The suit seeks a preliminary and permanent injunction prohibiting the Nyes from providing child care services, and from allowing "their permittees to cause noise to the interference of other residents" of the complex.
The Nyes deny any wrongdoing, saying they care for their great-grandson but have never accepted money in exchange.
"That's a complete lie, a fib," Walter Nye said.
Betty Nye said the suit lacks merit.
"I can't believe any lawyer would take a suit like that," she said.
The condo council members say they must enforce their rules to maintain the quiet, peaceful atmosphere that the condo owners - most of whom are senior citizens - have come to expect.
The key rule, which was adopted in 1982, prohibits any business, trade or occupation on the property. That applies even to business activity performed out of "altruism."
In suing, the condo board is merely protecting its interests, said a board member who asked not to be identified.
"They're breaking the rules. It's as simple as that," she said. "If we break that rule, we cannot enforce any rule It's like saying you can speed five miles, or if it's at night, it's all right."
A couple taking care of one child might not seem so bad, but the board member said allowing the exception opens the door for a family taking care of even more children. She said the condo association did not even allow children until the Fair Housing Act forced it.
Betty Nye said the ordeal has greatly troubled her. She said most of her neighbors have no problem with her baby-sitting. The action sprung from two people, she said.
She said she and her husband also enjoy Edgewood's quiet atmosphere, adding that neither drink and that they have never had more than two guests at a time.
Nye said she was not even aware there were any complaints until she received a letter from the condo council on Aug. 20.
"They never came to me and asked me, Would you please keep the noise down,'" she said.
Since receiving the letter, Nye said she has spent as much time as possible outside with her great-grandson. Nye said she and the child spend time in the park and in her car.
"Had I known there were people like this running things here, I never, ever would have moved here," she said.