Howe v. Links Club Condo. Ass'n, Inc.
| Decision Date | 18 December 2018 |
| Docket Number | No. COA18-150,COA18-150 |
| Parties | Diane Gail HOWE; William Butler Bailey, Trustee of the William Butler Bailey Revocable Trust Agreement Dated May 25, 2011; William T. Bailey and Wife, Allison Ann Bailey; William B. Bailey, and Wife, Catherine E. Bailey; John C. Begeny, III; Jack D. Callisher and Wife, Kathryn K. Callisher; Weiqun Chen and Wife, Yan Sun and Qichuan Chen (Unmarried); Martin E. Frazier and Wife, Barbara M. Frazier; Gilbert R. Grisham and Wife, Jae Youn Grisham; Joseph Trevor Hargis; Elena Hopper; Gloria A. Peirsol-Marino and Husband, Charles J. Marino; Fabrice Meunier; Robert Oliva and Wife, Sheila K. Oliva; Phan Investments, LLC; Tara Prezioso; Kenneth E. Rickard; Jonathan M. Schade; Kimmy Yang and Wife, Elizabeth Yang; Michael Yang and Wife, Susana Yang, Plaintiffs, v. The LINKS CLUB CONDOMINIUM ASSOCIATION, INC., a North Carolina Nonprofit Corporation; FCP Fund III Trust, a Maryland Real Estate Investment Trust by Thomas A. Carr, Authorized Trustee; Links Raleigh, LLC, a Delaware Limited Liability Company and Greens at Tryon, LLC, a Delaware Limited Liability Company; Nason Khomassi; Alex Cathcart and Bryan M. Kane, Defendants. |
| Court | North Carolina Court of Appeals |
Harris & Hilton, P.A., by Nelson G. Harris, Raleigh, for plaintiffs-appellants.
Parker Poe Adams & Bernstein LLP, by Kevin L. Chignell and Collier R. Marsh, Raleigh, for defendants-appellees The Links Club Condominium Association, Inc., Nason Khomassi, Alex Cathcart, and Bryan M. Kane.
Shanahan McDougal, PLLC, by John E. Branch III, Kieran J. Shanahan, Tonya B. Powell, and Jeffrey M. Kelly, Raleigh, for defendants-appellees FCP Fund III Trust, Thomas A. Carr, Links Raleigh, LLC, and Greens at Tryon, LLC.
Plaintiffs, minority unit owners in a condominium complex, appeal from the trial court's order granting defendants' motions to dismiss plaintiffs' claims for breach of contract, breach of statutory obligations, breach of fiduciary duty, piercing the corporate veil, and unfair and deceptive trade practices. We reverse the trial court's dismissal of plaintiffs' claims for breach of fiduciary duty and piercing the corporate veil, but affirm as to the trial court's dismissal of the claims for breach of contract, breach of statutory obligations, and unfair and deceptive trade practices.
The instant dispute arose in the context of Chapter 47C of the North Carolina General Statutes ("the Condominium Act"), which provides, inter alia , a process by which condominium unit owners may terminate and sell a condominium development. Pursuant thereto, "a condominium may be terminated only by agreement of unit owners of units to which at least eighty percent (80%) of the votes in the association are allocated, or any larger percentage the declaration specifies." N.C. Gen. Stat. § 47C-2-118(a) (2017). The "agreement to terminate must be evidenced by the execution of a termination agreement ... in the same manner as a deed, by the requisite number of unit owners." N.C. Gen. Stat. § 47C-2-118(b). In addition, the termination agreement "must be recorded in every county in which a portion of the condominium is situated, and is effective only upon recordation." Id. In the event that N.C. Gen. Stat. § 47C-2-118(e). "[T]he minimum terms of the sale" must also be set forth in the termination agreement. N.C. Gen. Stat. § 47C-2-118(c). "Proceeds of the sale must be distributed to unit owners and lienholders as their interests may appear, in proportion to the respective interests of unit owners as provided in subsection (h)." N.C. Gen. Stat. § 47C-2-118(e). Subsection (h) provides, in relevant part:
(1) Except as provided in paragraph (2), the respective interests of unit owners are the fair market value of their units, limited common elements, and common element interests immediately before the termination, as determined by one or more independent appraisers selected by the association. The decision of the independent appraisers shall be distributed to the unit owners and becomes final unless disapproved within 30 days after distribution by unit owners of units to which twenty-five percent (25%) of the votes in the association are allocated. The proportion of any unit owner's interest to that of all unit owners is determined by dividing the fair market value of that unit owner's unit and common element interest by the total fair market values of all the units and common elements.
On 25 April 2001, the Links Club Condominium ("the Condominium") was created by recording a Declaration of Covenants, Conditions, and Restrictions in the Wake County Register of Deeds. At the same time, Links Club Condominium Association ("the Association") was created pursuant to the Condominium Act "to manage the Condominium on behalf of all of the condominium unit owners." As of September 2009, there were 264 units within the Condominium. By July 2016, close to eighty percent of the Condominium units were owned by affiliated entities known as the Fairway Apartments, LLC, "which collectively operated a portion of the Condominium as an apartment complex." The remaining units were owned by individual unit owners, some of whom are the plaintiffs in the instant case (hereafter "minority owners" or "plaintiffs").
On 26 July 2016, defendant FCP Fund III Trust ("FCP Fund"), a Maryland real estate investment trust operated by defendant Thomas A. Carr, formed defendant Links Raleigh, LLC. Plaintiffs allege that before FCP Fund formed Links Raleigh, FCP Fund had "arranged for or contracted with Fairway Apartments to purchase their units in the Condominium" and "intended to purchase, through Links Raleigh or some other entity under its control, the units owned by Fairway Apartments" as well as "additional units until it owned 80 percent of the units in the Condominium."
Plaintiffs allege that on 31 August 2016, defendant Alex Cathcart, "in furtherance of FCP Fund's plan, acting as a representative of Links Raleigh, and with proxies provided by Fairway Apartments, conducted a special meeting of the Association[.]" At that meeting, all members of the Association's Board of Directors were removed, and the number of Directors was reduced to three. Defendants Cathcart, FCP employee Nason Khomassi, and Senior Vice-President of FCP Bryan M. Kane were elected as the new members of the Association's Board of Directors.
By 28 February 2017, Links Raleigh had purchased 212 of the 264 Condominium units, giving it an 80.3% ownership interest. At that point, Links Raleigh, under the control of FCP Fund, had obtained a sufficient ownership interest to terminate the Condominium pursuant to N.C. Gen. Stat. § 47C-2-118. Accordingly, also on 28 February 2017, Links Raleigh sent a letter to the owners of the remaining units alerting them that it intended to terminate the Condominium and that upon termination, "all 264 units and common elements ... will be sold to an entity owned and controlled by an affiliate of Links Raleigh, LLC and converted into a rental apartment community." Links Raleigh "offered ... to permit owners to remain at the Links as [tenants], and ... offered to honor existing third party leases by unit owners, so long as they were at market rates and terms."
On 17 May 2017, in accordance with the provisions of N.C. Gen. Stat. § 47C-2-118(b), Links Raleigh prepared and recorded a Plan of Termination of Condominium and Agreement ("Termination Agreement"). In addition to memorializing the termination, the Termination Agreement set forth various provisions concerning the sale and valuation of the Condominium. Particularly, Section 2 of the Termination Agreement provided, in pertinent part, that:
The Association shall offer to sell the Property for a price of not less than $26,000,000.00 Twenty-Six Million Dollars, or for the Appraised Value (as that value is determined by the method set forth in Section 6), whichever is greater, and may contract for sale of the Property to any qualified purchaser, on commercially reasonable terms, for any amount in excess of $26,000,000.00 (Twenty-Six Million Dollars).
As referenced above, Section 6, titled "Determination Of Value Of the Property As A Whole," provided that "[t]he Association shall contract with one or more independent appraisers licensed in the state of North Carolina to determine the fair market value of the Property as a whole...." Section 5 governed the "Determination Of Respective Interests" subsequent to sale, and provided, inter alia , that "the respective interests of the unit owners, for purposes of distribution of the net proceeds of the sale of the Property" shall be determined by an allocation appraisal—that is, an appraisal "of the fair market value of the units, limited common elements, and common element interests, immediately before the termination" as provided for under N.C. Gen. Stat. § 47C-2-118(h).
In accordance with N.C. Gen. Stat. § 47C-2-118(h) and Section 5 of the Termination Agreement, on 2 May 2017 Links Raleigh hired a third-party appraiser to independently and separately value each of the 51 units still owned by the minority owners ("Owners Appraisal"). A separate, limited appraisal of the independent values of some of the units owned by Links Raleigh was also conducted ("Links Raleigh Appraisal"). Collectively, both appraisals constituted the Allocation Appraisal—i.e., the appraisal of "the fair market value of the units, limited common elements, and common element interests, immediately before termination"—for purposes of distributing the net sale proceeds...
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