Conleys Creek Ltd. P'ship v. Smoky Mountain Country Club Prop. Owners Ass'n , 799 S.E.2d 879 ( 2017 )

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA16-647
Filed: 4 April 2017
Swain County, No. 14 CVS 238
CONLEYS CREEK LIMITED PARTNERSHIP, a North Carolina limited
Partnership, and MARSHALL CORNBLUM, Plaintiffs,
AND
MICHAEL CORNBLUM, MADELINE CORNBLUM, M&D CREEK, INC., a North
Carolina corporation, CORNDERMAY PARTNERS, by and through its general
partners, M&D Creek, Inc. and other unknown partners, and SMCC CLUBHOUSE,
LLC, a North Carolina limited liability company, Counterclaim Defendants,
v.
SMOKY MOUNTAIN COUNTRY CLUB PROPERTY OWNERS ASSOCIATION,
INC., a North Carolina nonprofit corporation, Defendant, Counterclaimant,
WILLIAM SPUTE, RONALD SHULMAN, and CLAUDETTE KRIZEK, Defendants,
AND
ROBERT YOUNG, Defendant in Counterclaim of SMCC Clubhouse.
Appeal by Smoky Mountain Country Club Property Owners Association from
two orders entered in Swain County Superior Court: (1) order entered 30 July 2015
by Judge Tanya T. Wallace (the “Wallace Order”) and (2) order entered 26 January
2016 by Judge Marvin P. Pope, Jr. (the “Pope Order”). Cross-appeal by SMCC
Clubhouse, LLC, from summary judgment order entered 26 January 2016 by Judge
Marvin P. Pope, Jr., in Swain County Superior Court (the “Summary Judgment
Order”). Heard in the Court of Appeals 1 December 2016.
CONLEYS CREEK V. SMOKY MTN. COUNTRY CLUB
Opinion of the Court
Sigmon Law, PLLC, by Mark R. Sigmon and Sanford L. Steelman, Jr., for
Conleys Creek Limited Partnership, Marshall Cornblum, Michael Cornblum,
Madeline Cornblum, M&D Creek, Inc., Corndermay Partners, Counterclaim
Defendants/Plaintiffs-Appellees, and SMCC Clubhouse, LLC, Counterclaim
Defendant/Cross-Appellant.
James W. Kilbourne, Jr., for Smoky Mountain Country Club Property Owners
Association, Inc., Defendant-Counterclaimant/Appellant.
DILLON, Judge.
This matter involves a dispute concerning a residential planned community,
Smoky Mountain Country Club (“SMCC”), developed by members of the Cornblum
family. On one side of the dispute are members of the Cornblum family and certain
entities they manage or control. On the other side of the dispute is the property
owners’ association (the “Association”) of SMCC and several members of the
Association’s board of directors.
Most of the issues on appeal concern a provision included by the Cornblums in
SMCC’s declaration which provided that the Cornblums would build and own a
clubhouse and that the Association would collect dues from the homeowners and pay
the dues to the Cornblums for the right to use the clubhouse. This matter was
commenced after the homeowners took control of the Association’s board of directors
from the Cornblums and the new board issued a letter to the community stating that
the Association would no longer collect clubhouse dues on behalf of the Cornblums.
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Opinion of the Court
In this opinion, the association and its members are collectively referred to as
the “Association.” The individual property owners are referred to collectively as the
“Homeowners.”
I. Factual Background
SMCC is a planned community development in Swain County. SMCC was
established as a planned community in 1999 by Conleys Creek Limited Partnership
(the “Declarant”), one of numerous entities involved in this matter managed by
members of the Cornblum family.
Prior to 1999, the Swain County property owned by the Cornblums was already
partially developed, consisting of single-family residential lots subject to the “Phase
I Declaration” and condominium-style units subject to the “Townhouse Declaration.”
Some of the Cornblum property remained undeveloped and was not subject to either
declaration.
In 1999, the Declarant recorded a declaration (the “Declaration” or “1999
Declaration”) which essentially formed a new planned community by merging the
residential lots and condominium-style units subject to the Phase I and Townhouse
Declarations and including some of the undeveloped land. The 1999 Declaration was
recorded in accordance with the North Carolina Planned Community Act (the “PCA”)
found in Chapter 47F of our General Statutes. The prior declarations which
controlled the residential lots and the condominium-style units were terminated.
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Opinion of the Court
The 1999 Declaration provided that the Declarant would construct and own a
clubhouse (the “Clubhouse”) which would be available to the Homeowners for their
use in exchange for Homeowners’ payment of dues (the “Clubhouse Dues”). The
Declaration further required the Association to collect the dues and to pay the
collected dues to the Declarant. Specifically, the Declaration provided as follows:
Declarant shall grant to the Association and the
Owners . . . a perpetual nonexclusive right to use the
[Clubhouse], and each Owner, in consideration thereof,
shall pay the Clubhouse Dues to the Association, and the
Association shall pay all of the Clubhouse Dues
collected . . . to Declarant. The obligation of each Owner to
pay Clubhouse Dues to the Association shall be absolute for
the entire period of time that such Owner is an Owner . . . ,
and shall not be dependent on such Owner’s actual use of
the [Clubhouse]. The Association shall bill and collect the
Clubhouse Dues from each Owner . . . [and] shall pay the
total collected amount of Clubhouse dues to Declarant.
In 2002, the Declarant completed construction of the Clubhouse. Thereafter,
the Association collected the Clubhouse Dues from the Homeowners and paid the
collected amount to the Declarant as required by the Declaration.
In 2013, the Declarant and three other entities conveyed their interest in the
Clubhouse property to another Cornblum family-controlled entity called SMCC
Clubhouse, LLC (“SMCC Clubhouse”).1 The Association collected Clubhouse Dues
1SMCC Clubhouse is a limited liability company formed in November 2012. Its managing
member is Michael Cornblum.
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Opinion of the Court
and paid the collected amount to SMCC Clubhouse, as required by the Declaration, 2
until 2014 when control of the Association board flipped from the Cornblums to the
Homeowners.
After this change in control in the Association board, the Association sent a
notice to all of the Homeowners stating that the Association would no longer be billing
or collecting Clubhouse Dues. After the Association stopped collecting Clubhouse
Dues, approximately one-third of the Homeowners began paying Clubhouse Dues
directly to SMCC Clubhouse; however, two-thirds chose not to do so.
Approximately one month after the Association issued the notice, the
Declarant commenced this action against the Association and three of its directors.
None of the claims asserted in the original complaint are part of this appeal.
The Association’s responsive pleadings included numerous counterclaims and
added two members of the Cornblum family, two entities controlled by the
Cornblums, and SMCC Clubhouse as defendants to the counterclaims.
SMCC Clubhouse responded to the Association’s counterclaims by asserting
several reverse counterclaims against the Association for its refusal to honor its
obligation under the 1999 Declaration to collect Clubhouse Dues.
2 According to the Declaration, after SMCC Clubhouse obtained ownership of the Clubhouse
property, it obtained the right to receive the Clubhouse Dues which had previously been remitted to
the original Declarant.
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Opinion of the Court
The Association’s counterclaims and SMCC Clubhouse’s reverse counterclaims
were all dismissed in a series of three orders of the trial court. These orders are all
properly before us on appeal.
II. Analysis
The Association appeals from the Wallace Order, in which the trial court
dismissed several of its counterclaims. The Association also appeals from the Pope
Order, in which the trial court dismissed its remaining counterclaims. SMCC
Clubhouse cross-appeals from the Summary Judgment Order, in which the trial court
dismissed SMCC Clubhouse’s reverse counterclaims against the Association. We
address the appeal and the cross-appeal in turn.
A. Appeal by the Association from Dismissal of Counterclaims
1. The Wallace Order
The Association first appeals from the trial court’s Rule 12(b)(6) dismissal of
several paragraphs of its counterclaim. We affirm in part and reverse in part.
In considering a motion to dismiss pursuant to Rule 12(b)(6) our Rules of Civil
Procedure, this court must conduct a de novo review of the pleadings to determine
whether, as a matter of law, “the allegations state a claim for which relief may be
granted.” Skinner v. E.F. Hutton & Co., 314 N.C. 267, 269-70, 333 S.E.2d 236, 238
(1985).
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Opinion of the Court
In the Wallace Order, the trial court dismissed four of the Association’s prayers
for relief – Nos. 4, 7, 13 and 14 – based on its conclusion that the counterclaims
supporting these prayers for relief were barred by a statute of repose. Specifically,
the trial court stated as follows:
[P]ursuant to the Statute of Repose contained in N.C. Gen.
Stat. § 47F-2-117(b), Plaintiffs and Counterclaim
Defendants’ Motion to Dismiss in part is GRANTED.
Paragraphs 4, 7, 13, and 14 of the Prayer for Relief in the
[Association’s] Second Amended and Restated
Counterclaim challenging the validity of an amendment to
the Declaration are dismissed in their entirety.
We note that the Association has not contested the dismissal of prayer for relief No.
7 on appeal.3
a. The trial court erred in relying on N.C. Gen. Stat. § 47F-2-117(b)
Prayers for relief Nos. 4, 13 and 14 are based on the Association’s challenge of
the provisions in the 1999 Declaration concerning the Clubhouse Dues. The trial
court dismissed these counterclaims, concluding that those claims must have been
brought within one year of the date the Declaration was recorded (which was in 1999).
Specifically, the trial court relied on N.C. Gen. Stat. § 47F-2-117(b), which states that
“[n]o action to challenge the validity of an amendment adopted pursuant to this
3 Declarant contends that the Association’s failure to contest the dismissal of prayer for relief
No. 7 prevents the Association from making arguments on appeal regarding Nos. 4, 13, and 14. We
disagree. While it is true that Rule 28 of our Appellate Rules provides that issues not presented in a
party’s brief are deemed abandoned, N.C. R. App. P. 28(b)(6), this does not affect the party’s right to
appeal “[f]rom any final judgment of a superior court[.]” N.C. Gen. Stat. § 7A-27(b)(1)(2015).
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section may be brought more than one year after the amendment is recorded.” N.C.
Gen. Stat. § 47F-2-11(b) (2015) (emphasis added.)
We conclude that N.C. Gen. Stat. § 47F-2-117(b) does not apply to the 1999
Declaration and, therefore, that the trial court erred in dismissing Nos. 4, 13 and 14
of the Association’s prayers for relief on this basis.4
The PCA contains separate provisions for amending a declaration and for
merging or consolidating planned communities. The PCA does not view the process
by which communities subject to separate declarations are merged into one as an
amendment to the former declarations. Rather, the PCA treats the process as a
merger which essentially terminates the former declarations and the planned
communities they govern and establishes a new planned community subject to a new
declaration. 5 See N.C. Gen. Stat. § 47-2-121 (2015).
N.C. Gen. Stat. § 47F-2-121 states that “[a]ny two or more planned
communities . . . may be merged or consolidated into a single planned community.”
N.C. Gen. Stat. § 47F-2-121(a). Here, the 1999 Declaration was not an amendment
4 We need not – and do not – reach the issue of whether N.C. Gen. Stat. § 47F-2-117(b) is, in
fact, a statute of repose.
5 Under the PCA, a merger requires the approval of the same percentage of owners which must
approve a termination, not the percentage needed to approve an amendment. See N.C. Gen. Stat. §
47F-2-121. And under the PCA, a termination (and therefore a merger) requires the approval of 80%
of the owners. See N.C. Gen. Stat. § 47F-2-118. Here, it appears that one of the two former
communities approved the merger with 99% of the vote and the other with 75% of the vote. We note
that neither party has made any argument concerning the validity of the adoption of the 1999
Declaration, and all parties have been acting as if the 1999 Declaration was validly approved for
almost two decades.
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to the Phase I Declaration or to the Townhouse Declaration, but in fact created a new
planned community. This is true despite the fact that the Declaration asserts itself
as an “amendment” to the Phase I Declaration and the Townhouse Declaration. In
concluding as such, we are guided by the relevant provisions of the PCA and the
actual form and function of the 1999 Declaration. The Declaration states that its
purpose was to “have a single cohesive Declaration” for the property and that the two
prior declarations “shall be . . . of no further force and effect for any purpose
whatsoever, and [shall be] replaced in their entirety by the Declaration.” It also
appears from the record that the Declaration adjusted the property lines of the prior
planned communities and added additional property, which further suggests that the
Declaration created a new planned community. Whether labelled as an amendment
or not, it is clear that the Declaration in fact “merged or consolidated” the two former
planned communities “into a single planned community.” See N.C. Gen. Stat. § 47F-
2-121(a).
The plain language of N.C. Gen. Stat. § 47F-2-117(b) states that the one-year
limitation applies only to amendments made to an existing declaration. N.C. Gen.
Stat. § 47F-2-117(b). Therefore, based on the statutory scheme of the PCA, we hold
that the trial court erred in construing the 1999 Declaration as an amendment subject
to the one-year time limit contained in N.C. Gen. Stat. § 47F-2-117(b). We now turn
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to examine the pleadings themselves to determine whether dismissal was
nonetheless appropriate.
b. We affirm the Wallace Order as it pertains to Prayer for Relief No. 4
In No. 4, the Association requested a declaration that “the Association has no
duty under the law to collect Clubhouse Dues from owners and that any such duty
stated in the Declaration is null and void.” We hold that the Association has failed
to state a claim in its pleadings for which this relief can be granted. Therefore, we
affirm the dismissal of prayer for relief No. 4.
The Association pleads and argues in its brief only one theory to support its
contention that it has no duty to collect Clubhouse Dues. Specifically, the Association
contends that the Clubhouse is not a “common element” of the Association, and as
such, it has no authority under the PCA to collect the Clubhouse Dues from the
Homeowners and pay them to a third party, SMCC Clubhouse.6
The Association is mistaken in its argument. The PCA does empower the
association of a planned community to “[i]mpose and receive any payments, fees or
charges” not only for the use of “common elements” but also “for services provided to
lot owners.” N.C. Gen. Stat. § 47F-3-102(10) (2015). Here, the owner of the
6 The Association did not plead or argue any other theory. For instance, it did not contend
that the Declaration was valid but that the Association had the right to terminate its obligation to
collect the Clubhouse Dues based on N.C. Gen. Stat. § 47F-3-105 (2015), which allows an association
to terminate any contractual obligation put in place by a declarant that is not bona fide or is
unconscionable to the owners within the planned community.
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Clubhouse is providing a service to the Homeowners, namely, access to the Clubhouse.
The Association is merely collecting dues, a function allowed for under the PCA.
c. We affirm the Wallace Order’s dismissal of prayers for relief Nos. 13 and 14
In Nos. 13 and 14, the Association requested repayment of “all Clubhouse Dues
improperly collected and paid [to the Declarant and later to SMCC Clubhouse] in an
amount to be determined at trial.” As to these prayers for relief, the pleadings state
that the Homeowners’ obligation to pay Clubhouse Dues was “not authorized by law,”
and that Homeowners who have never used the Clubhouse are entitled to a
reimbursement. We disagree.
The PCA does allow an association to collect dues for services provided to the
owners by a third party, such as here where SMCC Clubhouse is providing the
Clubhouse as an amentity to the Homeowners. See N.C. Gen. Stat. § 47F-3-102(10).
A Homeowner is not entitled to a reimbursement merely because he never actually
used the Clubhouse. The Homeowners’ obligation to pay the Clubhouse Dues is not
linked to their actual use of the amenity. It is linked to their right to use the amenity,
whether they actually use the amenity or not. In fact, the 1999 Declaration explicitly
states that “[t]he obligation of each Owner to pay Clubhouse Dues to the Association
shall be absolute . . . and shall not be dependent on such Owner’s actual use of the
Clubhouse[.]” Accordingly, the trial court’s dismissal of prayers for relief Nos. 13 and
14 is affirmed.
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2. The Pope Order
The Association next challenges the Pope Order, in which the trial court
dismissed its remaining six counterclaims. We review the trial court’s dismissal of
these counterclaims de novo. See Wells Fargo Bank v. Corneal, 238 N.C. App. 192,
195, 767 S.E.2d 374, 377 (2014). In doing so, we must consider the allegations of the
complaint as admitted and determine, as a matter of law, whether the allegations
state a claim for which relief may be granted. Id.a. Counterclaims for Declaratory Judgment and Reformation
The first two counterclaims dismissed in the Pope Order did not involve the
Clubhouse Dues dispute. Rather, these counterclaims concern the treatment by the
1999 Declaration of the condominium-style units formerly governed by its own
separate declaration (the Townhouse Declaration).
The Association sought a declaration that the condominium-style units within
the planned community were subject to the Condominium Act and that the 1999
Declaration should be reformed so that the common areas within the portion of SMCC
where the condominium-style units are located be held in common by the
condominium unit owners themselves rather than by the Association. We disagree,
and for the following reasons we hold that this claim was properly dismissed.
As previously stated, the 1999 Declaration is governed by North Carolina’s
Planned Community Act (the “PCA”), codified in Chapter 47F. Under North
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Carolina’s Condominium Act, codified in Chapter 47C, however, a unit is not
considered a “condominium” under that Act unless the common areas are owned in
common by the unit owners themselves rather than by an association. N.C. Gen. Stat.
§ 47C-1-103 (2015). The Association points out that, here, the 1999 Declaration is
contradictory as it refers to the condominium-style units as “condominiums” even
though the Association retains ownership of all of common elements within SMCC.
The Association seeks a reformation of the Declaration whereby the common areas
within the portion of SMCC where the condominium-style units are located are to be
owned by the owners of the condominium-style units in common, rather than by the
Association.
Although the 1999 Declaration refers to certain units as “condominiums,” these
units need not fit the definition of “condominium” within the Condominium Act to be
a recognized property interest in North Carolina. The official commentary to the
Condominium Act explains that if common elements are owned by an association in
which each unit owner is a member, the individual units may have many of the
attributes of a condominium, however, they would not be “condominiums” covered by
the Condominium Act. See id. There is nothing unlawful about the manner in which
the common areas within SMCC are held. Although the property interests of the
owners in the condominium-style units within SMCC do not fit the definition of
“condominium” under North Carolina’s Condominium Act, it is a permitted type of
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property interest under the Planned Community Act. Accordingly, we affirm the trial
court’s dismissal of these counterclaims.
b. Breach of Fiduciary Duty
In its third counterclaim, the Association sought damages for breach of
fiduciary duty by Michael Cornblum, Carolyn Cornblum and the Declarant. We
affirm the dismissal as to the Association’s counterclaim against the Declarant.
However, we reverse as to Michael Cornblum and Carolyn Cornblum.
“A claim for breach of fiduciary duty requires the existence of a fiduciary duty.”
Governors Club, Inc. v. Governors Club Ltd. P'ship, 152 N.C. App. 240, 247, 567
S.E.2d 781, 786 (2003).
We agree with the Declarant that the trial court properly dismissed this
counterclaim as against the Declarant, because its relationship with the Association
was contractual. See Highland Paving Co., LLC v. First Bank, 227 N.C. App. 36, 43,
742 S.E.2d 287, 292-93 (2013) (“[P]arties to a contract do not thereby become each
other’s fiduciaries[.]”). That is, a declarant is not required to put the interests of the
association ahead of its own in every instance when it sets up a planned community,
as generally would be required of a fiduciary. Indeed, a declarant is allowed to
reserve rights to itself and enter into contractual relationships between itself and the
association.
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However, as directors and officers of the Association, Michael and Carolyn
Cornblum certainly did owe a fiduciary duty to the Association during the time they
served as directors or officers. See Governors Club, 152 N.C. App. at 248, 567 S.E.2d
at 786-87 (citing Underwood v. Stafford, 270 N.C. 700, 703, 155 S.E.2d 211, 213 (1967)
(stating that under North Carolina Law, “directors of a corporation generally owe a
fiduciary duty to the corporation”); see also Meiselman v. Meiselman, 309 N.C. 279,
307 S.E.2d 551 (1983).
N.C. Gen. Stat. § 55–8–30 requires a corporate director to discharge his or her
duties as a director: (1) in good faith; (2) with the care an ordinarily prudent person
in a like position would exercise under similar circumstances; and (3) in a manner
the director reasonably believes to be in the best interests of the corporation. N.C.
Gen. Stat. § 55-8-30(a)(1)-(3) (2015); see also N.C. Gen. Stat. § 55-8-42(a) (2015) (“An
officer . . . shall discharge his duties . . . in a manner the officer reasonably believes to
be in the best interests of the corporation.”) (emphasis added). “Allegations of breach
of fiduciary duty that do not rise to the level of constructive fraud are governed by the
three-year statute of limitations applicable to contract actions contained in N.C. Gen.
Stat. § 1-52(1) (2003).” Toomer v. Branch Banking & Trust Co., 171 N.C. App. 58,
66–67, 614 S.E.2d 328, 335 (2005) (citing Tyson v. N.C.N.B., 305 N.C. 136, 142, 286
S.E.2d 561, 565 (1982); see N.C. Gen. Stat. § 1-52(1) (2015).
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The Association’s counterclaim alleges that Carolyn Cornblum was an officer
until 2014 and that Michael Cornblum was a director until 2014. The Association
makes a number of allegations tending to show that the Cornblums acted in their
own interests and not in the best interests of the Association by diverting Association
funds for their own benefit within the applicable limitations period. Accordingly, we
hold that the trial court improperly dismissed the Association’s counterclaim for
breach of fiduciary duty as to Michael and Carolyn Cornblum.
c. Unfair and Deceptive Trade Practices
In its fourth counterclaim, the Association sought damages based on
allegations that Michael Cornblum, Carolyn Cornblum, Madeline Cornblum and the
Declarant committed unfair and deceptive trade practices under N.C. Gen. Stat. § 75-
1.1 (2015).
Our Court has stated that the purpose of N.C. Gen. Stat. § 75-1.1 is “to provide
a civil means to maintain ethical standards of dealings between persons engaged in
business and the consuming public within [North Carolina] and applies to dealings
between buyers and sellers at all levels of commerce. United Virginia Bank v. Air-
Lift Associates, 79 N.C. App. 315, 320, 339 S.E.2d 90, 93 (1986). An action for unfair
and deceptive trade practices “is a distinct action separate from . . . breach of
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To properly state a claim for unfair and deceptive trade practices, a plaintiff
must allege that (1) defendant has committed unfair or deceptive acts or practices;
(2) defendant's conduct was in commerce or affected commerce; and (3) defendant's
conduct caused injury to plaintiff. Walker v. Fleetwood Homes of N.C., Inc., 362 N.C.
63, 71-72, 653 S.E.2d 393, 399 (2007). Whether an act is an unfair or deceptive
practice is a question of law for the court. Id. at 71, 653 S.E.2d at 399.
Here, as in White v. Thompson, 364 N.C. 47, 691 S.E.2d 676 (2010), the
unfairness alleged by the Association “did not occur in . . . dealings with [other market
participants].” Thompson, 364 N.C. at 54, 691 S.E.2d at 680. The purported
misconduct by the Cornblum family was alleged to have taken place while members
of the Cornblum family were controlling directors of the Association.7 Even taken as
true, the allegations regarding the actions of the Declarant and the members of the
Cornblum family are more properly classified as occurring within a single entity
rather than “within commerce.” Id. Thus, we conclude that the trial court properly
dismissed the Association’s claim for unfair and deceptive trade practices.
d. Breach of Covenant of Good Faith and Fair Dealing
7 Only one allegation arguably touches on conduct by the Cornblums outside their role within
the Association – that they marketed the condominium properties in violation of North Carolina law.
However, as we have held that the condominium-style units are proper real estate interests under the
PCA and as the Association has not alleged any misrepresentation concerning these units, any claim
based on this conduct is properly dismissed.
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In its fifth counterclaim, the Association sought damages based on an alleged
breach of the covenant of good faith and fair dealing with the Declarant.
In order to properly state a claim for breach of the implied covenant of good
faith and fair dealing, a plaintiff must plead that the party charged took action “which
injure[d] the right of the other to receive the benefits of the agreement,” thus
“depriv[ing] the other of the fruits of [the] bargain.” Bicycle Transit Authority, Inc. v.
Bell, 314 N.C. 219, 228-29, 333 S.E.2d 299, 305 (1985).
We conclude that the Association’s fifth counterclaim should not have been
dismissed. The counterclaim does allege a contractual relationship that was
established in the Declaration itself. The pleadings allege that “[the Declarant]
imposed upon the owners [within the Planned Community] a declaration whose terms
and provisions must be in good faith and fair dealing.” That is, the 1999 Declaration
stated that the Declarant entity would build and maintain the Clubhouse for the
benefit of the Homeowners, that the Homeowners would pay the Clubhouse Dues,
and that the Association would collect and remit the Clubhouse Dues, thus setting
up a contractual obligation.
e. Accounting
In its final counterclaim, the Association sought an equitable accounting of the
Association’s income and expenses and collection history during all periods of
Declarant control. We agree with the Declarant that this issue is moot based on the
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parties’ agreement via a consent order that the Declarant would deliver all “books
and records relating to the Association” in their custody or control. The consent order
provided that these “books and records” would include financial records of the
Association, including a schedule of all funds receivable for the payment of
assessments. A determination on this counterclaim would have no practical effect in
light of the consent order. See Roberts v. Madison Cnty. Realtors Ass'n, Inc., 344 N.C.
394, 398–99, 474 S.E.2d 783, 787 (1996) (“A case is ‘moot’ when a determination is
sought on a matter which, when rendered, cannot have any practical effect on the
existing controversy.”).
B. Cross-Appeal by SMCC Clubhouse
SMCC Clubhouse is the entity which currently owns the Clubhouse. After
being named as a Defendant in the Association’s counterclaims against the
Declarant, SMCC Clubhouse asserted four counterclaims against the Association and
its individually named members. These counterclaims were related to the
Association’s refusal to continue billing and collecting Clubhouse Dues on behalf of
SMCC Clubhouse.
Specifically, SMCC Clubhouse asserted the following counterclaims: (1)
breach of contract and breach of covenant of good faith and fair dealing, (2) civil
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conspiracy, (3) libel per se,8 and (4) unfair or deceptive acts or practices. In the
Summary Judgment Order, Judge Pope granted the Association’s summary judgment
motion on all four counterclaims.
On appeal from a grant of summary judgment, our standard of review is de
novo. In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572, 576 (2008). Summary
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.” Id.
1. Breach of Contract and the Covenant of Good Faith and Fair Dealing
The first counterclaim asserted by SMCC Clubhouse was for breach of contract
and breach of the covenant of good faith and fair dealing. On appeal, SMCC
Clubhouse contends that summary judgment was improper because the 1999
Declaration constitutes a valid and enforceable contract which was breached by the
Association when it refused to bill and collect Clubhouse Dues from the Homeowners.
The Declaration, as recorded in 1999, specifically provided that SMCC was a
“planned community development under the North Carolina Planned Community
Act.” N.C. Gen. Stat. § 47F-2-103, a section of the PCA, states that “the declaration,
bylaws, and articles of incorporation form the basis for the legal authority for the
8 SMCC Clubhouse has made no argument on appeal regarding the trial court’s grant of
summary judgment on its claim for libel per se, and therefore we regard this claim as abandoned. See
N.C. R. App. P. 21.
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Opinion of the Court
planned community to act as provided in the declaration, bylaws, and articles of
incorporation, and [these documents] are enforceable by their terms.” N.C. Gen. Stat.
§ 47F-2-103(a) (2015) (emphasis added).
The terms of the Declaration clearly establish contractual obligations between
the Declarant, as the owner of the Clubhouse, and the Homeowners:
Declarant shall grant to the Association and the Owners of
Lots, Townhouse Units, and Condominium Units a
perpetual nonexclusive right to use the Clubhouse Use
Facilities, and each Owner, in consideration thereof, shall
pay the Clubhouse Dues to the Association, and the
Association shall pay all of the Clubhouse Dues collected
from Owners to Declarant.
The obligation of each Owner to pay Clubhouse Dues to the
Association shall be absolute for the entire period of time
that such Owner is an Owner of a Lot, Townhouse Unit, or
Condominium Unit . . . and shall not be dependent on such
Owner’s actual use of the Clubhouse Use Facilities. The
Association shall bill and collect the Clubhouse Dues from
each Owner on a current basis, and . . . shall pay the total
collected amount of Clubhouse Dues to Declarant.
“When the language of a contract is clear and unambiguous, effect must be
given to its terms, and the court, under the guise of constructions, cannot reject what
the parties inserted or insert what the parties elected to omit.” Weyerhaeuser Co. v.
Carolina Power & Light Co., 257 N.C. 717, 719, 127 S.E.2d 539, 541 (1962).
A successful breach of contract claim requires proof of “(1) the existence of a
valid contract, and (2) breach of the terms of the contract.” RD&J Props. v. Lauralea-
Dilton Enters., LLC, 165 N.C. App. 737, 742, 600 S.E.2d 492, 497 (2004).
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Opinion of the Court
Here, the language of the Declaration clearly obligates the Association to bill
and collect Clubhouse dues and to pay the total collected amount of Clubhouse Dues
to the Declarant. The fact that the original Declarant does not currently have title to
the Clubhouse is irrelevant. The Declaration provides that its provisions and all of
its covenants would be “binding upon Declarant, its successors and assigns[.]” The
2013 deed conveying the Clubhouse to SMCC Clubhouse specifically stated that the
Clubhouse was being conveyed subject to the terms of the Declaration.
The Association sent a message to the Homeowners that the Association
“would no longer bill for or collect Clubhouse Dues,” that monthly payments “would
no longer include Clubhouse Dues,” and that members of the Association were “not
required” to belong to the Clubhouse and “may opt out if they so desire.” These
statements are in clear conflict with the express and unambiguous terms of the
Declaration, which require the Association to bill and collect Clubhouse Dues and to
remit those dues to the Declarant or its successor in interest.
As previously stated, we find that the arrangement whereby an Association
collects dues from its homeowners to pay a third party for services provided to the
homeowners is lawful under the PCA. Therefore, we reject the Association’s
arguments that the nature of the contract violated North Carolina law.
We note that the PCA does provide that an association controlled by the
homeowners may, in limited circumstances, terminate a contract entered into when
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Opinion of the Court
the association was under declarant control. An association may do so, absent some
breach by the other party, only where the association can prove that the contract itself
was “not bona fide or was unconscionable.” N.C. Gen. Stat. § 47F-3-105. We further
note that the protections afforded associations and their homeowners covered by the
Condominium Act are much broader. For instance, an association governed by
Condominium Act may terminate any “contract or lease between the association and
a declarant” even if the contract is not found to be unconscionable. N.C. Gen. Stat. §
47C-3-105. However, the General Assembly did not include this language when it
enacted the PCA. Here, the Association has not met its burden of showing that it is
entitled to summary judgment based on the contract being unconscionable, not “bona
fide,” or for any other reason. Accordingly, we conclude that the trial court’s grant of
summary judgment in favor of the Association on SMCC Clubhouse’s breach of
contract claim was improper. Likewise, we conclude that a genuine issue of fact exists
as to whether the Association acted in good faith in terminating its collection of the
Clubhouse Dues.
2. Civil Conspiracy and Unfair or Deceptive Acts or Practices
SMCC Clubhouse asserted a second counterclaim for civil conspiracy against
the Association and its members. In order to establish a claim for civil conspiracy, a
party must allege (1) the existence of a conspiracy, (2) wrongful acts done by certain
of the alleged conspirators in furtherance of that conspiracy, and (3) injury as a
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Opinion of the Court
proximate result of the conspiracy. State ex rel. Cooper v. Ridgeway Brands Mfg.,
LLC, 362 N.C. 431, 444, 666 S.E.2d 107, 116 (2008). The doctrine of intra-corporate
immunity provides that because “at least two persons must be present to form a
conspiracy, a corporation cannot conspire with itself, just as an individual cannot
conspire with himself.” State ex rel. Cooper v. Ridgeway Brands Mfg., LLC, 84 N.C.
App. 613, 625, 646 S.E.2d 790, 799 (2007), rev’d on other grounds, State ex rel. Cooper,
362 N.C. 431, 666 S.E.2d 107 (2008).
Here, we conclude that the trial court properly granted summary judgment for
the Association on SMCC Clubhouse’s civil conspiracy claim because the Association,
as a corporation, cannot conspire with itself. See id. There is no allegation that the
Association and its members conspired with any third party regarding the Clubhouse
Dues.
In SMCC Clubhouse’s final claim, it sought “damages caused by a civil
conspiracy,” based on the fact that “civil conspiracy to cause a breach of contract is
an unfair practice.” Because we sustain the trial court’s grant of summary judgment
on SMCC Clubhouse’s civil conspiracy claim, we also uphold the trial court’s grant of
summary judgment on SMCC Clubhouse’s related claim for damages for unfair or
deceptive acts or practices.
III. Conclusion
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Opinion of the Court
We affirm the Wallace Order’s dismissal of four paragraphs from the
Association’s Second Amended and Restated Counterclaim.
We reverse the Pope Order’s 12(b)(6) dismissal of the Association’s third
counterclaim from its Third Amended Counterclaims alleging breach of fiduciary by
Michael Cornblum and Carolyn Cornblum, and remand for further proceedings not
inconsistent with this opinion. The Pope Order’s dismissal of the remainder of the
Association’s counterclaims is affirmed.
We reverse the Summary Judgment Order’s grant of summary judgment on
SMCC Clubhouse’s claim for breach of contract and breach of the covenant of good
faith and fair dealing, and remand for further proceedings not inconsistent with this
opinion. The Summary Judgment Order is otherwise affirmed.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
Judges McCULLOUGH and TYSON concur.
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