Wallach v. Linville Owners Ass'n, Inc. ( 2014 )

NO. COA13-1116
NORTH CAROLINA COURT OF APPEALS
Filed: 1 July 2014
ANN B. WALLACH; DAVID WALLACH;
PHILIP C. MILLER and STEEN
CONSTRUCTION COMPANY,
Plaintiffs,
v. Wake County
No. 12 CVS 11131
LINVILLE OWNERS ASSOCIATION, INC.;
WILLIAM BUFF CLAYTON; JAMES B.
CUSHMAN; KIRSTEN M. CUSHMAN; DALIP
AWASTHI; MONICA AWASTHI; WILLIAM
J. SPARKMAN; ROXANNE E. SPARKMAN;
RAJESH K. MANICKAM; REEMA PATEL
MANICKAM; MARGARET S. NORTON,
Trustee of Margaret S. Norton
Revocable Living Trust dated 12-4-
2007; STUART P. GOLDBLATT; N.C.
PEAKS, LLC; FELICIA R. KADIS;
MATTHEW C. KING, JR.; JAMES A.
WILLETTS; LINDA BADDOUR; CLAUDE Z.
DEMBY; DONNA H. DEMBY; ROBERT D.
HILLMANN; SUSAN L. HILLMANN; SHAWN
M. BRITT; AARON VEDDER; MICHELLE
VEDDER; TODD R. STIEFEL; DIANA G.
STIEFEL; SCOTT J. POOLE; MATTHEW
S. PALKA, JR.; FRANCES K.
O’SULLIVAN; KEITH THOMAS SHELLY;
KATHARINE KNOBIL; JOSIP CERMIN;
LANTY L. SMITH; MARGARET G. SMITH;
SCOTT ALLEN BROWN; SARA BETH
BROWN; MASOUD MOGHADASS; MARIA D.
CLARK and CHRISTOPHER JAMES CLARK,
Trustees of the Maria D. Clark
Living Trust dated September 17,
2010, and any amendments thereto;
PABLO E. PRIU; HEIDI D. PRIU;
SHEHZAD H. CHOUDRY; SABEEN J.
KHAWAJA; JASON L. PAYTON; AMIR A.
FIROZVI; ASRA S. FIROZVI; CHARLES
STIEFEL; DANEEN STIEFEL; MARK F.
KOZACKO; TAMMY Y. KOZACKO; MARK A.
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REIN; TARA A. DOW-REIN; MOHIT
PASI; SONIA PASI; WILLIAM H.
SCHEICK, JR., Trustee of the
Carolyn R. Scheick Revocable
Trust-1994/TR; CAROLYN R. SCHEICK,
Trustee of the William H. Scheick
Revocable Trust-1994/TR; JOHN T.
SCHEICK, Trustee of the Gloria M.
Verrochi Irrevocable Trust-1994;
CAROLYN R. SCHEICK, Trustee of the
Gloria M. Verrochi Irrevocable
Trust-1994; JOHN T. SCHEICK,
Trustee of the Gloria M. Verrochi
Revocable Trust 1994 GST Exemption
Trust; CAROLYN R. SCHEICK, Trustee
of the Gloria M. Verrochi
Revocable Trust 1994 GST Exemption
Trust; STEVEN KJELLBERG; JULIE
KJELLBERG; RICHARD P. MCCOOK; ANNA
T. MCCOOK; IMAD OMAR; PAUL F.
BONAVITA; HEATEHR S. BONAVITA;
DIMITRI LYSANDER STOCKTON; RENEE
CECILE ALLAIN-STOCKTON,
Defendants.
Appeals by plaintiffs and defendant from final judgment
entered 12 March 2013 by Judge Donald W. Stephens in Wake County
Superior Court. Heard in the Court of Appeals 19 February 2014.
Harris & Hilton, P.A., by Nelson G. Harris, for plaintiff-
appellants.
Jordan Price Wall Gray Jones & Carlton, by Brian S. Edlin
and J. Matthew Waters, for defendant-appellant.
McCULLOUGH, Judge.
Linville Owners Association, Inc. (the “Association”),
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appeals the trial court’s denial of its motion to dismiss for
failure to join necessary parties. Ann B. Wallach and David
Wallach, the owners of Lot 40 and Lot 46 in Linville
Subdivision, and Steen Construction Company, the owner of Lot 44
in Linville Subdivision (together “plaintiffs”), appeal the
trial court’s grant of partial summary judgment and award of
attorneys’ fees in favor of the Association. For the following
reasons, we affirm the denial of the Association’s motion to
dismiss and reverse the grant of partial summary judgment and
the award of attorneys’ fees.
I. Background
This case concerns amendments to the Declaration of
Covenants, Conditions, Easements and Restrictions (the
“Declaration”) for Linville Subdivision, a gated community in
North Raleigh.
The Declaration was first recorded in the Wake County
Register of Deeds on page 197 of book 10362 on 13 August 2003.
It was then re-recorded in the Wake County Register of Deeds on
page 2198 of book 11283 on 29 March 2005 to include an exhibit
that was inadvertently omitted during the first recording.
Prior to June 2005, the Declaration governed only those lots in
“phase one” of Linville Subdivision. However, on 9 June 2005, a
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supplementary declaration was recorded in the Wake County
Register of Deeds on page 2201 of book 11483 subjecting
additional land, “phase two” of Linville Subdivision, to the
terms of the Declaration. At all times relevant to this appeal,
the Declaration governed all forty-four lots comprising phases
one and two of Linville Subdivision.1
Between October and December of 2011, amendments to the
Declaration were recorded in the Wake County Register of Deeds.
The amendments revised or added the following provisions:
“Subdividing and Recombination of Lots,” “Architectural
Control,” “Performance Bond and Builder Agreement,” and “Date of
Commencement of Annual Assessment.” Particularly relevant to
this appeal, the amendment regarding “Date of Commencement of
Annual Assessment” (the “Assessment Amendment”) was recorded in
the Wake County Register of Deeds on page 2295 of book 14530 on
7 November 2011.
On 6 August 2012, plaintiffs and Philip C. Miller, all of
whom owned vacant lots in Linville Subdivision, commenced this
action by filing a complaint seeking a declaratory judgment that
the amendments to the Declaration were invalid and
1
The lots in Linville Subdivision are numbered 1 through 46.
Lots 15 and 18 were eliminated by consolidation with other lots.
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unenforceable. The Association and all other lot owners at the
time the suit was filed were named as defendants.
In order to provide notice of the action to those acquiring
title to lots in Linville Subdivision following commencement of
the action, plaintiffs filed a lis pendens in Wake County
Superior Court on 17 September 2012.
The lis pendens, however, did not provide notice of the
action to James B. Cushman, II, and Kirsten M. Cushman, who
acquired title to Lot 2 from Capital Bank in the time between
the commencement of this action and the filing of the lis
pendens. As a result, on 29 September 2012, plaintiffs filed a
motion to amend the complaint to substitute the Cushmans as
defendants.
Thereafter, on 4 October 2012, Jordan L. Staal and Heather
Staal acquired title to Lot 26 from Masoud Moghadass with notice
of the pending action via the lis pendens. Plaintiffs never
sought to substitute the Staals as defendants.
By order filed 5 November 2012, the trial court allowed
plaintiffs’ motion to amend the complaint to substitute the
Cushmans as defendants. Plaintiffs then filed a second lis
pendens naming the Cushmans as owners of Lot 2 on 7 November
2012.
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On 8 November 2012, plaintiffs moved for summary judgment
on the ground that the amendments were not reasonable, exceeded
the purpose of the original Declaration, and were inconsistent
with the original intent of the Declaration. The Association
responded on 13 November 2012 by moving to quash the lis pendens
as unnecessary and moving to dismiss the complaint pursuant to
N.C. Gen. Stat. § 1A-1, Rule 12(b)(7) for failure to join the
Staals, whom the Association argues are necessary parties.
By order filed 14 December 2012, the trial court denied the
Association’s motion to dismiss and continued the hearing on
plaintiffs’ motion for summary judgment. The trial court
concluded,
All owners in the subdivision are not
necessary parties to this action by virtue
of the Lis Pendens filed by the Plaintiffs.
Properties in the Linville Subdivision may
be freely bought and sold without new owners
having to be parties to the action and all
owners at the time of the final judgment in
this case are bound by the final judgment in
this case even though they are not named
parties to this action.
Following the denial of its motion to dismiss, the
Association filed an answer and counterclaim on 31 December
2012. In the counterclaim, the Association sought to collect
unpaid assessments owed by plaintiffs, foreclose on Claims of
Lien filed and served on plaintiffs’ lots to secure payment of
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the assessments, and collect attorneys’ fees incurred in
prosecuting the action.
On 4 February 2013, the Association filed a motion for
summary judgment on plaintiffs’ claims. Also on 4 February
2013, plaintiffs filed a response to the Association’s
counterclaim arguing no past due assessments were owed because
the amendments to the declaration were invalid and
unenforceable.
Plaintiffs’ and the Association’s motions for summary
judgment came on for hearing in Wake County Superior Court
before the Honorable Paul Ridgeway on 18 February 2013. On 4
March 2013, the trial court entered an order granting summary
judgment in part and denying summary judgment in part.
Pertinent to this appeal, the trial court determined the
Assessment Amendment was valid and enforceable. The trial court
further concluded that the Association’s counterclaim was the
only remaining matter to be tried.
Thereafter, the Associations’ counterclaim came on for
trial that same week in Wake County Superior Court, the
Honorable Donald Stephens, Judge presiding. Following trial,
the trial court entered judgment in favor of the Association,
ordering the Wallachs to pay $5,010 in unpaid assessments for
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Lots 40 and 46 and ordering Steen Construction Company to pay
$2,345 in unpaid assessments for Lot 44. The trial court
further ordered that a Commissioner be appointed and directed to
sell the lots to satisfy the indebtedness due the Association.
The issue of attorneys’ fees was reserved until the
Association’s counsel filed a supplemental affidavit.
Following receipt of the supplemental affidavit, on 25
March 2013, the trial court awarded $5,000 in fees to the
Association.
Plaintiffs gave notice of appeal on 10 April 2013. The
Association gave notice of appeal on 11 April 2013.
II. Discussion
We address the Association’s appeal first, followed by
plaintiffs’ appeal. The Association appeals the trial court’s
denial of its motion to dismiss. Plaintiffs appeal the trial
court’s partial summary judgment order finding the Assessment
Amendment valid and enforceable and the trial court’s order
awarding the Association attorneys’ fees.
Association’s Appeal
In the Association’s appeal, the sole issue is whether the
trial court erred in denying the Association’s motion to dismiss
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for failure to join necessary parties. Upon review, we hold the
trial court did not err in denying the Association’s motion.
“‘A necessary party is one who is so vitally interested in
the controversy that a valid judgment cannot be rendered in the
action completely and finally determining the controversy
without his presence.’” Warrender v. Gull Harbor Yacht Club,
Inc., _ N.C. App. _, _, 747 S.E.2d 592, 606 (2013) (quoting
Carding Developments v. Gunter & Cooke, 12 N.C. App. 448, 451–
52, 183 S.E.2d 834, 837 (1971)). “‘The term “necessary parties”
embraces all persons who have or claim material interests in the
subject matter of a controversy, which interests will be
directly affected by an adjudication of the controversy.’” N.C.
Dep’t of Transp. v. Stagecoach Village, 174 N.C. App. 825, 827-
28, 622 S.E.2d 142, 144 (2005) (quoting Wall v. Sneed, 13 N.C.
App. 719, 724, 187 S.E.2d 454, 457 (1972)) (citation omitted in
the original), disc. rev. denied, 360 N.C. 483, 630 S.E.2d 929(2006). Pursuant to the North Carolina Rules of Civil
Procedure, necessary parties “must be joined as plaintiffs or
defendants[.]” N.C. Gen. Stat. § 1A-1, Rule 19(a) (2013).
On the other hand, “[a] proper party is one whose interest
may be affected by a decree, but whose presence is not essential
in order for the court to adjudicate the rights of others.”
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Stagecoach Village, 174 N.C. App. at 828, 622 S.E.2d at 144.
“‘Proper parties may be joined. Whether proper parties will be
ordered joined rests within the sound discretion of the trial
court.’” DeRossett v. Duke Energy Carolinas, LLC, 206 N.C. App.
647, 660, 698 S.E.2d 455, 464 (2010) (citations omitted)
(emphasis in original).
On appeal, the Association claims the trial court erred in
denying its motion to dismiss because the Staals, who acquired
Lot 26 on 4 October 2012, were not named defendants in the
action. Relying on Karner v. Roy White Flowers, Inc., 351 N.C.
433, 527 S.E.2d 40 (2000) and Page v. Bald Head Ass’n., 170 N.C.
App. 151, 611 S.E.2d 463, disc. rev. denied, 359 N.C. 635, 616
S.E.2d 542 (2005), the Association argues all lot owners in
Linville Subdivision were necessary parties, without which the
judgments are null and void. See McCraw v. Aux, 205 N.C. App.
717, 721, 696 S.E.2d 739, 741 (2010).
In Karner, our Supreme Court held nonparty property owners
in a Charlotte subdivision were necessary parties to an action
to enjoin a property owner from violating a residential use
restrictive covenant running with each lot. Karner, 351 N.C. at
440, 527 S.E.2d at 44. The Court reasoned,
each property owner within Elizabeth Heights
has the right to enforce the residential
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restriction against any other property owner
seeking to violate that covenant. This
right has a “distinct worth.” By operation
of law, if the residential restrictive
covenant is abrogated as to the lots owned
by defendants, each property owner within
the subdivision would lose the right to
enforce that same restriction. Unless those
parties are joined, they will not have been
afforded their “day in court.” An
adjudication that extinguishes property
rights without giving the property owner an
opportunity to be heard cannot yield a
“valid judgment.” For this reason, we
conclude the nonparty property owners of
Elizabeth Heights are necessary parties to
this action because the voiding of the
residential-use restrictive covenant would
extinguish their property rights.
Id. at 439-40, 527 S.E.2d at 44 (citations omitted).
Thereafter, in Page this Court affirmed the trial court’s
dismissal of an assessment claim for failure to join all
property owners. Page, 170 N.C. App. at 154, 611 S.E.2d at 465.
In affirming the trial court in Page, this Court simply cited
Karner for the holding that “all property owners affected by a
residential use restrictive covenant were necessary parties to
an action to invalidate that covenant[]” and indicated the
plaintiffs acknowledged Karner controlled their case. Id.Thus, this Court found the plaintiffs’ argument meritless. Id.The Association now claims Karner and Page control the
present case. We, however, find the present case
distinguishable.
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In Midsouth Golf, LLC v. Fairfield Harbourside Condo.
Ass’n., Inc., 187 N.C. App. 22, 652 S.E.2d 378 (2007) this Court
distinguished a covenant for the payment of recreational amenity
fees from the residential use restriction at issue in Karner.
This Court explained that, whereas a residential use restrictive
covenant included in all deeds conveying lots in a subdivision
according to a common plan of development was a valuable
property right enforceable by all property owners,
only the owner of the recreational amenities
[in Midsouth Golf] ha[d] the power to levy
such a recreational amenity charge. As
such, only the owner of the recreational
amenities ha[d] the power to enforce [the]
restrictive covenant. None of the property
owners within Fairfield Harbour ha[d] the
right to enforce the covenant to pay amenity
fees against any of the other owners.
Accordingly, the extinguishment of the
restrictive covenant in [Midsouth Golf]
would not deprive the other property owners
of any property right akin to the right that
the nonparty property owners were deprived
of in Karner.
Id. at 28-29, 652 S.E.2d at 383. In Midsouth Golf, this Court
also addressed its decision in Page, indicating it could not
rely upon Page because “Page does not reveal sufficient facts
for us to determine whether the covenant at issue was similar to
the one at issue in the present case.” Id. at 29, 652 S.E.2d at
383. This Court further explained that:
Page does not discuss how the nonparty
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property owners were in danger of losing a
property right by invalidation of the
covenant because the plaintiffs effectively
conceded that Karner applied and that the
Court was bound by Karner. While
invalidation of the covenant in the present
case could have some effect on nonparty
property owners in Fairfield Harbor,
invalidation of the covenant would not
deprive them of any property right, which is
required under Karner to make them necessary
parties.
Id. at 29-30, 652 S.E.2d at 383-84 (citation omitted).
Following the reasoning in Midsouth Golf, we hold the
Staals were proper parties to the action seeking to declare the
amendments to the Declaration invalid and unenforceable, but
were not necessary parties. The amendments at issue in the
present case did not extinguish any property rights of the
Staals akin to those in Karner. Therefore, we hold the trial
court did not err in denying the Association’s motion to
dismiss.
Because the Staals were not necessary parties, we need not
address whether the lis pendens was proper in this action.
Plaintiffs’ Appeal
In plaintiffs’ appeal, plaintiffs first argue the trial
court erred in entering partial summary judgment upholding the
validity and enforceability of the Assessment Amendment.
Specifically, plaintiffs contend the trial court erred because
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the assessment amendment was not signed by seventy-five percent
(75%) of the lot owners and is not reasonable in light of the
contracting parties’ original intent.
“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, 523-24, 649
S.E.2d 382, 385 (2007)).
For background, the original Declaration required each lot
owner to pay annual assessments to the Association. Builders,
however, were afforded the following benefits:
Lots owned by the builder of the initial
improvements on the Lot (“Builder”) shall be
assessed at a rate of twenty-five percent
(25%) of the amount of the assessment due
for a Lot that is owned by the Builder. The
assessments on Lots owned by a Builder shall
accrue each month that the Builder owns the
Lot and shall not be required to be paid by
the Builder until the date of closing of the
sale of a Lot from a Builder to a consumer-
occupant Lot Owner or the date of rental of
a Lot from a builder to a consumer-occupant
Lot Owner.
The Assessment Amendment recorded in the Wake County Register of
Deeds on 7 November 2011 eliminated these benefits to builders.
Specifically, the Assessment Amendment provides:
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There shall be no reduced assessment or
delayed payment schedule for any Lot,
regardless who owns the Lot or whether or
not the Lot has been developed. . . .
As of the effective date of this amendment,
Owners of developed/unsold, partially
developed or undeveloped Lots will be
required to pay all accrued assessments in
full that were previously scheduled to be
due per the old Article IV, Section 9 prior
to this amendment (at the previous 25%
rate). These assessments are to be paid by
January 31, 2012.
Pursuant to its terms, the Assessment Amendment became effective
1 January 2012.
On appeal, plaintiffs first contend the trial court erred
in upholding the Assessment Amendment because the Assessment
amendment was not properly signed by the required number of lot
owners.
The general provisions of the Declaration allow for
amendment during the first twenty (20) years “by an instrument
signed by not less than seventy-five percent (75%) of the Lot
Owners[.]” It is undisputed that at the time of the amendments,
there were 44 lots in Linville Subdivision. Therefore, approval
of an amendment required the signatures of the owners of 33
lots.
The Assessment Amendment, as recorded in the Wake County
Register of Deeds, appears to include signatures of approval by
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owners of 33 lots. Additionally, a certification signed by the
president and the secretary of the Association verifying the
Assessment Amendment was “duly executed by the written
signatures of seventy-five percent (75%) of the membership” was
recorded with the Assessment Amendment.
On appeal, plaintiffs acknowledge that if the signatures
for the 33 lots were properly executed, the procedural
requirements for amendment were met. Plaintiffs, however,
contend that the amendment was only properly signed by owners of
30 lots. Plaintiffs allege the signatures for Lot 5, Lot 22,
and Lot 37 were inadequate to approve the Assessment Amendment.
Upon review of plaintiffs’ argument, we find it is
unnecessary to assess the validity of each signature.
On a motion for summary judgment the moving
party has the burden of establishing that
there is no genuine issue as to any material
fact. Once the moving party has met its
burden, the opposing party may not rest on
the mere allegations or denials of his
pleading. Instead, the opposing party must
set forth specific facts showing that there
is a genuine issue for trial[.]
Gillis v. Whitley's Discount Auto Sales, Inc., 70 N.C. App. 270,
274, 319 S.E.2d 661, 664 (1984) (citations omitted).
In this case, the Association moved for summary judgment
and the Assessment Amendment, as recorded, appears to contain
the required signatures for approval. As plaintiffs admitted,
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it is their burden to bring forward specific facts showing the
Assessment Amendment was not properly approved. Plaintiffs have
not done so in this case. We hold plaintiffs’ allegations as to
the lack of the signees’ authority to sign on behalf of the
contested lots, without more, is insufficient to raise an issue
for trial.
Moreover, during oral arguments before this Court,
plaintiffs focused on the validity of the signatures for Lot 37
by arguing an acknowledgment signed by the trustees of the
trusts owning Lot 37 and recorded in the Wake County Register of
Deeds on 22 December 2011 is evidence that the amendment was not
properly signed. We are not convinced. The acknowledgement
provided that the trustees of the trusts owning Lot 37 “were in
agreement with the [Assessment] Amendment in all respects and
intended to sign off on the amendment indicating their intent to
be bound by the amendment and did, in fact, sign off on the
[Assessment] Amendment indicating their intent to be bound by
it[.]” In executing the acknowledgment, the trustees did not
concede the Assessment Amendment was not executed properly.
Moreover, the acknowledgement was signed and recorded prior to 1
January 2012, the effective date of the Assessment Amendment.
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Nevertheless, plaintiffs’ procedural argument is not
determinative in this case. Plaintiffs also argue the trial
court erred in entering partial summary judgment upholding the
Assessment Amendment because the amendment contravenes the
original intent of the Declaration. In support of their
argument, plaintiffs rely on Armstrong v. Ledges Homeowners
Ass’n., Inc., 360 N.C. 547, 633 S.E.2d 78 (2006).
In Armstrong, our Supreme Court explained the following:
The term amend means to improve, make right,
remedy, correct an error, or repair.
Amendment provisions are enforceable;
however, such provisions give rise to a
serious question about the permissible scope
of amendment, which results from a conflict
between the legitimate desire of a
homeowners' association to respond to new
and unanticipated circumstances and the need
to protect minority or dissenting homeowners
by preserving the original nature of their
bargain. In the same way that the powers of
a homeowners' association are limited to
those powers granted to it by the original
declaration, an amendment should not exceed
the purpose of the original declaration.
Id. at 558, 633 S.E.2d at 87 (citations omitted). Thus, the
Court held that “a provision authorizing a homeowners’
association to amend a declaration of covenants does not permit
amendments of unlimited scope; rather, every amendment must be
reasonable in light of the contracting parties’ original
intent.” Id. at 559, 633 S.E.2d at 87 (emphasis in original).
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“[A] court may ascertain reasonableness from the language
of the original declaration of covenants, deeds, and plats,
together with other objective circumstances surrounding the
parties’ bargain, including the nature and character of the
community.” Id. at 559, 633 S.E.2d at 88. Yet, “[i]n all such
cases, a court reviewing the disputed declaration amendment must
consider both the legitimate needs of the homeowners’
association and the legitimate expectations of lot owners.” Id.
at 560, 633 S.E.2d at 88.
Applying the above to the facts of Armstrong, the Court
held an amendment authorizing “broad assessments ‘for the
general purposes of promoting the safety, welfare, recreation,
health, common benefit, and enjoyment of the residents of [the
community] as may be more specifically authorized from time to
time by the Board’ [was] unreasonable[,]” and thus invalid and
unenforceable. Id. at 560-61, 633 S.E.2d at 88. In reaching
its conclusion, the Court noted the nature of the community and
the fact that there was nothing in the original declaration
revealing an intent to confer unlimited powers of assessment on
the homeowners’ association. Specifically, the community was a
“small residential neighborhood with public roads, no common
areas, and no amenities.” Id. at 560, 633 S.E.2d at 88.
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Furthermore, the “petitioners purchased their lots without
notice that they would be subjected to . . . additional
affirmative monetary obligations imposed by a homeowners’
association.” Id. at 561, 633 S.E.2d at 89.
The Association, however, citing Southeastern
Jurisdictional Admin. Council, Inc. v. Emerson, 363 N.C. 590,
598, 683 S.E.2d 366, 371 (2009) (holding an assessment amendment
was reasonable given the community, which was in existence for
nearly a century, was developed to foster a unique religious
character, purchasers purchased lots with knowledge of the
extensive amenities and with notice that the lots were subjected
to a wide variety of detailed restrictions, and it was clear the
original intent of the parties was to bind all purchasers to any
rules deemed necessary to preserve the unique religious
character and history of the community), argues the Assessment
Amendment is reasonable in light of Linville Subdivision’s
unique characteristics and certain unanticipated circumstances.
Specifically, the Association distinguishes Linville
Subdivision from the community in Armstrong on the grounds that
Linville Subdivision is a private community with private roads,
common areas, and amenities, all of which must be maintained and
paid for by the Association. Quoting the Declaration, the
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Association further argues the prevailing intent behind the
Declaration’s original assessment provisions was to provide an
assessment rate that was adequate to meet the needs of the
Association. The Association contends it was never intended,
nor anticipated, that builders would own unimproved lots and be
exempt from the full assessment rate for extended periods of
time. The developer expected that all lots would be built on by
2011. In fact, the Association points to a provision in builder
agreements executed by plaintiffs that requires builders to
build promptly to support its position that the Assessment
Amendment is proper to address unanticipated circumstances.
While we agree with the Association that Linville
Subdivision is easily distinguishable from the community in
Armstrong, we also find the Assessment Amendment easily
distinguishable from the amendment at issue in Armstrong.
Owners of lots in Linville Subdivision have been subjected to
assessments from the beginning. Unlike the amendments at issue
in Armstrong and Emerson, the Assessment Amendment does not
establish new assessments on the entire community, but instead
eliminates benefits afforded builders; benefits that likely
persuaded builders to purchase lots in the first place and were
essential to the original bargain.
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We find it evident from the Declaration’s original language
that the intent of the provision providing builders with reduced
assessments and deferrals in the payment of assessments was to
encourage builders to purchase lots from the developer earlier
than they might otherwise have purchased them; even before
builders were ready to build. Not only did the provisions
benefit builders, they also benefited the developer who was able
to sell the lots more expeditiously. In a complete reversal,
the Assessment Amendment eliminated the benefits that were
essential to the original bargain with builders like plaintiffs.
While the primary purpose of the assessment provisions in
the Declaration may be to provide sufficient funds for the
Association to maintain the community and amenities, the
Association originally approved the Declaration with the
benefits to builders included. Now that all lots in Linville
Subdivision are sold and the Association has the required number
of votes for amendment, the Association cannot now amend the
Declaration to the detriment of the builders who purchased lots
with the expectation that they would be afforded the benefits.
Moreover, with the exception of the easement for a separate
construction entrance, the costs that the Association claims it
cannot now afford because three out of the forty-four lots in
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Linville Subdivision do not pay the full assessment rate are
costs that should have been anticipated to begin with. Lastly,
we are not persuaded that the language in builder agreements
requiring builders to build promptly controls where the intent
of the Declaration’s original provisions are clear. Besides,
even if the builder agreements did control, this Court will not
determine what constitutes prompt as a matter of law.
Where the Assessment Amendment disregards the purpose of
the Declaration’s original provisions and completely eliminates
the benefits to builders, we hold the amendment unreasonable,
invalid, and unenforceable. Holding otherwise would permit
homeowners’ associations to amend similar provisions whenever
they acquire the requisite number of votes for approval,
regardless of the original intent. As our Supreme Court stated
in Armstrong, “[t]his Court will not permit the Association to
use the Declaration’s amendment provision as a vehicle for
imposing a new and different set of covenants, thereby
substituting a new obligation for the original bargain of the
covenanting parties.” Armstrong, 360 N.C. at 561, 633 S.E.2d at
89.
The trial court’s final judgment and order awarding the
Association attorneys’ fees were based on its grant of partial
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summary judgment upholding the Assessment Amendment. Having
determined the Assessment Amendment is unreasonable, invalid,
and unenforceable, we vacate the final judgment and the order on
attorneys’ fees. Thus, we do not address plaintiffs’ final
argument regarding the sufficiency of the trial court’s order on
attorneys’ fees.
III. Conclusion
For the reasons discussed above, we affirm the denial of
the Association’s motion to dismiss, reverse the grant of
partial summary judgment, and vacate the final judgment and the
award of attorneys’ fees in favor of the Association.
Affirmed in part, reversed in part, vacated in part.
Judges McGee and GEER concur.