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Meritage Homeowners' Association v. Bank of New York Mellon

United States District Court, D. Oregon, Eugene Division

May 1, 2018

KURT FREITAG, Third-Party Defendant.


          Ann Aiken United States District Judge.

         This dispute centers on a planned community on the Oregon Coast, Meritage at Little Creek, in which defendant Bank of New York Mellon ("BNYM") owns a unit. Plaintiff Meritage Homeowners' Association ("Meritage") filed this action, alleging that defendant had failed to pay dues, assessments, fees, and interest associated with that unit. Defendant responded with counterclaims against Meritage and claims against third-party defendant Kurt Freitag ("Freitag"), alleging that Meritage failed in its duty to maintain common property and that Freitag breached his fiduciary duty to Meritage's members in his management of the homeowners' association ("HOA"). BNYM now seeks a preliminary injunction preventing Freitag from taking any actions on behalf of Meritage during the pendency of this lawsuit. Meritage's attorneys also seek a stay of all proceedings in this case pending the appointment of a receiver or election of a new Board of Directors to administer Meritage. I heard oral argument on the motions on April 30, 2018. For the reasons set forth below, both motions are granted.


         The facts in this case have been recounted at length in my previous opinions and I will not repeat them here.[1] On April 13, 2018, I issued an opinion and order ruling on the parties' cross-motions for summary judgment. In that order, I held that "Freitag . . . lacked legal authority to act on behalf of Meritage after June 5, 2004, " the date on which the HOA's governing documents required turnover from Freitag (the developer and declarant under those documents) to Meritage's owner-members. Meritage Homeowners' Ass'n v. Bank of N.Y. Mellon, 2018 WL 1787183 at *21. Due to that absence of authority, I denied Meritage's motion for summary judgment regarding BNYM's liability for dues, assessments, and attorney's fees. Id. at* 15-16.

         The day the summary judgment opinion issued, Freitag sent the first of a series of e-mails[2] to a subgroup[3] of Meritage owner-members. In that e-mail, titled "TROUBLING NEWS, " Freitag summarized the summary judgment order as holding that "Big Fish Partners and I as designate have not had any authority to ran the HOA since 2004" and "[a]s such, [BNYM] is not obliged to pay any dues, fix its windows, etc., unless and until it is legitimately directed to by an appropriate authority[.]" Gary Fisher Decl. Ex A at 2-3. The next day, April 14, Freitag sent an e-mail to the same group asking them to give him their proxies in order to "maintain the status quo" by voting Freitag into a position managing the HOA. Id. at 1. Freitag followed up with another e-mail on April 15 advocating for the "status quo plan" and opining that "us[ing] the occasion to simply organize at long last the HOA and take over the litigation-it is theoretically possible . . . just not a practical option, " Gary Fisher Decl. Ex. B at 1. That e-mail also explained that "[o]ver the next few weeks, at least, you can expect to see no change in the administration of the HOA" and stated that "the pending court ruling is no inhibition to carrying on the ordinary business of the HOA exactly as it has been conducted for the past, oh, 15 years or so." Id. Freitag further opined that the summary judgment ruling "is not an enforceable order or judgment" and that, until certain "ministerial steps" were taken to make the ruling "actionable, ... we are not obliged to act in accordance with the ruling." Id. at 2. Freitag sent two more e-mails, on April 16 and 17, informing the subgroup of owner-members that Meritage's attorneys could be required to withdraw from this case for ethical reasons arising from the summary judgment ruling.

         On April 18, BNYM filed a motion for a temporary restraining order and preliminary injunction against Freitag. BNYM sought to stop Freitag from taking any actions in the capacity of administrator of Meritage or on Meritage's behalf. BNYM provided this Court with copies of the e-mails described above and argued that an injunction was necessary to prevent Freitag from continuing to operate the HOA. On April 19, Mark Hoyt, counsel for Meritage, fded a motion for a stay of proceedings until legal authority to operate Meritage is established through the appointment of a receiver or election of a Board of Directors. Hoyt argued that, in view of the ruling that Freitag lacks authority to make decisions for Meritage, his client is currently unable to provide direction regarding how to proceed. Also on April 19, 1 entered a temporary restraining order, enjoining Freitag from:

1. Taking any action on behalf of Meritage;
2. Retaining counsel to represent Meritage;
3. Soliciting, negotiating, or entering into any agreement with any party that would bind Meritage to any legal obligations, create a new business relationship, or incur any further costs for which Meritage would be responsible;
4. Accessing or liquidating any bank accounts, reserve funds, or other property owned by Meritage or in which Meritage has a beneficial interest;
5. Attempting to collect or enforce any debts alleged to be owed by Meritage or its members;
6. Imposing fines or fees, or engaging in any collection or enforcement actions against members of Meritage;
7. Placing any liens on property owned by Meritage or members of Meritage;
8. Communicating with members of Meritage in the capacity of one in control of Meritage; and
9. Destroying or failing to preserve any documentation (electronic or otherwise) concerning Meritage's operations, business relationships, financial affairs, maintenance, and legal affairs.

Temporary Restraining Order (doc. 123) at 2-3.

         Freitag continued to send e-mails advocating for the status quo plan (i.e., taking action to formally make him administrative head of Meritage) to the subgroup of owner-members even after the temporary restraining order issued. On April 26, Freitag forwarded to the subgroup of owner-members a report prepared for Meritage by an economist in connection with this litigation. The purpose of that report was to quantify damages to other unit owners caused by "the failure of [BNYM] to replace windows on its unit and pay dues[.]" Gary Fisher Decl. Ex. F at 1. Also on April 26, Freitag sent a second e-mail regarding a judgment Meritage had against a realtor and lamenting that he was "hamstrung in now in pursuing, as we have been doing diligently over the past many years, everything that is owed us, no exceptions, no excuses, everyone obligated just the same." Gary Fisher Decl. Ex. G at 2.

         On April 27, Freitag sent an e-mail that began with the disclaimer that he was e-mailing in his capacity as "[a] lot and unit owner in the development;" "[t]he declarant/developer[;]" and "[t]rustee of the PSRG Profit Sharing Plan, the lender to the HOA." Gary Fisher Decl Ex. H at 1. Freitag provided an explanation about the definition of a receiver and how receivership works; a statement regarding his belief that he has an ongoing fiduciary duty to Meritage's owner-members; a summary of his "substantial rights under Oregon law" as the declarant (including a reference to "super votes"), asserting that "out of a total of 15 votes, the declarant controls AT LEAST 6 already, where 8 total votes is a majority and has effectively complete authority over HOA operations"; and some "[b]asic financial information" about the HOA including that its "accounts payable are currently about $500, 000[, ]" which in Freitag's estimation meant that if BNYM prevails in this lawsuit, it "would make your units unsaleable for any foreseeable time." Id. at 2-3. Freitag also referred to a $1 million "demand loan" to the HOA that the lender (PSRG Trust, for which Freitag is trustee) could call "due at any time" and noting that if PSRG Trust were to foreclose on certain units, it (by which he meant he) would gain seven additional votes. Id. Finally, Freitag referenced the lawsuit the unit owners filed seven years ago attempting to gain control of Meritage. He stated that he "warn[ed]" those unit owners at the time that "they were embarking on a long and very, very costly trip from which some would not be returning." Id. at 3. Freitag reported that the "outcome" of the prior litigation was "at LEAST $2-million essentially down the drain, . . . eight owners losing ...

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