JONATHAN WILNER, et. al., and ALL OTHERS SIMILARLY SITUATED, Plaintiffs, v. THE CEDARS OF CHAPEL HILL, LLC, et. al., Defendants.
No. COA14-380
IN THE COURT OF APPEALS OF NORTH CAROLINA
Filed: 2 June 2015
Orange County, No. 11 CVS 1428
Appeal by defendants from order entered 10 January 2014 by Judge William R. Pittman in Orange County Superior Court. Heard in the Court of Appeals 20 November 2014.
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., by James T. Williams, Jr., Jennifer K. Van Zant, and D.J. O‘Brien III, for defendant-appellants.
Wyrick Robbins Yates & Ponton LLP, by K. Edward Greene and Tobias S. Hampson, and Barringer & Sasser, LLP, by Brent D. Barringer and Robert H. Sasser, III, for amici curiae The Cypress of Charlotte and The Cypress of Raleigh.
STEELMAN, Judge.
Where the provisions of an agreement between condominium residents and a continuing care retirement community were not unconscionable, and did not violate the prohibition against transfer fees in
I. Factual and Procedural Background
The Cedars of Chapel Hill, LLC (the Cedars) is a continuing care retirement community (CCRC) located in Chapel Hill, North Carolina. Residents at the Cedars purchase individual condominium units within the community, and pay an additional membership fee. This fee is calculated as ten percent of the gross purchase price of a housing unit, and is paid at closing as part of the purchase price. If a resident inherits the unit or receives it as a gift, the resident pays the fee, calculated as ten percent of the unit‘s fair market value. If the unit is resold, the ten percent fee is deducted from the gross sales price and paid at closing. The payment of this fee is clearly set forth in the membership agreement. Membership entitles residents to access to the common property of the Cedars, including a clubhouse and health center. Residents who become incapable of independent living may move into the health center, and remain eligible to use the facilities for the remainder of their lives.
In addition to the initial membership fee, members make monthly payments to the Cedars Club (the Club), which cover the cost of various amenities. These monthly payments include a payment to the Cedars for overhead expenses, which is described in the membership agreement, disclosure statements, declaration, and bylaws of the condominium association.
On 29 June 2011, Jonathan Wilner and Diane Wilner filed this lawsuit seeking: (1) a declaratory judgment that the covenants requiring membership and a membership fee, and requiring payment of an overhead fee, do not run with the land, and are therefore unenforceable; (2) a declaratory judgment that the preliminary membership fee is a “transfer fee” prohibited under
The parties each filed motions for summary judgment. Plaintiffs’ summary judgment motion also included new language not previously used in their complaint, alleging that the membership agreements were unconscionable, and seeking a permanent injunction.
On 10 January 2014, the trial court granted summary judgment in favor of plaintiffs as to plaintiffs’ claims asserting that the covenants were unenforceable, that they violated
Defendants appeal. On 28 January 2014, the trial court granted defendants’ motion to stay judgment pending appeal, and certified its order to this Court pursuant to
II. Standard of Review
“Our standard of review of an appeal from summary judgment is de novo; such judgment is appropriate only when the record shows that ‘there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law.‘” In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572, 576 (2008) (quoting Forbis v. Neal, 361 N.C. 519, 524, 649 S.E.2d 382, 385 (2007)).
III. Enforceability of Membership Agreement
In their first argument, defendants contend that the trial court erred in ruling that the membership fee and overhead payments were unenforceable. We agree.
Because the order did not specify the basis by which the trial court held the fee and payments unenforceable, we examine in turn each of the various arguments made by plaintiffs at the summary judgment hearing before the trial court.
A. Unconscionability
Plaintiffs alleged in their motion for summary judgment that the contracts they signed were unconscionable. In order to establish unconscionability, plaintiffs had to show both procedural unconscionability and substantive unconscionability. Westmoreland v. High Point Healthcare Inc., 218 N.C. App. 76, 80, 721 S.E.2d 712, 717 (2012).
Procedural unconscionability involves “bargaining naughtiness in the form of unfair surprise, lack of meaningful choice, and an inequality of bargaining power.” Id. at 81, 721 S.E.2d at 717 (quotations and citations omitted). Plaintiffs, raising this argument in their motion for summary judgment, contended that:
[T]he bargaining power between the Plaintiffs and Defendants was unquestionably unequal in that the Plaintiffs as a whole are relatively unsophisticated in terms of the complex real estate and financial machinations at play while contracting with the Defendants who engaged counsel experienced in complex real property transactions and condominium governance to draft the covenant clauses requiring payment of the Challenged Fees, along with the numerous other documents such as Condo Bylaws, Membership Agreements, Purchase and Sale Agreements, Resale Purchase and Sale Agreements, Guarantees, Indemnities, each of which include detailed provisions as to the payment and collection of the Challenged Fees.
We find that these contentions were insufficient to establish procedural unconscionability. The contracts at issue were signed at a real estate closing, meaning that plaintiffs had counsel present. The contracts had detailed, bolded notes in the margins, explaining what each contract provision entailed. Plaintiffs did not allege that they were rushed through the process, nor that
Substantive unconscionability “refers to harsh, one-sided, and oppressive contract terms.” Id. at 84, 721 S.E.2d at 719 (quotations and citations omitted). The terms must be “so oppressive that no reasonable person would make them on the one hand, and no honest and fair person would accept them on the other.” Brenner v. Little Red Sch. House Ltd., 302 N.C. 207, 213, 274 S.E.2d 206, 210 (1981). Plaintiffs, in raising this issue, contended that the fees in question were “exorbitantly high,” that the documents at issue were “decidedly one-sided in favor of the Company,” and that plaintiffs lacked “ability . . . to negotiate any of the terms of the covenants and conditions in question in this case.” Plaintiffs further noted that the market for CCRCs in Chapel Hill is very small, leaving few alternatives.
Again, we find plaintiffs’ arguments unavailing. We recently held that “the times in which consumer contracts were anything other than adhesive are long past.” Torrence v. Nationwide Budget Fin., ___ N.C. App. ___, ___, 753 S.E.2d 802, 812 (2014) (quoting AT&T Mobility LLC v. Concepcion, ___ U.S. ___, ___, 179 L.Ed.2d 742, 755 (2011)), review denied, cert. denied, ___ N.C. ___, 759 S.E.2d 88 (2014). The mere fact that plaintiffs lacked the ability to negotiate contract terms does not create substantive unconscionability, nor does the fact that defendants were among the only providers of CCRC facilities. We hold that plaintiffs did not adequately demonstrate unconscionability as a matter of law, and that a genuine issue of material fact existed as to unconscionability, which precluded summary judgment.
B. Transfer Fees
Plaintiffs also alleged that the membership fee constituted an unlawful transfer fee.
However, there exists an exception to the provisions in
Facilities and providers licensed under this Article that also are subject to the provisions of the North Carolina Condominium Act under
Chapter 47C of the General Statutes shall not be subject to the provisions ofChapter 39A of the General Statutes , provided that the facility‘s declaration of condominium does not require the payment of any fee or charge not otherwise provided for in a resident‘s contract for continuing care, or other separate contract for the provisions of membership or services.
In the instant case, all fees, including the membership fee, were described in detail in
C. Marketable Title Act
Plaintiffs also alleged that the agreements at issue violate the Marketable Title Act.
The Marketable Title Act deals with actions to quiet title. In the instant case, there is no issue as to who owns the various units and common elements of the Cedars CCRC; these issues of ownership are explicitly detailed in the ownership agreements signed by the parties. The Act does not authorize a cause of action where, as here, parties are under a contractual obligation to pay fees pursuant to contract.
IV. Enforceability of Covenants
In their second argument, defendants contend that the trial court erred in finding the challenged covenants unenforceable. We agree.
All purchasers of property at the Cedars are required to sign a membership agreement, a separate document that is part of the purchase and sale agreement, at the time of closing. This agreement provides that all residents must be members, that membership is non-transferable, and that the membership fee is included in and deducted from the purchase price of a unit. Plaintiffs, in their initial complaint, which was incorporated by reference in their amended complaint, contend that they represent all persons who purchase, sell, or own a Unit at the Cedars, all who enter into a membership agreement with the Cedars, and all who are currently or may in the future enter into a membership agreement with the Cedars. We note that any such plaintiff, including the named plaintiffs in the instant case, would have in common the fact that either they or their buyers would have signed the membership agreement providing for the deduction of membership fees from the purchase price of a unit.
Plaintiffs contend that the covenants at issue do not run with the land, and are therefore unenforceable against subsequent purchasers. In Runyon v. Paley, the seminal case on covenants running with the land in North Carolina, our Supreme Court held that a party seeking to enforce a covenant as one running with the land had to prove that the covenant in question “touches and concerns” the land, the existence of both horizontal and vertical privity of estate, and the intent of the original parties to create a covenant running with the land. 331 N.C. 293, 416 S.E.2d 177 (1992). Black‘s Law Dictionary defines a covenant running with the land as “[a] covenant ultimately and inherently involved with the land and therefore binding subsequent owners and successor grantees indefinitely.” Black‘s Law Dictionary 421 (9th ed. 2009). It further notes that “[t]he most important consequence of a covenant running with the land is that its burden or benefit will thereby be imposed or conferred upon a subsequent owner of the property who never actually agreed to it. Running covenants thereby achieve the transfer of duties and rights in a way not permitted by traditional contract law.” Id. (quoting Roger Bernhardt, Real Property in a Nutshell 212 (3rd ed. 1993)). It is this feature, the fact that a covenant running with the land can bind subsequent owners who did not agree to it, that distinguishes this type of covenant from a traditional contract.
Despite plaintiffs’ contentions, the issue in this case is not one of a covenant running with the land. In the instant case, any potential buyer is required to sign a contract obligating himself to the payment of membership fees. As a result, this matter falls within the realm of traditional contract law, not the law of covenants running with the land. Under traditional contract law, parties that agree to contracts are bound by them. Plaintiffs, or their buyers, would be obligated to pay the membership fees, not because of some covenant running with the land, but because they signed a document agreeing to pay the membership fees. Plaintiffs’ contentions that the fees, once collected, need not
V. Entry of Injunction
In their third argument, defendants contend that the trial court‘s summary judgment order, which grants an injunction, violated
Every order granting an injunction and every restraining order shall set forth the reasons for its issuance; shall be specific in terms; shall describe in reasonable detail, and not by reference to the complaint or other document, the act or acts enjoined or restrained; and is binding only upon the parties to the action, their officers, agents, servants, employees, and attorneys, and upon those persons in active concert or participation with them who receive actual notice in any manner of the order by personal service or otherwise.
Plaintiffs’ motion for partial summary judgment is, allowed as to Plaintiffs’ First, Third, Eighth and Tenth Claims for Relief as set forth in paragraphs numbered one through five in Plaintiff‘s motion.
In their motion for summary judgment, plaintiffs alleged with respect to their tenth claim for relief:
Plaintiffs’ Tenth Claim for Relief for Permanent Injunction enjoining and stopping, forever, the Defendants’ past, present, and future efforts to implement and enforce certain affirmative covenants in the Declaration of Condominium of The Cedars of Chapel Hill requiring that Plaintiffs pay Defendants certain Challenged Fees, including but not limited to a Transfer Fee (aka the “Membership Fee“), the Corporate Overhead Payment Fee, and the Litigation Fee, in order that this Court may prevent the irreparable harm that the Plaintiffs have suffered, are suffering, and will continue in the future to suffer if a Permanent Injunction is not entered stopping the Defendants from collecting and enforcing their claimed right to such fees[.]
Plaintiffs’ motion for summary judgment sought an expansive injunction, and the trial court‘s cursory handling of that issue did not meet the standard of “reasonable detail” concerning “the act or acts enjoined or restrained[.]” We hold that the trial court erred in granting an injunction in such a cursory manner.
VI. Failure to Make Allegations Against Defendants
In their fourth argument, defendants contend that the trial court erred in entering its summary judgment order where plaintiffs had failed to make allegations against multiple defendants. Because we have held above that the trial court erred in entering summary judgment, we need not address this contention.
VII. Conclusion
We hold that the trial court erred in determining, as a matter of law, that the contracts at issue were unconscionable, and that they violated the provisions of
VACATED AND REMANDED.
Judges GEER and STEPHENS concur.
STEELMAN
Judge