Concerned Citizens of the Estates of Fairway Village v. Fairway Cap, LLC ( 2019 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
CONCERNED CITIZENS OF THE :
ESTATES OF FAIRWAY VILLAGE, :
JULIUS H. SOLOMON, PEGGY A. :
SOLOMON, EDWARD D. LEARY, :
LISA P. TORRINI LEARY, :
KENNETH P. SMITH, DENISE M. :
SMITH, TERRY L. THORNES AND :
CARMELA M. THORNES :
:
and :
:
36 BUILDERS, INC., d/b/a INSIGHT :
HOMES, :
:
Plaintiffs, :
:
v. : C.A. No. 2017-0924-JRS
:
FAIRWAY CAP, LLC and FAIRWAY :
VILLAGE CONSTRUCTION INC., :
:
Defendants. :
MEMORANDUM OPINION
Date Submitted: January 3, 2019
Date Decided: March 6, 2019
Richard E. Berl, Jr., Esquire of Hudson, Jones, Jaywork & Fisher, LLC, Lewes,
Delaware, Attorney for Plaintiffs Concerned Citizens of the Estates of Fairway
Village, Julius H. Solomon, Peggy A. Solomon, Edward D. Leary, Lisa P. Torrini
Leary, Kenneth P. Smith, Denise M. Smith, Terry L. Thornes and Carmella M.
Thornes.
Jeffrey M. Weiner, Esquire of Law Offices of Jeffrey M. Weiner, P.A., Wilmington,
Delaware and Timothy Jay Houseal, Esquire and William E. Gamgort, Esquire of
Young, Conaway, Stargatt & Taylor LLP, Wilmington, Delaware, Attorneys for
Defendants Fairway Cap, LLC and Fairway Village Construction Inc.
SLIGHTS, Vice Chancellor
Homeowners within a Residential Planned Community in Ocean View,
Delaware, known as Fairway Village, initiated this action to obtain permanent
injunctive relief against the current developer that would: (a) prevent the developer
from constructing townhouses in the community for use as rental apartments; and
(b) require the developer to build townhouses for sale that conform to townhouses
already constructed in the community. According to the homeowners, the
developer’s plan to create an apartment regime at Fairway Village threatens the
value of their properties and undermines the internal governance scheme for the
community as designed by the original developer. In response, the developer
maintains that the harm identified by the homeowners is illusory and, even if it
exists, there is no legal basis to prevent the developer from putting its property to the
property’s best use.
At first glance, the homeowners make a compelling case. They bought into a
Residential Planned Community believing the community would be comprised of
like-minded residential homeowners who were invested, both financially and
emotionally, in the community they were creating. The developer’s plan to place a
rental complex within this community will place transient residents with different
incentives alongside homeowners who presumably take pride in home ownership
and in sustaining a residential neighborhood. Their frustration at this prospect is
understandable.
1
But the developer has the better legal position. The documents governing the
development of this Residential Planned Community neither expressly nor implicitly
prohibit the developer from doing precisely what it plans to do. Nor will the planned
rental regime violate any State statute or local ordinance. While the homeowners
resist this reality with tortured readings of the governing community documents,
their principal argument is that the Court should either imply restrictive covenants
in these documents or invoke its equitable powers to prevent an injustice.1 The
implied covenant does not work here, however, both because it has not been pled
and because the community’s governing documents address the matter directly.
And, while equity “will not suffer a wrong without a remedy,” the homeowners
stretch this maxim beyond its limits by assuming that equity may be invoked to
prevent a party from lawfully exercising its contractual rights or a property owner
from putting its property to a lawful use, even when such conduct may be harmful
to others in the community. The homeowners were given an opportunity to prove a
wrong that might be redressed by equity during a one-day trial. As explained below,
they failed to do so. Consequently, judgment must be entered for the Defendants.
1
See Pls.’ Answering Post-Trial Br. 23.
2
I. FACTUAL BACKGROUND
I have drawn the facts from the parties’ pre-trial stipulation, evidence admitted
at trial and those matters of which the Court may take judicial notice. 2 The trial
record consists of 114 joint trial exhibits, 296 pages of trial testimony and 14 lodged
depositions. The following facts were proven by a preponderance of the competent
evidence.
A. Parties and Relevant Non-Parties
Plaintiff, Concerned Citizens of The Estates of Fairway Village (“Concerned
Citizens”), is an unincorporated association of individuals with varying ownership
interests in real property within Fairway Village, a Residential Planned Community
located in Ocean View, Sussex County, Delaware.3 In addition to Concerned
Citizens, several members of the association who own property in Fairway Village
have joined as named plaintiffs in this action. Julius H. Solomon and Peggy A.
Solomon own a single-family dwelling at 59 Golden Eagle Drive.4 Edward D. Leary
and Lisa P. Torrini Leary, who reside in Florida, own a single-family dwelling at
2
I cite to the Verified Complaint as “Compl. ¶”; the Joint Pre-Trial Stipulation and Order
as “PTO ¶”; the joint trial exhibits as “JX #”; and the trial transcript as “Tr. # (witness
name).”
3
Compl. ¶ 1.
4
Compl. ¶ 2.
3
3 Golden Eagle Drive, which they maintain as a second home.5 Kenneth P. Smith
and Denise M. Smith own a townhouse condominium (Unit 47) at 123 Oakmont
Drive.6 And Terry L. Thornes and Carmela M. Thornes own the townhouse
condominium (Unit 4) at 107 Oakmont Drive.7
Defendant, Fairway Cap, LLC, is a Delaware limited liability company
located at 105 Foulk Road, Wilmington, Delaware 19803.8 Fairway Cap owns
several lots in Fairway Village where it proposes to develop a townhouse rental
regime. Indeed, it has already caused several townhouses to be constructed and
rented.9 Defendant, Fairway Village Construction, Inc., a Delaware corporation
located at 105 Foulk Road, 2nd Floor, Wilmington, Delaware 19803, constructs
townhome condominiums in Fairway Village on lots owned by Fairway Cap.10
5
Compl. ¶ 3; Tr. 106, 135 (Torrini Leary).
6
Compl. ¶ 4.
7
Compl. ¶ 5.
8
Compl. ¶ 6.
9
Compl. ¶ 12, 16. The Court issued a preliminary injunction preventing Fairway Cap from
renting any further townhouses during the pendency of this litigation. D.I. 31.
10
Compl. ¶ 7. Fairway Cap and Fairway Construction collectively are referred to as
“Defendants.” Id.
4
B. The Development of Fairway Village
In 2006, Caldera Properties, the first developer of Fairway Village, recorded
a Record Plan for a Residential Planned Community for the Estates of Fairway
Village, a community comprising over 121 acres and upon which 166 single-family
home lots and 166 townhouse condominium units would be developed.11 The Town
of Ocean View, Delaware (the “Town” or “Ocean View”) approved the plan and it
was recorded at the Sussex County Office of the Recorder of Deeds in Plot
Book 110, Page 107.12
Dan McGreevy is Caldera’s principal. He acquired the property that would
become Fairway Village from the Skiba and Chandler families.13 After marshaling
Fairway Village’s plans through recordation, McGreevy assigned his contractual
rights to the Estates of Fairway Village, LLC (“Estates”) and its principals––Mario
Capano, Frank Capano and Tony DiEgilio––represented by attorney Samuel J.
Frabizzio, Esquire.14
11
Compl. ¶ 10.
12
PTO ¶ 1. See JX 2.
13
Tr. 181 (Frabizzio).
14
Tr. 182 (Frabizzio).
5
NVR, Inc., trading as Ryan Homes (“NVR” or “Ryan”), agreed to acquire
several lots and build homes and townhouses at Fairway Village.15 Estates asked
NVR to take the lead in drafting the governing documents for the community.
NVR agreed. Its attorney, Edward Tarlov, Esquire, prepared the documents with
input from Frabizzio.16
Fairway Cap first sought to be involved at Fairway Village as a developer of
certain designated lots.17 When Estates defaulted on its loan to TD Bank, however,
Fairway Cap acquired the delinquent loan and thereby acquired all remaining
building lots by deed in lieu of foreclosure without having to pay transfer tax.18
Fairway Cap thus bound itself as successor in interest to all of the community’s
governing documents of record.19
15
Tr. 6 (Tarlov). NVR’s counsel referred to the arrangement as a “building permit
agreement” which was necessary because NVR’s charter does not permit it to serve as a
property developer. Tr. 10 (Tarlov).
16
Tr. 7 (Tarlov); Tr. 187 (Frabizzio).
17
JX 58.
18
JX 6; 30 Del. C. § 5401(1)(p).
19
JX 39 at 13.
6
C. Troubled Sales
NVR built and sold six townhouse condominium units in Fairway Village
over two years.20 In 2010, however, after determining it could not sell additional
condominium units in Fairway Village at a profit, NVR decided to cut its losses, pay
contractual penalties and terminate its agreements with Estates.21
NVR was not alone in experiencing difficulty selling townhouse
condominiums in Fairway Village. In June 2015, 36 Builders, Inc., trading as Insight
Homes (“Insight”), bought twenty condominium sites in Fairway Village for
$1.45 million.22 Of its twenty townhouse condominium lots, Insight built and sold
twelve units before sales stalled.23 Frabizzio twice sent Notices of Default to Insight
because it did not meet the take down schedule for additional units as agreed upon
with Fairway Cap.24 Insight responded by assuring Fairway Cap that it was doing
its best to make sales; the market was just not there.25
20
Id.; PTO ¶ 14.
21
Tr. 183–84 (Frabizzio). NVR forfeited $700,000 in liquidated damages. Id.
22
JX 33 ¶ 7.
23
JX 61.
24
Tr. 201 (Frabizzio).
25
Tr. 252–53 (Frabizzio).
7
For its part, to stoke sales activity, Fairway Cap constructed a model and a
number of spec townhouse units.26 It also hired a sales team, including an on-site
Fairway Village representative,27 and advertised the townhouse units in multiple
outlets.28 Even so, it took almost two years before Fairway Cap sold its first four
units. Over the following year, sales continued at a remarkably slow pace.29
TD Bank was demanding repayment of its loan.30 Something had to give.
In the winter of 2016, with no sign of improving sales, Fairway Cap hired the
Real Property Research Group (“RPRG”) to conduct a “Preliminary Market
Assessment.”31 The study concluded the most economically sustainable option for
Fairway Cap’s townhouse condominium lots was to build townhouse condominiums
on the lots, maintain ownership and rent out the units to long-term residential
occupants.32 After considering its options, Fairway Cap determined that RPRG had
26
Tr. 250 (Capano).
27
Id.
28
Id.
29
JX 74.
30
JX 39, Ex. 7.
31
Id.
32
Id., Ex. 6 at 51.
8
presented the best course and decided to pursue the rental regime at Fairway
Village.33
In November 2017, M&T Bank loaned $18.2 million to Fairway Cap to fund
construction of the rental units. Fairway Cap’s mortgage characterized the project
as a commercial enterprise.34 The “term sheet” described the rental units as
“apartments.”35 And Section 1.5 of the Construction Loan Agreement refers to the
construction of thirty-four “apartment buildings.”36 A Management Agreement,
dated June of 2017, provided that Capano Management, a company that manages
commercial assets for Louis Capano, III and his father, Louis Capano, Jr., would
manage 127 rental units at Fairway Village.37
D. Concerned Citizens Object
Plaintiffs discovered Fairway Cap’s plan to build townhouses for rent after
seeing an online advertisement for apartments to be known as “The Reserve at
33
Tr. 253:2–254:14 (Capano); JX 39 at 17.
34
JX 26, Mortgage at 2 (“The Obligations secured by the Mortgage were obtained solely
for the purpose of carrying on or acquiring a business or commercial investment and not
for residential, consumer or household purposes.”).
35
JX 26, June 1, 2012 Term Sheet, at 2 (“To provide acquisition and construction financing
for the Fairway Village Apartment Project . . .”).
36
JX 26.
37
JX 39 at 7; JX 27.
9
Fairway Village.”38 Several homeowners appeared at a September 2017 Ocean
View Town Council meeting to voice their objections.39 The Town Council heard
the objections and took the matter under advisement. After performing some
research, the Town Council advised the homeowners that it could not provide relief
since the planned rentals appeared to comply with Fairway Cap’s recorded plans and
with the Town’s Code.40 In response to this notification, on September 18, 2017,
Plaintiff, Harold Solomon, wrote a letter to the Mayor of Ocean View in which he
restated the homeowners’ objection to Fairway Cap’s rental plans.41 On October 3,
2017, the Mayor responded by restating the Town’s position:
The fact that the developer has chosen to remain the owner of multiple
townhouses, rather than sell them, doesn’t change the law, the Code or
the rights of individual homeowners. It simply makes the developer an
owner of multiple housing units, subject to the same rules and
regulations as anyone else under the Town Codes . . .42
On October 4, 2017, Plaintiff, Lisa Leary, apprised the Town by email that
the “rental units being constructed are substantially smaller than the smallest
townhome units in [Fairway Village], which seems to indicate that there has been a
38
JX 19. The homeowners also discovered online ads soliciting applications for an on-site
rental manager. JX 20.
39
JX 11.
40
Id.
41
JX 103.
42
Id.
10
significant footprint change in the Subdivision Plans.”43 The Town’s Director of
Public Works replied, “[t]he changing of a model does not constitute a change in the
Site. . . . The developer is limited to the number of units that can be constructed. . . .
[T]he permits issued for the [townhouses] in Fairway Village all exceed the
minimum livable floor area of 1250 square feet required by Code.”44
On October 5, 2017, Ms. Leary emailed the Town to advise that “the building
footprint [for the to-be-rented townhouses had] overlapped the lot lines.”45 The
Director of Public Works responded, “[w]ith the exception of [townhouse] Units 160
through 166, which have been constructed on their own individual lot, the area where
the remaining 159 [townhouses] are being constructed is also one individual lot but
larger. There are no individual lot lines for the Townhouses.”46
On October 20, 2017, Ms. Leary emailed the Town again, this time to inquire
whether copies of Fairway Village townhouse leases were required to be filed with
43
JX 104.
44
Id.
45
JX 105.
46
Id.
11
the Town.47 On October 27, 2017, the Director of Public Works emailed back,
explaining that rental leases are not filed nor required to be filed with the Town.48
Ms. Leary’s final written correspondence with the Town occurred on
November 1, 2017, when she reiterated her concern that Fairway Cap’s construction
of the rental townhouses did not comply with the Town Code. The Town Manager
responded by letter dated November 6, 2017, in which he confirmed that the Town
did not see any violations of the Town Code in connection with Fairway Cap’s
construction activities, nor did the Town see any need for Fairway Cap to file a “re-
subdivision” plan with the Town.49
E. The Rental Scheme’s Impact on Existing and Potential Homeowners
Fairway Cap’s current plan is to retain ownership of more than 76% of the
condominium units to be built in Fairway Village. This high concentration of
ownership renders Fairway Village a “non-conforming” community for purposes of
securing mortgage financing that can be insured by the Federal National Mortgage
Association (“Fannie Mae”) or Federal Home Loan Mortgage Corporation
47
JX 108.
48
Id.
49
JX 109; JX 110.
12
(“Freddie Mac”).50 According to Plaintiffs’ mortgage financing expert, Joseph Della
Torre, the lack of access to Fannie Mae or Freddie Mac-backed mortgages makes
condominiums in Fairway Village “unwarrantable,”51 meaning prospective
purchasers or unit owners seeking to refinance will pay higher interest rates and
higher points with lenders who offer products not insured by Fannie Mae or
Freddie Mac.52
Leland Trice, Plaintiff’s real estate valuation expert, opined that property
values throughout Fairway Village (both for single-family homes and townhouse
condominiums) would suffer if Fairway Cap were permitted to introduce its
townhouse rental regime into the community.53 His rationale is simple.
A community comprised largely of transient residents is less attractive, and therefore
less valuable, than a community comprised of homeowners. For his part, Della Torre
opined that the higher mortgage payments (caused by the lack of access to Fannie
50
See JX 41 (explaining the prominent role that both Fannie Mae and Freddie Mac play in
providing residential mortgages).
51
JX 25.
52
Id. Leland Trice of Valucentric (Plaintiffs’ real estate expert), Beth Umstead (Fairway
Village’s property manager), and Anne Vogel Flaherty (Defendants’ mortgage consultant)
all agreed that access to Fannie Mae and Freddie Mac mortgages would be problematic for
Fairway Village condominium owners given the concentration of ownership in a single
owner (Fairway Cap). JX 21 at 5; JX 36 at 63–64; Tr. 282 (Flaherty).
53
JX 21 at 12.
13
Mae and Freddie Mac mortgages) would shrink the pool of potential buyers, also
lowering property values.54
Fairway Cap’s rental scheme will also affect Fairway Village’s governance
and management structure. Under Section 5.7 of the Constitution, the Developer is
exempt from assessments.55 Consequently, Fairway Cap will not be subject to
current or future assessments for the approximately 127 condominiums it plans to
build, own and rent. Section 5.9 of the Constitution, as amended, requires a $900
contribution from the initial purchaser of each living unit in Fairway Village.56
Fairway Cap’s rental units will not yield these up-front payments. Additionally,
Section 5.10 requires the community association to create certain reserve funds for
the repair and replacement of community areas and community property. 57 This
requirement has not been satisfied by the Fairway Cap-controlled association.58
All told, Fairway Cap’s retention of 127 units deprives the community association
54
JX 25.
55
JX 5.
56
Id.
57
Id.
58
Todd Moyer, Fairway Cap’s “Development Coordinator,” and Capano testified, contrary
to the governing documents, that Fairway Cap has the right to utilize those funds to make
up for cash shortfalls in operations, even when it is the party responsible for those
shortfalls. See JX 38 (Moyer Dep.) at 15; JX 39 (Capano Dep.) at 58. It appears that
Fairway Cap failed properly to fund the required replacement escrows for the Homeowners
Association. JX 36 at 38.
14
of approximately $114,000 in operating revenues that would be generated if these
units were sold to the public.
Although it incorporated in 2008, the Condominium Association did not hold
its first annual meeting until the fall of 2017.59 And contrary to the requirements of
the enabling documents, two owner representatives have never been elected to the
Condominium Council.60 Moreover, according to Section 4.3 of the Community
Constitution,61 as long as Fairway Cap owns units in Fairway Village, its “Class B”
membership gives it the right to additional votes until 2023.62 With this provision
59
JX 36 at 30; JX 38 at 30.
60
JX 38 at 30.
61
The Community Constitution sets the framework upon which all of Fairway Village,
both single-family lots and condominium units, will be governed. PTO ¶ 4. Specifically,
the Community Constitution calls for the creation of the “Estates of Fairway Village
Community Association, Inc.” (the “Community Association”), a Delaware non-stock
corporation comprised of all owners in Fairway Village. Id. ¶ 5. The 166-unit
condominium was formally established by the Declaration. Id. ¶ 6. A separate Code of
Regulations was recorded, as well as a Declaration Plan, in compliance with the Delaware
Unit Property Act. Id. ¶ 7. Though a separate legal entity by the Declaration, the
condominium also operates under the umbrella Community Association created by the
Constitution, which the Declaration referred to as the “Master Association.” Id. ¶ 8.
62
JX 5 § 4.3. The provision states:
The Class B Members shall be the Community Founder, its nominee or
nominees, and shall include every person, group of persons, corporation,
partnership, trust or other legal entity, or any combination thereof, who shall
obtain any Class B membership by specific assignment in writing from the
Community Founder. The Class B Members shall be entitled to one (1) vote
for each Class B membership. Class B shall be increased by three
(3) memberships for each Living Unit in excess of six hundred (600) Living
Units which is annexed within the jurisdiction of the Association in
15
in hand, Fairway Cap controls approximately 1,100 votes (compared to about 200
homeowner votes).63 Plaintiffs maintain Fairway Cap has thus “entrenched itself at
Fairway Village” by establishing “control over the condominium, and any conflict
between its own business plan and the best interests of the condominium will be
decided by Fairway Cap.”64
accordance with Article 2 of this Community Constitution. Class B shall be
decreased by three (3) memberships for each Living Unit conveyed to a
Class A Member, excluding any Living Unit conveyed to a Participating
Builder; the Community Founder shall retain the Class B Membership and
voting rights of any portion of the Property owned by Participating Builders.
Each Class B membership shall lapse and become a nullity on the first to
happen of the following events: (i) Thirty (30) Days following the date on
which the total authorized, issued and outstanding votes of the Class A
Members equals two hundred forty nine (249); or (ii) The later of (1) fifteen
(15) years after the recordation of this Community Constitution or (2) five
(5) years after the last filing of a Declaration of Annexation; provided,
however, that if the Community Founder is delayed in the improvement and
development of the Property on account of a server, water or building permit
moratorium or any other cause or event beyond the Community Founder’s
control, then the aforesaid period shall be extended by a period of time equal
to the length of the delays or an additional five (5) years, whichever is less;
or (iii) Upon the surrender of the Class B memberships by the then holders
thereof for cancellation on the books of the Association. Upon the lapse or
surrender of any of the Class B memberships as provided in this Article, the
Community Founder shall thereafter remain a Class A Member of the
Association as to each and every Living Unit from time to time subject to the
terms and provisions of this Community Constitution in which the
Community Founder then holds the interest otherwise requited for Class A
membership.
63
Id.
64
Pls.’ Opening Post-Trial Br. 10.
16
F. Relevant Provisions of the Community’s Governing Documents
The definition section within the Fairway Village Declaration Establishing a
Plan for Condominium Ownership (the “Declaration”) applies both to the
Declaration itself and to the “Code of Regulations recorded immediately hereafter
and all amendments to said documents.”65 The Declaration defines “Unit Owner”
as “any natural person, corporation, partnership, association, trust or other legal
entity . . . which owns title to a Unit.”66 “Buildings” are defined as the “buildings
used or intended to be used for residential purposes (including leasing of Units for
residential purposes) or for any other lawful purpose more specifically set forth in
the Declaration . . . and shall expressly include the Initial Buildings and, when and
if constructed and submitted to the Act, any Expansion Building(s).”67
The Declaration further states that each Unit and the Common Elements “shall
be occupied and used as follows”:
No part of the Property shall be used for other than residential housing
and the related common purposes for which the Property was
designated. Each Unit shall be used only for residential purposes and
shall be occupied only by as many persons as do not burden the Unit or
Common Elements; provided, however, that Developer shall be entitled
to use a Unit or Units as ‘models’ or ‘samples’ for the purpose of selling
or renting Units in the Condominium;
65
JX 3 § 2.
66
JX 3 § 2(gg).
67
JX 5 at 1.
17
Except for residential use permitted by paragraph (a) of this Section, no
industry, business, trade, occupation or otherwise designed for profit,
altruism, exploration or otherwise shall be conducted, maintained or
permitted on any part of the Property, nor shall be conducted,
maintained or permitted on any part of the Property. Except for the
Developer, its successors and assigns, and the agents thereof, no ‘For
Sale’ or ‘For Rent’ signs or other window displays or advertising shall
be maintained or permitted on any part of the Property or in any Unit
therein without the prior written consent of the Council. The right is
reserved by the Developer or its agents to place ‘For Sale’ or ‘For Rent’
signs on any unsold or unoccupied Units or at suitable places in the
Common Elements.68
The Community Constitution provides that “[a]ny owner who leases his/her
Living Unit shall be deemed to have assigned his/her right to utilize the Community
Property to the lessee of the Living Unit.”69 Anticipating that individuals other than
owners may reside in the condominium units, the Community Constitution also
provides:
Every provision of the Governing Documents, including the
Community Codes, shall apply to all Owners, tenants, occupants,
guests and invitees of any Living Unit. All owners who lease their
Living Units shall include a notice provision in the lease informing the
tenant and all occupants that the Living Unit and Community Property
are subject to the Governing Documents, including the Community
Codes. However, the failure to include such provision in the Lease
shall not relieve any person of responsibility for complying with the
Governing Documents.70
68
JX 3 § 9(a), (f).
69
JX 5 § 3.1.
70
Id. at § 10.1.
18
The Community Constitution makes clear that “no Community Code shall prohibit
outright the leasing or transfer of any Living Unit, or require consent of the
Association for transfer of any Living Unit.”71
The Code of Regulations for Estates of Fairway Village Condominiums
(the “Code”) states, in relevant part:
The Developer or the Association may from time to time adopt rules
and regulations pertaining to the rental of Units. Owners of rented
Units shall be personally liable for the failure of a tenant or any invitee
of a tenant to abide by rules and regulations pertaining to the use or
occupancy of the Development. The Owners of any units shall obtain
the approval of the Developer or the Association for any lease forms
for the leasing of units within [Estates of Fairway Village
Condominium].72
In a section devoted entirely to “Sales, Leases, and Alienation of Units,”
the Code states:
No Owner shall execute any deed, lease, mortgage or other instrument
conveying or mortgaging the title to his Unit without including therein
the undivided interest of such Unit in the Common Elements, it being
the intention hereof to prevent any severance of such combined
Ownership and Interest. Any such lease, mortgage, or other instrument
purporting to affect one or more of such interests, without including all
such interests, shall be deemed and taken to include the interest or
interest so omitted, even though the latter shall not be expressly
mentioned or described therein. No part of the interests in the Common
Elements of any Unit may be sold, leased, transferred, given, devised,
or otherwise disposed of, except as part of a sale, lease, transfer, gift,
devise, or other disposition of the Unit to which such interest are
71
Id. at § 10.4.
72
JX 7 § 5.16.
19
appurtenant, or as part of a sale, lease, transfer, gift, devise or other
disposition of such part of the interest in the Common Elements of all
Units.73
The only express restriction on an owner’s right to rent his condominium unit
appears in Section 9.2 of the Code, which states, “no Owner shall be permitted to
convey, mortgage, hypothecate, sell, lease, give or devise his Unit unless and until
he . . . shall have paid in full to the Council all unpaid Common Expenses . . . against
his Unit and payable prior to the date of conveyance, except permitted
mortgagees.”74 The Code also emphasizes that no amendment to the Code may
“interfere with or affect . . . the lease, sale, other disposition or use of any Unit(s)
owned by Developer.”75
The Code contemplates that copies of lease agreements will be supplied to the
Condominium Council:
“[e]very Unit Owner, within ten (10) days of entering into a lease or
any other agreement for the occupancy or use of his Unit (including,
but not limited to, any rental agreement that may be excluded under the
Delaware Landlord Tenant Code under 25 Del. C. § 5102), shall supply
a copy of any such lease or other agreement to the Council together the
payment of a reasonable administrative fee to process such registration
of each lease or other agreement as may be determined by the Council.
Any such rental agreement shall also expressly provide that such rental
agreement is subject to the provisions of the Act, the Declaration, this
Code of Regulations and the Rules and Regulations and that any failure
73
JX 7 § 9.1 (emphasis supplied).
74
JX 7 § 9.2.
75
JX 7 § 13.2.
20
of the lessee to comply with such provisions shall constitute a default
under the rental agreement.76
Finally, the terms and conditions of Fairway Cap’s form Agreement of Sale
and Purchase for Fairway Village townhome condominiums clearly alerts buyers
that Fairway Cap reserves the right to rent unsold units: “Buyer further understands
and agrees that Seller shall own, may vote in connection with, may further improve,
and may rent any unsold unit, and in connection therewith shall have no lesser rights,
privileges and powers than any other unit owner.”77
G. Procedural History
Plaintiffs filed their three-count Verified Complaint on December 28, 2017.78
Count I alleges breach of contract79; Count II alleges breach of fiduciary duties; and
Count III alleges fraud.80 On January 25, 2018, Plaintiffs sought an order enjoining
Defendants from constructing units with dimensions that deviate either from
recorded plans or from units already constructed, particularly regarding square
footage. The proposed order included a mandatory component that would compel
76
JX 7 § 9.3.
77
JX 102 § 22. See also Tr. at 145 (Torrini Leary).
78
Compl.
79
It is important to note here that Plaintiffs did not plead a claim for breach of the implied
covenant of good faith and fair dealing in their complaint, nor did they identify the implied
covenant as an issue to be tried in the Pre-Trial Stipulation and Order.
80
Compl. ¶¶ 51–78.
21
Defendants to rebuild or reconfigure noncompliant units.81 Plaintiffs also sought an
order enjoining Defendants from maintaining a residential apartment complex in
Fairway Village, requiring Defendants to place all constructed townhouse
condominium units up for sale to the public and requiring the immediate transfer of
control of the governance at Fairway Village to the owners of existing homes and
condominiums.82
The Court granted Plaintiffs’ Motion for Preliminary Injunction in part on
March 20, 2018, by enjoining Defendants from renting townhouse condominium
units at Fairway Village pending trial. Thereafter, on April 19, 2018, the Court
granted Defendants’ motion to dismiss Plaintiffs’ breach of fiduciary duty and fraud
claims, leaving only the breach of contract claim for trial.83 On May 23, 2018, the
Court granted an order consolidating this case with 36 Builders, Inc., d/b/a Insight
Homes v. Fairway Cap, LLC and Fairway Village Construction, Inc.84
81
Compl. B–D.
82
Compl. A, E.
83
The fraud claim was dismissed as duplicative of the breach of contract claim and for
failure to comply with Court of Chancery Rule 9(b). The breach of fiduciary duty claim
was dismissed without prejudice to allow Plaintiffs to move to amend their complaint at
the close of discovery to state a claim for breach of a duty of disclosure should additional
facts support such a claim. D.I. 67, Tr. of the Apr. 19, 2018, Oral Arg. and Rulings of the
Ct. on Defs.’ Mots. to Dismiss. While the Pretrial Order previews that Plaintiffs would
seek to re-plead their breach of fiduciary duty claim, they never sought leave to do so. The
pretrial briefs, trial and post-trial briefs focused only on the breach of contract claim.
84
D.I. 66.
22
The 36 Builders complaint was then dismissed by Stipulation of Dismissal on
August 15, 2018.
Near the eve of trial, Plaintiffs moved for summary judgment and moved to
exclude the expert report and related testimony of Leland Trice. Plaintiffs also
moved to exclude the opinion evidence of Defendants’ expert, Michael Morton,
Esquire. Given the compressed time before trial, the Court deferred ruling on these
motions until its post-trial decision. The one-day trial occurred on August 28, 2018.
On October 10, 2018, Defendants made a post-trial motion to exclude supplemental
and undisclosed expert opinion testimony from Joseph Della Torre. The parties
presented post-trial oral argument on January 3, 2019. This is the Court’s post-trial
decision.
II. ANALYSIS
As noted, the only claim tried to the Court was Plaintiffs’ breach of contract
claim. To succeed on that claim, Plaintiffs were obliged to prove: (1) the existence
of a contract; (2) the breach of an obligation imposed by the contract; and (3) harm
suffered as a result of the breach.85 The parties agree that the community’s
governing documents constitute contracts between the developer and the
homeowners. When considering a breach of contract claim in the real property
85
See Bakerman v. Sidney Frank Importing Co., 2006 WL 3927242, at *19 (Del. Ch.
Oct. 10, 2006).
23
context, the Court must remain mindful that the law will facilitate the free use of
land when not otherwise validly restricted.86 Thus, Plaintiffs bore the burden at trial
to identify where Fairway Cap was restricted in the use of its property, by positive
law, contract or otherwise, and how those restrictions had been breached.87
A. Plaintiffs Cannot Prevail on Their Breach of Contract Claim by Proving
Defendants Breached the Contract Plaintiffs Thought They had Made
Plaintiffs urge the Court to begin its analysis of their breach of contract claim
by stepping back and viewing the governing documents for this Residential Planned
Community in a macro sense through their eyes. In this regard, Plaintiffs maintain
that this orientation is justified, if not mandated, by our Supreme Court’s decision in
Chicago Bridge, where the Court emphasized the importance of “giving sensible life
to a real-world contract [by] read[ing] the specific provisions of the contract in light
of the entire contract.”88
86
Gammons v. Kennett Park Dev., 61 A.2d 391, 397 (Del. Ch. Sept. 2, 1948).
87
Id. (“[T]he settled policy of the law . . . favors . . . plac[ing] the burden of establishing
the existence and the right to the benefit of a restriction upon him who asserts it.”); Alliegro
v. Home Owners of Edgewood Hills, Inc., 122 A.2d 910, 912 (Del. Ch. May 23,
1956) (“It is well established that restrictions in deeds will be construed strictly against a
person who seeks to place such impediments in the way of the normal purchase and sale
of land.”); Regency Gp., Inc. v. New Castle Cty., 1987 WL 1461610, at *2 (Del. Ch. Dec. 3,
1987) (holding that restrictions on “the free use of property must be strictly construed.”).
88
Pls.’ Opening Post-Trial Br. 38 (citing Chi. Bridge & Iron Co. N.V. v. Westinghouse
Elec. Co., 166 A.3d 912, 913–14 (Del. 2017)).
24
Plaintiffs have seized upon what they like in Chicago Bridge but have ignored
its core holding. Chicago Bridge provides an important reminder that our trial
judges must be practical when engaging in contract construction; we cannot lose the
forest for the trees. But Delaware has long adhered, and continues to adhere, to the
objective theory of contracts.89 In doing so, our courts interpret contracts by
“standing in the shoes of an objectively reasonable third-party observer” who is
bound to give ordinary meaning to the words used by parties and to enforce the
agreements as written when that meaning can be readily discerned.90 Thus, “[w]hile
[our courts] have recognized that contracts should be ‘read in full and situated in the
commercial context between the parties,’ the background facts cannot be used to
alter the language chosen by the parties within the four corners of their agreement.”91
Plaintiffs maintain they never would have bought homes in Fairway Village
had they known the developer would change course from a Residential Planned
Community to a community comprised of a mix of homeowners and home renters.
They contend nothing in the governing documents gave them any indication Fairway
Cap might pursue the townhouse rental plan it now seeks to implement. And they
89
Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232–33 (Del. 1987).
90
Dittrick v. Chalfant, 2007 WL 3208783, at *4 (Del. Ch. Apr. 4, 2007).
91
Town of Cheswold v. Cent. Del. Bus. Park, 188 A.3d 810, 820 (Del. 2018) (citing Chi.
Bridge & Iron Co. N.V., 166 A.3d at 926–27).
25
appeal to the Court’s sense of equity to right the wrong that has been done them. 92
But equity is not so free-flowing that a court may yield it to correct every perceived
unfairness. There must be a predicate wrong, and corresponding right of action,
before equity will search for a remedy.93 Thus, Plaintiffs’ vague sense that
Defendants plan to treat them unfairly will not suffice to justify the relief they seek.
They must prove an actionable wrong. Here, they claim a breach of contract as the
predicate wrong. For reasons explained below, however, they have not proven that
any contract prohibits the conduct of which they complain. There is, therefore, no
predicate wrong for equity to remedy.
B. The Governing Documents Permit Defendants’ Rental Plan
The governing documents make clear that a builder or developer in Fairway
Village can own units to sell to the public or to rent for residential purposes. Indeed,
the express references to, or implicit recognition of, an owner’s right to rent its
92
Pls.’ Post-Trial Opening Br. 44; Pls.’ Post-Trial Answering Br. 23. This argument came
into even sharper focus during Plaintiffs’ post-trial oral argument. See, e.g., Post-Trial Oral
Arg. Tr. 9–15, 19–20, 69–71 (unofficial transcript).
93
DONALD J. WOLFE, JR. & MICHAEL A. PITTENGER, CORPORATE AND COMMERCIAL
PRACTICE IN THE DELAWARE COURT OF CHANCERY, at vii (1998) (listing the maxims of
equity). See Fischer v. Fischer, 1999 WL 1032768, at *4 (Del. Ch. Nov. 4, 1999)
(“Equity’s appropriate focus should be the alleged wrong, not the nature of the claim which
is no more than a vehicle for reaching the remedy for the wrong.”); Stewart v. Wilm. Tr.
SP Servs., Inc., 112 A.3d 271, 304 (Del. Ch.), aff’d, 126 A.3d 1115 (Del. 2015) (internal
citations omitted) (“That consideration is paramount in a court of equity, such as this Court,
which ‘will suffer no wrong without a remedy.’”).
26
condominium unit for residential purposes throughout the governing documents are
too numerous to recite.94
In addition to these more overt references, the documents contain provisions
that reflect an understanding among developer and owners that all owners may
regularly rent their townhouse units to residential tenants. For instance, in the
Declaration, the definition of “Unit Owner” expands beyond individual owners “to
include corporation[s], partnership[s], association[s], trust[s].”95 This reflects an
appreciation that owners who wish regularly to rent their units, including but not
limited to the developer, may wish to do so through an entity rather than individually
in order to limit their liability.96
94
The references to leasing for residential purposes include, but are not limited to: JX 5
at 1 (“leasing of Units for residential purposes”); JX 3 § 9(a) (“Each Unit shall be used
only for residential purposes . . . ; provided, however, that Developer shall be entitled to
use a Unit or Units as ‘models’ or ‘samples’ for the purpose of selling or renting Units”);
JX 7 § 5.16 (“The Developer or the Association may . . . adopt rules and regulations
pertaining to the rental of Units. Owners of rented Units shall be personally liable for the
failure of a tenant or any invitee of a tenant to abide by rules and regulations. . . .
The Owners of any units shall obtain the approval of the Developer or the Association for
any lease forms for the leasing of units”); JX 7 § 13.2 (“Every Unit Owner, within ten (10)
days of entering into a lease or any other agreement for the occupancy or use of his Unit
(including, but not limited to, any rental agreement that may be excluded under the
Delaware Landlord Tenant Code under 25 Del. C. § 5102), shall supply a copy of any such
lease”); JX 7 § 13.2 (“[N]o amendment to this Code of Regulations shall be adopted
which . . . may materially or adversely interfere with or affect (i) the lease, sale, other
disposition or use of any Unit(s) owned by Developer”).
95
JX 3 § 2(gg).
96
See Tr. at 189 (Frabizzio) (“‘Unit Owner’ could mean the developer at some point in
time if NVR walks. So the ‘Unit Owner’ is in fact the developer.”); id. at 189–90
(Frabizzio) (“9(f) is there because it specifically provides that in the event that the
27
The Declaration’s restrictive covenants are also instructive here. While
Article 9(f) of the Declaration prohibits the owners from conducting certain
commercial activities within the townhouse condominium units, it makes clear that
this prohibition does not extend to residential uses.97 Delaware courts have
interpreted similar restrictive covenants, that expressly prohibit the conduct of
“industry, business, trade, or occupation” within a residence, as not restricting the
developer is going to be taking a project forward and building, that the developer can do it
for sale or rent. And in this particular provision of subsection (f), it provides that the right
of the developer is reserved from the very beginning of the recordation of these documents;
that if that event occurs, that the developer can put out in place ‘For Sale’ or ‘For Rent’
signs ‘. . . on any unsold or unoccupied units or at suitable places in the Common
Elements. . . .’”); id. at 192–93 (Frabizzio) (“It appears in this paragraph 9(a) because I had
some discussions with Tarlov’s––either Ed Tarlov and/or his assistant at the time, Debbie
Galonsky, and as the different versions of the documents transferred back and forth
between Tarlov’s office and my office, I wanted to make sure that type of protection was
in there. And I made sure it went in there for the very purpose of what it says, that the
developer can rent units.”).
97
JX 3 § 9(f) (The “[e]xcept for residential use permitted by paragraph 9(a)” clause limits
the non-residential prohibition to industry, business, trade or occupation.). See Tr. at 189
(Frabizzio) (“[T]he developer can put out in place ‘For Sale’ or ‘For Rent’ signs ‘. . . on
any unsold or unoccupied units or at suitable places in the Common Elements . . .’”). I note
that after giving Plaintiffs all pleading stage inferences, I found this provision could be
ambiguous when denying Defendants’ Motion to Dismiss. But the extrinsic evidence and
other provisions of the governing documents make clear that the prohibition does not
extend to residential rentals. The fact that the developer is permitted by Article 9(a) of the
Declaration to construct “Models” or “Samples” for the purpose of facilitating both sales
and rentals provides further evidence that all parties knew or should have known that the
developer could retain ownership of townhouse condominium units for the purpose of
renting them. See Tr. at 192–93 (Frabizzio).
28
owner from renting the residence for residential purposes.98 Stated differently, a
prohibition against trade or business activities restricts only non-residential uses.99
According to Plaintiffs, Defendants’ commitment to build and sell townhouse
condominium units on every lot it owns in Fairway Village is reflected in the recitals
of the Declaration. Specifically, Plaintiffs point to the following recital as a clear
statement of this supposedly firm commitment: “grantor [Estates and its successors]
will offer Condominium Units for sale to the public.”100
98
In Monigle v. Darlington, the plaintiffs sought to prevent the defendant from operating
a beauty shop in her home. 81 A.2d 129, 130 (Del. Ch. May 25, 1951). Paragraph 1 of the
community’s restrictive covenants provided “the land shall be used for residence purposes
only and no building of any kind whatsoever shall be erected or maintained thereon except
private single dwelling houses and garages.” Paragraph 6 listed certain types of businesses
that were not permitted on the property. The plaintiffs argued that paragraph 1 required
the land to be used for residence purpose only, and thus, no businesses should be allowed.
The court rejected the plaintiffs’ arguments because “[i]f plaintiffs are correct, . . . the result
would be to make [paragraph] 6 largely useless [and] unnecessary. This result, however,
must be avoided, if possible, since all the words in a deed are to be given effect if that is
reasonably possible.” Id. at 131. The court ultimately held paragraph 1 was a restriction
on the type of structure that could be erected, whereas paragraph 6 was a restriction on the
use of the premises. Because the defendant’s home satisfied the requirements of
paragraph 1, and the beauty shop was not prohibited by paragraph 6, the court held that
operating the beauty shop did not violate the restrictive covenants. Id. at 131–32. See also
Daniels Gardens v. Hilyard, 49 A.2d 721 at 722 (Del. Ch. Nov. 20, 1946) (holding a
covenant prohibiting any buildings except single family dwellings was a limitation on the
type of building permitted and did not restrict the uses to which the property might be
utilized).
99
See Mark S. Dennison, J.D., Construction and Application of “Residential Purposes
Only” or Similar Covenant Restriction to Incidental Use of Dwelling for Business,
Professional, or Other Purposes, 1 A.L.R. 6th 135 § 8 (2005).
100
JX 3, Schedule D. Plaintiffs also note that Tarlov, as drafter of the governing
documents, did not anticipate that the developer would retain homes or townhouse
condominiums as rental units. See Tr. 11 (Tarlov). I have no reason to doubt that
29
Plaintiffs’ argument misses the mark for two reasons. First, the recital
Plaintiffs rely upon is not incorporated, either expressly or implicitly, in the
Declaration or in any of the other governing documents. Instead, it dangles in a
peripheral document as a non-binding statement of intent to place the purpose of the
easement in context.101 Second, the recital, at best, reflects the then-present intention
of the developer to build and sell townhouses. It does not reflect a promise to refrain
from all other permitted uses in perpetuity. The evidence reveals Fairway Cap, like
its predecessor, went into Fairway Village with the intent to sell every townhouse it
constructed. It tried very hard to do just that. It was only when those efforts failed,
and an expert consultant recommended that Fairway Cap pursue a rental plan for the
townhouses as an alternative strategy to extract value from the units, that Fairway
Cap decided to pursue that strategy. Nothing in the recital even remotely suggests
this course is prohibited.
After reviewing the governing documents and considering the evidence and
arguments of counsel, I am satisfied Plaintiffs have failed to identify a contractual
commitment made by Defendants to refrain from building and then renting to
residential tenants townhouse condominium units on lots owned by Fairway Cap.
testimony. Nevertheless, the fact that Tarlov did not anticipate the developer’s rental plans
does not alter the fact that nothing in the governing documents prohibits those plans.
101
Gray v. Masten, 1983 WL 142520, at *2 (Del. Ch. Aug. 16, 1983) (finding a recital is
not a binding covenant).
30
Because this use of property is not prohibited by contract or otherwise, Plaintiffs’
claim for breach of contract must fail.
Plaintiffs’ claim that Defendants should be compelled to build townhouse
units for rent that conform to units they built for sale likewise finds no support in the
governing documents. Plaintiffs seem to be operating under the impression that
Fairway Village is a heavily deed-restricted community. Not so. As the governing
documents make clear, the developer and builders simply need to meet minimum
square footage requirements.102 Both parties agree that Defendants have complied,
and plan to comply, with this mandate.103
C. Defendants’ Plan Will Not Result in an Impermissible Alteration of the
Community’s Governance Scheme
Plaintiffs argue that even if there is no express prohibition against a single
owner retaining several townhouse units for the purpose of renting those units,
102
The minimum livable square footage required (in R-2 or R-3 Zones) for a townhouse
and/or single-family dwelling in Ocean View, Delaware is 1,250. JX 59. Neither the
Community Constitution nor the Declaration for the Fairway Village Condominiums
contains any minimum livable square footage for single-family dwellings and/or
townhouses. JX 3, 5.
103
The single-family dwellings in Fairway Village include a (a) house with 1,472 livable
square feet at 31 Fairway Drive constructed in 2012; and (b) house with 1,521 livable
square feet at 65 Golden Eagle Drive constructed in 2011 (the latter being 3 houses from
the home subsequently purchased in 2014 by the Solomon Plaintiffs). Tr. at 171
(Solomon). Insight’s “George Villa”, a townhouse condominium, begins at 1,514 square
feet. JX 76. Fairway Cap is constructing townhouse condominiums of 1,552 livable square
feet as confirmed by the Town of Ocean View. JX 112, Ex. A.
31
Fairway Cap’s rental plan cannot stand because it will effect a fundamental alteration
of the community and its governance scheme. Plaintiffs further argue the rental
scheme will leave Defendants in control of the Condominium Council, even though
it was contemplated that control would be turned over to the homeowners.
For example, Plaintiffs point to Section 13.2 of the Condominium’s Code of
Regulation, which provides that as long as the Developer owns a single unit, the
Code of Regulations cannot be amended without Developer consent. According to
Plaintiffs, since the veto power can be exercised at the Developer’s “sole subjective
and absolute option,” the Defendants’ plan to remain as owners of so many
condominium units affords them perpetual authority to overcome the will of the
other owners.104
104
Pls.’ Answering Post-Trial Br. 20–23 (“The Condominium and Community
Associations will never have real control over Fairway Village. An attempted increase in
condo fees for improvements can be vetoed by Fairway Cap simply by claiming that it
adversely affects its units. Realistically, with Fairway Cap owning 76% of the
condominium, it is [un]likely that anything it does not approve will ever see the light of
day”). In arguing that Fairway Cap’s retention of ownership improperly alters the
community’s governance scheme, Plaintiffs also point to Section 4.3 of the Community
Constitution where the Developer’s Class B voting rights are described, Section 5.7 of the
Community Constitution where the Developer is exempted from paying assessments and
Sections 5.9 and 5.10 of the Community Constitution which set forth certain financial
obligations either not required of or satisfied by the Developer.
32
In this regard, Plaintiffs contend that this court’s decision in Council of Unit
Owners of Pilot Point Condominium is directly on point.105 In Pilot Point, the
developer of a condominium community planned to add substantially more units to
the condominium than was disclosed to prospective purchasers, and planned to alter
the community documents without an owner vote, using rights purportedly granted
to the developer by the other owners via a power of attorney.106 The court began its
analysis by observing that the power of attorney did not give the condominium
developer power to amend recorded documents to include additional units because
the documents required the express approval of the owners themselves to accomplish
the expansion.107 The court then concluded that public policy demands that if a
condominium developer intends to reserve the right unilaterally to make changes to
the condominium project, then the developer must state as much, clearly and
unambiguously, in the recorded documents governing the creation, development and
operation of the condominium.108
105
Pls.’ Opening Post-Trial Br. 33–41 (citing Council of Unit Owners of Pilot Point Condo.
v. Realty Growth Inv’rs, 436 A.2d 1268 (Del. Ch. Sept. 22, 1981), aff’d, in part 453 A.2d
450 (Del. 1982).
106
Council of Unit Owners of Pilot Point Condo. v. Realty Growth Inv’rs, 436 A.2d at
1272.
107
Id. at 1277.
108
Id.33
Here, Plaintiffs do not argue the prescribed voting rights for the condominium
are ambiguous or otherwise unenforceable. Nor do they argue that Fairway Cap’s
voting control is expressly prohibited by any of the governing documents. Instead,
invoking Pilot Point, they appeal to the Court’s sense of equity and argue it is unfair
for Fairway Cap to retain ownership of so many units that it effectively can strip
control of the Condominium Council from the other homeowners. 109 Of course,
Plaintiffs point to no language in the governing documents or any other basis in law
to support their contention that Defendants were restricted from owning multiple
condominium units and voting the percentage interests assigned to such units on a
pro rata basis. Since I also find no support for the argument, I reject it as a matter of
law.
The condominium units that Defendants will own and rent in Fairway Village
are and will remain subject to all of the obligations imposed by the governing
documents, including the obligation to pay the pro rata share of all assessments and
fees in the community.110 In addition, Defendants, along with every other owner,
possess the right to vote a percentage interest based upon the pro rata interest
109
Pls.’ Opening Post-Trial Br. 32–33.
110
JX 37; JX 38 Ex. 10 ¶ 5.
34
assigned to each unit in the condominium Declaration.111 As Plaintiffs’ expert,
Michael Morton, Esquire, explained,112 and as seen in the governing documents for
the Florida condominium owned by Plaintiffs Ed and Lisa Leary, the Fairway
Village governing documents could have prohibited a single owner from owning
more than a designated number of units, limited the number of units that an owner
can rent, or limited the time in a given year that a unit may be offered for rent.113
They also could have limited the number of votes any given owner could cast, and
thereby limit the influence any one owner could wield over the homeowners or
condominium associations.114 None of these restrictions appear in the Fairway
Village governing documents. And Plaintiffs have offered no basis in fact, or in law,
111
JX 7 § 2.9. I note Defendants will hold a 38% minority of the votes in the community-
wide association once they own 127 condominium units, since the Developer’s special
class of voting rights expires in 2023. JX 5 § 4.3.
112
While Morton cannot opine on matters of Delaware law, he is permitted to testify on
custom and trade. D.R.E. 702. See In re Walt Disney Co. Deriv. Litig., 907 A.2d 693,
740–741 (Del. Ch. Aug. 9, 2005), aff’d, 906 A.2d 27 (Del. 2006).
113
Tr. at 230–32 (Morton); JX 63, Ex. 3; Defs.’ Opening Post-Trial Br., Ex. A. The Florida
condominium community amended its governing documents in 2014 to restrict (1) the
number of units that may be held by a single entity as well as (2) the number of units that
may be rented in the community at any particular time. Tr. at 153–54 (Torrini Leary);
JX 63, Ex. 3; JX 96 §§ 17.7(b)(2) and 17.9.
114
Condominium governing documents can clearly and expressly prohibit a party from
owning a certain aggregate number of units in the subject community in order to prevent
concentrated voting authority. See Tr. at 153–54 (Torrini Leary); Tr. at 230–32 (Morton);
Defs.’ Opening Post-Trial Br., Ex. A; JX 63, Ex. 3.
35
upon which the Court could justify writing these restrictions into the governing
documents ex post.
III. CONCLUSION
Because I find that Defendants’ plan to build, own and lease townhouse
condominiums to residential tenants does not breach the Fairway Village governing
documents, I must conclude that Plaintiffs have failed to prove a breach of contract.
My verdict, therefore, is for the Defendants. Plaintiffs’ Motion for Summary
Judgment is denied for the same reason. Plaintiffs’ Motion to Exclude Opinion
Evidence of Michael Morton is granted in part and denied in part, as explained
above. Defendants’ Daubert Motion to Exclude the Memorandum Expert Report
and Related Testimony of Leland Trice and Defendants’ Post-Trial Motion to
Exclude Supplemental and Undisclosed Expert Opinion Testimony from Joseph
Della Torre are denied as moot given the Court’s verdict. The parties shall confer
and submit an implementing final judgment and order within ten (10) days.
36