Appendix — Ashcraft v. Villas West II of Willowridge Homeowners Association (No. 08-817)

S e Court, U.S.

a 7 al hha

Ly No. 682817 DEC 2 3 2008

IN THE OFFICE OF THE CLERK

\

SUPREME COURT OF THE UNITED STATES

SHIRLEY A. ASHCRAFT,

As Personal Representative

of the Estate of Edna P.

McGlothin, Deceased

Petitioner

Vv.

VILLAS WEST IT OF

WILLOWRIDGE HOMEOWNERS

ASSOCIATION, INC.

Respondent

On Petition For Writ Of Certiorari

To The Indiana Supreme Court

APPENDIX

Joseph Henry Davis, Jr.

Counsel Of Record

Davis & MacDonald Law Firm

119 N. Buckeye Street

P.O. Box 688

Kokomo, IN. 46901

Telephone: (765) 854-1122

Appendix Table of Contents

Complaint

Amended Declaration Of Covenants

Answer, Affirmative Defense And

Counterclaim

Plaintiffs Answer To Defendant’s

Cou aterclaim

Decision of the Court

Findings of Fact

Conclusions

Judgment

Decision Of The Indiana Court of

Appeals

Decision Of The Indiana Supreme

Court

Indiana Supreme Court’s Denial Of

Petition For Rehearing

Page of

Appendix

STATE OF INDIANA ) IN THE HOWARD

) SS: SUPERIOR COURT

COUNTY OF HOWARD )

CAUSE NO.

VILLAS WEST II 34D02-0210-PL-893

)

OF WILLOWRIDGE )

HOMEOWNERS )

ASSOCIATION, INC., )

)

Plaintiff ) FILED

) OCT. 10, 2002

VS. ) LINDA KOONTZ

) Clerk, Howard

EDNA McGLOTHIN, ) Superior Court,

) Division II

Defendant. )

COMPLAINT

Comes now the Plaintiff, Villas West II of

Willowridge Homeowners Association, Inc., by

counsel, ard for its cause of action against the

Defendant, Edna McGlothin, alleges and states as

follows:

1. That at all times herein the Plaintiff was a

corporation with its principal place of business

located in the City of Kokomo, County of Howard,

State of Indiana;

That at all times herein the De.endant, Edna

McGlothin, resided at, or owned real property

at, 513 Delray Street, in the City of Kokomo,

No

Indiana;

3. That the Defendant's real property is located n

the Villas West IT Subdivision;

4. That the Defendant’s real property is subject to

certain covenants, conditions, and restrictions as

evidenced by the amended declaration recorded

on April 2, 1992, and attached hereto as Exhibit

“A”.

5. That Plaintiff has reason to believe that

beginning on or about September 1, 2002, and

continuing through the present, the Defendant, or

her agent, has leased, rented, or otherwise

allowed the use of her real property by a non-

family member in violation of the recorded

covenants, specifically Article 9, Section 4(b),

which provides that the lease of a dwelling by an

owner shall not be allowed;

6. That Article 9, Section 3 provides the Plaintiff

with the right to seek injunctive relief for any

violation of the aforementioned provisions and

damages from the same;

That the Plaintiff has given prior notice of its

request to correct the violation and has attempted

to resolve this dispute without resorting to legal

action without success and has, therefore, had to

retain counsel and has incurred legal expenses.

(A copy of the letter to the Defendant’s children is

attached hereto as Exhibit “B”);

WHEREFORE, the Plaintiff, Villas West II of

Willowridge Homeowner's’ Association, Inc.,

respectfully prays the Court issue an injunction

prohibiting the Defendant from renting, leasing, or

otherwise allowing non-family members to occupy the

“a

real property located at 513 Delray Street, for an

Order requiring the Defendant to remove the current

tenant, for the costs of this action, for attorney fees in

the amount not less than one thousand dollars

($1,000.00), and for all other just and proper relief in

the premises.

KING, McCANN & SCOTT, LLP

_S/Jeremy A. Peelle

Jeremy A. Peelle

Attorney for Plaintiff

KING, McCANN & SCOTT, LLP

122 N. MAIN ST., P.O. BOX 805

KOKOMO, IN 46903-0805

765-459-0751

EXHIBIT 004480 80 0458

A

AN AMENDED DECLARATION OF

COVENANTS, CONDITIONS AND

RESTRICTIONS FOR VILLAS WEST II

PLANNED UNIT DEVELOPMENT

WILLOW RIDGE SUBDIVISION

THIS DECLARATION, made on the date

hereinafter set forth by JIM BAGLEY

CONSTRUCTION COMPANY, INC., hereinafter

called “Declarant,” is made pursuant to AN

AFFIRMATION OF AUTHORITY duly executed by

BAGKO DEVELOPMENT COMPANY and recorded

November 13, 1990 at Record 78, page 1088 in the

records of the Recorder of Howard County, Indiana; it

is made pursuant to a re-plat of said Section II

approved by the Kokomo City Plan Commission

March 10, 1992 and thereafter duly recorded on

March 23, 1992 in Record 9, page 376 of the Howard

County Recorder.

WITNESSETH:

WHEREAS, Declarant is A General Partner of

the owner of certain real estate in Kokomo, County of

Howard, State of Indiana, which is more particularly

described on Exhibit “A”, attached hereto and made a

part hereof, the real estate described on Exhibit “A”

is hereinafter called Villas West II of Willowridge

Subdivision Planned Unit Development.

WHEREAS, the Declarant intends to develop the

Properties by subdividing the Properties into

“Clusters” that are to be used for residential purposes

and will contain maintenance easements to, on and

across the Properties that will be owned by a

homeowners association to which the owner of a

dwelling in the Properties must belong and pay hen-

supported maintenance assessments, and

WHEREAS, the Declarant, by this Declaration

intends to subdivide each Cluster into “Lots” for

residential use, which Clusters are more particularly

illustrated on the plat of properties marked Exhibit

“B”, attached hereto and made a part hereof, and

WHEREAS, prior to the conveyance of the first

Lot to an owner, the Declarant intends to convey

certain maintenance easements prescribed on Exhibit

“C” to, on and across the Properties, to the

Association for the use and enjoyment of the

Association for the benefit of the owners (Subject to

the terms of this Declaration); and which easements

are intended to enable the Association to carry out its

obligation under this Declaration.

NOW, THEREFORE, Declarant hereby declares

that all of the real estate described on Exhibit “A”

shall be held, sold and conveyed subject to the

following maintenance easements, restrictions,

covenants, and conditions, which are for the purpose

of protecting the value and desirability of, and which

shall run with, the real estate and be binding on all

parties having any right, title or interest in the

described Properties or any part thereof, their heirs,

successors and assigns, and shall inure to the benefit

of each Owner thereof.

RECEIVED FOR RECORD

AT 9:05 A.M. O'CLOCK

APR - 2 1992

RECORD NO. 80 PAGE 0458

s/Jane Schrader

RECCGRDER OF HOWARD

COUNTY, INDIANA

ARTICLE I

DEFINITIONS

Section 1. “Declarant” shall mean and refer to

Jim Bagley Construction Company, Inc., its

successors and assigns as a Declarant.

Section 2. “Association” shall mean and refer to

Villas West II of Willowridge Homeowners

Association, Inc., its successors and assigns.

Section 3. “Owner” shall mean and refer to the

record owner, whether one or more persons or

entities, of a fee simple title to any Lot which is a

part of the properties, including contract purchaser,

but excluding those having such interest merely as

security for the performance of an obligation.

Section 4. “Properties” shall mean and refer to

the certain real estate described on Exhibit “A”,

which consists of 52 Cluster Lots and streets, sewers,

water lines and other facilities all of which are or will

be dedicated to the City of Kokomo, Indiana.

Section 5. “Cluster” shall mean a subdivided Lot

as approved by the City of Kokomo, Indiana as more

particularly illustrated on Exhibit “B”. A Cluster

includes two (2) or more Lots (as defined herein) and

two (2) or more Dwellings per Cluster.

Section 6. “Lot” shall mean and refer to the

subdivision of Cluster shown upon any recorded

subdivision map of the Cluster. Declarant has

planned two (2) or more Lots per Cluster.

Section 7. “Dwelling” shall mean and refer toa

single family residence erected on a Lot or a Cluster

and shall be used by the owner or a contract

purchaser, and his immediate family.

Section 8. “Maintenance Easement” shall mean

the easements owned by the Association to be used

for the benefit of the Owners to enabie the

Association to carry out its obligations under this

Declaration, which easement is more particularly

described in Exhibit “C’.

Section 9. “Declaration” shall mean and refer to

the Declaration of Covenants, Conditions and

Restrictions of Villas West II of Wallowridge

Subdivision, applicable to Properties, recorded in the

Office of the Howard County Recorder, Kokomo,

Indiana.

Section 10. “Exhibit” shall be an ene attached

to the Declaration.

ARTICLE II

PROPERTY RIGHTS

Section 1. Association Kasements of Use. This

Association shall have all rights in and to the

Maintenance Easements which shall be a covenant

running with the land and to the Association. The

title to every Lot shall be subject to the Maintenance

Easements. The Association shall have, among other

rights granted it under this Declaration, the right to:

(a) use the Maintenance Easements for the

benefit of the Owner;

(b) suspend the voting rights of an Owner for any

period during which any assessment against his Lot

remains unpaid; and for a period not to exceed sixty

(60) days for any infraction of the Association’s

published rules and regulations.

Section 2. Property Subject to Declaration. The

Properties which are, and shall be, held, conveyed,

hypothecated or encumbered, sold, leased, rented,

used, occupied and improved subject to this

Declaration are located in Howard County, State of

Indiana, and are more particularly described on

Exhibit “A” attached hereto and by this reference

made a part hereof.

Section 3. Title to Maintenance Easements. The

Declarant shall convey the Maintenance Easements

to the Association, at the time of the first conveyance

of a Lot, such conveyance to be subject to taxes for

the year of conveyance, and to restrictions,

conditions, limitations and easements of record.

ARTICLE Ii]

MEMBERSHIP AND VOTING RIGHTS

Section 1. Every Owner of a Lot which is subject

to an assessment, as defined in Article [V, Section 1,

shall be a Member of the Association. For purposes

of determining classes of membership, a Class A

Member shall be the Owner of any conveyed Lot, and

each reference to a Lot in Section 2 (a), or 2 (b) of this

Article shall be deemed to be a conveyed Lot

containing a Dwelling, and a Class B Member shall

be the Owner of any unconveyed Lot, and each

reference to a Lot in Section 2 (a), or 2 (b) of this

Article shall be deemed to be a conveyed Lot

containing a Dwelling or an unconveyed Lot,

respectively.

Section 2. The Association shall have two (2)

classes of Membership and until such time that the

Villas West II of Willowridge Homeowner's

Association, Inc. has Sixty-Eight (68) Class A

Members, the affairs of the Association shall be

managed by a Board of Directors, comprised of Four

(4) members, appointed by the Declarant.

As soon as practical after Sixty-Eight (68) Class A

Members are in the Association, said Board of

Directors shall call a meeting of all members to elect

Officers to manage the Association’s affairs, as

hereinafter set forth in the “Code-Of Bylaws’ Article

IV.

After said election of Officers, the Declarant,

however, shall have full authority as to the style and

construction and sales price of all homes on the Lots

remaining to be built upon and will be subject to sign

regulations and maintenance cost as_ stated

elsewhere in this Document.

(a) Class A. Every person, group of persons or

entity, other than the Declarant, who is a record

Owner of a fee interest in any Lot which is or

becomes subject, by covenants or record, to

assessment by the Association, shall automatically be

a Class A Member of the Association; provided,

however, that any such person, group of persons or

entity who holds such interest solely as security for

the performance of an obligation shall not be a

Member, until and unless he shall become an Owner

through completed foreclosure of his security and

acquiration of title. A Class A membership shall be

appurtenant to and may not be separated from

ownership of any Lot which is subject to assessment.

Class A Members shall be entitled to One (1) vote for

each Lot in which they hold the interest required for

membership. In the event that more than one

person, group of persons or entity is the record Owner

of a fee interest in any Lot, then the vote for the

membership appurtenant to such Lot shall be

exercised as they among themselves determine, but

in no event shall more than One (1) vote be case with

respect to any Lot.

(b) Class B. The Class B Member shall be the

Declarant and those designated in writing by the

Declarant and shall be entitled to Ten (10) votes for

each Lot owned. The Class B Membership shall

cease and be converted to a Class A membership on

the happening of either of the following events, which

ever occurs earlier:

(i) whenever the total votes outstanding of Class

A Membership cqual the total votes outstanding in

Class B Membership,

(11) on April 15, 2000, in the event all the Lots

have not been conveyed to the Owners or the Class B

Memberships have not been surrendered by the then

holders thereof for cancellation on the books of the

Association.

ARTICLE IV

COVENANT FOR ANNUAL

AND SPECIAL ASSESSMENTS

Section 1. Creation of the Lien and Personal

Obligation of Assessments. Each owner of any Tract

by acceptance of a deed therefore, whether or not it

shall be so expressed in such deed, is deemed to

covenant and agree to; pay to the Association (1)

annual assessments or charges, including assessment

to establish and maintain a replacement reserve

fund, as provided for by the Board of Directors of the

Association, and (2) special assessments for capital

improvements, such assessment to be established and

collected as hereinafter provided. At the date of this

Declaration, there shall be deemed to be 122 Tracts

within the Properties for the purposes of determining

the total number of assessments payable by

Members.

Section 2. Purpose of Assessments. The

assessments levied by the Association on a Lot shall

be used exclusively to promote the recreation, health,

safety and welfare of the residents in the Properties

and for such improvements and maintenance on the

Properties, as required under Article V of this

Declaration.

Section 3. Date of Commencement of Annual

10

Assessments: Due Dates. The annual assessments

for a Lot owned by a Class A Member shall commence

on the first day of the month following the initial

conveyance of a Lot to a Class A Member by the

Declarant. The first annual Assessment shall be

adjusted according to the number of months

remaining in the calendar year. The Board of

Directors shall fix the amount of the annual

assessment for Class A Members against each Lot at

least Thirty (80) days in advance of each annual

assessment period. If any change has been made to

said annual assessment, written notice of the annual

assessment for Class A Members shall be sent to

every Owner subject thereto. The due dates shall be

established by the Board of Directors. The

Association shall, upon demand, and for a reasonable

charge, furnish a certificate signed by an officer of the

Association setting forth whether the assessments on

a specified Lot have been paid. A properly executed

certificate of the Association as to the status of

assessment on a Lot is binding upon the Association

on the date of its issuance.

Section 4. Rates of Assessment. Both annual and

special assessments for Class A Member shall be

levied on each Lot on an equal basis.

(a) Initially each one family attached duplex unit

shall have a monthly assessment of Seventy-Five

Dollars ($75.00).

(b) The Declarant shall not be subject to monthly

assessment for homes under construction or

completed homes that are for sale. Declarant will

however pay all cost to maintain said homes

including lawn care, snow removal, etc. on a prorated

11

basis until sold.

As a conveyance to the Association, assessment

may be collected on a monthly or other convenient

basis.

Section 5. Maximum Annual Assessment. The

Board of Directors may increase the annual

assessment per Lot by the assent of Two-Thirds (2/3)

of the votes of Members who are voting in person or

by proxy at a meeting duly called for the purpose.

Section 6. Special Assessments for Capital

Improvements. In addition to the annual

assessments authorized above, the Association may

levy, in any assessment year, a special assessment

applicable that year only for the purpose of defraying,

in whole or in part, the cost of any construction,

reconstruction, repair or replacement of a capital

improvement upon the lots including fixtures,

landscaping and personal property related thereto,

provided that any such assessment shall have the

assent of Two-Thirds (2/3) of the votes of each class of

members who are voting in person or by proxy at a

meeting duly called for this purpose.

Section 7. Notice and Quorum for any Action

Authorized under Sections 5 and 6. Written notice of

any meeting called for the purpose of taking any

action authorized under Section 5 or 6 shall be sent

to all Class A and Class B Members not less than

Thirty (30) days nor more than Sixty (60) days in

advance of the meeting. At the first such meeting

called, the presence of Class A and Class B Members

or of proxies entitled to cast Sixty Percent (60%) of all

the votes of the Class A and B Membership shall

constitute 2 quorum. If the required quorum is not

present, another mecting may be called subject to tlie

same notice requirement, and the required quorum at

the subsequent meeting shall be One-Half (%) of the

required quorum at the preceding meeting. No such

subsequent mecting shall be held more than Sixty

(60) days following the preceding meeting.

Section 8. Effect of Nonpayment of Assessments:

Remedies of the Association. Any assessment for a

Class A Membership not paid within thirty (30) days

after the due date shall bear interest from the due

date at the rate of Fifteen Percent (15%) per annum.

The Association may bring an action at law against

the Owner personally obligated to pay the same, or

foreclose the lien against the Lot. No Owner may

weiver or otherwise escape liability for the

assessment provided for herein by non-use of the

Common Area or abandonment of his Lot. The

personal obligation for delinquent assessment shall

pass to his successors in title.

Section 9. Subordination of the Lien to

Mortgages. The lien of the assessments provided for

in this Article shall be subordinate to len of any first

mortgage. Sale or transfer of any Lot shall not affect

the assessment lien. However, the sale or transfer of

any Lot pursuant to mortgage foreclosure or any

proceeding in lieu thereof, shall extinguish the lien of

such assessments as to payments which became due

prior to such sale or transfer. No sale or transfer

shall relieve such Lot from liability for any

assessments thereafter becoming due or from the lien

thereof.

ARTICLE V

MAINTENANCE AND OTHER EXPENSES

Section _ 1. Exterior Maintenance. The

Association shall provide exterior maintenance

(caused by normal depreciation) upon each Lot which

is subject to assessment hereunder, as follows: paint,

repair, replacement and care of the following: roofs,

gutters, fences, downspouts, exterior building

surfaces, trees, shrub, grass, walks, driveways, other

exterior improvements and removal of snow from

walks and driveways located on the Lots; provided,

however, the Association shall have the discretion to

determine the priority arid necessity for such exterior

maintenance. Such exterior maintenance shall not

include replacement or repairs to glass surfaces,

screens or window fixtures; door hardware and locks.

In the event the need for maintenance or repair of a

Lot or the improvements thereon is caused through

the willful or negligent act of the family, quests or

invitees of the Lot needing such maintenance or

repair, the cost of such exterior maintenance shall be

added to and become a part of the assessment to

which such Lot is subject. Any loss, casualty or

otherwise, to a Dwelling, other than normal

depreciation, shall be repaired or replaced at Owner's

sole expense or from insurance’ proceeds, if

applicable.

Section 2. Maintenance by Dwelling Owner.

Except as otherwise provided in Article V, Section 1

above, each Dwelling Owner shall furnish and be

responsible for, at his own expense, all maintenance,

repairs and replacement within his own Dwelling,

including the doors, glass surface, screens, window

14

fixtures and patios, and all installations such as

refrigerators, ranges, and or kitchen appliances,

lighting fixtures and other electrical fixtures,

plumbing fixtures or installations and any pipes,

ducts, flues, shafts, electrical wiring and conduits and

individual] heating, cooling, and ventilating systems

or equipment situated within or servicing the

Dwelling only, commencing at a point where such

installations enter the exterior walls of the Dwelling;

walls constituting party walls or interior walls.

Maintenance, repairs and replacements as may be

required for the bringing of water, gas and electricity

to the exterior walls of the Dwelling, shall be

furnished by the Association as part of the common

expenses. Each owner shall promptly perform all

maintenance and repair in his Dwelling which, if

neglected, might adversely affect any other Dwelling,

Common Areca or the value of the Property.

Section 2-A. Each home owner will be responsible

for watering their own lawns and shrubs. Each home

owner has the option to have installed a lawn

sprinkler system and shall pay all cost to install,

maintain and cost of water.

Section 3. Common Area Maintenance. The

Association, at its expense, shall be responsible for

the maintenance, repair, replacement and general

upkeep of the Common Area.

Section 4. Real Estate Taxes. Real estate taxes

are to be separately assessed and taxed to each Lot.

Any real estate taxes or other assessments which are

chargeable against the Common Area shall be paid

by the Association and treated as a Common

Expense.

Section 5. Utilities. Each Owner shall pay for his

own utilities which are separately metered. Utilities

which are not separately metered shall be treated as

and paid as part of the Common Expense unless

otherwise determined by the Association.

Section 6. Casualty and Restoration. In the

event of damage or destruction of any Dwelling by

fire or other casualty, the Owner thereof shall cause

such Dwelling to be promptly repaired and restored.

The proceeds of insurance carried for the benefit of

the Association, Owner and Owner’s Mortgagee for

such purpose shall be applied to the cost of such

restoration. In the event insurance proceeds are

inadequate to cover the cost of such reconstruction or

in the event there are no proceeds, the Owner or

Owners of the Dwelling directly affected by the

damage shall pay the cost for restoring the Dwelling.

A Dwelling shall be deemed directly affected if and

only if a part of such Dwelling, including but not

limited to, any party wall of such Dwelling, is

damaged or destroyed. If any Owner fails or refuses

to reconstruct his Dwelling when required, the

Association may pursue whatever legal means are

available to cause such restoration, including but not

limited to the Association completing the restoration

and paying the cost thereof, with the cost

attributable to the Owner or Owners who refuse or

fail to make the restoration when required becoming

a lien on such defaulting Owner’s Dwelling and

subject to foreclosure in the same manner as provided

for a Common Expense.

The restoration referred to in this Section 6 shall

mean reconstruction or rebuilding of the Dwelling in

16

the same condition as existed immediately prior to

the destruction or damage and with the same type of

architecture. Notwithstanding any other provisions

in this declaration of dwellings which are destroyed

or damaged shall be restored pursuant to the

provision of this paragraph, unless a majority vote of

the Members of the Association decided that such

restoration is not necessary, and all improvements in

the Common Area which are damaged or destroyed

shall be restored by the Association unless Two-

Thirds (2/3) of the Members of the Association and

Two-Thirds (2/3) of all first Mortgagees decide not to

make such restoration or to make such restoration in

a different manner.

In the event the Association has insurance

proceeds which are to be used for the benefit of the

Owners, no distribution of such insurance proceeds

shall be made by the Board of Directors directly to an

Owner where there is a mortgagee endorsement on

the certificate of insurance or insurance policy as it

applies to such Owner’s share of such proceeds. In

such event any remittances shall be to the Owner

and his Mortgagee jointly. The same method of

distribution shall also apply to the distribution of any

condemnation award in connection with any taking of

any of the Common Area.

ARTICLE V1

PARTY WALLS

Section 1. General Rules of Law to Apply. Each

wall which is built as a part of the original

construction of the Dwelling upon the Properties and

placed on the dividing line between the Lots shall

constitute a party wall, to; the extent not inconsistent

with the provisions of this Article, the general rules

of law of the State of Indiana regarding party walls

and liability for property damage due to negligence of

willful acts or omissions shall apply thereto.

Section 2. Sharing of Repair and Maintenance.

The cost of reasonable repair and maintenance of a

party wall shall be shared by the Owners who mak

use of the wall in proportion to such use.

Section 3. Destruction by Fire or Other Casualty.

If a party wall is destroyed or damaged by fire or

other casualty, any Owner who has used the wall

may restore it, and if the other Owners thereafter

make use of the wall, they shall contribute to the cost

of restoration thereof in proportion to such use

without prejudice, however, to the night of any such

Owners to call for a larger contribution from the

others under the rule of law regarding lability for

negligent or willful acts or omissions.

Section 4. Weatherproofing. Notwithstanding

any other provisions of this article, an Owner who by

his negligent or willful act causes the party wall to be

exposed to the elements shall bear the whole cost of

furnishing the necessary protection against such

elements.

Section 5. Right to Contribute Runs With Land.

The right of any Owner to a contribution from any

other Owner under the Articles shall be appurtenant

to the land and shall pass to such Owner's successors

in title.

Section 6. Arbitration. In the event of any

dispute arising concerning a party wall. or under the

provisions of this Article, each party shall choose one

18

arbitrator, and such arbitrators shall choose one

additional arbitrator, and the decision shall be by a

majority of all the arbitrators.

ARTICLE VII

GENERAL PROVISIONS

Section 1. Enforcement. These covenants,

conditions and restrictions may be enforced by the

Association or any Owner. Enforcement of these

covenants, conditions and restrictions shall be by any

proceeding at law or in equity against any person or

persons violating or attempting to violate any

covenant, condition or restriction, either to restrain

or enjoin violation or to recover damages, and against

the land to enforce any lien created by these

covenants; and the failure or forbearance by the

Association or any Owner to enforce any covenant,

condition or restriction herein contained shall in no

event be deemed a waiver of the right to do so

thereafter. There shall be and there is hereby

created and declared to be conclusive presumption

that any violation or breach of or any attempted

violation or breach of any of the within covenants,

conditions or restrictions cannot be adequately

remedied by action at law or by recovery of damages.

Section 2. Severability. Invalidation of any one

of these covenants, conditions or restrictions by

judgment or court order shall in no way affect any

other provision which shall remain in full force and

effect.

Section 3. Duration. Except where permanent

easements or other permanent rights or interests are

herein created, the covenants and restrictions of this

19

declaration shall run with and bind the land, and

shall inure to the benefit of and be enforceable by the

Association, or the Owner of any Lot subject to this

Declaration, their respective legal representatives,

heirs, successors, and assigns, for a term of Twenty

(20) years from the date or recordation of this

Declaration, after which the said covenants shall be

automatically extended for successive periods of Ten

(10) years each.

Section 4. Amendment. This Declaration may be

amended during the first Twenty (20) year period by

an instrument signed by not less than Eighty Percent

(80%) of the Lot Owners, and thereafter by an

instrument signed by not less than Sixty-six and

Two-thirds Percent (66-2/3%) of the Lot Owners. Any

amendment must be recorded in the office of the

Recorder of Howard County, Indiana. No such

agreement to amend, in whole or in part, shall be

effective unless made and recorded Six (6) months in

advance of the effective date of such amendment, and

unless written notice of the proposed agreement is

sent to very Owner at least Ninety (90) days in

advance of any action taken and no such agreement

shall be effective with respect to any permanent

easements or other permanent rights or interest

relating to the common easement. herein created.

Any objections based upon failure to receive notice of

the proposed agreement must be raised within the

Six (6) month period following recordation.

ARTICLE VIII

MORTGAGEE’S RIGHTS

Section 1. Notice of Rights of Mortgagee ofa Lot.

20

Upon written request by a mortgagee to the

Association, mortgagee of a Lot shall be entitled to

receive written notification of any default, not cured

within Sixty (60) days after its occurrence, by the

Owner of the Lot of any obligation of the Owner

under the Declaration, the By-Laws of the

Association or the Articles of Incorporation of the

Association. The request for notification can be made

by any mortgagee of a Lot, its successor or assign.

The notification shall be sent not later than the 65'

day after the occurrence of an uncured default.

Section 2. Rights of First Refusal. No first

mortgagee, its successor or assign, of a Lot who;

comes into possession of that Lot pursuant to the

remedies provided in the mortgage, foreclosure of the

mortgage, a deed or assignment taken in lieu of

foreclosure shall be subject to any rights of first

refusal which the Owner may have given to the

Association or other Owners of the Lots.

Section 3. Rights of Mortgagee. Unless at least

Eighty Percent (80%) of the first mortgagees (based

upon one vote for each first mortgage owned), or the

Class A Members have given their prior written

approval, the Association shall not:

(a) by act or omission seek to abandon, partition,

subdivide, encumber, sell or transfer the Properties

or Common Easement or improvements located

thereon which are owned directly or indirectly by the

Association for the benefit of the Lots. The granting

of easements for public utilities or for other public

purposes consistent with the intended use of the

Properties by the Association shall not be deemed a

transfer within the meaning of this clause.

21

(b) change the method of determining the

obligations, assessments, dues or other charges which

may be levied against a Lot or Owner.

(c) by act or omission change, waive or abandon

any scheme or regulation or enforcement thereof

pertaining to the architectural design or exterior

appearance of the Lots, the exterior maintenance of

the Lots, the maintenance of the party walls or

common fences, driveways or the upkeep of lawns

and plantings in the properties.

(d) fail to maintain fire and extended coverage

insurance on insurable common property on current

replacement cost basis in the amount not less than

One Hundred Percent (100%) of the insurable value

(based on current replacement cost).

(e) use hazard insurance proceeds for losses to any

property for other than repair, replacement or

construction of such improvements.

Section 4. Rights to Examine Books and Records.

Mortgagees, their successors or assigns, shall have

the right to examine the books and records of the

Association.

Section 5. Condemnation. No Owner or any

other person shall have priority of any rights of

mortgagees of the Lots of insurance proceeds or

condemnation awards for losses to or taking of the

Common Fasements.

ARTICLE IX

HARMONY AND ENVIRONMENTAL CONTROLS

Section 1. Architectural Control Committee.

Except for original construction or as otherwise

provided herein, no building, fence, drive, walk, other

structures, vegetation or landscaping shall be

erected, placed, altered, maintained or planted upon

the Properties nor shal] any exterior addition to or

change (including any change in color) or alteration

therein be made until the proposed building plans,

specifications, exterior color and finish, plot plans

(showing the proposed location of such building or

structure, drives and parking areas), general

contractor and all subcontractors and construction

schedule shall have been submitted to and approved

in writing by the Board of Directors of the

Association, or by any _ architectural control

committee composed of not less than three (3)

members appointed by said Board of Directors.

Refusal of approval of plans, location or specifications

by said Board of Directors or architectural control

committee may be based upon any ground, including,

without limitation, lack of harmony of external

design, color, location or relation to surrounding

structures and topography and purely aesthetic

considerations which, in the sole and uncontrolled

discretion of said Board of Directors or architectural

control committee shall be deemed sufficient. No

alterations may be made in such plans after approval

by the Board of Directors or Architectural Control

Committee is given except by and with their prior

written consent. One copy of all plans, specifications

and related data shall be furnished for the Board of

Directors or architectural control committee for its

records.

Section _ 2. Fences. Except for original

construction, no fence, hedges or wall shall be

constructed upon the Properties without the prior

23

written approval of the architectural control

committee.

Section 3. Prohibited Uses and Nuisances.

Except for the activities of the Declarant during

original construction the following covenants and

restrictions on the use and enjoyment of the Lots,

Common Area and Properties are for the mutual

benefit and protection of the present and future

Owners and shall run with the land and inure to the

benefit of and enforceable by any Owner, by the

Association, its successors and assigns. Present or

future Owners of the Association shall be entitled to

injunctive relief against any violation or attempted

violation of these provisions and shall be entitled to

damages for any injuries resulting from any

violations thereof, but there shall be no right of

reversion or forfeiture of title resulting from such

violation:

(a) no noxious or offensive trade or activity shall

be carried out upon any Lot or within any Dwelling

situated upon a Lot, nor shall anything be done

therein or thereon which may be or become an

annoyance or nuisance to the neighborhood or the

other Owners of the Lots.

(b) the maintenance, keeping, boarding and/or

raising of animals, livestock or poultry of any kind,

regardless of number, shall be and is hereby

prohibited on any Lot or within any dwelling situated

upon the Properties, except that this shali not

prohibit the keeping of dogs, cat and/or caged birds as

domestic pets provided they are not kept, bred or

maintained for commercial purposes. Said household

pets shall not be housed outside or allowed to run

24

loose.

(c) no burning of any trash and no accumulation

or storage or litter, new or used building materials, or

trash of any kind shall be permitted on any Lot,

except during construction of Units by Declarant.

(d) except as otherwise provided, no junk vehicle,

commercial vehicle, trailer, trust, camper, snow

vehicle, camper truck, house trailer, boat or the like,

shall be kept upon the Properties nor (except for

bona-fide emergencies) shall the repair or

extraordinary maintenance of automobiles or other

vehicles be carried out thereon.

(e) trash and garbage containers shall not be

permitted to remain in public view except on days of

trash collection.

(f) no trees or shrubs shall be removed from any

portion of the Properties without written approval of

the Association acting through its Board of Director

or duly appointed committee.

(g) except as may be approved in writing by the

Board of Directors or their designated committee, no

structure of a temporary character, trailer, tent,

shack, barn or other out-building shall be used on

any portion of the property at any time.

(h) except for entrance signs, directional signs,

community “theme” and the like, no signs of any

character shall be erected, posted or displayed upon,

in or about any Lot situated upon the Properties,

provided, however, if specifically permitted by a

written regulation adopted by the Board of Directors.

Declarant may use for sale, directional, open house,

office or other signs during construction and

development. of Villas West II Planned Unit

25

Development Willowridge Subdivision.

(i) no structure, planting or other material other

than driveways or sidewalks shall be placed or

permitted to remain upon any portion of the

Properties which may damage or interfere with any

easement for the installation or maintenance of

utilities or which may change, obstruct or retard

direction or flow of any drainage channels or swales.

G) garage doors and the doors of any other storage

room or the like shall be maintained in a closed

position whenever possible.

(k) no outside television or radio aerial or

antenna, or other aerial or antenna, for reception or

transmission shall be maintained upon any Lot

without the prior written consent of the Board of

Directors. Owners shall have access to cable TV and

shall pay for same.

(1) there shall be no violation of any rules which

may from time to time be adopted by the Board of

Directors or promulgated among the Membership by

them in writing, and the Board of Directors is hereby

and elsewhere in the By-Laws, authorized to adopt

such rules.

(m) in addition to the foregoing restrictions, all

restrictions of the Plat as to the use of the Properties

are incorporated by reference herein as restrictions of

this Declaration.

(n) no construction, other, than _ original

construction, or replacement of original construction

as approved by the Board of Directors, on the Lot

shall be permitted.

Section 4. Right of Association _to Remove or

Correct Violations of This Article. The Association

26

may, in the interest of the general welfare of all the

Owners of the Lots and after reasonable notice to the

Owner, enter upon any Lot or the exterior of any

Dwelling at reasonable hours on any day except

Sunday for the purpose of removing or correcting any

violations or breach of any attempted violation of any

of the covenants and restrictions contained in this

Article, or for the purpose of abating anything herein

defined as a prohibited use or nuisance, provided,

however, that no such actions shall be taken without

a resolution of the Board of Directors of the

Association or by an architectural control committee

composed of Three (3) or more Members appointed by

the Board.

(a) Perpetual Easement for Encroachments. If

any Lot or any improvements of whatever type shall

for any reason encroach upon any other Lot or upon

any portion of the Common Easement as a result of

the construction of the building or improvements, or

as a result of settling or shifting of the building or

improvements or for any other reason, the boundary

lines shall be deemed to be treated for purposes of

occupancy, possession, maintenance, use and

enjeyment, as in accordance with the actual existing

construction and, a valid, perpetual easement for the

encroachment and for its maintenance is retained by

the Declarant for its benefit and for the benefit of the

Association and any Owner of a Lot whose Lot is

affected thereby and shall exist perpetually. In the

event the building or the improvement shall be

partially or totally destroyed as a result of fire or

other casualty or as a result of condemnation or

eminent domain proceedings, and a valid easement

for such encroachment is hereby reserved by the

Declarant for its benefit and for the benefit of the

Association and any Owner of a Lot whose Lot is

affected thereby and shall exist perpetually.

(b) Lease of Dwelling by Owner. For the purpose

of maintaining the congenial and _ residential

character of Villas West II and for the protection of

the Owners with regard to financially responsible

residents, lease of a Dwelling by an Owner, shall not

be allowed. Each Dwelling shall be occupied by an

Owner and their immediate family.

Regulations. The Board of Directors may promulgate

such additional rules and regulations regarding the

operation of the Property, including but not limited to

the use of the Common Area, patios, and other areas

not covered by the Dwelling, as it may deem

necessary from time to time. Such rules as are

adopted may be amended by vote of a majority of the

Board, and the Board shall cause copies of such rules

to be delivered and mailed promptly to all Owners.

ARTICLE. X

INSURANCE

Section 1. Association’s Requirements. The

Association shall purchase broad form

Comprehensive Liability coverage in such amounts

and in such forms as the Board of Directors shall

deem appropriate. Such coverage shall be issued in

the name of the Association and shall include each

Owner in their capacity as Members of the

Association as additional insured and evidence

thereof shall be furnished to each additional insured.

28

Coverage under this policy shall include, but not be

limited to, legal liability of the Association for bodily

and personal injuries, property damages, operation of

motor vehicle on behalf of the Association and

operations and maintenance as may be required

under this Declaration.

Section 2. Owners’ Requirements. Each Owner,

and not the Association, shall have the responsibility

of obtaining and keeping in ful! force and effect, at

his sole expense on his Dwelling and Lot, standard

fire and extended coverage insurance to assure full

replacement thereof and broad form Comprehensive

Liability Insurance.

Section 3. All Dwelling Units Insured by One

Company. Each Owner shall be required to purchase

insurance on its Dwelling and Lot from the same

company. The company is now John L. Kiley Agency,

Inc., 420 North Main Street, Kokomo, Indiana 46901.

The Board of Directors may select bids on insurance

from various companies and change the insurance

company if approved by a majority of the Class A

Members of the Home Owners Association.

Any loss, casualty or otherwise, to a Dwelling,

other than normal depreciation, shall be repaired or

replaced at Owners sole expense or from insurance

proceeds, if applicable.

IN WITNESS WHEREOF, the undersigned, being

the Declarant herein, has hereunto set its hand and

seal this 1s* day of April, 1992.

JIM BAGLEY CONSTRUCTION

COMPANY, INC.

By:_s/ James B. Bagley, Jr.

James B. Bagley, Jr., President

29

STATE OF INDIANA )

)

COUNTY OF HOWARD )

Before me, a Notary Public in and for said County

and State, personally appeared James B. Bagley Jr.,

President, who acknowledged the execution of this

foregoing Amended Declaration of Covenants,

Conditions and Restrictions for Villas West II

Planned Unit Development Willowridge Subdivision,

and who having been duly sworn, state that the

representations contained herein are true.

WITNESS my hand and seal this 1st day of April,

1992.

s/ Ralph L. Helms

Notary Public: Ralph L. Helms

My Commission Expires:

10-15-95

This instrument prepared by Ralph L. Helms,

Attorney at Law, 116 North Main Street, Kokomo,

Indiana 46901.

COUNTY OF RESIDENCE OF

NOTARY _§ HOWARD T.K.

NOW THEREFOR, the undersigned declarants

hereby declare that S. Sec. K, of Sec 3, Article IX

page 151s hereby amended to read as follows:

“(K) with the exception of Satellite TV receivers

which are installed in the rear yard of or on the rear

roofs of houses built in this subdivision and which do

not exceed 24 inches in diameter, no outside

television or radio antennas shall be permitted in this

subdivision without the written consent of the Board

of Directors. Owners shall have access to Cable TV

and shall pay the cost of same.”

30

This amendment shall take effect upon its

signature by Declarant and its being recorded in the

records of the Howard County Recorder.

Executed this 2:4 day of March, 1995.

JIM BAGLEY CONSTRUCTION

CO. INC.

s/ James B. Bagley, Jr.

President

STATE OF INDIANA

COUNTY OF HOWARD

Before me a Notary Public in and for said County

and State came James B. Bagley, Jr. this 2™4 day of

March, 1995 who acknowledged the execution of the

above and foregoing instrument to be his free and

voluntary act for the purposes therein set out.

s/ Ralph L. Helms

Ralph L. Helms, Notary Public

Resident Howard County

My Commission Expires:

10-15-95

EXHIBIT “A”

ATTACHED TO DECLARATIONS OF

COVENANTS, CONDITIONS AND

RESTRICTIONS OF VILLAS WEST IT PLANNED

UNIT DEVELOPMENT WILLOWRIDGE

SUBDIVISION.

LEGAL DESCRIPTION

A part of the Southwest Quarter of Section 34,

31

Township 24 North, Range 3 East in Center

Township, Howard County, Indiana: as follows:

Commencing at a point North 89 degrees, 04

minutes, 31 seconds East (assumed bearing) 913.90

feet from the Southwest corner of the North half of

the Southwest quarter of Section 34, Township 24

North, range 3 East, said point being the point of

beginning of this description; thence North OO

degrees, 00 minutes, 00 seconds 1320.60 feet to the

North line of the Southwest quarter of said Section

34; thence North 89 degrees, 01 minutes, 46 seconds

East 1066.03 feet along the North line of said

Southwest quarter to the Northwest corner of

Western Woods Subdivision Section IV to the City of

Kokomo as recorded in Plat Book 9, Page 80, Records

of Howard County, Indiana; thence South 00 degrees,

O02 minutes, 00 seconds West 1321.47 feet along the

West line of said Western Woods Subdivision Section

IV to the Southwest corner of said Western Woods

Subdivision Section IV; thence continue South 00

degrees, 02 minutes, 00 seconds West 183.28 feet;

thence South 90 degrees, 00 minutes, 00 seconds

West 1035.00 feet; thence North 00 degrees, OO

minutes, 00 seconds 30.00 feet; thence North 90

degrees, 00 minutes, 00 seconds West 30.00 feet;

thence North 00 degrees, 00 minutes, 00 seconds

136.09 feet to the point of beginning containing

36.563 acres, more or less, and subject to all legal

rights of way and easements of record.

EXHIBIT “C”

ATTACHED TO DECLARATIONS OF

COVENANTS, CONDITIONS AND

RESTRICTIONS OF VILLAS WEST II PLANNED

UNIT DEVELOPMENT OF WILLOWRIDGE

SUBDIVISION

MAINTENANCE EASEMENTS

The right of ingress and egress to and

across all Lots, located on the Real Estate described

on Exhibit “A” attached to the Declaration of

Covenants, Conditions and Restrictions of Villas

West II Planned Unit Development of Willowridge

Subdivision, (hereinafter called “Declaration’”) in the

Office of the Recorder of Howard County, Indiana, as

Instrument No. Plat Book 9, Page 376 on the 23 day

of March, 1992.

The easement of ingress and egress shall included the

right of the Grantee to carry out the purposes, rights

and duties of the Association under the terms of the

Declaration, including but not limited to, the right to

preform exterior maintenance under Article V of the

Declaration and to remove or correct violations of

Article IX of the Declaration.

EXHIBIT

B

VILLAS WEST II HOMEOWNERS ASSOCIATION

PO BOX 2081

KOKOMO, IN 46904-2081

August 20, 2002

Bill & Shirley Ashcraft

4672 Wexmoor Drive

Kokomo, IN 46902-9597

Dear Bill & Shirley:

It has come to the attention of the Board and its

Officers that you have violated one of the Covenants

and/or By-Laws of the Association, specifically:

Article IX, Section 4(b): Lease of Dwelling by

Owner. For the purpose of maintaining the

congenial and residential character of Villas

West II and for the protection of the Owners

with regard to financially responsible

residents, lease of a Dwelling by an Owner

shall not be allowed. An Owner and his

immediate family shall occupy each Dwelling.

If you would like to discuss the matter with any

Board member or Officer, please do so at once by

writing to the above address. Otherwise, we expect

the matter to be corrected right away.

Sincerely,

Malinda Grant

Secretary-Treasurer

STATE OF INDIANA ) IN THE HOWARD

) SUPERIOR COURT

COUNTY OF HOWARD ) DIVISION II

2002 TERM

VILLAS WEST IT OF ) CAUSE NO.

WILLOWRIDGE ) 4D02-0210-PL-00893

HOMEOWNERS )

ASSOCIATION, INC. ) FILED

) IN OPEN COURT

Plaintiff ) JAN 10 20038

)

VS. ) HOWARD SUPERIOR

) COURT DIVISION 2

EDNA McGLOTHIN )

)

Defendant )

ANSWER, AFFIRMATIVE DEFENSE AND

COUNTERCLAIM

I

Defendant Edna McGlothin, for answer to

Plaintiff's Complaint, says:

1. She is without information sufficient to form a

belief as to the truth of maternal allegations

contained in rhetorical paragraph 1.

2. She admits the material allegations contained

in rhetorical paragraphs 2 and 3.

3. She admits that her real property is subject to

certain covenants, conditions and restrictions

referred to in rhetorical paragraph 4, but denies that

she has violated any covenant, condition or

restriction which is valid and enforceable by Plaintiff

against her.

39

4. She admits that beginning on August 18, 1999,

and continuing through the present she has rented

and otherwise allowed the use of her real property by

non-family members. She denies that such use is in

violation of any covenant, condition or restriction

which is enforceable by Plaintiff.

5. Defendant denies the material allegations

contained in rhetorical paragraphs 6 and 7.

WHEREFORE, Defendant Edna McGlothin prays

that Plaintiff take nothing by its complaint, for

judgment for costs of this action and for all other just

and proper relief in the premises

[]

Defendant Edna McGlothin for affirmative

defense to the allegations contained in Plaintiffs

complaint, says:

1. Defendant Edna McGlothin is eighty-eight (88)

years old and 1s presently a patient at Windsor

Estates, Kokomo, Indiana

2. The costs of Defendant’s Edna McGlothin's

care and treatment at said nursing home are paid by

her Social Security Retirement, her husband's

veteran's pension, and annuity, rent from real estate

which is the subject of this action, and Medicaid

benefits

3. Defendant Edna McGlothin’s only assets of

value are the real estate which ts the subiect of this

action and an account containing less than $1,500.00

4. If Defendant Edna McGlothin’s dwelling

cannot be leased or otherwise occupied by persons

who are not members of her immediate family, Edna

McGlothin will lose rent which could otherwise be

36

applied to support her in the nursing home, and Edna

McGlothin will be ineligible to receive payments from

Medicaid in application of her nursing home expense.

As the result of losing rent and qualification for

Medicaid benefits, Defendant Edna McGlothin will be

forced to sell her home and will not thereafter be

eligible for Medicaid benefits until she has exhausted

the proceeds of the sale of her home.

5. The provision of the “Amended Declaration of

Covenants, Conditions and Restrictions for Villas

West II Planned Unit Development, Willowridge

Subdivision” which is in issue is Article IX, Harmony

and Environmental Controls, Section 4(b), which

reads:

Lease of Dwelling by Owner. For purposes of

maintaining the congenial and residential

character of Villas West II and for the

protection of the Owners with regard to

financially responsible residents, lease of a

Dwelling by an Owner, shall not be allowed

Each Dwelling shall be occupied by an Owner

and their immediate family.”

6. The real estate which is the subject to this

action is located in Howard County, Indiana, and is

described as Lot Number 60A, a part of Lot 60 in the

Replat of Willowridge Subdivision, Section 2, Villas

West Two, a planned unit development, City of

Kokomo, Center Township, Howard County, Indiana

as recorded in Recorder's Plat Book 9, page 376 The

address of the dwelling located upon said real estate

is 513 Delray Street, Kokomo, Indiana 46901.

7. Defendant Edna McGlothin and her husband

Algy McGlothin took title to said real estate as

husband and wife by Warranty Deed dated August

26, 1996, recorded in the Office of the Recorder of

Howard County, Indiana, on August 26, 1996, in

Deed Record 261, page 2754. Defendant Edna

McGlothin and her husband Algy McGlothin

remained husband and wife at all times thereafter

until the death of Algy McGlothin on June 13, 1999,

by reason whereof title to said real estate is vested in

Defendant Edna McGlothin.

8. Defendant Edna McGlothin and her husband

Algy McGlothin purchased said real estate for the

price of $88,000.00 from Thomas L. Carlson and

Mary C. Carlson.

9. Before contracting to purchase said real estate

Defendant's agent inquired of the representative of

the developer, Jim Bagley Construction Co., Inc., as

to whether there were anything unusual about the

covenants. The agent for said developer advised

Defendant's agent that there was nothing unusual

about the covenants and gave examples like “you

can’t park trailers and boats in the drives and you

can't change the outside without permission.”

10. Defendant was not notified by Plaintiff or

anyone else prior to or at the completion of the

closing of the purchase of said real estate that the

owner's title to said real estate would be impaired in

that the owner would be forbidden to lease said real

estate or to permit persons who were not members of

the owner's immediate family to occupy the dwelling

upon said real estate

11. Defendant Edna McGlothin and her husband

Algy McGlothin moved into the dwelling upon said

real estate and made it their home shortly after

38

August 26, 1996.

12. Defendant Edna McGlothin was placed in a

nursing home in January, 1998.

13. In order to provide care for Algy McGlothin at

his home it was necessary for said dwelling to be

occupied by persons who were not members of the

immediate family of Algy McGlothin and Edna

McGlothin. Accordingly, for a period of five (5)

months the dwelling upon said real estate was

occupied on an around-the-clock basis by persons who

were not members of the immediate family of Algy

McGlothin and Edna McGlothin.

14. By “LEASE” dated August 18, 1999,

Defendant Edna McGlothin leased said real estate to

Sue Veach for a term of one (1) year. Sue Veach is

not a member of the immediate family of Edna

McGlothin. Sue Veach occupied said real estate

commencing on or about September 1, 1999, through

the end of said term, and continued to occupy said

real estate on a month-to-month basis until August

15, 2002.

15. At no time while said real estate was

occupied by caretakers of Algy )“cGlothin or by Sue

Veach did any member or representative of Plaintiff,

or any other person, tell Defendant that she was

forbidden to permit persons other than members of

her immediate family to occupy said real estate or

that she was forbidden to lease or rent said real

estate.

16. Effective September 1, 2002, Defendant

leased her said real estate toJuna Brandenburg fora

term of one (1) year. Juna Brandenburg is not a

member of the immediate family of Defendant Edna

39

McGlothin.

17. Plaintiff did not at anytime prior to

Defendant’s entering into said lease agreement with

Juna Brandenburg advise Defendant Edna

McGlothin that Defendant was forbidden to lease her

said real estate.

18. After entering into said lease agreement with

Juna Brandenburg, officers of Plaintiff notified

Defendant and other members of Villas West II of

Willowridge Homeowners Association, Inc. that

owners are. forbidden to permit persons other than

members of their immediate families to occupy their

dwellings.

19. Other owners of dwellings in said subdivision

permit persons who are not members of their

immediate families to occupy their dwellings.

20. Under the facts of this case, it would shock

the conscience of civilized Americans and cause

irreparable damage to Edna McGlothin for Plaintiff

to force Edna McGlothin to evict her tenant, Juna

Brandenburg, and thereby cause Edna McGlothin to

lose rental income and qualification for Medicaid

benefits.

21. Under the facts, Plaintiff is estopped to force

Defendant Edna McGlothin to evict her said tenant

and thereby incur lability for damages which would

result from a wrongful breach of the lease agreement

entered into between Defendant Edna McGlothin and

Juna Brandenburg.

22 Said Article IX, Section 4(b), is

unconscionable and against public policy and,

therefore, is unenforceable by Plaintiff against

Defendant.

40

WHEREFORE, Defendant Edna McGlothin prays

that Plaintiff take nothing by its complaint, for

judgment for costs of this action, and for all other just

and proper relief in the premises.

II]

Defendant Edna McGlothin, for counterclaim

against Plaintiff Villas West II of Willowridge

Homeowners Association, Inc., says:

Defendant incorporates herein by reference

rhetorical paragraphs 1 through 19 of Pleading

Paragraph II, above, as Paragraphs 1 through 19 of

this Pleading Paragraph III, the same as if set forth

verbatim herein.

20. In making said covenant as set forth in

Article IX, Harmony and Environmental Controls,

Section 4(b), the developer evidenced an intention to

make a preference, limitation, or discrimination

among persons who could occupy dwellings within

the subdivision based on race, color, sex, familial

status, or national origin.

21. In seeking to enforce said covenant provision,

members of Villas West II of Willowridge

Homeowners Association, Inc. evidence an intention

to make a preference, limitation, or discrimination

among persons who could occupy dwellings within

the subdivision based on race, color, sex, familial

status, or national origin.

22. Enforcement of the said covenant provision as

set forth in Article IX, Harmony and Environmental

Controls, Section 4(b) has a discriminatory effect on

the availability of housing within the subdivision in

violation of the Fair Housing Act.

4)

23. The enforcement of the provisions of said

Article IX, Harmony and Environmental Controls,

Section 4(b) against Defendant Edna McGlothin

would be arbitrary and irrational.

24. The enforcement of said Article IX, Harmony

and Environmental Controls, Section 4(b) by Plaintiff

is a discriminatory housing practice which has

occurred or is about to occur, by reason whcreof

Defendant Edna McGlothin is entitled to recover

from Plaintiff her actual and punitive damages, and

reasonable attorney’s fee, together with an order

enjoining the Plaintiff from engaging in said practice

in the future.

WHEREFORE, Defendant Edna McGlothin prays

for judgment against Plaintiff Villas West Il of

Willowridge Homeowners Association, Inc., that said

Article IX, Harmony and Environmental Controls,

Section 4(b) be declared void, for judgment for actual

and punitive damages, for reasonable attorney’s fees,

for costs of this action, and for all other just and

proper relief in the premises.

The undersigned certifies that he served a copy of

this Answer, Affirmative Defense and Counterclaim

upon Jeremy A. Peelle, Esq., KING, McCANN &

SCOTT, LLP, 122 North Main Street, P. O. Box 805,

Kokomo, IN 46903-0805 in accordance with the

Indiana Rules of Trial Procedure this 10t> day of

January, 2003.

DAVIS, MURRELL & TATE, P.C.

119 North Buckeye Street

P.O. Box 688

Kokomo, IN 46903-0688

Telephone: (765) 459-4186

By:_s/ Joseph H. Davis

Joseph H. Davis,

Attorneys for Defendant

STATE OF INDIANA ) IN THE HOWARD

) SUPERIOR COURT II

COUNTY OF HOWARD )

VILLAS WEST II OF

WILLOWRIDGE

HOMEOWNERS

ASSOCIATION, INC.,

CAUSE NO.

34D02-0210-PL-00893

)

)

)

) FILED

) MAR. 20, 2003

Plaintiff, ) LINDA KOONTZ

) Clerk, Howard

) Superior Court,

) Division Ii

)

)

)

Vs.

EDNA McGLOTHIN,

Defendant.

PLAINTIFF’S ANSWER TO

DEFENDANT'S COUNTERCLAIM

Comes now the Plaintiff, Villas West II

Willowridge Homeowners Association, Inc., by their

attorney, Jeremy A. Peelle, and the court having

denied their Motion to Dismiss the Plaintiff now

answers the L. fendant’s Counterclaim pursuant to

the Indiana Rules of Trial Procedure in the form of

the following:

1. Plaintiff is without sufficient information to

43

admit or deny the material allegations contained in

rhetorical paragraph number 20 of Defendant’s

Counterclaim and as such, deny the same.

2. Plaintiff denies the material allegations

contained in paragraph 21 of Defendant’s

Counterclaim.

3. Plaintiff denies the material allegations

contained in- paragraph 22 = of Plaintiffs

Counterclaim.

4. Plaintiff denies the material allegations

contained in- paragraph 23 of Plaintiffs

Counterclaim.

5. Plaintiff denies the material allegations

contained in- paragraph 24 of Pilaintiffs

Counterclaim.

Wherefore, the Plaintiff, Villas West II

Willowridge Homeowners Association, respectfully

request that the Defendant take nothing by way of its

Counterclaim, for the costs of this action, for

reasonable attorney fees, and for all other relief just

and proper in the premises.

Respectfully submitted,

Villas West IT Willowridge Homeowners Association

By:_s/ Jeremy A. Peelle

Attorney for the Plaintiff

Jeremy A. Peelle, #21775-49

KING, McCANN & SCOTT, LLP

122 North Main Street

P. O. Box 805

Kokomo, IN 46903-0805

Telephone: (765) 459-0751

Facsimile: (765) 459-5950

44

CERTIFICATE OF SERVICE

I hereby certify that on the 20 of March, 2003, a

true and complete copy of the foregoing Motion to

Dismiss was served upon Joe Davis, Esq.., DAVIS,

MURRELL & TATE, P.C., 119 North Buckeye, P.O.

Box 688, Kokomo, Indiana 46901-0688 by depositing

the same in the United States mail in an envelope

properly addressed to them and affixed with

sufficient first class postage.

Jeremy A. Peelle

45

STATE OF INDIANA ) INTHE HOWARD

) SUPERIOR COURT II

)

COUNTY OF HOWARD

VILLAS WEST II OF CAUSE NO.

WILLOWRIDGE 34D02-02 10-PL-00893

HOMEOWNERS

ASSOCIATION, INC., FILED

PLAINTIFF, IN OPEN COURT

MAR 10 2005

VS. LINDA KOONTZ

Clerk, Howard

EDNA McGLOTHIN, Superior Court

DEFENDANT Division I]

DECISION OF THE COURT

This cause was tried to the Court on October 14,

and 15, 2004, on issues formed by the Complaint of

Plaintiff Villas West II of Willowridge Homeowner's

Association, Inc. (“the Association”), Defendant Edna

McGlothin’s Answer, Affirmative Defense and

Counterclaim, Plaintiffs Answer to Defendant's

Counterclaim, Defendant's Additional Paragraph of

Answer, Affirmative Defense and Counterclaim and

Plaintiffs Answer to Defendant's Additional

Counterclaim.

FINDINGS OF FACT

The Court, having considered the evidence now

finds:

1) Villas West II Planned Unit Development of

Willowridge Subdivision was platted in April

1990, and developed by Jim Bagley Construction

46

Co., Inc.

2) Villas West II is located in the City of Kokomo,

Howard County, Indiana. The subdivision has

149 lots each of which contains a dwelling.

3) Jim Bagley Construction Co., Inc. published and

caused to be filed in the Office of the Recorder of

Howard County “An Amended Declaration of

Covenants, Conditions and Restrictions for Villas

West II Planned Unit Development, Willowridge

Subdivision” recorded April 2, 1992, in

Miscellaneous Record 80, page 0458, which

contains the following provisions (“the

covenants’):

“Dwelling’ shall mean and refer to a single family

residence erected on a Lot or a Cluster and

shall be used by the owner or a_ contract

purchaser, and his immediate family.”

“Lease of Dwelling by Owner. For the purpose of

maintaining the congenial and_ residential

character of Villas West II and for the protection

of the Owners with regard to financially

responsible residents, lease of a Dwelling by an

Owner, shall not be allowed. Each Dwelling shall

be occupied by an Owner and their immediate

family.”

(“the covenants”)

4. That Article 9, Section 3 of the Declaration

provides the Plaintiff with the right to seek

injunctive relief for anv violation of the restrictive

covenants contained therein and damayves arising

from same.

5. Algy McGlothin and Edna McGlothin, husband

47

and wife, by their daughter and attorney-in-fact,

Shirley A. Ashcraft, purchased Lot Number 60A

in Willowridge Subdivision, Section II, Villas

West Two, for $88,000. They took title by

Warranty Deed dated August 26, 1996. The Deed

contains the following:

“Subject to the 1996 taxes and

assessments due and payable

in 1997, and all taxes and

assessments due_ thereafter

and subject to any and all

easements, agreements and

restrictions of record.”

Algy and Edna McGlothin moved into their

dwelling in the Willowridge Community shortly

after closing. Edna McGlothin lived in the home

until 1998 when she broke her hip and was placed

in the Windsor Estates Nursing Home. Algy

McGlothin was cared for at his home for a period

of five (5) months by persons who occupied the

dwelling and were not members of his family.

Algy McGlothin was placed in the nursing home

in 1998 and remained there until his death on

June 13, 1999.

By Lease dated August 18, 1999, Edna

McGlothin’s dwelling in Villas West II was rented

to Sue Veach for a term of one (1) year. Sue

Veach is not a member of the immediate family of

Edna McGlothin. After the one (1) year term, Sue

Veach continued to rent the McGlothin residence

on a month-to-month basis until July, 2002.

Effective August 1, 2002, Edna McQGlothin’s

dwelling in Villas West II was leased to Juna

48

10.

Brandenburg for a one (1) year term. The term of

that lease has been extended to August 31, 2005.

Juna Brandenburg is not a member of the

immediate family of Edna McGlothin.

Edna McGlothin died on December 11, 2004.

Edna McGlothin’s home in Villas West Il is

rented to Juna Brandenburg for $550 per month.

Of the $550 per month rent, $324.36 net income

was paid to the nursing home each month. Edna

McGlothin was maintained before her death in

the nursing home on a monthly basis with rent of

$324.26, Social Security of $1,159.00, Algy

McGlothin’s disabled veterans pension of

$1,208.00, Edna McGlothin’s pensions of $7.50

and $24.76, and an annuity of $455.17. The

Indiana Family and Social Services

Administration (“Medicaid”) made up the

shortfall. Edna McGlothin’s only assets are her

home and a bank account with around $200.

Pursuant to 405IAC 2-3-15-©(10) Edna

McGlothin was entitled to own her home and

receive Medicaid benefits so long as the rental

income from her home is greater than the

expenses of ownership. The Indiana Family of

Social Services Administration (“Medicaid”) has

advanced $23,363.66 for the care of Edna

McGlothin and has served Edna McGlothin with

“Notice of Intent to File a Lien on Real Property

and Opportunity for a Fair Hearing”. If the

agency determined that it could not be reasonably

he expected that Fdna McGlothin would be

discharged from the nursing facility to return to

49

ai.

i.

her home, then that agency may place a lien on

Edna McGlothin’s dwelling to secure repayment

of Medicaid payments made. The lien may be

foreclosed upon Edna McGlothin’s death, or if the

property were sold prior to death.

Before suit was filed, Shirley Ashcraft, Edna

McGlothin’s daughter and attorney-in-fact, wrote

two letters to Elaine Daulton, President of the

Association, explaining Edna McGlothin’s need to

rent her dwelling. By letter dated August 20,

2002, Malinda Grant, Secretary-Treasurer of the

Association gave written notice to Shirley

Ashcraft that Edna McGlothin was violating the

covenants. By letter dated August 28, 2002,

Joseph H. Davis, attorney for Edna McGlothin,

advised Malinda Grant that Edna McGlothin’s

dwelling was rented and that rent and Medicaid

pay to maintain Edna McGlothin in the nursing

home. The letter also cautioned Ms. Grant that

the covenants probably had roots in racial

discrimination.

By letter dated September 23, 2002, Jeremy A.

Peelle, Attorney for the Association, advised Mr.

Davis that the Association “is not unsympathetic

to the situation involving Mrs. McGlothin, but the

action she has taken in renting her premises in

violation of the covenants is an unacceptable

solution to her problem.” Mr. Peelle state, “The

association 1s concerned about its residents and

the economic consequences the violation could

have on the neighborhood and property values as

a whole.” With that letter Mr. Peelle enclosed a

copy of the Complaint and stated that he would

13.

14.

16

be seeking an injunction against the renting of

the premises, any and all damages, the eviction of

the current tenant, and attorney fees.

Villas West II is a part of the Willowridge

Community. Jim Bagley Construction Co., Inc.

advertises the Willowridge Community as

“Restricted - your investment is protected here.”

The word, “restricted,” is defined by Webster's

Third International Dictionary (1993), as “limited

to the use of a particular class of people or

specifically excluding others (as members of a

class or ethnic group felt to be inferior) (a-

residential area) (hotels ...... Other dictionary

definitions include”... limited to white

Christians,” and “... limited to or admitting only

members of a particular group or class, esp. white

gentiles.”

5. The covenants operate so as to remove housing

units within Villas West II from the rental

market.

There are occasions where dwellings in Villas

West [i have been occupied by persons who were

not members of the immediate family of the

owner or contract purchaser. In onc situation the

developer sold a unit to a Kentucky lhmuited

liability company known as Thomas and Chou

Center for Physical Medicine and Rehabilitation,

PLLC. The lhmited liability company could home

no immediately family. In another instance Don

Holihan, President of the Board of Directors of

the Association, had knowledge that the dwelling

next to his which was owned by the Ortmans was

occupied for three or four months by Jim and

51

17.

18.

19.

Kathy Long. Jim and Kathy Long were home

from Africa to attend their son’s wedding. The

Longs are no members of the immediate family of

the Ortmans.

At the time when Edna McGlothin’s dwelling was

rented to Sue Veach, Jim Bagley Construction

Co., Inc. Was in control of and managed the

Association. From August 1, 1999 to July, 2002,

Edna McGlothin’s unit was rented to Sue Veach.

There is evidence that personnel at the Jim

Bagley Construction Co., Inc. Office knew the

home was rented. The Association did not

complain during that three (3) year period.

According to the U. S. Census Bureau 2000

Census the population of the City of Kokomo is

46,113. 39,242 of those are White alone and

6,023 are persons of races other than White.

4,770 are classified as African American alone.

2,080, or 44% of the African American population

resides in Census Tract 2, which is a relatively

small area located east and northeast of Kokomo’s

downtown business area. The area is designated

by the City of Kokomo as a low-moderate income

area. In that Census Block 370 units are renter

occupied and 519 are owner occupied by African

American householders.

Of the 149 lots in Villas West Ii, there are 147

dwellings owned by white persons and 2

dwellings owned by African Americans. The

racial mix of Villas West II is 98.7% white to 1.3%

African American. The racial mix of the City of

Kokomo is 86.69% white to 10.54% African

American and 2.77% other racial minorities.

02

20. In the City of Kokomo there are 1,925 housing

21.

units which were occupied by African American

householders. 889 of those are occupied by

householders who own units and 1,036 are

occupied by householders who rent units. 1,036 +

1,925 = 54% of African American householders in

the City of Kokomo rent their dwellings. The

average household size of housing units occupied

by African American householders is 2.4 persons.

Doing the math, there are 1,036 X 2.4 = 2,486

persons who live in African American rented

housing units.

The covenants which remove housing units

within Villas West II from the rental market

effectively exclude the 1,036 African American

householders who rent housing units from the

subdivision. That is, 54% of all African American

householders in Kokomo are excluded from the

subdivision.

._In the City of Kokomo there are 2,602 housing

units which are occupied by racially minority

householders. 1,156 of these are occupied by

householders who own units and 1,446 of those

are occupied by householders who rent units.

1.446 + 2,602 = 56% of all racially minority

householders in Kokomo rent their dwellings.

3. The covenants which remove housing units in

Villas West II from the rental market effectively

exclude the 1,446 racially minority householders

who rent housing units in the City of Kokomo

from the subdivision.

4. There are 18,827 housing units which are owned

or rented by White along householders in the City

93

20.

30.

of Kokomo. 6,431 are renter occupied. Therefore,

6,431 + 18,827 = 34% of White along householders

are excluded from the subdivision by the

covenants.

. The covenants exclude 56% of racial minority

householders from the subdivision, and only 34%

White alone householders from the subdivision.

. According to the testimony of Dr. Lauster, the

models which he used showed that African

American householders in Kokomo are far more

hkely to rent their homes than _ white

householders. For example, comparing 30 year

old persons with $40,000 per year income, an

African American person has a 68% chance of

renting a home as compared to a white person

who has only a 34% chance of renting a home.

. The covenants have a greater adverse effect on

the African American and racial minority

householders than on white householders.

The covenants limit interracial association

between residents of Villas West II and

householders of minority races to those

householders of minority races who are able to

buy homes in the subdivision, to the total

exclusion of racial minority households who could

rent homes in the subdivision if homes were

available.

By the Association’s evidence, 27% or 28% of

African American households have income

sufficient to rent homes in Villas West IT if such

homes were available for rent.

By excluding all renters from Villas West IL, the

54

3l.

Association excludes minority households who

can afford to rent homes in the subdivision as

well as those who cannot afford to rent homes in

the subdivision.

The covenants along with similar covenants in

other subdivisions have the effect of shifting the

burden of the rental market and the attendant

interracial association with minorities who live in

rental houses to other neighborhoods.

. The Association’s reason for excluding renters

from the subdivision is that renters do not

maintain homes which they rent as well as

owners maintain their homes. Therefore, the

exclusion of renters helps maintain property

values.

. However, the Declaration of Covenants contains

numerous provisions requiring proper

maintenance; these include the following, which

are included herein by reference:

Article V. Sections 1

Article V. Sections 2

Article V. Sections 2-A

Article IX. Sections 3(a)

Article IX. Section 3(c)

Article LX. Section 3(d)

Article IX. Section 3(e)

Article IX. Section 3(f

Article [X. Section 3(g)

Article IX. Section 3(1)

Article IX. Section 3()

The Plaintiff has, by these provisions, more than

adequately assured a neat, clean and visually

attractive environment, and a high degree of

5

property maintenance. The Defendant would still

be held to these requirements even while renting

her home. Therefore, the Plaintiffs justification

for the no-rent provision lacks a factual basis, and

is mere subterfuge, rendering said provision

unnecessary and useless.

34. There is no showing that the limiting of

occupancy of dwellings within Villas West II to

owners and members of their immediate families

is a business necessity.

35. There is no business necessity that owners of

dwellings within Villas West II be prohibited

from renting or leasing their dwellings.

36. There is no business necessity that the class of

person designated as “renters” be excluded from

Villas West II.

37. The Court can find no _ legitimate non-

discriminatory reason for limiting occupancy of

dwellings within Villas West to owners and

members of their immediate familhes.

CONCLUSIONS

The Court can find no legitimate reason for the

inclusion of Article IX, Section 4(b) (the “no-rent”

provision) in the Declaration of Covenants. While it

cannot be conclusively determined that this provision

was included to foster segregation, there can be no

doubt that is has a serious discriminatory result.

Whether the builder of the tract realized it or not,

the words “restricted,” as used in its advertisements

clearly sent a message to the African American

community. Dr. Herbert Mitler, an African American

professor at Indiana University-Kokomo, himself a

56

victim of past discrimination, very eloquently and

convincingly described how the word “restricted” is

what the black community commonly knows to be a

“code word” indicating that African Americans (and

perhaps other minorities) are not welcome.

While the Plaintiff demonstrated that a few

African Americans do own homes in Villas West II,

thereby attempting to counter any discriminatory

effect argument, such evidence was not persuasive.

Thankfully, this country’s laws are now such that it

is virtually impossible to manifestly deny ownership

of a home to a minority member or family. A no-rent

provision accomplishes a similar goal, however, in a

more subtle way.

Furthermore, the covenant, if enforced, would

have harmed the Defendant had she survived these

proceedings. She would have lost rent and her

qualification for Medicaid unless she sold her home.

Conversely, the Plaintiff suffers no conceivable harm

by disallowing enforcement.

The statistics that the Defendant presented to the

Court clearly prove that the restriction has a

significantly greater negative impact on African

American members of this Community than it does

on the Caucasian population.

The stated policy of the United States is to

provide, within constitutional limitations, for fair

housing throughout the United States. 42

U.S.C.3601. It is not fair to deny 1,446 racially

minority householders who rent their homes, that is

56% of all racially minority householders, all

opportunity to rent dwellings in Villas West II from

owners in Villas West IJ who want to rent their

57

dwellings. The purposes of the Association must give

way to the policy of the United States.

Publication of the advertisement, “Restricted -

your investment is protected here,” and publication

and enforcement of the covenants’ constitute

discriminatory housing practices under 42 U.S.C.

Section 3604. The Association’s threat to sue Edna

McGlothin if she did not evict her tenant and cease

renting her dwelling, and the filing of its complaint

for an injunction claiming attorney’s fees and costs to

which the Association was not then entitled, make

Edna McGlothin an aggrieved person under 42

U.8.C. 3613.

As an aggrieved person, Edna McGlothin is

entitled to recover under federal law from the

Association her actual, nominal and _ punitive

damages, and reasonable attorney's fee and costs.

JUDGMENT

IT IS, THEREFORE, ORDERED, that the

covenants be, and they are hereby declared void and

of no force and effect. The Court entered Judgment

for Defendant Edna McGlothin and against Plaintiff

Villas West II of Willowridge Homeowners

Association, Inc. On Plaintiffs Complaint.

The Court enters Judgment for Counterclaimant

Edna McGlothin and against Counterdefendant

Villas West II of Willowridge Homeowners

Association, Inc. On Edna McGlothin’s Counterclaim

for $1.00 nominal damages.

Hearing to determine reasonable attorney's fees

and expenses of litigation will be held on May 26,

2005 at 8:30 a.m. as a one day setting.

58

SO ORDERED THIS 10tt DAY OF MARCH, 2005.

S/ Stephen M.Jessup

STEPHEN M. JESSUP, JUDGE

HOWARD SUPERIOR COURT II

59

FOR PUBLICATION

ATTORNEYS FOR ATTORNEYS FOR

APPELLANT: APPELLEE:

JEREMY A. PEELE JOSEPH H. DAVIS

McCann & Peele HANS 8. PATE

Kokomo, Indiana Davis & Pate

Kokomo, Indiana

P. THOMAS MURRY, JR.

Eads Murray & Pugh FILED

Indianapolis, Indiana JAN 30 2006

Kevin S. Smith

CLERK OF THE INDIANA

SUPREME COURT

COURT OF APPEALS

AND TAX COURT

IN THE

COURT OF APPEALS OF INDIANA

VILLAS WEST ITI OF )

WILLOWRIDGE, )

HOMEOWNERS )

ASSOCIATION, INC., )

Appellant-Plaintiff/ )

Cross-Defendant, )

)

)

)

)

VS. No. 34402-0504-CV-370

EDNA McGLOTHIN,

Appcllee-Defendant/)

Cross-Claimant. )

APPEAL FROM THE

HOWARD SUPERIOR COURT

The Honorable Stephen M. Jessup, Judge

Cause No. 34D02-0210-PL-893

January 30, 2006

OPINION - FOR PUBLICATION

SHARPNACK, Judge

Villas West II of Willowridge Homeowners’

Association, Inc. (“Association”) appeals the trial

court’s judgment in favor of Shirley Ashcraft, as

personal representative of the estate of Edna

McGlothin, deceased (“McGlothin’).!

The Association raises two issues, which we restate

as:

I. Whether the trial court erred by denying the

Association's motion for summary judgment

where McGlothin admitted violating a restrictive

covenant that prohibited leasing of a residence;

and

II. Whether the trial court’s judgment that the

restrictive covenant against leasing violated the

! Edna McGlothin died in December 2004, after the bench

trial but before the trial court issued its order. Shirley Ashcraft,

as personal representative of the estate of Fdna McGlothin,

deceased, filed the appellee's brief on appeal.

61

Fair Housing Act, 42 U.S.C. §§ 3601-3619, is

clearly erroneous.

We affirm.

The relevant facts follow. In 1996, Algie and

Edna McGlothin purchased a residence in Villas

West II of Willowridge (“Villas West Il”) in Kokomo,

Indiana. Residences in Villas West II are “duplex

condo-style homes.” Transcript at 161. The

covenants for the Villas West II, which were recorded

by Jim Bagley Construction Co., Inc. (“Jim Bagley

Construction”) in 1992, provide, in part:

“Dwelling” shall mean and refer to a single

family residence erected on a Lot or a

Cluster and shall be used by the owner or

a contract purchaser, and his immediate

family.

k*#& %&

Lease of Dwelling By Owner. For the

purpose of maintaining the congenial and

residential character of Villas West I] and

for the protection of owners with regard to

financially responsible residents, lease ofa

Dwelling by an Owner, shall not be

allowed. Each Dwelling shall be occupied

by an Owner and their immediate family.

Appellant's Appendix at 28, 43. Jim Bagley

Construction controlled the homeowners’ association

until May 2000, when it turned control of the

homeowners’ association over to the homeowners.

In January 1998, Edna was placed in a nursing

home, and Algic was placed in a nursing home about

62

six months later.2, On August 18, 1999, Ashcraft

leased the residence to Sue Veach for a term of one

year. Veach leased the residence until July 2002. In

August 2002, Ashcraft leased the residence to Juna

Brandenburg, and the term of that lease was

extended to August 31, 2005.

In August 2002, the Association notified Ashcraft

that McGlothin was in violation of the covenants by

leasing her residence. In October 2002, the

Association filed a complaint for injunctive relief

against McGlothin, alleging that McGlothin was

violating the covenant against leasing a residence

and requesting injunctive relief and attorney fees.

McGlothin filed an answer, affirmative defense, and

counterclaim. McGlothin admitted that she was

renting the residence but denied that the covenant

was valid and enforceable. McGlothin’s affirmative

defenses alleged that she was not informed of the

covenant until August 2002, that she had rented the

residence since August 1999, and that she would lose

her Medicaid benefits if she was unable to lease the

residence, and provided:

20. Under the facts of this case, it would shock the

conscience of civilized Americans and cause

irreparable damage to [McGlothin] for [the

Association] to force [McGlothin] to evict her

tenant, Juna Brandenburg, and thereby cause

{McGlothin] to lost rental income’ and

qualification for Medicaid benefits.

2 Algie died in June 1999

63

21. Under the facts, [the Association is] estopped to

force [McGlothin] to evict her tenant and thereby

incur liability for damages which would result

from a wrongful breach of the lease agreement

entered into between [McGlothin] and Juna

Brandenburg.

22. Said Article IX, Section 4(b), is unconscienable

and against public policy, and therefore, is

unenforceable by [the Association] against

[McGlothin].

Appellant’s Appendix at 55. $McGlothin’s

counterclaim alleged that the covenant against

leasirg “evidenced an intention to make a preference,

limitetion, or discrimination among persons who

could occupy dwellings within the subdivision based

on race, color, sex, familial status, or national origin”

and that the covenant “has a discriminatory effect on

the availability of housing within the subdivision in

violation of the Fair Housing Act.” Id. at 56.

The Association filed a motion for summary

judgment and alleged that McGlothin’s property was

subject to the covenant, that McGlothin admitted

violating the covenant, and that the Association was

entitled to summary judgment. In support of its

motion, the Association designated its complaint,

McGlothin’s answer, the amended declaration of

covenants, conditions, and restrictions for Villas West

II, and its brief in support of its motion for summary

judgment. Thus, the Association designated evidence

that demonstrated that McGlothin’s property was

subject to the covenant and that McGlothin admitted

violating the covenant.

McGlothin responded to the Association's motion

64

for summary judgment by arguing that the

Association had failed to establish each factor

entitling it to an injunction and that the Association

lost the right to injunctive relief through “waiver,

lashes [sic], or similar conduct.” Id. at 76. Although

she did not request summary judgment on her

covnterclaim regarding the Fair Housing Act,

McGlothin also responded to the Association’s motion

for summary judgment by arguing that the covenant

was discriminatory under the Fair Housing Act.

After a hearing, the trial court denied the

Association’s motion for summary judgment and

found that “at least two issues are present; whether

or not the [Association] is barred by laches and

whether or not the [Association’s] covenant is

discriminatory.” Id. at 3.

The trial court then held a bench trial and

entered the following findings of fact and conclusions

thereon:

FINDINGS OF FACT

The Court, having considered the evidence now

finds:

l. Villas West II Planned Unit Development of

Willowridge Subdivision was platted in April

1990, and developed by Jim Bagley Construction

Co., Inc.

2. Villas West II is located in the City of Kokomo,

Howard County, Indiana. The subdivision has

149 lots each of which contains a dwelling.

3. Jim Bagley Construction Co., Inc. published and

caused to be filed in the Office of the Recorder of

Howard County “An Amended

65

qn

Declaration of Covenants, Conditions

and Restrictions for Villas West II Planned Unit

Development, Willowridge Subdivision” recorded

April 2, 1992, in Miscellaneous Record 80, page

0458, which contains the following provisions

(“the covenants’):

“Dwelling’ shall mean and refer to a single

family residence erected on a Lot or a

Cluster and shall be used by the owner or

a contract purchaser, and his immediate

family.”

“Lease of Dwelling by Owner. For the

purpose of maintaining the congenial and

residential character of Villas West II and

for the protection of the Owners with

regard to financially responsible residents,

lease of a Dwelling by an Owner, shall not

be allowed. Each Dwelling shall be

occupied by an Owner and their immediate

family.” (“the covenants’)

That Article 9, Section 3 of the Declaration

provides the Plaintiff with the right to seek

injunctive relief for any violation of the restrictive

covenants contained therein and damages arising

from same.

[Algie] McGlothin and Edna McGlothin, husband

and wife, by their daughter and attorney-in-fact,

Shirley A. Ashcraft, purchased Lot Number 60A

in Willowridge Subdivision, Section II, Villas

West Two, for $88,000. They took title by

Warranty Deed dated August 26, 1996. The Deed

contains the following:

“Subject to the 1996 taxes and

66

6.

assessments due and payable in 1997,

and all taxes and assessments due

thereafter and subject to any and all

easements, agreements and

restrictions of record.”

[Algie] and Edna McGlothin moved into their

dwelling in the Willowridge Community shortly

after closing. Edna McGlothin lived in the home

until 1998 when she broke her hip and was placed

in the Windsor Estates Nursing Home. [Algie]

McGlothin was cared for at him home for a period

of five (5) months by persons who occupied the

dwelling and were not members of his family.

[Algie] McGlothin was placed in the nursing home

in 1998 and remained there until his death on

June 13, 1999.

By Lease dated August 18, 1990, Edna

McGlothin’s dwelling in Villas West II was rented

to Sue Veach for a term of one (1) year. Sue

Veach is not a member of the immediate family of

Edna McGlothin. After the one (1) year term, Sue

Veach continued to rent the McGlothin residence

on a month-to-month basis until July, 2002.

Effective August 1, 2002, Edna McGlothin’s

dwelling in Villas West II was leased to Juna

Brandenburg for a one (1) year term. The term 6

that lease has been extended to August 31, 2005.

Juna Brandenburg is not a member of the

immediate family of Edna McGlothin.

?.

Edna McGlothin died on December 11, 2004.

Edna McGlothin’s home in Vilas West II is

rented to June Brandenburg for $550 per month.

Of the $550 per month rent, $324.36 net income

6/7

10.

EE.

was paid to the nursing home each month. Edna

McGlothin was maintained before her death in

the nursing home on a monthly basis with rent of

$324.26, Social Security of $1,159.00, [Algie]

McGlothin’s disabled veteran’s pension of

$1,208.00, Edna McGlothin’s pension of $7.50 and

$24.76, and an annuity of $455.17. The Indiana

Family and Social Services Administration

(“Medicaid”) made up the _ shortfall. Edna

McGlothin’s only assets are her home and a bank

account with around $200.

Pursuant to 405 JAC 2-3-15-C(10) Edna

McGlothin was entitled to own her home and

receive Medicaid benefits so long as the rental

income from her home is greater than the

expenses of ownership. The Indiana Family of

Social Services Administration (“Medicaid”) has

advanced $23,363.66 for the care of Edna

McGlothin and has served Edna McGlothin with

“Notice of Intent to File a Lien on Real Property

and Opportunity for a Fair Hearing”. If the

agency determined that it could not be — [sic]

reasonably be expected that Edna McGlothin

would be discharged from the nursing facility to

return to her home, then that agency may place a

lien on Edna McGlothin’s dwelling to secure

repayment of Medicaid payments made. The lien

may be foreclosed upon Edna McGlothin’s death,

or if the property were sold prior to death.

Before suit was filed, Shirley Ashcraft, Fdna

McGlothin’s daughter and attorney-in-fact, wrote

two letters to Elaine Daulton, President of the

Association, explaining Edna McGlothin’s need to

68

13.

14.

rent her dwelling. By letter dated August 20,

2002, Malinda Grant, Secretary-Treasurer of the

Association gave written notice to Shirley

Ashcraft that Edna McGlothin was violating the

covenants. By letter dated August 28, 2002,

Joseph H. Davis, attorney for Edna McGlothin,

advised Malinda Grant that Edna McGlothin’s

dwelling was rented and that rent and Medicaid

pay to maintain Edna McGlothin in the nursing

home. The letter also cautioned Ms. Grant that

the covenants probably had roots in racial

discrimination.

. By letter dated September 23, 2002, Jeremy A.

Peelle, Attorney for the Association, advised Mr.

Davis that the Association “is not unsympathetic

to the situation involving Mrs. McGlothin, but the

action she has taken in renting her premises in

violation of the covenants is an unacceptable

solution to her problem.” Mr. Peelle statefd],

“The association is concerned about its residents

and the economic consequences the violation

could have on the neighborhood and property

values as a whole.” With that letter Mr. Peelle

enclosed a copy of the Complaint and stated that

he would be secking an injunction against the

renting of the premises, any and all damages, the

eviction of the current tenant, and attorney fees.

Villas West II is a part of the Willowridge

Community. Jim Bagley Construction Co., Inc.

advertises the Willowridge Community as

“Restricted - your investment 1s protected here.”

The word, “restricted,” is defined by Webster's

Third International Dictionary (1993), as“limited

69

15.

16.

Be

to the use of a particular class of people or

specifically excluding others (as members of a

class of ethnic group felt to be inferior) (a

residential area) (-hotels. . .” Other dictionary

definitions include [“] . . . limited to white

Christians,” and“... limited to or admitting only

members of a particular group or class, esp. white

gentiles.”

The covenants operate so as to remove housing

units within Villas West II from the rental

market.

There are occasions where dwellings in Villas

West II have been occupied by persons who were

not members of the immediate family of the

owner or contract purchaser. In one situation the

developer sold a unit to a Kentucky limited

liability company known as Thomas and Chou

Center for Physical Medicine and Rehabilitation,

PLLC. The limited lability company could have

no immediate family. In another instance Don

Holihan, President of the Board of Directors of

the Association, had knowledge that the dwelling

next to his which was owned by the Ortmans was

occupied for three or four months by Jim and

Kathy Long. Jim and Kathy Long were home

from Africa to attend their son’s wedding. The

Longs are not members of the immediate family

of the Ortmans.

At the time when Edna McGlothin’s dwelling was

rented to Sue Veach, Jim Bagley Construction

Co., Inc. was in control of and managed the

Association. From August 1, 1999 to July, 2002,

Edna McGlothin’s unit was rented to Sue Veach.

70

18.

.

There is evidence that personnel at the Jim

Bagley Construction Co., Inc. office knew the

home was rented. The Association did not

complain during that three (3) year period.

According to the U.S. Census Bureau 2000

Census the population of the City of Kokomo is

46,113, 39,242 of those are White alone and 6,023

are persons of races other than White. 4,770 are

classified as African American alone. 2,080, or

44% of the African American vopulation resides

in Census Tract 2, whichis a relatively small

area located east and northeast of Kokomo’s

downtown business area. The area is designated

by the City of Kokomo as a low-moderate income

area. In that Census Block 370 units are renter

occupied and 519 are owner occupied by African

American householders.

Of the 149 lots in Villas West II, there are 147

dwellings owned by white persons and 2

dwellings owned by African Americans. The

racial mix of Villas West II is 98.7% white to 1.3%

African American. he racial mix of the City of

Kokomo is 86.65% white to 10.54% African

American and “.77% other racial minorities.

._In the City of Kokomo there are 1,925 housing

units which ere occupied by African American

householders. 889 of those are occupied by

householders who own units and 1,036 are

occupied by householders who rent units. 1,036

[divided by[ 1,925 = 54% of African American

householders in the City of Kokomo rent their

dwellings. The average household size of housing

units occupied by African American householders

71

i)

bo

=n

is 2.4 persons. Doing the math, there are 1,036 x

2.4 = 2,486 persons who live in African American

rented housing units.

. The covenants which remove housing units

within Villas West II from the rental market

effectively exclude the 1,036 African American

householders who rent housing units from the

subdivision. This is, 54% of all African American

householders in Kokomo are excluded from the

subdivision.

. In the City of Kokomo there are 2,602 housing

units which are occupied by racially minority

householders. 1,156 of these are occupied by

householders who own units and 1,446 of those

are occupied by householders who rent units.

1,446 [divided by] 2,602 = 56% of all racially

minority householders in Kokomo rent their

dwellings.

. The covenants which remove housing units in

Villas West II from the rental market effectively

exclude the 1,446 racially minority householders

who rent housing units in the City of Kokomo

from the subdivision.

. There are 18,827 housing units which are owned

or rented by White alone householders in the City

of Kokomo. 6,431 are renter occupied. Therefore

6,431 [divided by] 18,827 = 34% of White alone

householders are excluded from the subdivision

by the covenants.

. The covenants exclude 56% of racial minority

householders from the subdivision, and only 34%

White alone householders from the subdivision.

. According to the testimony of Dr. Lauster, the

72

ao.

30.

31.

models which he used showed that African

American householders in Kokomo are fare more

likely to rent their homes than_ white

householders. For example, comparing 30 year

old persons with $40,000 per year income, an

African American person has a 68% chance of

renting a home as compared to a white person

who has only a 34% chance of renting a home.

. The covenants have a greater adverse effect on

the African American and racial minority

householders than on white householders.

. The covenants limit interracial association

between residents of Villas West II and

householders of munority race to those

householders of minority races who are able to

buy homes in the subdivision, to the total

exclusion of racial minority households who could

rent homes in the subdivision if homes were

available.

By the Association’s evidence, 27% or 28% of

African American households have income

sufficient to rent homes in Villas West II if such

homes were available for rent.

By excluding all renters from Villas West IJ, the

Association excludes minority households who

can afford to rent homes in the subdivision as

well as those who cannot afford to rent homes in

the subdivision

The covenants along with similar covenants in

other subdivisions have the effect of shifting the

burden of the rental market and the attendant

interracial association with minorities who live in

rental houses to other neighborhoods.

73

32.

33.

34.

The Association’s reason for excluding renters

from the subdivision is that renters do not

maintain homes which they rent as well as

owners maintain their homes. Therefore, the

exclusion of renters helps maintain property

values.

However, the Declaration of Covenants contains

numerous provisions requiring proper

maintenance; these include the following, which

are included herein by reference:

Article V. Sections 1

Article V. Sections 2

Article V. Sections 2-A

Article [X. Sections 3(a)

Article IX Sections 8(c)

Article [X. Section 3(d)

Article IX. Section 3(e)

Article IX. Section 3(f)

Article IX. Section 3(g)

Article [X. Section 3(1D

Article LX. Section 3(j)

The Plaintiff has, by these provisions, more than

adequately assured a neat, clean and visually

attractive environment, and a high degree of

property maintenance. The Defendant would still

be held to these requirements even while renting

her home. Therefore, the Plaintiffs justification

for the no-rent provision lacks a factual basis, and

is mere subterfuge, rendering said provision

unnecessary and useless.

There is no showing that the limiting of

occupancy of dwellings within Villas West II to

owners and members of their immediate families

74

is a business necessity.

35. There is no business necessity that owners of

dwellings within Villas West II be prohibited

from renting or leasing their dwellings.

36. There is no business necessity that the class of

person designated as “renters” be excluded from

Villas West II.

37. The Court can find no _ legitimate non-

discriminatory reason for limiting occupancy of

dwellings within Villas West II to owners and

members of their immediate families.

CONCLUSIONS

The Court can find no legitimate reason for the

inclusion of Article IX, Section 4(b) (the “no-rent”

provision) in the Declaration of Covenants. While it

cannot be conclusively determined that this provision

was included to foster segregation, there can be no

doubt that it has a serious discriminatory result.

Whether the builder of the tract realized it or not,

the words “restricted,” as used in its advertisements

clearly sent a message to the African American

community. Dr. Herberv Mitler, an African American

professor at Indiana University-Kokomo, himself a

victim of past discrimination, very eloquently and

convincingly described how the word “restricted” is

what the black community commonly knows to be a

“code word” indicating that African Americans (and

perhaps other minorities) are not welcome.

While the Plaintiff demonstrated that a few

African Americans do own homes in Villas West II,

thereby attempting to counter any discriminatory

effect argument, such evidence was not persuasive.

75

Thankfully, this country’s laws are now such that it

is virtually impossible to manifestly deny ownership

of a home to a minority member or family. A no-rent

provision accomplishes a similar goal, however, in a

more subtle way.

Furthermore, the covenant, if enforced, would

have harmed the Defendant had she survived these

proceedings. She would have lost rent and her

qualification for Medicaid unless she sold her home.

Conversely, the Plaintiff suffers no conceivable harm

by disallowing enforcement.

The statistics that the Defendant presented to the

Court clearly prove that the restriction has a

significantly greater negative impact on African

American members of this community than it does on

the Caucasian population.

The stated policy of the United States is to

provide, within constitutional limitations, for fair

housing throughout the Unite States. 42 U.S.C.

3601. It is not fair to deny 1,446 racially minority

householders who rent their homes, that is 56% of all

racially minority householders, all opportunity to

rent dwellings in Villas West II from owners in Villas

West II who want to rent their dwellings. The

purposes of the Association must give way to the

policy of the United States.

Publication of the advertisement, “Restricted -

your investment is protected here,” and publication

and enforcement of the covenants’ constitute

discriminatory housing practices under 42 U.S.C.

Section 3604. The Association's threat to sue Edna

McGlothin if she did not evict her tenant and cease

renting her dwelling, and the filing of its complaint

76

for an injunction claiming attorney’s fees and costs to

which the Association was not then entitled, make

Edna McGlothin an aggrieved person under 42

U.S.C. 3613.

As an aggrieved person, Edna McGlothin is

entitled to recover under federal law from the

Association her actual, nominal and _ punitive

damages, and reasonable attorney’s fee and costs.

JUDGMENT

IT IS, THEREFORE, ORDERED, that the

covenants be, and they are hereby declared void and

of no force and effect. The Court enters Judgment for

Defendant Edna McGlothin and against Plaintiff

Villas West II of Willowridge Homeowners

Association, Inc. on Edna McGlothin’s Counterclaim

for $1.00 nominal damages.

Appellant's Appendix at 10-21.

E.

The first issue is whether the trial court erred by

denying the Association's motion for summary

judgment where McGlothin admitted violating a

restrictive covenant that prohibited leasing of a

residence. We first note that once final judgment has

been entered following trial, the ultimate

determination of the trier of fact upon the merits of

the claim has taken place and the interlocutory

nature of the denial of summary judgment

terminates. Keith v. Mendus, 661 N.E. 2d 26, 35

(Ind. Ct. App. 1996), trans. denied. Thus, a party

who fails to bring an interlocutory appeal from the

denial of a motion for summary judgment may

i

nevertheless pursue appellate review after the entry

of final judgment. Id. “Such a denial does not

irretricvably dispose of one or more issues between

the parties; neither does it determine nor foreclose

the fights of the parties.” Id. “Rather, the denial ofa

motion for summary judgment merely places the

parties rights in abeyance pending ultimate

determination by the trier of fact.” Id. Consequently,

although this case proceeded to trial and the trial

court entered final judgment on McGlothin’s claims,

we may still review the trial court’s ruling on the

Association’s motion for summary judgment. See,

e.g., Northern Indiana Public Service Co. v. Dabagia,

721 N.E. 2d 294, 298 (Ind. Ct. App. 1999), reh’g

denied, trans. denied.

When reviewing a grant or denial of summary

judgment, our well-settled standard of review is the

same as it is for the trial court: we examine whether

there is a genuine issue of material fact, and whether

the moving party is entitled to judgment as a matter

of law. City of North Vernon v. Jennings Northwest

Regional Util., 829 N.E. 2d 1, 3 (Ind. 2005).

“Summary judgment should be granted only if the

evidence sanctioned by Indiana Trial Rule 56(C)

shows that there is no genuine issue of material fact

and the moving party deserves judgment as a matter

of law.” Id. We construe all evidence in favor of the

opposing party, and we resolve all doubts as to the

existence of a material issue against the moving

party. Id.

The Association requested summary judgment on

its complaint against McGlothin but did not request

summary judgment on McGlothin’s counterclaim. In

78

response, McGlothin argued, in part, that the

Association’s injunctive relief was barred as to laches.

Moreover, although she did not request summary

judgment on her counterclaim regarding the Fair

Housing Act, McGlothin also responded to the

Association's motion for summary judgment by

arguing that the covenant was discriminatory under

the Fair Housing Act. The trial court denied the

Association's motion for summary judgment because

it found that “at least two issues [were] present;

whether or not the [Association] is barred by laches

and whether or not the [Association’s] covenant is

discriminatory.” Appellant’s Appendix at 3.

On appeal, the Association argues that it was

entitled to summary judgment and that the trial

court erred by denying its motion for summary

judgment on both grounds. “We will affirm the

denial of summary judgment if it is sustainable on

any legal theory or basis found in the evidentiary

matter designated to the trial court.” Ford v. Culp

Custom Homes, Inc., 731 N.E. 2d 468, 472 (Ind. Ct.

App. 2000), trans. denied. Thus, we may affirm the

trial court’s denial of the Association’s motion for

summary judgment if it is sustainable on either

basis.

We conclude that the denial of the Association's

motion for summary judgment is sustainable on the

basis of laches. After the Association filed its motion

for summary judgment, McGlothin responded by

arguing, in part, that the Association lost the right to

injunctive rehef through “waiver, lashes [sic], or

similar conduct.” Appellant's Appendix at 76. The

trial court denied the Association’s motion for

79

summary judgment, in part, because it found that

genuine issues of material fact existed as to whether

the Association’s claim was barred by laches.

On appeal, the Association argues that the trial

court erred by denying its motion for summary

judgment based upon laches because McGlothin

failed to plead this defense in her affirmative

defenses. However, the Association did not present

this argument to the trial court. It is well settled

that arguments not presented to the trial court on

summary judgment are waived on appeal. King v.

Ebrens, 804 N.E. 2d 821, 826 (Ind. Ct. App. 2004).

The trial court “cannot be found to have erred as to

an issue or argument that it never had an

opportunity to consider.” GKC Indiana Theatres, Inc.

v. Elk Retail Investors, LLC, 764 N.E. 2d 647, 651

(Ind. Ct. App. 2002). Thus, the Association has

waived this argument. See, e.g., King, 804 N.E. 2d at

826 (holding that a party waived its objections on

appeal to an affidavit presented in support of a

motion for summary judgment by failing to raise its

objections to the trial court); Mannon v. Howmet

Transp. Serv., Inc., 641 N.E. 2d 70, 73 n.1 (Ind. Ct.

App. 1994) (holding that the party moving for

summary judgment waived its argument that the

opposing party’s affidavit should not be considered

because the moving party never objected to the

timeliness of the affidavit to the trial court), reh’g

denied. The Association makes no other argument

demonstrating that the trial court erred by denying

the motion for summary judgment on the basis of

laches. Thus, we conclude that the Association failed

to meet its burden of demonstrating that the trial

80

court erred by denying its motion for summary

judgment on the basis of laches. The Association also

argues that the trial court erred by denying its

motion for summary judgment on the basis of the

discriminatory nature of the covenant. However, we

need not address this issue because the denial of the

motion for summary judgment is sustainable on the

basis of laches.

(I.

The next issue is whether the trial court’s

judgment that the restrictive covenant against

leasing violated the Fair Housing Act, 42 U.S.C. §§

3601-3619, is clearly erroneous. The trial court

entered findings of fact and conclusions thercon

pursuant to Ind. Trial Rule 52(A). We may not set

aside the findings or judgment unless they are clearly

erroneous. Menard, Inc. v. Dage-MTI, Inc., 726 N.E.

2d 1206 (Ind. 2000), reh’g denied. In our review, we

first consider whether the evidence supports the

factual findings. Id. Second, we consider whether

the findings support the judgment. Id. “Findings are

clearly erroneous only when the record contains no

facts to support them either directly or by inference.”

Quillen v. Quillen, 671 N.E. 2d 98, 102 (Ind. 1996).

A judgment is clearly crroneous if it relies on an

incorrect legal standard. Menard, 726 N.E. 2d at

1210. We give due regard to the trial court’s ability

to assess the credibility of witnesses. Id. While we

defer substantially to findings of fact, we do not do so

to conclusions of law. Id. We do not reweigh the

evidence: rather we consider the evidence most

favorable to the judgment with all reasonable

81

inferences drawn in favor of the judgment. Yoon v.

Yoon, 711 N.E. 2d 1265, 1268 (Ind. 1999).

The Association argues that the trial court’s

finding that the restrictive covenant is “void” is

clearly erroneous. Appellant’s Appendix at 21. The

Association’s complaint against McGlothin was based

upon her violation of the restrictive covenant against

leasing the residence.*? In general, a _ restrictive

covenant 1s a contract between a grantor and a

grantee that restricts the grantee’s use of land.

Holliday v. Crooked Creek Vill. Homeowners Ass'n,

Inc., 759 N.E. 2d 1088, 1092 (Ind. Ct. App. 2001).

“The general purpose of a restrictive covenant is to

maintain or enhance the value of adjacent property

by controlling the nature and use of surrounding

properties.” Id. Restrictive covenants are generally

disfavored in the law and will be strictly construed by

the courts, which resolve all doubts in favor of the

3 The developer testified that Villas West II contained

“duplex condo-style homes,” not “true condominium|{s].”

Transcript at 160-161. We note that condominiums are

governed by Ind. Code §§ 32-25-1-1 to 32-25-9-2. Ind. Code § 32-

25-9-1 provides that “[eJach condominium unit owner shall

comply with... the covenants, conditions, and restrictions set

forth in: (A) the declaration; or (B) the deed to the owner's

condominium unit.” I.C. § 32-25-9-1(a). The failure to comply

with the covenants, conditions, and restrictions is grounds for an

action: “(1) to recover sums due; (2) for damages; (3) for

injunctive relief; or (4) for any other legal or equitable relief...

1.C. § 32-25-9-l(b). The statutes do not specifically address

whether restrictive covenants prohibiting the leasing of a

condominium are valid

82

free use of property and against restrictions.

Grandview Lot Owners Ass'n, Inc. v. Harinon, 754

N.E. 2d 554, 557 (Ind. Ct. App. 2001). “(T]he power

of a court to issue a mandatory injunction as a means

of enforcing restrictive covenants is well-established.”

Depeyster v. Town of Santa Claus, 729 N.E. 2d 183,

190 (Ind. Ct. App. 2000).

Nevertheless, restrictive covenants are a form of

express contract recognized under the law.

Grandview, 754 N.F.2d at 557. “[B]lecause of their

contractual nature, restrictive covenants are enforced

as long as the restrictions are unambiguous and do

not violate public policy.” Holliday, 759 N.E.2d at

1092. For example, restrictive covenants that restrict

use of land based on race are unconstitutional, and

racial restrictions contained in deeds are invalid.

Corner v. Mills, 650 N.E.2d 712, 715 (Ind. Ct. App.

1995) (citing Shelley v. Kraemer, 334 U.S. 1, 23, 68

S.Ct. 836, 847 (1948). Illegal restrictive covenants

“may be removed if to do so will not affect the intent

or symmetry of the remaining covenants.” Id. (citing

Brokaw v. Brokaw, 398 N.E.2d 1385, 1388 (Ind. Ct.

App. 1980)).

The Association cites numerous cases from other

jurisdictions holding that restrictive covenants

prohibiting leasing of condominiums are, in general,

valid and enforceable. See, e.g., Woodside Vill.

Condo. Ass’n, Inc. v. Jahren, 806 So.2d 452 (Fla.

2002); Apple II] Condo. Ass'n v. Worth Bank & Trust

Co., 659 N.E.2d 93 (Ill, Ct. App. 1995). However, the

trial court found that restrictive covenants

prohibiting leasing violated the Fair Housing Act.

Consequently, the issue on appeal is whether the

83

trial court’s finding that the restrictive covenant

prohibiting leasing violated the Fair Housing Act and

was unenforceable is clearly erroneous.”4 Neither

party cites authority directly on point, and our

research likewise reveals no relevant authority on

this issue. See generally David E. Grassmick,

Minding the Neighbor’s Business: Just How Far Can

Condominium Owners’ Associations Go In Deciding

Who Can Move Into The Building, 2002 U. ILL.

L.REV. 185 (2002).

We begin by noting that resolution of this issue

turns on the interpretation of a federal statute. The

Indiana Supreme Court has held that “[a]lthough

U.S. Supreme Court decisions pertaining to federal

questions are binding on state courts, lower federal

court decisions may be persuasive but have non-

binding authority on state courts.” Indiana Dep't of

Pub. Welfare v. Payne, 622 N.E.2d 461, 468 (Ind.

1993) (citing Pennsylvania R.R. Co. v. F.E. Mathias

Lumber Co., 113 Ind. App. 133, 136, 47 N.E.2d 158,

159 (1943)), reh’g denied. In F.E. Mathias Lumber,

the court held:

4 McGlothin’s counterclaim was brought under the federal

Fair Housing Act only. McGlothin made no argument at trial

regarding the Indiana Fair Housing Act, Ind. Code § 22-9.5-1-1

through Ind. Code § 22-9.5-11-3, and the Indiana Fair Housing

Act is not at issue in the appeal. We also note that the federal

Fair Housing Act provides that “[a]n aggrieved person may

commence a civil action in an appropriate United States district

court or State court not later than 2 years after the occurrence

or the termination of an alleged discriminatory housing practice

7 to obtain appropriate relief with respect to such

discriminatory housing practice or breach.” 42 U.S.C. §

3613(a)(1)(A). Thus, we have jurisdiction to consider this issue

84

“Where a question is federal in its

nature, the decisions of the supreme court

of the United States are absolutely binding

on the various state courts and must be

followed.” 21 C.J.S., Courts, p. 365, § 206;

15 C.J., p. 930, § 318. While there is a

conflict as to whether the decisions of the

lower federal courts are binding on state

courts, the weight of authority is, that

while such decisions have a persuasive

authority, they are not binding on the

state courts. This is certainly true when

the decisions of such federal courts

themselves are in conflict. 21 C.J.S.,

Courts, p. 377, § 206; Brown v. Palmer

Clay Products Co., 1935, 290 Mass. 108,

185 N.E. 122, 123; State ex rel. v. Taylor,

1923, 298 Mo. 474, 251 S.W. 383, 387.

F._E. Mathias Lumber Co., 113 Ind. App. at 136-137,

47 N.E.2d at 159.

The Fair Housing Act, commonly referred to as

Title VIII (the “Act”), makes it unlawful “[t]o refuse

to sell or rent after the making of a bona fide offer, or

to refuse to negotiate for the sale or rental of, or

otherwise make unavailable or deny, a dwelling to

any person because of race, color, religion, sex,

familial status, or national origin.” 42 U.S.C. §

3604(a). The Act was passed “to provide, within

constitutional limitations, for fair housing

throughout the United States.” 42 U.S.C. § 3601.

The statute was intended to promote “open,

integrated residential housing patterns and _ to

prevent the increase of segregation, in ghettos, of

85

racial groups whose lack of opportunities the Act was

designed to combat.” Hispanics United of DuPage

County v. Vill. of Addison, 988 F.Supp. 1130, 1150

(N.D. Ill. 1997) (citing Metro. Hous. Dev. Corp. v.

Vill. of Arlington Heights (“the Arlington II”), 558

F.2d 1283, 1289 (7* Cir. 1977), cert. denied, 434 U.S.

1025, 98 S. Ct. 752 (1978)). “To fulfill this aim,

courts are to apply the [Act’s} terms liberally: “It has

long been recognized that to give full measure to the

Congressional purpose behind the [Act], courts have

given broad interpretation to the statute.” Id.

(quoting Snyder v. Barry Realty, Inc., 953 F.Supp.

217, 219 (N.D. Ill. i996)); see also Gomez v. Chody,

867 F.2d 395, 402 (7th Cir. 1989) (“Courts have thus

applied the Act broadly within its terms.”), reh’g

denied.

There are two theories of discrimination by which

plaintiffs may proceed under the Act: (1) disparate

treatment(i.e., intentional discrimination);> and (2)

disparate impact (i.e., discriminatory’ effect).

Cavalieri-Conway Vv. L. Butterman &

Assoc.,992F.Supp. 995, 1002 (N.D. Ill. 1998), affd by

172 F.3d 52 (7th Cir. 1999), cert. demied, 528 U.S. 847,

120 S.Ct. 121 (1999); Anast v. Commonwealth

Apartments, 956 F.Supp. 792, 800 (N.D. Ill. 1997).

° To establish a prima facie case of disparate treatment, a

pleintiff “may establish that a defendant had a discriminatory

intent either directly, through direct or circumstantial evidence,

or indirectly, through the inferential burden shifting method

known as the McDonnell Douglas test.” Kormoczy v. HUD. 53

3d 821, 823-824 (7'> Cir. 1995).

86

Only disparate impact is at issue here. Such claims

arise where a “facially neutral policy or action has an

unequal impact on different subgroups in the housing

market.” Phillips v. Hunter Trails Cmty. Ass’n, 685

F.2d 184, 189 (7th Cir. 1982).

Despite decades of litigation, a uniform standard

for determining impact jurisprudence has been

described as “an increasingly incoherent body cf case

law.” Peter E. Mahoney, The End(s) of Disparate

Impact: Doctrinal Reconstruction, Fair and Lending

Law, and the Antidiscrimination Principle, 47

EMORY L. J. 409 (Spr. 1998) (‘Notwithstanding the

large number of cases decided employing [the

disparate impact label], the standard in the fair

housing/fair lending arena continues to be sketchy

and haphazard.”) In Hispanics United of DuPage

County v. Vill. of Addison, 988 F.Supp. 1130 (N.D. III.

1997), the district court engaged in an extensive

analysis of disparate impact jurisprudence. We find

the analysis in Hispanics United persuasive. In

examining the burden of proof, the court began by

noting:

[Fair Housing Act] disparate impact

jurisprudence relies heavily on Title VII

case law, which forces the employer to

defend its interests by imposing on it the

burden of proving business necessity to

rebut a prima facie case of discriminatory

effect. See Griggs v. Duke Power Co., 401

U.S. 424, 431-33, 91 S.Ct. 849, 853-54, 28

L.Ed.2d 158 (1971). Indeed, the Seventh

Circuit has recognized that the Arlington

87

Heights I analysis “was in fact though not

in words the ‘disparate impact’ analysis

familiar from Title VII cases.” Village of

Bellwood v. Dwivedi, 895 F.2d 1521, 1533

(7th Cir. 1990).

Hispanics United, 988 F.Supp. at 1160. Under the

Seventh Circuit's Title VII disparate impact

jurisprudence:

To succeed on a disparate impact claim,

plaintiffs bear the burden of showing that

a particular employment practice causes a

disparate impact on the basis of race.

Once this impact is shown, the defendant

must demonstrate that the practice is “job

related” and “consistent with business

necessity.” 42 U.S.C. § 2000e-2(k)(1)(A)(1).

If the defendant makes this showing,

plaintiffs can still prevail by

demonstrating that an_ alternative

employment practice exists, and the

defendant refuses to adopt it. See 42

U.S.C. § 2000e-2(k)(1)(A); see also

Albemarle Paper Co. v. Moody, 422 U.S.

405, 425, 95 S.Ct. 2362, 45 L.Ed.2d 280

(1975).

Allen v. City of Chicago, 351 Fed. 306, 311-312 (7

Cir. 2003). Similarly, in Hispanics United, the

district court concluded that if a plaintiff makes a

prima facie showing, the defendant has the burden of

proving a bona fide and legitimate justification for

the housing action. Hispanics United, 988 F.Supp. at

1162. If the defendant makes this showing, the

plaintiff has the burden of proving that less

88

discriminatory alternatives were available. Id.

In general, the federal courts with the Seventh

Circuit have held that “Plaintiffs can establish a

prima facie disparate impact case under the [Act]

simply by showing that Defendants’ actions had

discriminatory effects upon a protected class.”6

Wallace v. Chicago Hous. Auth., 321 F.Supp. 2d 968,

973-974 (N.D. Ill. 2004) (citing Arlington IT, 558 F.2d

at 1289-90, and Snyder, 953 F.Supp. at 219). “The

question in any disparate impact claim under the

[Act] is ‘whether a policy, procedure, or practice

specifically identified by the plaintiff has a

significantly greater discriminatory impact on

6 In analyzing an Indiana Fair Housing Act claim, the

Indiana Supreme court, relying upon federal cases, discussed

the disparate impact analysis and noted:

[T]o establish a prima facie case of disparate impact, a

plaintiff must prove that the defendant’s actions had a

discriminatory effect. United States v. Badgett, 976

F.2d 1176, 1178 (8th Cir. 1992). If the plaintiff

succeeds, then the burden shifts to the defendant to

articulate a legitimate, non-discriminatory reason for

its action. Id. If the Defendant satisfies this burden,

then the plaintiff has the opportunity to prove that the

legitimate reasons asserted by the defendant are in fact

mere pretext. Id.

State, Civil Rights Comm'n v. County Line Park, Inc., 738

N.E.2d 1044, 1049 (Ind. 2000). However, disparate impact was

not at issue in County Line Park, and the court did not analyze

the issue further.

89

members of a protected class.” Id. (quoting Simms v.

First Gibraltar Bank, 83 F.3d 1546, 1555 (5t» Cir.

1996), reh’g denied, cert. denied, 519 U.S. 1041, 117

S.Ct. 610 (1996)).

Additionally, in Arlington II, the Seventh Circuit

held that “at least under some circumstances a

violation of [42 U.S.C. §] 3604(a) can be established

by a showing of discriminatory effect without a

showing of discriminatory intent.” Arlington IT, 558

F.2d at 1290; see generally John E. Theuman,

Evidence of Discriminatory Effect Alone as Sufficient

to Prove or to Establish Prima Facie Case_ of,

Violation of Fair Housing Act ((42 USCS §§ 3601 et

seqg.), 100 A.L.R. FED. 97. The court went on to hold

as follows:

Plaintiffs contend that once a racially

discriminatory effect is shown a violation

of section 3604(a) is necessarily

established. We decline to extend the reach

of the Fair Housing Act this far. Although

we agree that a showing of discriminatory

intent is not required under section

3604(a), we refuse to conclude that every

action which produces discriminatory

effects is illegal. Such a per se rule would

go beyond the intent of Congress and would

lead courts into untenable results in

specific cases. See Brest, [The Supreme

Court, 1975 Term Foreword: In Defense of

the Antidiscrimination Principle, 90

HARV.L.REV. 1, 29 (1976). Rather, the

courts must use their discretion in deciding

whether, civen the particular

circumstances of each case, relief should be

granted under the statute.

We turn now to determining under

what circumstances conduct that produces

a discriminatory impact but which was

taken without discriminatory intent will

violate section 3604(a). Four critical factors

are discernible from previous cases. They

are: (1) how strong is the plaintiffs showing

of discriminatory effect; (2) is there some

evidence of discriminatory intent, though

not enough to satisfy the constitutional

standard of Washington v. Davis[, 426 U.S.

229, 96 S.Ct. 2040 (1976)]}; (3) what is the

defendant's interest in taking the action

complained of; and (4) does the plaintiff

seek to compel the defendant to

affirmatively provide housing for members

of minority groups or merely to restrain the

defendant from interfering with individual

property owners who wish to provide such

housing.

Arlington IT, 558 F.2d at 1290. The Seventh Circuit

clarified in Phillips v. Hunter Trails Community

Association that “statistical disproportion alone was

not enough [in a disparate impact case], but neither

did a plaintiff have to prove discriminatory intent to

succeed on his purely statutory claim” and rephrased

the four factors as: “(1) the strength of the plaintiffs

statistical showing; (2) the legitimacy of the

defendant’s interest in taking the action complained

of; (3) some indication - which might be suggestive

rather than conclusive - of discriminatory intent; and

91

(4) the extent to which relief could be obtained by

limiting interference by, rather than requiring

positive remedial measures of, the defendant.”’

Phillips, 685 F.2d at 189-190. However, the Seventh

Circuit has not clarified whether the factors are part

of the plaintiffs prima facie case or whether they are

to be considered in the final determination on the

merits. Compare Hispanics United, 988 F.Supp. at

1151, with Snyder, 953 F.Supp. at 220, see also Reese

v. Miami-Dade County, 242 F.Supp. 2d 1292, 1304

n.9 (S.D. Fla. 2002), affd by 77 Fed. Appx. 506 (11%

Cir. 2003). After an analysis of both positions, the

court in Hispanics United concluded that the factors

are “used to navigate to a conclusion on the merits”

rather than establish a prima facie case. Hispanics

United, 988 F.Supp. at 1153. We find the analysis of

Hispanics United to be persuasive and will consider

7 The Seventh Circuit has recognized that the “disparate

impact analysis is not appropriate is certain contexts.” Knapp v.

Eagle Prop. Mgmt. Corp., 54 F.3d 1272 (7 Cir. 1995) (citing

NAACP v. American Family Mutual [ns., 978 F.2d 287 (7 Cir.

1992), reh’g denied, cert. denied, 508 U.S. 907, 113 S.Ct. 2335

(1993), and Vill. of Bellwood v. Dwivedi, 895 F.2d 1521 (7 Cir.

1990), reh’g denied). Neither party argues that these are

applicable here.

92

the applicability of the Arlington II factors in making

a final determination on the merits.®

8 Relying upon Betsey v. Turtle Creek Assoc., 736 F.2d 983

(4% Cir. 1984), McGlothin argues that the Arlington II factors

are applicable only to governmental bodies. In Betsey, the court

held:

As the last component of this analysis suggests, the

Clarkton |[i.e., Arlington I] test has been applied only in

situations where a public body is the defendant.

Where, as here, a private entity is involved the analysis

is more straightforward. The inquiry is whether either

discriminatory intent or impact can be proved and, if

either or both is proved, whether there is a legitimate

non-discriminatory reason sufficient to overcome the

showing of intent, or whether a compelling business

necessity exists, sufficient to overcome the showing of

disparate impact. Obviously, a business necessity test

is inapplicable in situations where the defendant is a

public entity. The Clarkton formulation similarly has

no application to private defendants.

Betsey, 736 F.2d at 989 n.5. However, in Snyder, 953 F.Supp. at

220, the Northern District of Illinois applied the Arlington II

factors to a private defendant. Moreover, although the Seventh

Circuit in Phillips ultimately determined that the plaintiff

succeeded on a disparate treatment theory and did not apply the

disparate impact analysis, the court discussed the Arlington IJ

factors and did not mention the fact that the case involved a

private rather than public defendant. Phillips, 685 F.2d at 190.

Consequently, we reject McGlothin’s contintion that the

Arlington [I factors are inapplicable.

93

A. Arlington II Factors.

Because several of the Arlington II factors are

relevant to the burden-shifting analysis, we will

begin by analyzing the Arlington II factors.

1. Statistical Showing.

The first Arlington II factor is “the strength of

[McGlothin’s] statistical showing.”® Phillips, 685

F.2d at 190. On this issue, the trial court found:

18. According to the U.S. Census

Bureau 2000 Census Bureau 2000

Census the population of the City of

Kokomo is 46,113. 39,247 of those

are White alone and 6,023 are

persons of races other than White.

4,770 are classifie4d as African

American along. 2,080, or 44% of

the African American population

resides in Census Tract 2, whichis a

relatively small area located east

and northeast of §Kokomo’s

downtown business area. The area

is designated by the City of Kokomo

as a low-moderate income area. In

that Census Block 370 units are

renter occupied and 519 are owner

occupied by African American

householders.

9 A good analysis of such statistical evidence is found in

Hallmark Developers, Inc. v. Fulton County, Ga., 386 F.Supp.2d

1369 (N.D. Ga. 2005), and J&V Dev. Inc. v. Athens-Clarke Co.,

387 F Supp.2d 1214 (M_D. Ga. 2005).

19. Of the 149 lots in Villas West II,

94

20.

there are 147 dwellings owned by

white persons and 2 dwellings

owned by African Americans. The

racial mix of Villas West II is 98.7%

white to 1.38% African American.

The racial mix of the City of

Kokomo is 86.69% white to 10.54%

African American and 2.77% other

racial minorities.

In the City of Kokomo there are

1,925 housing units which are

occupied by African American

householders. 889 of those are

occupied by householders who own

units and 1,036 are occupied by

householders who rent units. 1,036

[divided by] 1,925 = 54% of African

American householders in the City

of Kokomo rent their dwellings. The

average household size of housing

units occupied by African American

householders is 2.4 persons. Doing

the math, there are 1,036 x 2.4 =

2,486 persons who live in African

American rented housing units.

The covenants which remove

housing units within Villas West II

from the rental market effectively

exclude the 1,036 African American

householders who rent housing

units from the subdivision. This is,

54% of all African American

householders in Kokomo are

95

bo

rs

7

.

23.

24.

iw)

~"

excluded from the subdivision.

In the City of Kokomo there are

2,602 housing units which are

occupied by racially minority

householders. 1,156 of these are

occupied by householders who own

units and 1,446 of those are

occupied by householders who rent

units. 1,446 [divided by] 2,602 - 56%

of all racially minority householders

in Kokomo rent their dwellings.

The covenants which remove

housing units in Villas West IT from

the rental market’ effectively

exclude the 1,446 racially minority

householders who rent housing

units in the City of Kokomo from

the subdivision.

There are 18,827 housing units

which are owned or rented by White

along householders in the City of

Kokomo. 6,431 are renter occupied.

Therefore 6,431 [divided by] 18,827 -

34% of White along householders

are excluded from the subdivision by

the covenants.

The covenants exclude 56% of racial

minority householders from the

subdivision, and only 34% White

along householders from _ the

subdivision.

According to the testimony of Dr.

Lauster, the models which he used

96

3Q.

showed that African American

householders in Kokomo are far

more likely to rent their homes than

White householders. For example,

comparing 30 year old persons with

$40,000 per year income, an African

American person has a 68% chance

of renting a home as compared to a

white person who has only a 34%

chance of renting a home.

The covenants have a_ greater

adverse effect on the African

American and “racial minority

householders than on_ white

householders.

The covenants limit interracial

association between residents of

Villas West II and householders of

minority races to those householders

of minority races who are able to

buy homes in the subdivision, to the

total exclusion of racial minority

household who could rent homes in

the subdivision if home _ were

available.

By the Association’s evidence, 27%

or 28% of African American

households have income sufficient to

rent homes in Villas West II if such

homes were available for rent.

By excluding all renters from Villas

West II, the Association excludes

minority households who can afford

97

to rent homes in the subdivision as

well as those who cannot afford to

rent homes in the subdivision.

Appellant's Appendix at 15-18. The trial court

concluded that: “The statistics that [McGlothin]

presented to the Court clearly prove that the

restriction has a significantly greater negative impact

on African American members of this community

than it does on the Caucasian population.” Id. at 20.

The trial covrt found, and the Association does

not dispute, that 54% of all African American

householders in Kokomo rent, while 34% of all

Caucasian householders in Kokomo rent. Further,

comparing 30-year-old persons with a $40,000 per

year income, 68% of such African Americans rent as

compared to only 34% of such Caucasian persons.

The Association’s expert testified that the

approximate market value of McGlothin’s home is

$101,000, and the approximate market value for

rental of the home is $750 to $800 per month.

Further, only 27-28% of African American renters

could afford tc rent the residence. The Association’s

expert gave no indication of the percentage of

Caucasians that could afford to rent the residence.

We conclude that the evidence presented at trial

establishes that McGlothin made a significant

statistical showing of a disparate impact, and this

factor weighs in favor of McGlothin. See e.g.,

Hispanics United, 988 F.Supp. at 1155 (concluding

that the plaintiffs demonstrated a discriminatory

effect where 49 percent of those affected by the

redevelopment plans were Hispanic while only 13.4

percent of the village’s population was Hispanic.)

98

2. Legitimacy of the Association's Interest.

The next Arlington II factor is “the legitimacy of

the defendant’s interest in taking the action

complained of.” Phillips, 685 F.2d at 190. In

Arlington II, the Seventh Circuit noted that “[i]f the

defendant is a private individual or a group of private

individuals seeking to protect rights, the courts

cannot be overly solicitous when the effect is to

perpetuate segregated housing.” Arlington II, 558

F.2d at 1293 (citing Smith v. Anchor Bldg. Corp., 536

F.2d 231 (8 Cir. 1976).

On this issue, the trial court found: “The

Association’s reason for excluding renters from the

subdivision is that renters do not maintain homes

which they rent as well as owners maintain their

homes. Therefore, the exclusion of renters helps

maintain property values.” Appellant’s Appendix at

18. The trial court found “no sowing that the limiting

of occupancy of dwellings within Villas West I1 to

owners and members of their immediate families is a

business necessity,” “no business necessity that

owners of dwellings within Villas West II be

prohibited from renting or leasing their dwellings,”

and “no business necessity that the class of person

designated as ‘renters’ be excluded from Villas West

II.” Id. at 19. Thus, the trial court concluded that it

could “find no legitimate non-discriminatory reason

for limiting occupancy of dwellings within Villas

West II to owners and members of their immediate

families.” Id.

The Association argues that restric‘ive covenants

that prevent leasing are found throughout the United

States and that such covenants have a positive effect

99

in maintaining property values. The Association’s

expert, Paul Wyman, testified that covenants

restricting or prohibiting leasing either increase or

help maintain property values because renters

generally do not maintain houses as well as owners.

Although McGlothin’s expert, Nick Tillema, testified

on direct examination that such covenants against

leasing reduce property values by restricting a

homeowner's rights. Tillema testified on cross

examination that he had used such covenants in his

properties by allowing only ten percent of the homes

to be leased. Tillema further testified that if all of

the properties in a development could be leased, it

might adversely affect property values.

The developer of Villas West II testified that

McGlothin’s residence was a “duplex condo-style”

home but not a true condominium. Transcript at 161.

However, the developer did not explain the

difference between these concepts. We note that

other courts have recognized that condominiums are

unique. In Woodside Village Condominium Assoc.,

the Florida Supreme Court noted:

From the outset, courts have

recognized that condominium living is

unique and involves a greater degrce of

restrictions upon the rights of the

individual unit owners when compared to

other property owners. See Seagate

Condominium Ass'n [ v. duffy, 330 So.2d

484, 486 (Fla. Dist. Ct. App. 1992)] (citing

cases). For instance, in White Egret

Condominium, Inc. v. Franklin, 379 So.2d

346 (Fla. 19779), we recognized that

100

“[rJeasonable restrictions concerning use,

occupancy and transfer of condominium

units are necessary for the operation and

protection of the owners in_ the

condominium concept.” Jd. at 350. In

White Egret, we quoted favorably from

Hidden Harbour Estates, Inc. v. Norman,

309 So.2d 180 (Fla. 45h DCA 1975), to

further explain the restrictive nature of

condominium ownership and living:

[I]Jnherent in the condominium

concept is the principle that to

promote the health, happiness, and

peace of mind of the majority of the

unit owners they are living in such

close proximity and using facilities

in common, each unit owner must

give up a certain degree of freedom

of choice which he might otherwise

enjoy in separate, privately owned

property. Condominium = unit

owners comprise a little democratic

sub society of necessity more

restrictive as it pertains to use of

condominium property than may

be existent outside the

condominium organization.

White Egret, 379 So.2d at 350. Consistent

with this analysis of condominium

ownership, courts have acknowledged that

“increased controls and limitations upon

the rights of unit owners to transfer their

property are necessary concomitants of

101

condominium living.” Aquarian

Foundation, Inc. v. Sholom House, Inc.,

448 So.2d 1166, 1167 (Fla. 3d DCA 1984).

Indeed, section 718.104(5), Florida

Statutes (2000), expressly recognizes that

a declaration of condominium may contain

restrictions concerning the use, occupancy,

and transfer of units. See § 718.104(5),

Fla. Stat. (2000).

Courts have also consistently

recognized that restrictions contained

within a declaration of condominium

should be clothed with a very strong

presumption of validity when challenged.

Woodside Vill. Condo. Assoc., 806 So.2d at 456-457.

The trial court focused upon whether the

Association has a “business necessity” for the

restrictive covenant. However, the proper

consideration is whether the Association had a

legitimate interest in restricting leasing. Even

McGlothin’s expert agreed that leasing can have an

adverse effect on property values. Additionally, the

unique nature of these “condo-style” homes provide a

legitimate justification for a leasing restriction.

Thus, this Arlington II factor weighs in favor of the

Association.

3. Indication of Discriminatory Intent.

The next Arlington II factor is “some indication -

which might be suggestive rather than conclusive - of

discriminatory intent.” Phillips, 685 F.2d at 190.

This factor “is the least important of the four factors,

. and the required showing undcr it is modest.”

102

Hispanics United, 988 F.Supp. at 1157 (citing

Arlington II, 558 F.2d at 1292).

The trial court found no _ tndication of

discriminatory intent of the Association. However,

the trial court did make the following findings that

are relevant to this analysis:

13. Villas West II is a part of the

Willowridge Community. Jim

Bagley Construction Co., Inc.

advertises the Willowridge

Community as “Restricted - your

investment is protected here.”

14. The word, “restricted,” is defined by

Websters Third International

Dictionary (1993), as “limited to the

use of a particular class of

people or specifically

excluding others (as members of a

class or ethnic group felt to be

inferior) (a residential area) (-hotels.

” Other dictionary definitions

include” . . . limited to white

Christians,” and “. . . limited to or

admitting only members of a

particular group or class, esp. white

gentiles.”

Appellant's Appendix at 14. The trial court also

noted that “[o]f the 149 lots in Villas West II, there

are 147 dwellings owned by white persons and 2

dwellings owned by African Americans.” Id. at 15.

The trial court then concluded:

Whether the builder of the tract

realized it or not, the words “restricted, as

103

used in its advertisements clearly sent a

message to the African American

community. Dr. Herbert Mitler, an

African American professor at Indiana

University-Kokomo, himself a victim of

past discrimination, very eloquently and

convincingly described how the word

“restricted” is what the black community

commonly knows to be a “code word”

indicating that African Americans (and

perhaps other minorities) are not welcome.

While the Plaintiff demonstrated that

a few African Americans do own homes in

Villas West II, thereby attempting to

counter any discriminatory ~ effect

arguments, such evidence was not

persuasive. Thankfully, this country’s

laws are now such that it is virtually

impossible to manifestly deny ownership of

a home to a minority member or family. A

no-rent provision accomplishes a similar

goal, however, in a more subtle way.

Id. at 19-20.

The Association argues that the advertisement of

Jim Bagley Construction cannot be imputed to the

Association. While in general we would agree with

the Association, we note that Jim _ Bagley

Construction recorded the covenants at issue here.

The Association is charged with enforcing the

covenants recorded by Jim Bagley Construction.

Thus, although there is no. andication = of

discriminatory intent of the Association, evidence

suggestive of discriminatory intent of Jim Bagley

104

Construction would be relevant to whether the

covenant has a legitimate purpose.!° We conclude

that this factor weights slightly in favor of

McGlothin.

4. Extent of Relief.

The final Arlington II factor is “the extent to

which relief could be obtained by limiting

interference by, rather than requiring positive

remedial measures of, the defendant.” Phillips, 685

F.2d at 190. The trial court made no findings on this

issue. However, relief here could be obtained by

limiting the Association’s right to enforce the leasing

covenant rather than requiring the Association to

institute positive remedial measures. Thus, this

factor weights in favor of McGlothin.

B. Burden of Proof.

As noted above, if a plaintiff makes a prima facie

showing, the defendant has the burden of proving a

bona fide and legitimate justification for the housing

action. Hispanics United, 988 F.Supp. at 1162. If

the defendant makes this showing, the plaintiff has

'0 McGlothin also relies upon Kokomo's “sordid history of

perverse willful schemes for perpetuating segregation through

restrictive covenants” that limited occupancy to those of “the

pure white race.” Appellee’s Brief at 29; Appellee’s Appendix at

18. Such evidence is not relevant or suggestive of

discriminatory intent on the part of Jim Bagley Construction or

the Association with respect to the restrictive covenant barring

leasing.

105

the burden of proving that less discriminatory

alternatives were available. Id.

1. McGlothin’s Prima Facie Case.

As noted above, the federal courts in the Seventh

Circuit have held that “Plaintiffs can establish a

prima facie disparate impact case under the [Act]

simply by showing that Defendants’ actions had

discriminatory effects upon a _ protected class.”

Wallace, 321 F.Supp.2d at 973-974. Disparate

impact in fair housing cases can be illustrated with

statistics. Hispanics United, 988 F.Supp. at 1154.

“Local, not national, statistics are usually most

pertinent, and the analysis ‘must involve the

appropriate comparables.” Id. (quoting Mountain

Side Mobile Estates P’ship v. Sec’y of HUD, 56 F.3d

1243, 1251, 1253 (10° Cir. 1995)). The Association

does not dispute that McGlothin made a statistical

showing of a disparate impact. Appeliant’s Brief at

13 (‘[McGlothin] did assert voluminous statistical

evidence and may have asserted sufficient evidence to

make a prima facie showing of disparate impact.”).

Thus, McGlothin made a prima facie case, and we

will consider whether the Association had a bona fide

and legitimate justification.

2. The Association’s Bona Fide and Legitimate

Justification.

If a plaintiff makes a prima facie showing, the

defendant has the burden of proving a bona fide and

legitimate justification for the housing action.

Hispanics United, 988 F.Supp. at 1162. Because

McGlothin made a prima facie showing of a violation

of the Act, the Association had the burden of proving

a bona fide and legitimate justification for the

106

restrictive covenant. The Association argued that the

leasing restriction had a positive effect on property

values. As we noted in discussing the Arlington II

factors, even McGlothin’s expert agreed that leasing

can have an adverse effect on property values.

Additionally, the unique nature of these “condo-style”

homes provide a legitimate justification for a leasing

restriction. Thus, we conclude that the Association

provided a bona fide and legitimate justification for

the covenant against leasing.

3. Availability of Less Discriminatory

Alternatives.

If the defendant demonstrates a bona fide and

legitimate justification, as the Association did here,

the plaintiff then has the burden of proving that less

discriminatory alternatives were available.

Hispanics United, 988 F.Supp. at 1162. The trial

court found:

[T]he Declaration of Covenants contains

numerous provisions requiring proper

maintenance; these include the following,

which are included herein by reference:

Article V. Sections 1

Article V. Sections 2

Article V. Sections 2-A

Article IX. Sections 3(a)

Article IX. Sections 3(c)

Article IX. Section 3(d)

Article IX. Section 3(e)

Article IX. Section 3(f)

Article [X. Section 3(g)

Article IX. Section 3(1)

Article IX. Section 3G)

107

The Plaintiff has, by these provisions,

more than adequately assured a neat,

clean and visually attractive environment,

and ae high degree of property

maintenance. The Defendant would still

be held to these requirements even while

renting her home. Therefore, the

Plaintiffs justification for the no-rent

provision lacks a factual basis, and is mere

subterfuge, rendering said _ provision

unnecessary and useless.

Appellant's Appendix at 18-19.

The covenants cited by the trial court in its

findings govern exterior maintenance, maintenance

of the dwelling, watering of lawns and shrubs, and

prohibited uses and nuisances, such as noxious or

offensive activities, accumulation of litter or trash,

accumulation of junk vehicles, campers, boats, etc. on

the property, construction of outbuildings, and

leaving garage doors open. The trial court basically

found that, if the basis for the leasing covenant is to

maintain property values because renters do not care

for the residences as well as owners, the properties

can be maintained just as well through the covenants

listed above. We cannot say that this finding is

clearly erroneous.

In summary, we conclude that the trial court’s

finding that the restrictive covenant against leasing

violated the Fair Housing Act is not clearly

erroneous. McGlothin made a prima facie showing of

a violation of the Act, and, although the Association

demonstrated a bona fide and legitimate justification

for the housing action, McGlothin showed that less

108

discriminatory alternatives were available.

Hispanics United, 988 F.Supp. at 1162. Of the four

Arlington II factors, three factors favor McGlothin,

although one of those factors favors her only slightly,

and one factor favors the Association. While we

think this is a close case, we cannot say the trial

court’s finding of a violation of the federal Fair

Housing Act is clearly erroneous. In doing so, we do

not intend to imply that all restrictive covenants

prohibiting leasing violate the federal Fair Housing

Act. Rather, this is complex, fact-sensitive analysis

that should not be taken to apply to all such

covenants. !!

For the foregoing reasons, we affirm the trial

court’s judgment in favor of McGlothin.

Affirmed,

DARDEN, J. and BAILEY, J. concur

'l Because we conclude that the trial court's findings on the

Fair Housing Act are notclearly erroneous, we need not address

McGlothin’s argument that the judgment is sustainabie on

equitable grounds.

109

In The Indiana Supreme Court

No. 34502-0805-CV-266

VILLAS WEST II OF WILLOWRIDGE

HOMEOWNERS ASSOCIATION, INC.

Appellant (Plaintiff/ Cross-

Defendant Below),

¥.

EDNA McGLOTHIN,

Appellee (Defendant /

Cross-Claimant Below).

FILED MAY 15, 2008

Kevin S. Smith, Clerk

Supreme Court, Court

of Appeals, and Tax Court

STATE OF INDIANA

Appeal from the Howard superior Court II,

No. 34D02-0210-PL-893

The Honorable Stephen M. Jessup, Judge

On Petition to Transfer from the Indiana Court

of Appeals, No. 34A02-0504-CV-370

May 15, 2008

Shepard, Chief Justice.

A homeowner whose deed contained various

covenants applicable to her subdivision rented out

her residence, notwithstanding a covenant not to do

110

so. Her homeowners association sued to enforce the

prohibition, and she countersued, claiming that the

agreement she had made through the covenant

violated the Fair Housing Act. Her counter-

complaint appeared to include elements of two very

different claims — disparate impact and intentional

discrimination.

The trial court granted her relief, appearing

largely to rely on disparate impact. We conclude that

relief on these grounds was erroneous. We remand

for reconsideration of the intentional discrimination

claims.

Facts and Procedural History

Algy and Edna McGlothin, husband and wife,

purchased a home in Villas West II Planned Unit

Development of Willowridge Subdivision on August

26, 1996. Villas West II is a 149-lot development

located in the City of Kokomo. *

The McGlothins purchased their home subject to

“any and all easements, agreements and restrictions

of record.” One of these provisions prohibited owners

from leasing their residences:

Lease of Dwelling by Owner. For the purpose

of maintaining the congenial and residential

character of Villas West II and for the

protection of the Owners with regard to

financially responsible residents, lease of a

Dwelling by an Owner, shall not be allowed.

Each Dwelling shall be occupied by an Owner

and their immediate family.

* Villas West II was platted in April 1990 and developed by Jim

Bagley Construction Co., Inc. (Appellant's App. at 10.)

111

(Appellant’s App. at 43.)?

Mrs. McGlothin lived i the home until she breke

her hip in 1998 and meves to a nursing home. Mr.

McGlothin lived in the some another five months

until he also moved into the nursing home. Mr.

McGlothin remained in the nursing home until his

death in June 1999. After Mr. McGlothin’s death, the

McGlothin’s daughter began leaving out the home.

On August 20, 2002, the Villas West II

Homeowners Association notified the McGlothin’s

daughter that Mrs. McGlothin was in violation of the

no-lease covenant and demanded compliance. In

response, Mrs. McGlothin’s lawyer acknowledged the

covenant, but argued that the rent payments were

necessary to maintain Mrs. McGlothin in the nursing

home.* He also stated that the no-lease provision

could be invalid, alleging it had _ racially

discriminatory roots.

Although not unsympathetic to Mrs. McGlothin’s

situation, the Homeowners Association declined to

acquiesce in her violation of the no-lease covenant,

? The no-lease covenant was recorded in April 2, 1992. (App. at

11.)

* The trial court found that pursuant to 405 Ind. Admin Code 2-

3-15(c)(10), “Edna McGlothin was entitled to own her own home

and receive Medicaid benefits so long as the rental income from

her home [was] greater than the expenses of ownership.” (App.

at 12-13 (emphasis added)). Because Medicaid had already

advanced $23,363.66 for Mrs. McGlothin’s care, the court

determined a hen could be placed on Mrs. McGlothin's home to

secure repayment and could be foreclosed upon Mrs

McGlothin's death or if the property was sold prior to her death

(ld. at 13.)

112

citing concerns “about its residents and the economic

consequences the violation could have on the

neighborhood and property values as a whole.” (Id.

at 92.) The Homeowners Association demanded that

the tenant vacate the premises to avoid further legal

action and attached a draft complaint seeking an

injunction against the renting of the premises, the

eviction of the current tenant, attorney fees, and all

other damages.

Unable to resolve the matter, the Homeowners

Association filed the complaint on October 10, 2002.

Mrs. McGlothin subsequently filed her answer,

affirmative defense, and counterclaim alleging the

Association’s enforcement of the no-lease covenant

violated the Fair Housing Act. The Homeowners

Association moved for summary judgment, which the

trial court denied.

After a bench trial, the court concluded that the

covenant violated the Fair Housing Act, finding it

had a greater adverse effect on African Americans

and racial minorities and finding “no legitimate non-

discriminatory reason” for the no-lease covenant. (Id.

at 17-19.) The court entered judgment for Mrs.

McGlothin. The Homeowners Association appealed,

and the Court of Appeals affirmed. Villas West II of

Willowridge, Homeowners Ass'n, Inc. v. McGlothin,

841 N.E.2d 584, 608 (Ind. Ct. App. 2006). We grant

transfer, reverse, and remand.

I. The Prevalence of Real Estate Covenants

A restrictive covenant is an express contract

between grantor and grantee that restrains the

erantee’s use of his land. Holliday v. Crooked Creek

113

Villages Homeowners Ass'n, iic., 759 N.E.2d 1088

(Ind. Ct. App. 2001). Covenants control many aspects

of land, including what may be built on the land

(fence or above ground pool), how the land may be

used (private or commercial), and alienability of the

land. See, e.g., Robert G. Natelson, Law of Property

Owners Associations 56-58, 153-66 (1989).

Restrictive covenants are used to maintain or

enhance the value of land by reciprocal undertakings

that restrain or regulate groups of properties.

Holliday, 759 N.E.2d at 1092. These covenants

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