241 N.C. App. 389
N.C. Ct. App.2015Background
- The Cedars of Chapel Hill is a continuing care retirement community where residents buy condominium units and must sign a membership agreement that (a) requires a nontransferable membership, and (b) charges a membership fee equal to 10% of the unit purchase price (payable at closing or on resale) plus monthly overhead payments.
- Plaintiffs (Wilner and others, later a certified class) sued seeking declarations that the membership and overhead covenants are unenforceable, that the membership fee is an illegal transfer fee under Chapter 39A, and that the covenants violate the Marketable Title Act (Chapter 47B); they sought injunctive relief and won summary judgment below.
- Defendants (the Cedars and related parties) appealed the grant of summary judgment and the injunction.
- The Court of Appeals reviewed de novo and examined unconscionability, transfer-fee preemption/exemption, the Marketable Title Act, and whether the obligations were covenants running with the land versus ordinary contract obligations.
- The Court of Appeals concluded the trial court erred on multiple grounds and vacated and remanded for jury trial, also finding the injunction insufficiently specific under Rule 65(d).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Were the membership and overhead agreements unconscionable? | Agreements were procedurally and substantively unconscionable due to unequal bargaining power, adhesive terms, high fees, and limited market alternatives. | Agreements were signed at closing with counsel available, disclosures and bolded notices were present; bargaining inequality alone is insufficient. | No proven unconscionability as a matter of law; genuine fact issues exist, so summary judgment on unconscionability was improper. |
| Do the membership fees constitute unlawful "transfer fees" under Chapter 39A? | The membership fee is a fee payable on transfer and thus violates Chapter 39A. | Chapter 58 (CCRC statute) exempts such fees when the condominium declaration requires only fees provided for in residents' continuing-care or membership contracts. | Fees are exempt from Chapter 39A because they are described in residents’ contracts and the declaration requires only such contract-provided fees. |
| Do the agreements violate the Marketable Title Act (Chapter 47B)? | Fees and covenants impair marketability and therefore violate the Act. | The Act concerns quieting title after long adverse title; here ownership and contractual obligations are explicit and not a Marketable Title Act issue. | The Marketable Title Act does not create a basis to invalidate contractually assumed fee obligations; summary judgment on that ground was improper. |
| Are the membership obligations covenants running with the land (binding successors) or ordinary contract obligations? | The covenants do not touch or concern the land and thus do not run with the land; unenforceable against subsequent owners. | Prospective buyers are required to sign membership contracts at closing, so obligations arise from contract law, not a covenant running with the land. | Obligations arise from contracts signed by buyers (traditional contract law), not by an enforceable covenant running with the land; the trial court erred applying running-covenant analysis. |
Key Cases Cited
- In re Will of Jones, 362 N.C. 569 (N.C. 2014) (standard for de novo review of summary judgment)
- Forbis v. Neal, 361 N.C. 519 (N.C. 2007) (summary judgment standard)
- Westmoreland v. High Point Healthcare Inc., 218 N.C. App. 76 (N.C. Ct. App. 2012) (elements of unconscionability; bargaining-inequality alone insufficient)
- Runyon v. Paley, 331 N.C. 293 (N.C. 1992) (requirements for covenants running with the land)
- Brenner v. Little Red Sch. House Ltd., 302 N.C. 207 (N.C. 1981) (test for substantive unconscionability)