JOHN WILTON ANDERSON, SR.
SEASCAPE AT HOLDEN PLANTATION, LLC
Heard in the Court of Appeals March 18, 2015
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
This Decision is not final until expiration of the twenty-one day rehearing period. [North Carolina Rules of Appellate Procedure 32(b)]
Brunswick County, No. 12 CVS 2063.
Whitfield Bryson & Mason LLP, by Daniel K. Bryson and Matthew E. Lee, for plaintiffs-appellants.
Ward and Smith, P.A., by Ryal W. Tayloe and Allen N. Trask, III, for intervenor-appellee SeaScape at Holden Plantation Property Owners Association, Inc.
Wall Templeton & Haldrup, P.A., by Mark Langdon and William W. Silverman, for defendants-appellees SeaScape at Holden Plantation LLC, The Coastal Companies LLC, and Eastern Carolinas Construction and Development LLC.
Hamlet & Associates, PLLC, by H. Mark Hamlet and Rebecca A. Scherrer, for defendant-appellee Coastal Construction of Eastern NC, LLC.
Young Moore and Henderson, P.A., by Robert C. deRosset, and Graebe Hanna & Sullivan, PLLC, by Christopher T. Graebe, for defendants-appellees Mark A. Saunders and MAS Properties, LLC.
Cranfill Sumner & Hartzog LLP, by John D. Martin and Patrick M. Mincey, for defendant-appellee Cape Fear Engineering, Inc.
Chesnutt, Clemmons & Peacock, P.A., by Gary H. Clemmons, for defendants-appellees Daniel Weeks, Susan Lawing, Richard Genova, Sean Scanlon, Dean Satrape, and the Executive Board of SeaScape at Holden Plantation Property Owners Association, Inc.
INMAN, Judge. Judge ELMORE concurs. Judge HUNTER, JR. concurs in result only by separate opinion.
Appeal by plaintiffs from orders entered 9, 12, and 22 May 2014 by Judge W. David Lee in Brunswick County Superior Court. Heard in the Court of Appeals 18 March 2015.
Plaintiffs are 262 property owners in SeaScape at Holden Plantation (" SeaScape" ), a residential subdivision near Holden Beach, North Carolina. They appeal from the trial court's orders: (1) dismissing plaintiffs' derivative claims brought on behalf of SeaScape at Holden Plantation Property Owners Association, Inc. (" the POA" ) against third parties involved in the development and construction of SeaScape; (2) dismissing plaintiffs' derivative claims against certain members of the POA's Executive Board and the Executive Board itself; and (3) denying plaintiffs' motion to dismiss the POA's intervenor complaint. After careful review, we affirm the trial court's orders.
Although the facts of this case are unique, the legal issues presented are characteristic of corporate governance disputes between homeowners and managing bodies of planned communities. Among other things, this Court must consider the principles of derivative litigation as well as the statutory framework for intracorporate governance under the North Carolina Planned Community Act and the North Carolina Nonprofit Corporation Act.
Plaintiffs allege the following in their Fourth Amended Verified Complaint filed 31 March 2014: In 1999, Mark Saunders (together with related LLCs, " the Developers" ) began developing SeaScape, an upscale 542-lot coastal residential subdivision. The SeaScape plans provided for a 75-slip marina, a concrete bulkhead to protect the shore from natural erosion, and the preservation of existing natural ponds.
The Developers drafted the POA's Master Declaration, reserving the power to veto any action of the POA and to appoint and dismiss Executive Board members until 31 December 2020. Under the Master Declaration, the POA has no right to remove, revoke, or modify any right or privilege of the Developers. Plaintiffs allege that the majority of the members appointed to the Executive Board since SeaScape's creation have been employees of the Developers, and therefore, the Executive Board has an inherent conflict of interest in holding the Developers liable for the defective construction of the SeaScape common areas.
Construction on the bulkhead began in or about 2001, almost two years before the Developers applied for a building permit from Brunswick County. On plaintiffs' information and belief, Brunswick County building inspectors knew or should have known that the marina and bulkhead were being constructed without required permits or inspections but ignored the ongoing construction.
Defects in the bulkhead became apparent in 2005, when two major storms hit the area. Although it should have withstood maximum flood conditions, the SeaScape bulkhead was damaged and moved approximately six inches. On or around 19 October 2006, the Developers asked Cape Fear Engineering, which initially oversaw construction and engineering, to determine the cause of the damages and repair the bulkhead. Cape Fear made no repairs over the following three years.
On 21 December 2009, four years after the first damage to the bulkhead was discovered, Saunders conveyed the marina and bulkhead to the POA. After another storm hit in September 2010, the bulkhead moved an additional six inches.
Plaintiffs also allege that the Developers improperly installed perforated storm sewer pipes around two natural ponds at SeaScape, despite warnings from hydrogeological investigators that such pipes could drain the ponds. Since the installation of the perforated pipes, both of the ponds have completely drained. Plaintiffs complained about the ponds, and although the Developers made assurances that the ponds would be restored, they never informed plaintiffs that improper piping had been installed. In June 2009, plaintiffs discovered the perforated piping.
Plaintiffs allege they demanded that the Executive Board require the Developers to correct the defects in the SeaScape common areas. Plaintiffs claim that, because it is essentially controlled by the Developers, the Executive Board has taken no action adverse to those parties and instead attempted to pass the cost of repairs to the POA members.
In 2012, two of the five members on the POA Executive Board--Helen Stead (" Stead" ) and Curt Bolden (" Bolden" )--had no employment relationship with the Developers or any of the third parties. At a Special Meeting on 21 September 2012, Stead and Bolden voted to initiate litigation against the third parties seeking repair or to recover costs for damages to the common areas. The three other Executive Board members at that time--Eric Johnson (" Johnson" ), Brad Cheers (" Cheers" ), and Carroll
Lipscombe (" Lipscombe" )--abstained from voting, presumably due to their status as employees of the Developers.
Plaintiffs filed their first complaint on 5 October 2012, almost two weeks after the Special Meeting vote. In addition to various individual claims, plaintiffs brought claims derivatively on behalf the POA against members of the Executive Board and the third parties involved in the development and construction of the common areas. The POA moved to intervene as a party-plaintiff on 27 November 2012. Attached to its motion to intervene was a draft complaint which included essentially the same claims against the third parties as did plaintiffs' complaint, but omitted claims against Executive Board members. The trial court's denial of the POA's motion to intervene was reversed by this Court on 21 January 2014. See Anderson v. Seascape at Holden Plantation, LLC,
__N.C.App.__, 753 S.E.2d 691 (2014) (" Anderson I" ).
On 14 February 2014, less than one month after this Court's reversal, the POA filed its Amended Intervenor Complaint, alleging the same claims against the third parties that plaintiffs initially pursued derivatively. Plaintiffs filed their Fourth Amended Verified Complaint on 31 March 2014, adding the POA as a nominal defendant. The Fourth Amended Verified Complaint contained no mention of the POA's ...