Foxwood Hills Prop. Owners Ass'n, Inc. v. 783-C, LLC (In re Foxwood Hills Prop. Owners Ass'n, Inc.)

• Decision Date: 04 December 2020
• Docket Number: C/A No. 20-02092-HB,Adv. Pro. No. 20-80049-HB
• Citation: 625 B.R. 851
• Parties: IN RE, FOXWOOD HILLS PROPERTY OWNERS ASSOCIATION, INC., Debtor(s). Foxwood Hills Property Owners Association, Inc., Plaintiff(s), v. 783-C, LLC et al. Defendant(s).
• Court: U.S. Bankruptcy Court — District of South Carolina

625 B.R. 851

IN RE, FOXWOOD HILLS PROPERTY OWNERS ASSOCIATION, INC., Debtor(s).Foxwood Hills Property Owners Association, Inc., Plaintiff(s),

v.783-C, LLC et al. Defendant(s).

C/A No. 20-02092-HB

Adv. Pro. No. 20-80049-HB

United States Bankruptcy Court, D. South Carolina.

Entered: December 4, 2020

Kyle A Brannon, Julio E. Mendoza, Jr., Nexsen Pruet, LLC, Columbia, SC, for Debtor(s).

ORDER GRANTING IN PART, AND DENYING IN PART, MOTIONS TO DISMISS COUNTERCLAIMS

Helen E. Burris, Chief US Bankruptcy Judge

THIS MATTER came before the Court to consider the Motions of Plaintiff Foxwood Hills Property Owners Association, Inc. (the "Association") to Dismiss Counterclaims filed by defendants Brent Knerr,¹ Ned G. Holbrooks,² Bobbie J. Turner,³ and the numerous defendants named in the attached list.⁴ The Association names thousands of parties in this adversary proceeding and this Order involves only this stated subset of defendants, hereinafter referred to collectively as "Counterclaimants."

FACTUAL ALLEGATIONS AND PROCEDURAL HISTORY

The Association is the property owners’ association for a residential development known as Foxwood Hills (the "Community") located on Lake Hartwell in Oconee County, South Carolina. The Association filed a petition for voluntary Chapter 11 relief on May 8, 2020. On July 13, 2020, it filed this adversary proceeding naming as defendants the property owners of record of approximately 4,100 lots within the Community. An Amended Complaint was filed on July 23, 2020 to add as defendants fifty-five (55) individuals who recently became lot owners in the Community. The Amended Complaint alleges this Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157 and Local Civil Rule 83.IX.01 (D.S.C.), this matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2), and venue is proper in this district pursuant to 28 U.S.C. § 1409(a).

This adversary proceeding seeks to resolve controversies regarding membership in the Association, voting rights, and the amount and calculation of the fees, dues, and assessments payable to the Association by the parties named. Pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201, et seq. , the Association seeks a declaratory judgment based on equitable grounds for relief that defendants are members of the Association with equal voting rights and are required to pay budget-based dues, fees, and assessments. The Amended Complaint also asserts the various covenants and restrictions on certain deeds and recorded real property filings did not address membership in the Association and failed to contemplate an adequate source of funding for the privately maintained roads and amenities of the Community. The Association alleges the requested equitable relief is needed because enforcing these various restrictions, some of which have not been followed or enforced for decades, would cause a great wrong and leave the Association insolvent and inoperable. Therefore, the Association requests the covenants and restrictions be rescinded/cancelled or reformed to provide that all property owners within the Community are members of the Association, subject to its bylaws, and must pay budget-based dues, fees, and assessments.

In their pleadings, Counterclaimants allege they are members of various sections of the Community, they have different documents that purport to grant certain rights and restrictions within the applicable section, and they are not treated the same by these documents or the Association. Counterclaimants assert claims⁵ for declaratory judgments under 28 U.S.C. § 2201, requesting the Court: (1) establish the rights and legal relations between the parties ("Rights Claim"); (2) declare which set of documents are valid and binding on the members of the Association, if any ("Binding Documents Claim"); (3) pursuant to S.C. Code Ann. § 33-31-160, order a special meeting be held for the members to decide whether to dissolve the Association, which sections of the Community will be a part of the Association, or elect a new board of directors of the Association (collectively, "Special Meeting Claim"); and (4) determine the Association does not have the authority to use "budget-based dues, fees, and assessments" and must follow the governing documents declared valid by the Court ("Calculating Fees Claim"). Knerr asserted additional counterclaims requesting the Court declare he is not a member of the Association, nor are any members of the Hatteras Section of the Community ("Knerr Membership Claim"), and establish there is no valid contract between the property owners ("Knerr Contract Claim").⁶

Holbrooks’ Answer was filed 65 days after service of the Summons and Amended Complaint, but before any entry of default.⁷ A motion for default judgment was filed on October 13, 2020, which included him among approximately 2,900 defendants who failed to respond to the Amended Complaint.⁸ Holbrooks’ attorney filed a notice of appearance and Answer two days later and no default was entered against him.

The Association's Motions assert the Rights Claim, Binding Documents Claim, Calculating Fees Claim, and Knerr Membership Claim should be dismissed pursuant to Rule 12(b)(6) because the declaratory relief requested is duplicative and redundant. It argues dismissal is appropriate because these counterclaims request the inverse of the relief sought in the Association's original claim. The Association also asserts the Special Meeting Claim and Knerr Contract Claim should be dismissed under Rule 12(b)(6) for failure to plead sufficient factual allegations and Rule 12(b)(7) for failure to join indispensable parties. Further, the Association argues Holbrooks’ Counterclaims should be dismissed as untimely.

DISCUSSION

I. STANDARD OF REVIEW

Rule 12(b)(6) provides a motion may be dismissed for failure to state a claim upon which relief can be granted. A motion to dismiss pursuant to Rule 12(b)(6) tests the sufficiency of the complaint without resolving contests of fact or the merits of a claim. Republican Party of N.C. v. Martin , 980 F.2d 943, 952 (4th Cir. 1992), cert. denied , 510 U.S. 828, 114 S.Ct. 93, 126 L.Ed.2d 60 (1993). Thus, the Court's inquiry is limited to determining whether the allegations constitute "a short and plain statement of the claim showing the pleader is entitled to relief" pursuant to Rule 8(a)(2).

To survive a motion to dismiss, factual allegations in the complaint must be sufficient to "raise a right to relief above a speculative level." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Consequently, a complaint will survive if it contains "enough facts to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly , 550 U.S. at 570, 127 S.Ct. 1955 ). A claim has facial plausibility "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (quoting Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ). The Court must draw all reasonable factual inferences in favor of the plaintiff. Priority Auto Grp., Inc. v. Ford Motor Co. , 757 F.3d 137, 139 (4th Cir. 2014).

Under a Rule 12(b)(6) analysis, the Court must separate facts from legal conclusions, as mere conclusions are not entitled to a presumption of truth. Iqbal , 556 U.S. at 678, 129 S.Ct. 1937. Importantly, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. However, well-pleaded factual allegations are entitled to a presumption of truth and the Court should determine whether the allegations plausibly give rise to an entitlement to relief. Id. at 679, 129 S.Ct. 1937.

II. DUPLICATIVE COUNTERCLAIMS

The Declaratory Judgment Act provides:

In a case of actual controversy within its jurisdiction ... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.

28 U.S.C. § 2201(a). The statute is meant "to afford a speedy and inexpensive method of adjudicating legal disputes without invoking the coercive remedies of the old procedure, and to settle legal rights and remove uncertainty and insecurity from legal relationships without awaiting a violation of the rights or a disturbance of the relationships." Aetna Cas. & Sur. Co. v. Quarles , 92 F.2d 321, 325 (4th Cir. 1937).

Whether the remedy shall be accorded one who petitions for it is a matter resting in the sound discretion of the trial court, to be reasonably exercised in furtherance of the purposes of the statute. It should not be accorded, however, to try a controversy by piecemeal, or to try particular issues without settling the entire controversy, or to interfere with an action which has already been instituted.

Id.

Pursuant to this discretion, the Court may dismiss a declaratory counterclaim that is the "mirror image" of causes of action asserted in the complaint. Biltmore Co. v. NU U, Inc. , C/A No. 1:15-CV-00288-MR, 2016 WL 7494474, at *2 (W.D.N.C. Dec. 30, 2016) (citations omitted). "[W]hen the request for declaratory relief brings into question issues that already have been presented in plaintiff's complaint and defendant's answer to the original claim, courts often exercise their discretion to dismiss the counterclaim on the ground that it is redundant and a decision on the merits of plaintiff's claim will render the request for a declaratory judgment moot." Boone v. MountainMade Found. , 684 F. Supp. 2d 1, 12 (D.D.C. 2010) (quoting Waller v. DB3 Holdings, Inc. , C/A No. CIV.A.3:07-CV-0491-D, 2008 WL 373155, at *1 (N.D. Tex. Feb. 12, 2008) ). "[T]here must be some useful purpose to be...