Wise v. HARRINGTON GROVE COMMUNITY ASS'N

• Decision Date: 22 August 2003
• Docket Number: No. 428A02.,428A02.
• Citation: Wise v. HARRINGTON GROVE COMMUNITY ASS'N, 584 S.E.2d 731, 357 N.C. 396 (N.C. 2003)
• Parties: William J. WISE and Lynn P. Wise v. HARRINGTON GROVE COMMUNITY ASSOCIATION, INC., and Tom Fitzgerald, Tamara James, Dave Becherer, Stewart Joslin, Bill Schultz, and Mike Dalton, in their official capacities as members of the Harrington Grove Community Association Board of Directors.
• Court: North Carolina Supreme Court

584 S.E.2d 731

357 N.C. 396

William J. WISE and Lynn P. Wise v. HARRINGTON GROVE COMMUNITY ASSOCIATION, INC., and Tom Fitzgerald, Tamara James, Dave Becherer, Stewart Joslin, Bill Schultz, and Mike Dalton, in their official capacities as members of the Harrington Grove Community Association Board of Directors.

No. 428A02.

Supreme Court of North Carolina.

August 22, 2003.

Hunton & Williams, by William D. Dannelly and Julie Beddingfield, Raleigh, for plaintiff-appellants.

Jordan Price Wall Gray Jones & Carlton, by Henry W. Jones, Jr.; Hope Derby Carmichael; and Brian S. Edlin, Raleigh, for defendant-appellees.

MARTIN, Justice.

This is a declaratory judgment action brought by real property owners against their homeowners association. The facts, as reflected in the record on appeal, are as follows: In 1999, William and Lynn Wise (plaintiffs) purchased a home in the Harrington Grove subdivision in Raleigh, North Carolina. Plaintiffs' home, as well as every other home in Harrington Grove, is subject to the "Declaration of Covenants, Conditions and Restrictions of the Harrington Grove Homeowner's Association, Inc." (the declaration), recorded with the Wake County Register of Deeds in May 1987.

The declaration provides that plaintiffs, and all others owning real property in Harrington Grove, automatically become voting and assessment-paying members of the Harrington Grove Community Association, Inc. (defendant), a nonprofit North Carolina corporation. The declaration assigns defendant various powers and obligations concerning enforcement of the covenants in the declaration, upkeep of the common areas, and maintenance of the subdivision's aesthetic appeal. Defendant's articles of incorporation allow it to exercise "all of the powers and privileges and perform all duties and obligations of the Association as set forth in the Declaration." In turn, defendant's bylaws vest all powers granted to it under the declaration in a board of directors. The bylaws also provide for the creation of an architectural control committee (ACC).

From time to time, defendant's board has adopted and published "Architectural Standards & Construction Specifications." The ACC uses these standards to evaluate whether proposed construction projects will obtain official ACC approval. The architectural standards in effect when the present action arose purport to authorize the imposition of monetary fines on association members for violations of the architectural standards. These standards were approved by defendant's board but have never been added to the declaration pursuant to its formal amendment procedure and have never been recorded. As discussed more fully below, no provision of the declaration, the articles of incorporation, or the bylaws expressly provides for the imposition of fines on association members.

Shortly before closing on the purchase of their home, plaintiffs obtained the ACC's approval for construction of an in-ground swimming pool on their lot. Plaintiffs began pool construction approximately one week after closing. During construction, plaintiffs installed a retaining wall varying in height from eleven to twenty-seven inches. After learning of the retaining wall, the ACC revoked its earlier approval and retroactively denied plaintiffs' request for approval of the pool construction as to the retaining wall. By letter dated 13 May 1999, defendant alerted plaintiffs that the ACC had proposed the levying of a fine against plaintiffs for violation of the covenants found in the declaration. On 7 July 1999, defendant's board met to consider the fine and heard presentations from plaintiffs and the ACC. After the board meeting, defendant asserted that the wall was constructed without the required ACC approval and imposed a fine.

Plaintiffs filed the present action seeking, in relevant part, a declaratory judgment that defendant's attempt to levy a fine against plaintiff was ultra vires and void. On 2 April 2001, the trial court denied plaintiff's motion for partial summary judgment as to the declaratory judgment action, and declared that defendant was authorized to levy a fine against plaintiffs. The Court of Appeals affirmed the trial court's ruling, holding that a power to impose fines under N.C.G.S. § 47F-3-102(12) is automatically and retroactively granted to homeowners associations created prior to 1 January 1999 unless an association's declarations or articles of incorporation expressly provide otherwise. Wise v. Harrington Grove Cmty. Ass'n, 151 N.C.App. 344, 353, 566 S.E.2d 499, 503 (2002). Since the declaration does not expressly discuss a power to impose fines, the Court of Appeals held that defendant possessed such a power solely by virtue of the statute. Id.

In dissent, Judge Wynn observed that N.C.G.S. § 47F-3-102 provides that the enumerated powers are retroactively provided to a homeowners association "subject to" an association's declaration and articles of incorporation. Id. at 354-55, 566 S.E.2d at 505 (Wynn, J., dissenting). Because the declaration only mentioned a lawsuit for damages or injunctive relief as defendant's remedy for a covenant violation, Judge Wynn concluded that defendant lacked legal authority to impose a fine on plaintiffs. Id. Plaintiffs appeal based upon this dissent. N.C.G.S. § 7A-30(2) (2001).

The question presented to this Court is whether the North Carolina Planned Community Act (the PCA or the Act) retroactively authorizes defendant to fine plaintiffs for violations of restrictive covenants in the declaration despite the lack of express authorization in the declaration itself, in defendant's articles of incorporation, or in the corresponding bylaws (collectively referred to as "organizational documents"). We hold that the PCA does not automatically grant defendant such a power, and we therefore reverse.

I.

In 1998, the General Assembly enacted the PCA, a series of statutes regulating the creation, alteration, termination, and management of planned subdivision communities. See generally Act of Oct. 15,1998, ch. 199, 1998 N.C. Sess. Laws 674 (codified as amended at N.C.G.S. ch. 47F). As codified at the time plaintiffs initiated the present action,¹ the PCA purports to apply, with some exceptions not relevant to the instant case, to "all planned communities" in North Carolina. N.C.G.S. § 47F-1-102(a),(b) (2001). Harrington Grove meets the statutory definition of a "planned community" because property owners in Harrington Grove, by virtue of their ownership of a lot, are obligated to pay monies to defendant for the maintenance of certain real estate that is described in the declaration, other than their own lots. See N.C.G.S. § 47F-1-103(23) (2001). The PCA provides that all planned communities must incorporate an "association" consisting of everyone owning lots located in the planned community. N.C.G.S. § 47F-3-101 (2001). The PCA then grants a series of powers to those associations pursuant to N.C.G.S. § 47F-3-102.

According to the commentary to the PCA, however, the Act does not apply in its entirety to planned communities created prior to 1 January 1999:

The Act is effective January 1, 1999 and applies in its entirety to all planned communities created on or after that date.... G.S. 47F-3-102 (1) through (6) and (11) through (17), G.S. 47F-3-107(a), (b) and (c), G.S. 47F-3-115 and G.S. 47F-3-116 also apply to planned communities created prior to January 1,1999.

N.C.G.S. § 47F-1-102, N.C. cmt. (2001).² The PCA therefore has limited applicability to the Harrington Grove subdivision, a planned community created in 1987. Among the statutory provisions the PCA purports to apply to older planned communities like Harrington Grove is N.C.G.S. § 47F-3-102(12), the provision cited by the courts below as providing defendant legal authorization to impose a fine on plaintiffs.

At the outset, we note that retroactive application of the PCA potentially disturbs the common law rights of persons owning property in a planned community created prior to the PCA's enactment. This Court has long acknowledged and discussed the creation of subdivisions and the enforcement of common plans of development. See, e.g., Karner v. Roy White Flowers, Inc., 351 N.C. 433, 436-37, 527 S.E.2d 40, 42-43 (2000); Hawthorne v. Realty Syndicate, Inc., 300 N.C. 660, 665, 268 S.E.2d 494, 497 (1980); Sedberry v. Parsons, 232 N.C. 707, 710-11, 62 S.E.2d 88, 90 (1950); Myers Park Homes Co. v. Falls, 184 N.C. 426, 430-31, 115 S.E. 184, 186 (1922). Prior to enactment of the PCA, the creation and enforcement of residential development plans similar to Harrington Grove were largely accomplished through the use of common law restrictive real estate covenants.³ See, e.g., Karner, 351 N.C. at 436-37, 527 S.E.2d at 42-43; East Side Builders, Inc. v. Brown, 234 N.C. 517, 522, 67 S.E.2d 489, 492 (1951).

As a general rule, "[r]estrictive covenants are valid so long as they do not impair the enjoyment of the estate and are not contrary to the public interest." Karner, 351 N.C. at 436,527 S.E.2d at 42; cf. Bicycle Transit Auth., Inc. v. Bell, 314 N.C. 219, 228, 333 S.E.2d 299, 305 (1985) (describing freedom of contract generally). Restrictive covenants are "legitimate tools" of developers so long as they are "clearly and narrowly drawn." J.T. Hobby & Son, Inc. v. Family Homes of Wake Cty., Inc., 302 N.C. 64, 71, 274 S.E.2d 174, 179 (1981). The original parties to a restrictive covenant may structure the covenants, and any corresponding enforcement mechanism, in virtually any fashion they see fit. See Runyon v. Paley, 331 N.C. 293, 299, 416 S.E.2d 177, 182 (1992) ("an owner of land in fee has a right to sell his land subject to any restrictions he may see fit to impose"). A court will generally enforce such covenants "`to the same extent that it would lend judicial sanction to any other valid contractual relationship.'" Karner, 351 N.C. at 436,527 S.E.2d at 42 (quoting Sheets v. Dillon, 221 N.C. 426, 431, 20 S.E.2d 344, 347 ...