Walbeck v. The I'On Co.

Decision Date08 February 2023
Docket Number28134,Appellate Case 2019-000968
PartiesBrad J. Walbeck and Lea Ann Adkins, Both Individually and Derivatively on Behalf of The I'On Assembly, Inc.; I'On Assembly, Inc., Petitioners-Respondents, v. The I'On Company, LLC; The I'On Club, LLC; The I'On Group, LLC f/k/a Civitas, LLC; and I'On Realty, LLC, Respondents-Petitioners.
CourtUnited States State Supreme Court of South Carolina

Heard December 14, 2022

ON WRIT OF CERTIORARI TO THE COURT OF APPEALS

Appeal from Charleston County The Honorable Stephanie P. McDonald Circuit Court Judge

Justin O'Toole Lucey, Joshua Fletcher Evans, and Dabny Lynn, all of Justin O'Toole Lucey, P.A., of Mt. Pleasant, for Petitioners-Respondents.

Brian Duffy, Julie Lauren Moore, and Patrick Coleman Wooten, all of Duffy & Young, L.L.C., of Charleston, for Respondents-Petitioners.

HEARN JUSTICE.

This case involves promises made and broken to homeowners by a developer and its affiliated entities. Following a lengthy trial, a jury returned verdicts on several causes of action in favor of the homeowners, and the developer appealed. The court of appeals initially upheld the jury's verdict for $1.75 million on the homeowners' breach of fiduciary claim and a verdict for $10,000 on a breach of contract claim by an individual homeowner. Thereafter, upon petitions for rehearing, the court of appeals completely reversed course dismissing all of the homeowners' claims as a matter of law and reversing and remanding the breach of contract claim by the individual homeowner. We granted certiorari and now affirm in part and reverse in part, thus reinstating the jury's verdicts.

FACTS/PROCEDURAL HISTORY

The facts of this case are complicated, and, in the words of Justice George C. James, are "not for the weary." Stoneledge at Lake Keowee Owners' Ass'n, Inc. v IMK Dev. Co., LLC, 435 S.C. 109, 114, 866 S.E.2d 542 545 (2021). I'On is a high-density residential development that comprises public squares, restaurants shops, and homes designed to imitate historic urban housing, including a replica of downtown Charleston's Rainbow Row. After this Court rejected a referendum effort to restrict multi-use zoning, construction of I'On Phase II began around 2000. See I'On, LLC v. Town of Mount Pleasant, 338 S.C. 406, 409, 526 S.E.2d 716, 717 (2000).

In 2010, Plaintiffs, Brad Walbeck and Lea Ann Adkins (collectively, "Homeowners"), sued the I'On Company, LLC, the I'On Club, LLC, the I'On Group, LLC, Thomas Graham, and Vince Graham, (collectively "Developers") for various causes of action related to the nonconveyance of certain real property and community amenities within the neighborhood. Thomas Graham, Vince Graham, and I'On Realty Company, LLC were dismissed from the case prior to trial, and a mistrial was ordered during the first trial in order to realign the HOA as a plaintiff. In the subsequent trial, the jury returned verdicts in favor of Walbeck and the HOA. The HOA elected its $1.75 million verdict for breach of fiduciary duty, and Walbeck elected his $20,000 negligent misrepresentation verdict.

At the heart of Homeowners' claims is the allegation that Developers breached their promise to convey certain real property community amenities, upon their completion, to the HOA. Specifically, Homeowners claim that Developers promised to convey an event facility (the Creek Club), a community dock, a boat ramp, and a parking lot. With the exception of a portion of the parking lot, all of these amenities are located on Lot CV-6, a civic-use zoned property along Hobcaw Creek.

In 1998, in order to comply with the Interstate Land Sales Full Disclosure Act ("ILSA"), Developers filed a Property Report with the U.S. Department of Housing and Urban Development which included the following language:

THE RECREATIONAL FACILITIES LISTED IN THE CHART ABOVE SHALL, UPON COMPLETION OF CONSTRUCTION, BE CONVEYED TO THE [HOA] BY QUITCLAIM DEED FREE AND CLEAR OF ALL MONETARY LIENS AND ENCUMBRANCES AT NO COST TO THE [HOA] OR ITS MEMBERS. UPON CONVEYANCE OF THESE FACILITIES TO THE [HOA], IT SHALL ASSUME FULL RESPONSIBILITY FOR THE COSTS OF OWNERSHIP, OPERATION, AND MAINTENANCE OF THE FACILITIES CONVEYED TO IT.

The chart that preceded this section of the 1998 Property Report[1] included nonspecific references to a "Community Dock" and a "Creekside Park." Lot CV-6 was not listed or specifically referred to by the 1998 Property Report. Thomas Graham, one of two primary developers of I'On along with his son, testified this was because Developers did not own the lot at that time. Additionally, the I'On Company submitted plans, applications, and letters to DHEC representing that the community docks were in lieu of private docks and were "for the use and enjoyment of the I'On community." DHEC, as well as the Army Corps of Engineers, subsequently approved these plans.

When Walbeck purchased his lot in November 1999, he received a copy of the 1998 Property Report and the relevant sections were included in his lot's purchase agreement. Development of I'On continued in the early 2000s, with multiple community docks, parks, and homes. On Lot CV-6, the Creek Club and adjacent docks were completed in 2001.[2] Perpendicular to that lot sat Creekside Park (later named "Marshwalk Park" to avoid confusion with a nearby neighborhood). The Community Dock is distinct from the other docks built in the neighborhood during this time due to its size, deep-water access to Hobcaw Creek, and its proximity to the Creek Club.

Shortly after the 1998 Property Report was drafted, Developers began a pattern of conduct altering their initial promise to convey ownership of the disputed properties to the HOA. Beginning in December of 1998, the I'On Company sent a letter to a neighboring development, Olde Park, offering to allow residents of that neighborhood access to the community dock and boat ramp for a fee of $350,000, which was accepted. In this same letter, the I'On Company stated the community dock and boat ramp would "belong to the [HOA,]" with negligible fees to be charged for dock keys. However, at trial Vince Graham acknowledged that the plan to deed the disputed amenities to the I'On Club rather than to the HOA changed sometime between November 1998 and March 1999.

In February of 2000, the I'On Club, I'On Company, and the HOA executed a "Recreational Easement and Agreement to Share Costs." This easement granted the HOA access to the Creek Club, boat ramp, parking lot, and boat slip on Lot CV-6. Notably, when the I'On Club conveyed the easement to the HOA, it lacked title to the servient estate, Lot CV-6, which instead was owned by the I'On Company. It was not until August of 2000 that the Club acquired title, despite the fact that the amenities belonged to the HOA according to the 1998 Property Report. Developers nonetheless recorded the easement in I'On's declaration of covenants, conditions and restrictions ("I'On's Covenants"). The easement apportioned certain costs to the HOA for a term of 30 years. The HOA began making these annual payments for usage and upkeep in 2004.[3] In April of 2000, the I'On Company amended the 1998 Property Report, deleting the obligation to convey a "Creekside Park" and "Community Dock" to the HOA. Later in 2000, the I'On Company conveyed two docks and a 2.86-acre tract of land, which would become Marshwalk Park, to the HOA and again amended the property report.

This vacillation continued when, in 2005, Developers entered into a "Handover Agreement" with the HOA, which stated that "the I'On Company will notify the [HOA] Board when common area property and structures are ready to be handed over to the [HOA]." This document further outlined the importance of handing all properties over in good repair and provided assurances to the HOA that the process was prepared to go forward. Nevertheless, in an email discussing the Creek Club Boat Ramp and docks, Chad Besenfelder, Developers' manager, proposed a different plan to the Grahams in November of 2006, stating "[b]oth the HOA and the Club do not want responsibility for this area …. I think the area should stay in control of the Club so not to interfere with events."

Ultimately, Developers began to negotiate an outright sale of the two lots containing the amenities to a third party rather than convey them to the HOA. In 2007, Developers discussed several proposals concerning the Creek Club and the associated community dock and boat ramp. One of the proposals by Thomas Graham was to sell the HOA another lot for a community center at a cost of $650,000 rather than to convey the Creek Club to them. This would allow Developers to sell the Creek Club as a personal residence, providing there were not any zoning issues. However, Besenfelder tabled any plan for the time being, writing, "The docks are too controversial and taking away even part of this community amenity would cause trouble."

In 2008, Mike Russo proposed to Developers that his company, 148 Civitas, purchase Lots CV-5 and CV-6. However, Besenfelder emailed Russo in August of 2008 and acknowledged the HOA's right to the property in dispute, stating: "Subject to HOA approval, the I'On Company plans to convey the docks and boat ramp to the HOA, retaining continued easement for both I'On Club and Creek Club events."

Hearing rumors about this possible sale, the HOA scheduled an October 2008 meeting to discuss Russo's attempts to purchase the lots. Following this meeting, Besenfelder emailed the Grahams requesting assurance that an upcoming meeting with the Town of Mount Pleasant would lead to the continued designation of the lots as civic property. Besenfelder proposed that Developers "not separate the docks from the Creek Club at this time." He added that it was clear, based on the current use, that the lots were...

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