Willow Bend Homeowners v. Robinson

• Decision Date: 02 September 2008
• Docket Number: No. COA07-1290.,COA07-1290.
• Citation: 665 S.E.2d 570
• Court: North Carolina Court of Appeals
• Parties: WILLOW BEND HOMEOWNERS ASSOCIATION, INC., Plaintiff, v. Thurston ROBINSON and Charlotte Robinson, Defendants.

665 S.E.2d 570

WILLOW BEND HOMEOWNERS ASSOCIATION, INC., Plaintiff, v. Thurston ROBINSON and Charlotte Robinson, Defendants.

No. COA07-1290.

Court of Appeals of North Carolina.

September 2, 2008.

Appeal by Defendants from order entered 24 April 2007 by Judge Kimbrell Kelly Tucker in District Court, Cumberland County, and appeal by Plaintiff and Defendants from order entered 25 May 2007 by Judge John W. Dickson in District Court, Cumberland County. Heard in the Court of Appeals 19 March 2008.

Ronald E. Winfrey, Fayetteville, for Plaintiff.

Newman & Newman, PLLC, by James T. Newman, Jr. and Ryann W. Angle, Raleigh, for Defendants.

McGEE, Judge.

The record in this case shows that the Willow Bend Subdivision is a small neighborhood located in Cumberland County, North Carolina, and that it consists of eight separate lots. The Willow Bend Homeowners Association, Inc. (Plaintiff) is a nonprofit corporation incorporated on or about 26 February 1997. The Willow Bend Architectural Review Committee (ARC) is an unincorporated association that was established to approve proposed building plans in the Willow Bend Subdivision.

The developer of the Willow Bend Subdivision filed a "Declaration of Covenants[,] Conditions and Restrictions for Willow Bend Subdivision" (the Declaration) with the Cumberland County Register of Deeds on 25 June 1998. Article IV of the Declaration provides in part:

Section 1. ... Personal Obligation of Assessment. ... [E]ach Owner of any Lot by acceptance of a deed therefor, whether or not it shall be so expressed in such deed, is deemed to covenant and agree to pay the [Willow Bend Homeowners] Association:

(1) annual assessments or charges[.]

....

Section 2. Purpose of Assessments. The assessments levied by the [Willow Bend Homeowners] Association shall be used exclusively to promote the recreation, health, safety, and welfare of the residents in the properties and for the improvements and maintenance of the Common Area.

Section 3. Maximum Annual Assessment. ... [T]he annual maximum assessment shall be Five Hundred and No/100 ($500.00) Dollars per Lot.

....

(b) ... [T]he annual maximum assessment may be increased ... by a vote of three-fourths (3/4) of each class of members who are voting in person or by proxy, at a meeting duly called for this purpose.

Thurston and Charlotte Robinson (Defendants) purchased a lot in the Willow Bend Subdivision in June 2003. Defendants submitted a proposed building plan for a single-family residence to the ARC in January 2005. The ARC denied approval of Defendants' building plan because the plan did not comply with setback requirements contained in the Declaration.

After numerous unsuccessful attempts at amending the setback requirements, Defendants, who are African-American, filed a complaint against Plaintiff with the Fayetteville Human Relations Commission (FHRC) alleging that Plaintiff had discriminated against them on the basis of their race. Defendants also filed discrimination charges against Plaintiff with the Department of Housing and Urban Development, which referred the charges to the North Carolina Human Relations Commission (NCHRC). The FHRC found on 14 April 2005 that Plaintiff had not discriminated against Defendants. The outcome of Defendants' complaint with the NCHRC is not clear from the record.¹ Plaintiff retained counsel to defend itself in the proceedings before the FHRC and NCHRC. As of 31 December 2005, Plaintiff had a bank balance of $153.40 and outstanding legal bills totaling $4,331.99.

Plaintiff held a meeting on 1 January 2006 and voted seven-to-one to increase the 2006 annual assessment from $500.00 to $1,000.00 per lot to cover Plaintiff's outstanding legal bills. Defendants were the sole members of the Willow Bend Homeowners Association to vote against the assessment. Over the following months, Defendants informed Plaintiff that they "exclud[ed themselves] from the group who wishe[d] to support [Plaintiff] financially" in defending itself. Defendants also made numerous attempts to pay Plaintiff $500.00 to cover the original 2006 assessment. On each occasion, Plaintiff refused to accept Defendants' $500.00 payment and asked Defendants to pay the full $1,000.00 assessment.

Plaintiff filed a small claim complaint against Defendants on 25 September 2006 to recover the $1,000.00 assessment, plus interest and attorney's fees. A judgment was entered on 19 October 2006 in Plaintiff's favor, but the judgment did not award Plaintiff attorney's fees. Defendants appealed the judgment to District Court, and Plaintiff appealed the denial of attorney's fees to District Court. Defendants filed a motion for leave to assert an answer, defenses, counterclaims, and third-party complaints in District Court on 24 January 2007. The District Court issued an order on 14 February 2007 allowing Defendants to assert defenses but denying the remainder of Defendants' motion. Defendants then filed a general denial of the allegations in Plaintiff's complaint pursuant to N.C. Gen.Stat. § 1A-1, Rule 8(b).

Plaintiff and Defendants filed opposing motions for summary judgment on 15 and 21 March 2007, respectively. District Court Judge Kimbrell Kelly Tucker (Judge Tucker) issued an order on 24 April 2007 denying both parties' motions. This action was tried before District Court Judge John W. Dickson (Judge Dickson) on 24 April 2007. Judge Dickson determined that there were no material facts in dispute and that this action could be decided as a matter of law. Both parties agreed that Judge Dickson could decide the relevant issues as a matter of law without overruling Judge Tucker's prior order.

As to the merits of Plaintiff's claim, Defendants acknowledged the $1,000.00 assessment but argued that the restrictive covenants purporting to allow Plaintiff to impose the assessment were vague and unenforceable. Plaintiff responded that the assessment was proper and that the restrictive covenants were valid. Plaintiff further noted that under N.C. Gen.Stat. § 55A-3-04, Defendants were required to challenge the validity of corporate action through an injunctive proceeding. According to Plaintiff, Defendants had not challenged Plaintiff's action by an appropriate pleading, and therefore were unable to raise their argument concerning the covenants as a defense in the current case. Plaintiff also argued that it was entitled to attorney's fees under N.C. Gen.Stat. § 6-21.5 and N.C. Gen.Stat. § 47F-3-116(e).

Judge Dickson entered an order on 25 May 2007 containing two conclusions of law that served as alternative bases for awarding judgment in Plaintiff's favor:

1. [D]efendants did not challenge, by appropriate pleading, the power of [Plaintiff] to make the disputed assessment.

2. The Declaration ... is not vague as to the right of [Plaintiff] to assess attorney's fees, against its members, which are incurred by [Plaintiff] in defending itself and its members against claims brought against [Plaintiff].

Judge Dickson awarded Plaintiff $1,000.00, plus interest, on its claim for the past-due assessment. However, Judge Dickson denied Plaintiff's requests for attorney's fees under N.C. Gen.Stat. § 6-21.5 and N.C. Gen. Stat. § 47F-3-116(e). Plaintiff and Defendants appeal.

I. Defendants' Appeal

Defendants raise three issues in their appeal. We consider each of Defendants' arguments in turn.

A.

Defendants first argue that the trial court erred by concluding as a matter of law that Defendants did not challenge, by appropriate pleading, Plaintiff's power to impose the disputed assessment. We review a trial court's legal conclusions de novo. See, e.g., Bruning & Federle Mfg. Co. v. Mills, 185 N.C.App. 153, 156, 647 S.E.2d 672, 674, cert. denied, 362 N.C. 86, 655 S.E.2d 837 (2007).

The North Carolina Nonprofit Corporation Act provides in part:

(a) Except as provided in subsection (b) of this section, the validity of corporate action shall not be challenged on the ground that the corporation lacks or lacked power to act.

(b) A corporation's power to act may be challenged:

(1) In a proceeding by a member or a director against the corporation to enjoin the act[.]

N.C. Gen.Stat. § 55A-3-04(a)-(b)(1) (2007). Defendants argue that N.C.G.S. § 55A-3-04 is inapplicable in the current case. According to Defendants, their argument is not that Plaintiff acted ultra vires in derogation of corporate by-laws, resolutions, or other corporate documents. Rather, Defendants merely challenge the validity and enforceability of the restrictive covenants at issue. Plaintiff responds that the crux of Defendants' trial defense was that Plaintiff lacked the power to impose the assessment at issue. Therefore, according to Plaintiff, N.C.G.S. § 55A-3-04 required Defendants to enjoin Plaintiff's action through a compulsory counterclaim, which Defendants did not do.

We agree with Defendants' contentions. Defendants did argue at trial that Plaintiff lacked the power to impose the assessment at issue, but they also argued that the restrictive covenants under which Plaintiff imposed the assessment were invalid and unenforceable. While it is possible that N.C.G.S. § 55A-3-04 foreclosed Defendants' former argument regarding the validity of Plaintiff's corporate actions, it did not prohibit Defendants from challenging the underlying validity of the restrictive covenants as a matter of contract law.

It is true that homeowners in previous cases have challenged assessments by bringing injunctive actions and arguing that such assessments were ultra vires. See, e.g., Parker v. Figure "8" Beach Homeowners' Ass'n, 170 N.C.App. 145, 146, 611 S.E.2d 874, 874 (2005). However, this Court has also previously allowed parties to assert a defensive challenge to the validity of assessment-related restrictive covenants without bringing a separate ultra vires action. In Beech Mountain Property Owner's Assoc. v. Seifart, 48 N.C.App. 286, 269 S.E.2d 178 (1980), for example, the plaintiff homeowners' association...