Pines Point v. Rehak

• Decision Date: 11 December 2008
• Docket Number: No. 22 September Term, 2008.,22 September Term, 2008.
• Citation: 961 A.2d 574,406 Md. 613
• Parties: PINES POINT MARINA, a Condominium Council of Unit Owners, Inc. v. Jim REHAK, et al.
• Court: Court of Special Appeals of Maryland

961 A.2d 574

406 Md. 613

PINES POINT MARINA, a Condominium Council of Unit Owners, Inc. v. Jim REHAK, et al.

No. 22 September Term, 2008.

Court of Appeals of Maryland.

December 11, 2008.

David N. Honick (The Law Offices of David N. Honick, P.A., Salisbury, MD), on brief, for Appellant.

William N. Butler (Samuel M. Grant of Butler, Melfa & Taylor, P.A., Towson, MD; Glenn E. Bushell and Jaime W. Luse of Tydings & Rosenberg, L.L.P., Baltimore, MD; Jeffrey R. Gans and Elizabeth M. Walsh of Thelen Reid Brown Raysman & Steiner, L.L.P., Washington, DC), all on brief, for Appellees.

ARGUED BEFORE BELL, C.J., HARRELL, BATTAGLIA, GREENE, MURPHY, ADKINS and BARBERA, JJ.

HARRELL, Judge.

The issue presented to the Court by this case is whether a condominium council of unit owners, which under Md.Code, Real Property Article, § 11-109(d) (2003 & Supp.2008) "may be either incorporated as a nonstock corporation or unincorporated," has standing to file and maintain a lawsuit during the time its corporate charter was forfeit. The Circuit Court for Worcester County, entering summary judgment in this litigation against Pines Point Marina, A Condominium Council of Unit Owners, Inc. ("Pines Point Marina"), determined that, under Dual Inc. v. Lockheed Martin Corp., 383 Md. 151, 857 A.2d 1095 (2004), and Stein v. Smith, 358 Md. 670, 751 A.2d 504 (2000), Pines Point Marina lacked standing to bring this suit because its corporate charter was forfeit at the time the action commenced. Thus, summary judgment in favor of defendants Jim Rehak d/b/a Rehak Floating Docks, M.V. of Ocean Pines Limited Partnership, and Topper Industries Inc.¹ was appropriate on the ground that the powers of the condominium council of unit owners, as a Maryland corporation, were inoperative, including the power to sue. According to the trial court, Pines Point Marina could not maintain the suit because it did not revive its corporate charter before the applicable three year statute of limitations ran on its claims against the defendants.

Pines Point Marina appealed to the Court of Special Appeals. On our motion, we issued a writ of certiorari to the intermediate appellate court before it decided the appeal. For reasons to be explained, we shall reverse the judgment of the Circuit Court and remand the case for further proceedings not inconsistent with this Opinion.

I. Factual Background

The allegations of material fact are not in dispute. On 20 July 1999, Pines Point Marina incorporated under Maryland corporation law as a non-stock, non-close corporation. The condominium is located in Ocean Pines, Maryland, and consists primarily of four dwelling units, two commercial units, and approximately two hundred-eleven boat slips, most of which are owned as common elements by the participating co-owners.

Between 1999 and 2005, Pines Point Marina entered into contracts with M.V. Ocean Pines Limited Partnership ("M.V. Ocean Pines"), the developer of the marina, for the installation and acquisition of condominium unit boat slips. M.V. Ocean Pines employed Jim Rehak d/b/a Rehak Floating Docks ("Rehak") as a subcontractor to construct floating docks. M.V. Ocean Pines supervised the construction of the docks by Rehak. The flotation devices used for the floating docks were manufactured and supplied by Topper Industries Incorporated ("Topper"), a corporation engaged in that business. Topper supplied the floating docks directly to Rehak, pursuant to a contract between them.

During September, October, and November 2003, the eastern coast of the United States experienced several strong storms, including Hurricane/Tropical Storm Isabel. As a result of these storms, Pines Point Marina "began to notice [in October 2003] that many of the flotation devices for the floating docks in the Marina had come loose."

On 30 August 2006, Pines Point Marina filed a complaint in the Circuit Court against M.V. Ocean Pines, Rehak, Topper, and the North American Specialty Insurance Company alleging poor workmanship and defective construction of the marina. Discovery responses placed 4 October 2003 as the earliest date of discovery by the plaintiff of the alleged damages giving rise to the claims.

The defendants sought summary judgment on the basis that, on 7 October 2005, the Maryland Department of Assessments and Taxation forfeited Pines Point Marina's corporate charter for failure to file required state tax returns. It was not until 4 December 2006 that Pines Point Marina revived its corporate status. The Circuit Court granted Appellees' motions for summary judgment on the ground that Pines Point Marina, as an entity incorporated under Maryland law, failed to bring suit, or amend the complaint, during the time when it was in good corporate standing and before the applicable statute of limitations ran on its claims.

II. Discussion

The grant of summary judgment is proper if "there is no genuine dispute as to any material fact and ... the party in whose favor judgment is entered is entitled to judgment as a matter of law." Md. Rule 2-501(f). On appellate review of the grant of summary judgment, we review the trial court's conclusions of law under a non-deferential standard. Messing v. Bank of Am., N.A., 373 Md. 672, 684, 821 A.2d 22, 28 (2003) (citations omitted). In considering the trial court's conclusions of law, "we construe the facts properly before the court, and any reasonable inferences that may be drawn from them, in the light most favorable to the non-moving party." Jurgensen v. New Phoenix Atl. Condo. Council of Unit Owners, 380 Md. 106, 114, 843 A.2d 865, 869 (2004) (citations omitted).

A. Condominium History & Law in Maryland

Development of condominiums in Maryland dates back to the adoption of the first Horizontal Property Act in the State in the early 1960s. See Maryland Commission on Condominiums—Preliminary Report to the 1978 Session 1 (1978) [hereinafter Preliminary Report]. At first, development was slow. Preliminary Report at 1. By the end of the 1960s, however, the State experienced a condominium boom, with intensive development through conversion of existing dwelling units and new construction taking place in Montgomery and Prince George's Counties, Baltimore City and County, Annapolis, Columbia, and Ocean City. Preliminary Report at 1.

When the general economy slowed in the mid-1970s, an increasing number of condominium projects were handed over to the unit owners, which led to widespread abuse. Preliminary Report at 1. As the Commission Report noted, "[e]conomic difficulties, internal management problems, `sweetheart' contracts, developer `lowballing' and failure to complete amenities, and underfinancing brought many developments to the brink of failure or into bankruptcy." Preliminary Report at 1. The harsh slowdown in the economy forced out most marginal developers, and also "exacerbated difficulties in solid, well-planned developments by slowing the pace of sales and creating cash-flow difficulties." Preliminary Report at 1. Further, in developments where condominiums were sold successfully, a parallel slowdown in resales was experienced. Preliminary Report at 1.

The economic instability of the late 1960s and early 1970s, combined with the boom in condominium development, exposed a myriad of flaws in the first Horizontal Property Act. Thus, the General Assembly decided in 1974 to replace it with the Maryland Condominium Act. Preliminary Report at 1. That Act put in place much of the language and structure of the current Maryland Condominium Act, Md.Code, Real Property § § 11-101 to -143 (2003 & Supp.2008), including the section at the core of the issue in the present case, Md.Code, Real Property § 11-109.

B. Section 11-109

Section 11-109(a) of the Real Property Article provides, in part, that "[t]he affairs of the condominium shall be governed by a council of unit owners which, even if unincorporated, is constituted a legal entity for all purposes." Additionally, § 11-109(d) provides, in pertinent part, that

[t]he council of unit owners may be either incorporated as a nonstock corporation or unincorporated and it is subject to those provisions of Title 5, Subtitle 2 of the Corporations and Associations Article which are not inconsistent with this title. The council of unit owners has, subject to any provision of this title, and except as provided in paragraph (22) of this subsection, the declaration, and bylaws, the following powers:

(1) To have perpetual existence, subject to the right of the unit owners to terminate the condominium regime as provided in § 11-123 of this title;

. . .

(4) To sue and be sued, complain and defend, or intervene in litigation or administrative proceedings in its own name on behalf of itself or two or more unit owners on matters affecting the condominium;

. . .

(21) Generally, to exercise the powers set forth in this title and the declaration or bylaws and to do every other act not inconsistent with law, which may be appropriate to promote and attain the purposes set forth in this title, the declaration, or bylaws[.] ...

Pines Point Marina contends that Real Property § 11-109, in essence, creates a "dormant-entity" status for incorporated condominium councils of unit owners. It acknowledges that, under Maryland general corporation law, once a corporation forfeits its corporate charter, the corporation as such ceases to have a legal existence and thus loses the ordinary legal privileges afforded under the law to a corporation including the right to bring suit. See Dual Inc. v. Lockheed Martin Corp., 383 Md. 151, 857 A.2d 1095 (2004); Stein v. Smith, 358 Md. 670, 751 A.2d 504 (2000). A council of unit owners, however, is to be distinguished from any other entity incorporated under Maryland law, Pines Point posits, because councils of unit owners derive their fundamental legal existence and associated powers/rights not from the act of incorporating as such, but from § 11-109, which provides that a council of unit...