Fairfield Harbour Property Owners Association, Inc. v Drez, et al

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An unpublished opinion of the North Carolina Court of Appeals does not constitute controlling legal authority. Citation is disfavored, but may be permitted in accordance with the provisions of Rule 30(e)(3) of the North Carolina Rules of Appellate Procedure. NO. COA11-205-2 NORTH CAROLINA COURT OF APPEALS Filed: 20 March 2012 FAIRFIELD HARBOUR PROPERTY OWNERS ASSOCIATION, INC., Plaintiff v. Craven County No. 10 CVS 1349 PETER B. DREZ, and wife, MARGUERITE R. DREZ, NEAL E. GUMPEL, and wife, HELEN GUMPEL, Defendants. Appeal by plaintiff from order entered 6 December 2010 by Judge Court. George L. Wainwright, Jr., in Craven County Superior This matter was originally heard in the Court of Appeals on 1 September 2011, and an unpublished opinion was filed by this Court on 15 November 2011 affirming the order of the trial court. Plaintiff filed a petition for rehearing on 20 December 2011. An order granting the petition was entered on 20 January 2012. The following opinion supersedes and replaces the opinion filed 15 November 2011. Jordan Price Wall Gray Jones & Carlton, by Henry W. Jones, Jr., and Brian S. Edlin, for plaintiff. K&L Gates LLP, by Roy H. Michaux, Jr., for defendants. -2Bailey & Dixon, LLP, by David S. Wisz, amicus curiae. THIGPEN, Judge. Peter B. Drez, Marguerite F. Drez, Neal E. Gumpel, and Helen Gumpel (collectively Defendants ) are property owners in Fairfield Harbour, a large residential community with several recreational amenities. All property owners in Fairfield Harbour are members of the Fairfield Harbour Property Owners Association, Inc. ( the Association ), which charges all owners an annual charge ( assessments ). The Association became interested in purchasing several recreational amenities from the current owner, MidSouth Golf, LLC, ( MidSouth Golf ) and sought a declaratory finance the assessments judgment purchase collected that of the the from Association recreational property owners. can purchase amenities We or through must decide whether the trial court erred by granting Defendants motion for judgment on the pleadings. Although we affirm the order granting Defendants motion for judgment on the pleadings, we reverse a portion of one of the trial court s conclusions. MidSouth Golf is the current owner of two golf courses, docks, and tennis courts located in Fairfield Harbour. In 2008, MidSouth Golf closed the Shoreline golf course and the Harbour -3Pointe golf course. The Harbour Pointe golf course was re- opened in the spring of 2009, but the Association alleges it is not currently being maintained or operated at an optimal level. Because the Association believes MidSouth Golf has not completely maintained the golf courses, the Association began contemplating purchasing MidSouth Golf. with owners, the recreational amenities from As part of its planning, the Association met sent a survey to the owners regarding the recreational amenities, formed a Negotiating Committee , and met with potential management Defendants counsel Association objecting recreational sent amenities to a letter the and companies. to the Association s stating, In On 21 July 2010, President of the purchase of the opinion, the our Declarations applicable to Fairfield Harbour do not authorize the purchase of recreational amenities to be paid for by the lot owners within the community. On 1 December 2010, the Association filed a second amended complaint seeking, inter alia, a declaratory judgment that the Association can purchase the recreational amenities through an increase in the annual fee and/or financing supported by the annual fee. Defendants filed motions to dismiss and a motion for judgment on the pleadings. After a hearing on Defendants -4motions, on 6 December 2010, the trial court entered an order granting Defendants motion for judgment on the pleadings. In its order, the trial court also concluded: Regardless of the terms and provisions of the Planned Community Act, the Declarations applicable to Fairfield Harbour do not give the Association any right or power to: (1) purchase, lease or otherwise assume control over the Recreational Amenities owned by MidSouth Golf, LLC through an expenditure of funds generated from assessments; or (2) expend funds to bring [the Recreational Amenities] within optimal operating condition under any plan to be funded by assessments imposed upon the owners of property subject to the Declarations applicable to Fairfield Harbour. The Association appeals from this order. Motion for judgment on the pleadings is authorized by Rule 12(c) of the North Carolina Rules of Civil Procedure. . . . The rule s function is to dispose of baseless claims or defenses when the formal pleadings reveal their lack of merit. Ragsdale v. Kennedy, 286 N.C. 130, 136-37, 209 S.E.2d 494, 499 (1974) (internal citations omitted). pleadings is allegations the of proper fact are questions of law remain. the factual issues, inappropriate. Id. A motion for judgment on the procedure admitted when in the all the pleadings material and only When the pleadings do not resolve all judgment This on the Court pleadings reviews de is novo generally a trial -5court s ruling on motions for judgment on the pleadings. Under a de novo standard of review, this Court considers the matter anew and freely substitutes its own judgment for that of the trial court. North Carolina Concrete Finishers, Inc. v. North Carolina Farm Bureau Mut. Ins. Co., Inc., __ N.C. App. __, __, 688 S.E.2d 534, 535 (2010) (citations omitted). On appeal, the Association argues the trial court erred by holding the Association did not have the right to purchase the recreational owners. amenities with assessments collected from the Specifically, the Association argues its organizational documents, the developer s intent, and the applicable statutes allow the Association to purchase the recreational amenities through an increase in assessments and/or financing supported by assessments. The Association also contends the trial court erred by concluding the Association did not have the right to expend funds to optimal operating bring [the condition Recreational under any plan Amenities] to be funded assessments[.] I. Right to Purchase the Recreational Amenities A. Organizational Documents within by -6The Association first contends its organizational documents authorize the Association to purchase the recreational amenities with assessments collected from the owners. When interpreting a We disagree. homeowners association s organizational documents, we are mindful that, like all other restrictive covenants, . . . [the documents] must be strictly construed in favor of the unrestricted use of property. Wise v. Harrington Grove Community Ass n, Inc., 357 N.C. 396, 403-04, 584 S.E.2d 731, 737 (citations and quotation marks omitted), reh g denied, 357 N.C. 582, 588 S.E.2d 891 (2003). covenants are strictly construed, but they Restrictive should not be construed in an unreasonable manner or a manner that defeats the plain and obvious purpose of the covenant. Hultquist v. Morrow, 169 N.C. App. 579, 582, 610 S.E.2d 288, 291 (quotation and quotation marks omitted), disc. review denied, 359 N.C. 631, 616 S.E.2d 235 (2005). The fundamental rule is that the intention of the parties governs, and that their intention must be gathered from study and consideration of all the covenants contained in restrictions. the Id. (emphasis omitted). instrument (quotation or and instruments quotation creating marks the omitted) -7The three relies on are: main organizational documents the Association (1) Declaration of Restrictions Treasure Cove of the Atlantic, Inc.1 (the Declaration of Restrictions ) recorded in 1971; (2) Supplemental Declaration of Restrictions Treasure Lake of North Carolina, Inc., ( the Supplemental Declaration ) recorded in of Fairfield Harbour ( the Master Declaration ) recorded in 1979. We agree that contains each provisions 1975; of the and (3) Master restrictive allowing the Declaration covenants Association to at own issue the recreational amenities; however, none of the restrictive covenants contain a provision authorizing the Association to use the assessments collected from the owners to purchase or to finance the purchase of the recreational amenities. Article III, section 2 of the Master Declaration states the following regarding the conveyance of the recreational amenities to the Association: The ownership of all of the recreational amenities within Fairfield Harbour which may include but shall not be limited to . . . golf courses . . . shall be in FHI or its successors, grantees, or assigns . . . ; provided, however, that any and all of such amenities may be conveyed to the Association, which conveyance shall be accepted by it, provided the same is free 1 Fairfield Harbour was previously known as Treasure Cove of the Atlantic, Inc. -8and clear of all financial encumbrances. (Emphasis added). Restrictions Section contains an 12.B almost of the Declaration identical provision of which provides that the recreational amenities may be conveyed to the Association. The Supplemental Declaration similarly provides that any or all of the aforesaid recreational amenities may be conveyed to the Treasure Cove Property Owners Association, Inc. [n/k/a Fairfield whereupon the Harbour Property maintenance, Owners repair Association, and upkeep Inc.], of such recreational amenities will be as provided for in the aforesaid Declaration of Restrictions[.] (Emphasis added). Moreover, the Amended and Restated Bylaws for the Association provide that the Board of Directors of the Association has the power to [a]cquire and accept title to any and all amenities within the Development, including but not limited to the roads, parks and recreational facilities. (Emphasis added). Additionally, the following provisions of Article II of the Master Declaration assessments and to address use the the Association s assessments right collected owners: 4. The Association shall have all the powers that from time to time are set out in its Articles of Incorporation and all other powers that belong to it by operation of to levy from the -9law, including but not limited to the power to levy against every member of the Association an annual charge . . . , the amount of said charge to be determined by the Board of Directors of the Association after consideration of current maintenance needs and future needs of the Association for the purposes set forth in its Articles of Incorporation. . . . 5. The fund accumulated as the result of the charges levied by the Association shall be used exclusively to promote and operate the recreational facilities . . . and for the improvement and maintenance of those areas designated as parks, and other property and facilities within Fairfield Harbour which shall have been conveyed to or acquired by the Association. Although the organizational documents allow the recreational amenities to be conveyed to the Association and allow the Association to acquire title to the recreational amenities, they do not authorize the Association to use the assessments collected from the owners to purchase or to finance the purchase of the recreational amenities. Declaration provides that the assessments Rather, the Master shall be used exclusively to promote and operate the recreational facilities . . . and for the improvement and maintenance of property that has been conveyed to or acquired by the Association. added). (Emphasis Accordingly, we conclude this argument has no merit. B. The Developer s Intent -10The Association recreational first next amenities refusal to buy is argues its demonstrated the power to through recreational purchase two amenities the rights and of through disclosure statements made by the developer, Fairfield Harbour, Inc., pursuant to the Interstate Land Sales Full Disclosure Act. We disagree. Where the meaning of restrictive covenants is doubtful the surrounding circumstances existing at the time of the creation of the restriction are taken into consideration in determining the intention. Westminster Co. v. Union Mut. Stock Life Ins. Co. of America, 95 N.C. App. 117, 121, 381 S.E.2d 857, 859 (1989) (quotation and quotation marks omitted); see also Angel v. Truitt, 108 N.C. App. 679, 681, 424 S.E.2d 660, 662 (1993) ( In interpreting ambiguous terms in restrictive covenants, the intentions of the parties at the time the covenants were executed ordinarily control, and evidence of the situation of the parties and the circumstances surrounding the transaction is admissible to determine intent ) (citation omitted). The Association disclosure statements argues are the rights surrounding of first refusal circumstances and that demonstrate the developer s intent for the Association to have the right to purchase the recreational amenities. In this case, -11however, the rights of first refusal and disclosure statements were executed years after the relied on by the Association. primary restrictive covenants Specifically, the Declaration of Restrictions was recorded in 1971, the Supplemental Declaration was recorded in 1975, and the Master Declaration was recorded in 1979, while the earliest right of first refusal was granted in 1993 and the earliest disclosure statement cited by the Association was filed in 1985. When interpreting restrictive covenants, properly [i]ntent is . . . discovered from the language of the document itself, the circumstances attending the execution of the document, and the situation of the parties at the time of execution. Angel, 108 N.C. App. at 682, 424 S.E.2d at 662 (citation omitted) (emphasis added). Here, the rights of first refusal and disclosure statements are not relevant to the parties intent regarding the Association s right to purchase the recreational amenities because they were not in existence at the time the restrictive covenants were executed. Accordingly, we conclude this argument has no merit. C. Statutes The Association lastly contends the Planned Community Act and Nonprofit Corporation Act authorize the Association to -12purchase the recreational amenities and to finance the purchase through borrowing supported by assessments. We disagree. Although much of the Planned Community Act does not apply to planned communities created prior to January 1, 1999, unless the community adopts the act,2 certain provisions of the Planned Community Act apply to all planned communities created in this State before incorporation January or contrary[.] instance, the N.C. unless 1, 1999, declaration Gen. the Stat. § articles unless the expressly provides 47F-1-102(c) of articles to (2009). incorporation or of the For the declaration expressly provides to the contrary, a homeowners association in a community that has not adopted the Planned Community Act may make contracts and incur liabilities; assign its right to future income, including the right to receive common expense assessments; exercise all other powers that may be exercised in this State by legal entities of the same type as the association; and exercise any other powers necessary and proper for the governance and operation of the association. N.C. Gen. Stat. §§ 47F-3-102(5), (15), (16), and (17) (2009); see also N.C. Gen. Stat. § 47F-1-102(c) (listing the provisions 2 Fairfield Harbour is a planned community created prior to 1 January 1999 and has not adopted the Planned Community Act. -13that apply to communities that have not adopted the Planned Community Act). Pursuant articles of to the Nonprofit incorporation Corporation provide Act, otherwise, unless every its nonprofit corporation3 has the power: (4) To purchase, receive, lease, or otherwise acquire, and own, hold, improve, use, and otherwise deal with, real or personal property, or any legal or equitable interest in property, wherever located; (5) To sell, convey, mortgage, pledge, lease, exchange, and otherwise dispose of all or any part of its property; (6) To purchase, receive, subscribe for, or otherwise acquire; own, hold, vote, use, sell, mortgage, lend, pledge, or otherwise dispose of; and deal in and with shares or other interests in, or obligations of, any other entity; [and] (7) To make contracts and guarantees, incur liabilities, borrow money, issue its notes, bonds, and other obligations, and secure any of its obligations by mortgage or pledge of any of its property, franchises, or income[.] N.C. Gen. Stat. § 55A-3-02(a) (2009). The Association contends it has the authority to finance the purchase of the Recreational Amenities through borrowing in 3 The Association is a nonprofit corporation. -14accordance [with] N.C.G.S. § 55A-3-02(a)(5), N.C.G.S. § 47F-3-102(5), (16), and (17). (6), (7) and However, none of these statutory provisions, nor the additional provisions of the Planned Community Act which apply to the Association, give a homeowners association the right to collect assessments from owners to purchase real property. Nor do these provisions give a homeowners association the right to finance the purchase of real property through borrowing supported by assessments. Accordingly, we conclude this argument has no merit. II. The Right to Maintain the Recreational Amenities Association also contends the trial court erred by concluding it did not have the right to expend funds to bring [the Recreational Amenities] within optimal operating condition under any plan to be funded by assessments[.] Specifically, the Association argues the restrictive covenants give it the right to maintain the Recreational Amenities using assessments in certain situations. We agree. Article II of the Master Declaration gives the Association the right to collect assessments and provides that such assessments shall be used exclusively to promote and operate the recreational maintenance of facilities those areas . . . and designated for as improvement parks, and and other -15property . . . which shall have been conveyed to or acquired by the Association. (Emphasis added). We conclude the restrictive covenants give the Association the right to use assessments to operate and Recreational Amenities in certain situations. Master Declaration gives the Association maintain the Specifically, the the right to use assessments to promote, operate, improve, and maintain property conveyed to or acquired by the Association[.] Accordingly, the trial court erred by concluding the Association did not have the right to expend funds to bring [the Recreational Amenities] within optimal operating condition under any plan to be funded by assessments imposed upon the owners of property subject to the Declarations applicable to Fairfield Harbour. added). (Emphasis We therefore reverse the portion of the trial court s order containing this language. In granting conclusion, judgment we on hold the the trial pleadings court in did favor not of err by Defendants because the Association does not have the right to purchase the recreational amenities with assessments collected from the owners based on its organizational documents, the developer s intent, or the Planned Community Act and Nonprofit Corporation Act. However, we reverse the portion of the trial court s order -16concluding the Association did not have the right to expend funds to bring [the Recreational Amenities] within optimal operating condition under any plan to be funded by assessments imposed upon the owners of property subject to the Declarations applicable to Fairfield Harbour. AFFIRMED IN PART, REVERSED IN PART. Judges GEER and STROUD concur. Report per Rule 30(e).

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