by the Covenants. Plaintiffs' May 16, 2018 sur-reply to the cross-motion argues that the application was not for a new sign but a request for a minor variance on the DMF sign's size and, to avoid confusion, was withdrawn on March 8, 2018, ahead of the March 10,2018, Board meeting. [Griffin, 2018] [1]

On June 1, 2018, the Association filed a separate 10 Del. C. § 348 action against DMF and the Law Firm pertaining to a sign which was installed on the property on May 16-17, 2018. The parties agreed to mediate both actions together and the mediation was held on September 13,2018, but was unsuccessful. [Griffin, 2018] [1]

Master Griffin heard oral arguments from both parties on September 13, 2018. On November 5, 2018 Master Griffin released a report, recommending that the court deny the Plaintiff's motion for summary judgement because a more developed record is needed and material questions of fact exist as to whether the Covenants are enforceable as related to the DMF sign, including whether they address the regulation of digital signs and provide clear, precise and fixes standards pertaining to digital signs, and whether the homeowner association's enforcement of a condition that the sign's message can change only once every 24 hours is reasonable. In his report, dated November 5, 2018 Griffin further recommends that the court grant the Association's cross-motion for summary judgment in part, by finding that the Law Firm does not have standing to pursue this action, and deny the cross-motion in part, due to disputed factual questions whether DMF is estopped from prosecuting this action because of equitable estoppel or acquiescence. Griffin's report is a final report and in his report Griffin invites the parties to advance exceptions under Court of Chancery Rule 144.

On July 19, 2019 the court effected Griffin's recommendation and removed Norman as a party having standing. The court also combined the two separate actions in a single action, court number 2017-0919-PWD.

analysis

The matter, DMF Associates versus the Middlesex Beach Association, will ultimately turn on whether the homeowners association can demonstrate that DMF Associates is in violation of the governing covenants and that the homeowners association applied its policies and guidelines objectively when it ruled against the building application brought forward by DMF Associates' on behalf of its tenant, the Norman Law firm. In fact the homeowners association must show that it acted objectively on both applications.

To that end the salient questions to be considered will be (i) is the sign in violation of section 5.2(a) of the governing covenants? Is the sign a so-called flashing sign? (ii) if the sign is not a flashing sign, did the homeowners association objectively rule that the sign is not in harmony and congruence with that of other signs in the surrounding commercial area and that of the community? (iii) if failing that, are the two visible sides of the sign at a 180 degree angle in compliance with section 5.1 and 7.8(d) and does that matter and (iv) is the subject moot as the sign's square footage at 100.4 square feet exceeds the size limitations? To be successful the defendant, the Middlesex Beach Association, bears the burden of presenting evidence to this effect. Should the homeowners association fail to do so the plaintiff, DMF Associates, will likely be successful.

The plaintiff has an somewhat easier path to victory. The plaintiff, DMF Associates, can stand idly by as the Association fails to make its case, if it fails. The defendant has the burden of proof in the matter. Alternatively, the plaintiff can argue that the board acted outside the governing covenants. Alternatively, DMF may also argue that the board arbitrarily and capriciously rejected the sign application due to a bias against DMF Associates's tenant, the Norman Law Firm.

Ellen Throop, who chairs the legal committee of the Middlesex Beach Association and is a member of the board, says that there is legal precedence in Delaware law that a sign that changes within a twenty four hour period is a flashing sign. There are past legal actions on file where that was ruled to be the case. However, times change. Technology changes. The world continues to turn. Rust never sleeps. Digital signs, which are effectively large weather-proof LED displays, are rapidly replacing incandescent, illuminated signs. The sign at the heart of the complaint is now organically and commonly accepted as a digital sign with the ability to rotate marketing messages amongst other capabilities. So as time passes, as technology changes, organic language evolves and that evolution works against time-institutionalized precedence. Eventually organic language garners greater weight and importance than time honored institution, even in a court of law.

The phrase, "I know it when I see it," may have relevance in what constitutes a flashing sign. The phrase was used in 1964 by United States Supreme Court Justice Potter Stewart to describe his threshold test for obscenity in Jacobellis v. Ohio. [2] However, the actual organic meaning of the phrase, flashing sign, is troubling to the defendant's cause. As one drives down the coastal highway in Maryland you see a multitude of flashing signs, but what differentiates a flashing sign from a non-flashing sign? A flashing sign is a sign that contains a sequential flashing light source where the period of time of illumination is equal to the period of non-illumination, and is used solely to attract attention in a non-informative way. [3]

If you stare at the sign, advertising the Norman Law Firm, long enough, it is clearly not flashing (given the organic meaning above), save observing the sign from a space vessel traveling close to the speed of light heading towards the planet Earth where time is compressed, where 1 elapsed second on your star vessel equates to one elapsed day on the planet Earth. [see Einstein, Theory of Relativity] [4] Under such conditions the sign would appear to be flashing by the observer, assuming the illumination of the sign was off for an equal 24 hour period. However, since no one travels at speeds near the speed of light, except perhaps Scotty on the star ship Enterprise 1701-B, the exception is moot.

Dean Campbell, a lawyer, specializing in civil litigation and practicing in Sussex County says, "For the governing covenants to be enforcable they need to be explicit and concise as to what differentiates permissible behavior and what is a violation. Governing covenants of homeowner associations are often weak legal documents to enforce as the homeowners association must demonstrate the offending behavior by a homeowner is clear and undeniable. There is no room for ambiguity." Campbell further states, "What you typically see with homeowner associations is you find one or two people on a board who are more or less permanent fixtures, who loosely interpret the governing covenants to arbitrarily rule on matters."

In Swann Keys v. Shamp, Dean Campbell represented the defendant, Shamp et al, the successful appellees on appeal. The lawyer for the unsuccessful appellant on the matter was Mary Schrider-Fox, who as it happens is a resident lawyer on contract to the Middlesex Beach Association. [5]

Further, in matters involving the Court of the Chancery of the State of Delaware there is simply no wiggle room for vagueness in matters involving homeowners associations. On the event that the homeowners association fails to demonstrate that a violations is undeniable there is precedence that shows the law favors the home owner or in this case the commercial property owner and not the homeowners association.

Regarding whether the association can demonstrate the sign is in violation of its governing covenants due to the disharmony and incongruence posed by the existing sign, again the homeowners association would have to demonstrate that it objectively ruled against the application in accordance with a set of policies and guidelines, involving commercial properties. Outside the covenants, during a meeting on August 24, 2019, a number of board members, including Geoff Sella, said that he was not aware of any such existing documents without reviewing the minutes of board meetings. The board has effected motions in the past that deal with commercial signs and in particular how often a digital sign can rotate, however, the results of these actions by the board alone are not necessarily legally binding on the membership of commercial property owners.

Regarding the caveat that the sign violates the covenants in that the sign is a bi-fold sign, possessing four sides, as advanced by the defendant if the spirit of the agreement was not relevant this argument would have merit. The two sides of the digital sign are not set at a perfect 180 degree angle, in violation of section 5.1 and 7.8(d). However, the digital sign has only two illuminated faces, not four. As such the court may rule that DMF Associates are following the spirit of the agreement, not necessarily the wording of the agreement verbatim and rule against the homeowners assocation on this argument as well.

Regarding the argument that the size of the sign makes the other three issues moot, the size at 100.4 square feet is a clear violation of the sections 5.1 and 7.8(d) of the governing covenants. It is a proverbial bait and switch where DMF Associates filed an application for one sign and yet, starting on May 16, 2018, installed a different sign. Of all of the arguments that the sign is a violation of the governing covenant, this one is the most flagarant. It is also the easiest to recify by simply replacing part of the existing sign to comply with the size restrictions. Alternatively, one can simply block off a portion of the LED display, bringing the visible space within the 100 square foot limit.

Possible Strategies for withdrawl

In a similar conflict in 2015, involving a property owner and the Middlesex Beach homeowners association over a vague interpretation of prohibited behavior in the treatment of a revision to an existing building structure within the set back, a law suit that the two parties avoided, Campbell rated the likelihood of the homeowners association to succeed at trial as being low (e.g., between 10% to 25%). On the event that the probability of success is low the most prudent course of action is to withdraw, in this case, settle.

Unfortunately, there is considerable animosity between a number of the current, elected board members and Norman. A source close to the matter reports that a significant number of the board members personally dispise Norman. Likewise, Norman, also, has no love for the members of the board of directors of Middesex Beach as evident by his offer to settle. Norman is reportedly demanding 120,000.00 dollars to settle, signaling either he rationally believes DMF Associates and he are entitled to costs on a full indemnity scale or he maliciously intends to stoke fear and anxiety in the minds of the opposing party. A settlement involving 120,000.00 dollars may require the members, i.e., the homeowners to foot the bill as settlements are not necessarily insurable. Each property owner would have to pay 500.00 or thereabouts to dispatch DMF Associates and hence Norman on Norman's terms. Regardless, personal animous would only strengthen the plaintiff's argument that the rulings by the board were arbitrary and capricious.

Should the community refuse to acquiesce to Norman' demands and bring the matter to trial, which is now scheduled to begin on September 1, 2020, DMF Associates would only be entitled to costs on a partial indemnity scale (e.g., a fraction of their actual attorney fees) even if the plaintiff is entirely successful at trial. Different jurisdictions maintain different schedules of how partial indemnity is calculated. However, typically these scales range from 20% to 45% of actual attorney fees. However, disbursements are generally awarded at par.

Over the course of a motion heard on September 13, 2018 neither DMF Associates nor the Middlesex Beach Association were entirely successful on being awarded summary justice. Again, in his report, dated November 5, 2018, Master Griffin recommended Norman have no standing in the matter from that point forward. As such the homeowners association has to date acted reasonably to resolve the matter even if it does not agree with DMF Associates' position. Effectively, Master Griffin, ruled that the homeowners association has a valid question of law. That's good news for the homeowners, bad news for DMF Associates and particularly Norman. [1]

No Exit Ramp

Given Norman's heavy demands (e.g., the $120,000.00 settlement payable forthwith) there is now no exit ramp. The Association would likely realize less legal expenses, bringing the matter to trial than yielding to the plaintiffs's demands, even if the plaintiff is entirely successful at trial.

What does MXB have to gain by continuing; No damages

If in the unlikely event that Middlesex Beach is entirely successful against DMF Associates, it would get an order, compelling DMF Associates to remove the digital sign in question that to date no one has complained about at least in the eyes of the court. The fact that no one has objected to a sign is expected on the event the sign is being proposed, however, the sign exists and after one year in operation there is no evidence before the court that a homeowner has complained. DMF Associates could argue, who is being harmed? This concept speaks to the balance of convenience, which again favors DMF Associates. [6]

In her response to my broadcast e-mail message, dated September 9, 2019, in which I opposed our continued involvement in the matter before the court, MXB homeowner, Virginia Liddle, writes, "We all need to stand together to protect our convents!". In her e-mail message sent one hour later, Eileen Sussman Waxman quickly followed up, stating she concurs. Is that the greatest harm to the Association? A small number of homeowners in the ether, in this case a reply to an e-mail message, feel the homeowner's governing covenants were violated? [7] [8]

In any event a ruling that favors the Association would send a chill through the commercial district of the community. Any favorable decision for the homeowners association would signal to its commercial property owners that it will not tolerate behavior that remotely violates its governing covenants as it interprets the covenants and these commercial establishments had better fly straight or else. Further, the Association would then have precedence to dissaude any commercial business from erecting a technologically advanced sign, if it so chooses.

A number of commercial property owners may dispose of their properties and acquire property where the political landscape is more empathetic towards technologically advanced signage. Time will tell.

However, the homeowners association would likely only be entitled to recover a portion of the legal fees which are now being paid via the association's indemnity insurance. In 2021 when the association seeks to renew its policy, it will not find inexpensive, indemnity insurance with a low deductible as it now enjoys. That means the assessment will be going up beyond what can be explained by inflation starting in 2022. That will happen regardless of whether the homeowners association wins or losses the only difference being the quantum.

Further the primary reason of having indemnity insurance is protecting the members from catastrophic loss, for example, a death in the private community due to negligence, an incident of a child drowning on the private community's beach, whose parents then sue for millions of dollars. What about protecting our ability to access affordable indemnity insurance for things that matter?

Until the DMF Associates legal complaint emerged law suits involving the MBA were a rarity. Now, not so much.

So it goes, the only law suit you can ever win is the law suit you elect to never get involved in.

Waiver

The MXB Wire contacted Judy Bennett of DMF Associates for comment on this story. Bennett reported that she had "nothing to do with" the action before the court and refused further comment. The MXB Wire also contacted a number of board members of the Middlesex Beach Associations. None would comment on the action, saying that all matters surrounding the ongoing legal action were confidential and held in strict confidence until at which time the matter reaches a conclusion.

References