Cherry Community Organization v. Sellars
| Decision Date | 06 May 2022 |
| Docket Number | 141PA20 |
| Citation | 871 S.E.2d 706 |
| Parties | The CHERRY COMMUNITY ORGANIZATION, a North Carolina non-profit corporation, and StoneHunt, LLC v. Stoney D. SELLARS, Midtown Area Partners Holdings, LLC, and Midtown Area Partners II, LLC |
| Court | North Carolina Supreme Court |
Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P., Raleigh, by Scott A. Miskimon, Kerry A. Shad, and J. Mitchell Armbruster, for plaintiff-appellant Cherry Community Organization.
Alexander Ricks PLLC, by Roy H. Michaux Jr., Charlotte, and Matthew T. Houston, Raleigh, for defendant-appellees Midtown Area Partners Holdings, LLC and Midtown Area Partners II, LLC.
¶ 1 This Court allowed plaintiff's Petition for Discretionary Review in order to examine a unanimous opinion of the Court of Appeals which affirmed a trial court's judgment dismissing plaintiff's lawsuit which lodged claims against defendants under North Carolina's Uniform Voidable Transactions Act (UVTA). The trial court concluded, and the Court of Appeals agreed, that defendants were good faith purchasers for value and thus possessed a legitimate defense against plaintiff's claims under the UVTA. However, the trial court's unchallenged findings of fact require the application of common law agency principles which operate to remove the protection of the good faith purchaser defense from defendants. Therefore, the decision of the Court of Appeals is reversed in part, and the judgment of the Superior Court, Mecklenburg County, entered on 31 December 2018 in which it dismissed plaintiff's UVTA claims against defendants is vacated and this case remanded for further proceedings in accordance with this opinion.
¶ 2 Plaintiff The Cherry Community Organization is a North Carolina nonprofit entity dedicated to the preservation and enhancement of an area of Charlotte known as Cherry, a historic Black, working-class neighborhood near the city's uptown district. Plaintiff organization is comprised of occupants of properties within the Cherry community and leases affordable housing units which plaintiff owns to low-income, disabled, and senior residents, some of whom have lived there for generations. In furtherance of this mission, plaintiff began contracting with an individual named Stoney Sellars and his real estate development company StoneHunt, LLC in 2004 in order to develop affordable housing units on several acres of land which plaintiff owned in the Cherry neighborhood. Under the ensuing contracts, StoneHunt obtained title to eight acres of prime real estate owned by plaintiff near the center of Charlotte at below-market rates in exchange for a promise that StoneHunt would develop certain parcels of the land into housing units for low-income, disabled, and senior occupants. However, StoneHunt failed to build all of the affordable housing units which it pledged, instead maneuvering to sell most of the land conveyed to StoneHunt by plaintiff under the contract to market-rate residential builders in May 2014 for an enormous profit. Of the land conveyed to StoneHunt by plaintiff under the original contract, StoneHunt retained only a half-acre parcel. Adjacent to this half-acre parcel was another quarter-acre parcel which StoneHunt also owned but that was otherwise unrelated to StoneHunt's unfulfilled contractual obligations to plaintiff. Together, these two parcels are identified in this matter as the "subject property."
¶ 3 Defendants Midtown Area Partners Holdings, LLC and Midtown Area Partners II, LLC (MAP) are real estate development businesses which share identical ownership. Defendants’ principals are sophisticated, informed real property and financial investment professionals who have heightened knowledge about the marketplace and land values.1 One of defendants’ principals approached Sellars twice during the 2012–2013 time period in order to probe StoneHunt's willingness to sell the subject property to MAP. Defendants’ representative explained that MAP owned adjacent parcels to the subject property and remarked that it did not appear that StoneHunt was in the process of developing the land at issue despite a sign from 2008 which was situated on the property stating, "Town Homes Coming." Sellars denied the occurrence of such overtures. Defendants’ agent then proposed that StoneHunt and MAP work together in developing the subject property which StoneHunt controlled and the adjacent parcels that defendants owned. The two entities, through their respective actors, entered into an operating agreement to develop these contiguous properties into a $50 million mixed-use project in March 2014. Extending from the creation of this arrangement until its termination, defendants and StoneHunt were the principals of a general partnership engaged in a joint venture for the development of the mixed-use project, with defendants enjoying an insider status to StoneHunt's dealings with the subject property.
¶ 4 Having discovered StoneHunt's breach of its contract with plaintiff to construct the affordable housing units in a collaborative approach on the acreage conveyed by plaintiff to StoneHunt in the 2004 conveyance, plaintiff filed suit against StoneHunt and its principal Sellars on 10 September 2015 for breach of contract and violations of the North Carolina Unfair and Deceptive Trade Practices Act (the first lawsuit). The first lawsuit sought monetary damages and the recovery of title to the portion of the subject property which plaintiff had deeded to StoneHunt under the 2004 contract and was accompanied by a Notice of Lis Pendens that was filed in the county clerk's office the same day concerning this part of the subject property. Plaintiff delivered copies of the complaint and Notice of Lis Pendens simultaneously to defendants’ attorney. Defendants contemplated the potential effects which the first lawsuit could have on the viability of the joint project of defendants and StoneHunt, leading to communications with Sellars and StoneHunt about the authority of plaintiff's board members to prosecute the first lawsuit, StoneHunt's legal strategy in countering plaintiff's claims, and the financial impact on defendants’ and StoneHunt's joint venture as a result of the Notice of Lis Pendens. Defendants were not involved otherwise with StoneHunt's defense of the first lawsuit. The first lawsuit was dismissed in February 2016 by order of the trial court pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil Procedure and the Notice of Lis Pendens was cancelled by another order of the trial court in May 2016. Plaintiff timely appealed the trial court's orders which, taken together, effectively halted the first lawsuit.
¶ 5 During the pendency of plaintiff's appeal to the Court of Appeals and at the behest of StoneHunt, one of defendants’ principals submitted to the lower appellate court an affidavit in opposition to plaintiff's appeal, lamenting that the development of the subject property would "be delayed and thus damaged by a cloud on the title to two of the StoneHunt parcels" due to the Notice of Lis Pendens filed by plaintiff. On 17 June 2016—approximately one week after the affidavit—plaintiff's counsel sent a letter to defendants’ counsel which expressed confidence that the Court of Appeals would reverse the trial court's dismissal of the first lawsuit and the trial court's cancellation of the Notice of Lis Pendens, and reminded defendants that litigation against StoneHunt was still pending, thus putting title to the subject property "at issue." The letter concluded with an admonition from plaintiff's counsel that if StoneHunt and defendants continued with plans to develop or convey the subject property, they did so "strictly at their own risk and peril." A few months later, in September 2016, although StoneHunt had represented the subject property to be worth $2.5 million, nevertheless the real estate development company offered to sell the subject property to defendants outright for $1.1 million. Sellars explained that this sudden shift in his company StoneHunt's involvement with the subject property and the accompanying mixed-use project was inspired by Sellars's desire to spend more time looking after his family and growing information technology business, even though Sellars's continued involvement with the multi-use development would have yielded far greater monies than a direct sale to defendants without any substantial work on Sellars's part. The following week, notwithstanding defendants’ belief that the value of the subject property rested somewhere between $600,000 and $800,000, defendants orally agreed to purchase the subject property for StoneHunt's offering price of $1.1 million but on different terms than those offered by StoneHunt.
¶ 6 In late October 2016, plaintiff's counsel sent defendants’ counsel a calculation of damages totaling $1,694,000 which plaintiff reasonably expected to obtain in an eventual judgment against StoneHunt—not including interest, attorney's fees, and potential treble damages—in the event that plaintiff prevailed in its lawsuit. The oral arguments in plaintiff's appeal were presented in the Court of Appeals on 28 November 2016. On the following day, in recognizing that the Court of Appeals would possibly issue an opinion in favor of plaintiff and potentially reinstate the first lawsuit, StoneHunt's counsel sent an electronic mail to defendants explaining that they should expect the Court of Appeals decision "fairly quickly" and advising "everyone to try to get this done as soon as possible," referring to the completion of the sale of the subject property which had yet to be reduced to writing.
¶ 7 Based upon a mutual trust established through the parties’ relationship as business partners, StoneHunt and defendants agreed to fully conceal their pending land transaction until it was too late for plaintiff to attempt to prevent the sale. Instead of placing the subject property on the open market,...
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