Conleys Creek Ltd. P'ship v. Smoky Mountain Country Club Prop. Owners Ass'nÂ
799 S.E.2d 879
| N.C. Ct. App. | 2017Background
- Smoky Mountain Country Club (SMCC) planned community was created by a 1999 Declaration (the "Declaration") that merged prior Phase I and Townhouse declarations into a single planned community under the North Carolina Planned Community Act (PCA).
- The Declaration required Declarant to build and own a clubhouse, granted owners a perpetual nonexclusive right to use it, obligated owners to pay "Clubhouse Dues," and required the Association to bill and remit collected dues to the Declarant (and successors).
- In 2013 the clubhouse title was conveyed to SMCC Clubhouse, LLC (a Cornblum-controlled entity); the Association continued collecting dues and remitting them until 2014, when a homeowner-controlled board announced it would cease collecting Clubhouse Dues.
- Litigation followed: Declarant sued; the Association counterclaimed against Declarant and Cornblum individuals/entities; SMCC Clubhouse asserted reverse counterclaims for breach of the Declaration when the Association stopped collecting dues.
- The trial court dismissed multiple counterclaims in three orders. On appeal, the Court of Appeals affirmed in part, reversed in part, and remanded: it (a) held the one-year challenge provision for amendments did not apply to the 1999 Declaration treated as a merger, (b) affirmed dismissal of certain claims (including reimbursement and UDTP claim), (c) reversed dismissal of fiduciary-duty claims against individual Cornblum directors/officers, and (d) reversed summary judgment for the Association on SMCC Clubhouse’s breach-of-contract claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicability of PCA §47F-2-117(b) (one-year limit to challenge an amendment) to the 1999 Declaration | Association: challenges to Declaration provisions are time-barred by the one-year amendment limitation | Declarant: 1999 instrument is an amendment subject to §47F-2-117(b) | Court: 1999 instrument was a merger creating a new declaration; §47F-2-117(b) inapplicable; trial court erred to dismiss on that ground |
| Whether Association has statutory authority/duty to collect Clubhouse Dues | Association: Clubhouse is not a common element, so it lacks authority to collect dues for a third-party owner | Declarant/SMCC Clubhouse: PCA allows an association to impose/receive payments for services provided to lot owners; collecting dues is authorized | Court: PCA authorizes associations to collect payments for services provided to owners; dismissal of claim seeking declaration that Association had no duty to collect affirmed |
| Homeowner reimbursement for dues paid but not used | Association: dues were unauthorized and owners who never used clubhouse are entitled to repayment | Declarant: dues were valid because obligation is to pay for the right to use, not actual use; Declaration expressly makes payment obligation absolute | Court: obligation is not linked to actual use; reimbursement claims dismissed and affirmed |
| Breach of fiduciary duty by Declarant and Cornblum individuals | Association: Declarant and Cornblum individuals diverted Association funds and acted for their own benefit | Declarant: contractual relationship precludes fiduciary claim against Declarant; individuals deny breach | Court: claim properly dismissed as to Declarant (contractual relationship) but sufficiently pleaded against Michael and Carolyn Cornblum in their capacities as directors/officers; reversal as to those individuals |
| Breach of contract / covenant of good faith (SMCC Clubhouse v. Association) | SMCC Clubhouse: Declaration is an enforceable contract obligating Association to bill/collect and remit dues; Association breached by ceasing collections | Association: sought summary judgment arguing contract unenforceable or Association could terminate obligations as homeowners-controlled body | Court: Declaration is clear and enforceable; genuine issues of fact exist (including good-faith termination/unconscionability); grant of summary judgment to Association reversed and remanded |
Key Cases Cited
- Skinner v. E.F. Hutton & Co., 314 N.C. 267 (de novo review standard for Rule 12(b)(6))
- Weyerhaeuser Co. v. Carolina Power & Light Co., 257 N.C. 717 (when contract language is clear, courts must give effect to its terms)
- Governors Club, Inc. v. Governors Club Ltd. P'ship, 152 N.C. App. 240 (existence of fiduciary duty analysis for directors/officers)
- Underwood v. Stafford, 270 N.C. 700 (directors of a corporation generally owe fiduciary duties)
- Toomer v. Branch Banking & Trust Co., 171 N.C. App. 58 (limitations governing breach of fiduciary duty claims not rising to constructive fraud)
- White v. Thompson, 364 N.C. 47 (limitations on applying UDTP statute where misconduct occurs within a single entity)