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Conleys Creek Limited Partnership v. Smoky Mountain Country Club Property Owners Association, Inc.

Court of Appeals of North Carolina

September 5, 2017

CONLEYS CREEK LIMITED PARTNERSHIP, a North Carolina limited Partnership, and MARSHALL CORNBLUM, Plaintiffs,
SMOKY MOUNTAIN COUNTRY CLUB PROPERTY OWNERS ASSOCIATION, INC., a North Carolina nonprofit corporation, Defendant, Counterclaimant, WILLIAM SPUTE, RONALD SHULMAN, and CLAUDETTE KRIZEK, Defendants, AND MICHAEL CORNBLUM, MADELINE CORNBLUM, M&D CREEK, INC., a North Carolina corporation, CORNDERMAY PARTNERS, by and through its general partners, M&D Creek, Inc. and other unknown partners, and SMCC CLUBHOUSE, LLC, a North Carolina limited liability company, Counterclaim Defendants, AND ROBERT YOUNG, Defendant in Counterclaim of SMCC Clubhouse.

          Heard in the Court of Appeals 8 June 2017. [1]

         Appeal by Smoky Mountain Country Club Property Owners Association from two orders entered in Swain County Superior Court: (1) order entered 30 July 2015 by Judge Tanya T. Wallace and (2) order entered 26 January 2016 by Judge Marvin P. Pope, Jr. Cross-appeal by SMCC Clubhouse, LLC, from summary judgment order entered 26 January 2016 by Judge Marvin P. Pope, Jr., in Swain County Superior Court No. 14 CVS 238.

          Sigmon Law, PLLC, by Mark R. Sigmon and Sanford L. Steelman, Jr., for Conleys Creek Limited Partnership, Marshall Cornblum, Michael Cornblum, Madeline Cornblum, M&D Creek, Inc., Corndermay Partners, Counterclaim Defendants/Plaintiffs-Appellees, and SMCC Clubhouse, LLC, Counterclaim Defendant/Cross-Appellant.

          James W. Kilbourne, Jr., for Smoky Mountain Country Club Property Owners Association, Inc., Defendant-Counterclaimant/Appellant.

          DILLON, Judge.

         Smoky Mountain Country Club (the "Planned Community") is a residential planned community located in Swain County. This matter involves a dispute between the Planned Community's developer (the "Developer") and the Planned Community's homeowners association (the "Association"). The Developer consists of members of the Cornblum family and entities they control and are listed above the "v." in the caption. The Association includes the homeowners association and certain members of its board of directors and are listed below the "v." in the caption.

         I. Factual Background

          The Planned Community is located on 195 acres (the "Property"). It was established in 1999 pursuant to a declaration (the "1999 Declaration") recorded by the Developer. Prior to 1999, the Developer had developed two residential communities on different portions of the Property. The Planned Community consolidated these communities along with the Property's undeveloped portions into a new single community.

         The Association's board was initially controlled by the Developer. This dispute arose shortly after the homeowners gained control of the board in 2014.

         II. Procedural Background

         Shortly after the homeowners took control of the Association board, the board voted to disregard certain provisions in the 1999 Declaration. In response to the board action, the Developer commenced this action against the Association. The Association responded by asserting a number of counterclaims against the Developer. In a series of orders, the trial court has dismissed a number of the claims and counterclaims from which this appeal arises.

         On appeal, the Association seeks review of two orders in which the trial court dismissed its counterclaims against the Developer. The Developer seeks review of a summary judgment order which dismissed many of its claims against the Association.[2]

          III. Analysis

         In its brief, the Association contests trial court rulings concerning three different areas of dispute. The Developer's cross-appeal contests a trial court ruling concerning one of these areas. We address each area of dispute in turn.

         A. Status of the Planned Community's Condo Units

         The first area of dispute concerns the legal status of the Planned Community's condominium-style residential units which were established, developed, and sold by the Developer in accordance with the 1999 Declaration.

         Specifically, the Planned Community includes single-family residences and townhomes, separated from adjacent residences by vertical property boundaries. The Planned Community also includes multi-story buildings with residences (the "condo units") located on each floor. Each condo unit is separated by vertical boundaries from other condo units on the same floor and by horizontal boundaries from condo units located on different floors.

         Pursuant to the 1999 Declaration, each condo unit owner acquired an interest in real estate which does not fit the technical definition of "condominium" found in our Condominium Act. More specifically, the condo unit owners own the air space and interior walls within their respective units, but the Association owns the common areas of the condo buildings and condo building lots. In contrast, the Condominium Act states that property is not a "condominium" as defined by that Act unless the common areas are owned by the unit owners, in common, rather than owned by an association. N.C. Gen. Stat. § 47C-1-103(7) ("Real estate is not a condominium unless the undivided interests in the common elements are vested in the unit owners.").[3]

         Based on the inconsistency between the 1999 Declaration and the Condominium Act, the Association sought (1) a declaratory judgment stating that the form of ownership held by the Planned Community's condo unit owners is illegal under North Carolina law and (2) a reformation of the provisions of the 1999 Declaration concerning the condo units to conform with our Condominium Act.

         The trial court granted the Developer's Rule 12(b)(6) motions with respect to these counterclaims, without stating its reasoning. For the reasons stated below, we reverse the trial court's dismissal of the Association's declaration counterclaim. We affirm, however, the trial court's dismissal of the Association's reformation counterclaim.

         1. Declaratory Counterclaim---Validity of Form of Ownership

         The condo units established by the 1999 Declaration - where the common areas within the condo buildings and condo building lots are owned by the Association and not by the condo unit owners in common - would be permissible under the common law:

At common law, the holder of a fee simple also owned the earth beneath and the air above - "cujus est solum, ejus usuqe ad coelom et ad inferos".[4] This law applies in North Carolina. Plaintiffs concede that air rights are thus a part of land ownership, but they argue that absent specific authority, the holder of a fee simple may not divide his fee horizontally. . . . It appears[, ] [however, ] to be the general rule that absent some specific restraint, the holder of a fee simple may divide his fee in any manner he or she chooses.

Cheape v. Chapel Hill, 320 N.C. 549, 563, 359 S.E.2d 792, 800 (1987) (emphasis added) (internal citations omitted). The General Assembly, however, has abrogated the common law by establishing a "specific restraint" against the form of ownership established by the 1999 Declaration through the passage of the Planned Community Act. Specifically, the Planned Community Act requires that residential real estate with horizontal boundaries and located within a planned community "shall" meet the definition of "condominium" as set forth in the Condominium Act, as explained below.

         In 1985, thirteen years before enacting the Planned Community Act, the General Assembly enacted the Condominium Act. By its terms, the Condominium Act regulates those properties which fit the Act's definition of "condominium." Properties with horizontal boundaries which do not fit the Act's definition of "condominium" are not expressly forbidden by the Act; rather, such properties are simply not subject to the provisions of the Act.[5]

         In 1998, thirteen years after the Condominium Act became law, the General Assembly passed the Planned Community Act to govern planned communities. The Planned Community Act allows properties within a planned community to have horizontal boundaries but forbids the type of ownership established by the 1999 Declaration. Specifically, the North Carolina Comment to N.C. Gen. Stat. § 47F-1-101 expresses the General Assembly's intent that residences within a planned community which has horizontal boundaries must be a "condominium" as defined by the Condominium Act:

It is understood and intended that any [planned community] development which incorporates or permits horizontal boundaries or divisions between the physical portions of the planned community designated for separate ownership or occupancy will be created under and governed by the North Carolina Condominium Act and not this Act.

N.C. Gen. Stat. § 47F-1-101 cmt. 2 (emphasis added.)[6]

          Based on the foregoing, we conclude that the Association is entitled to an order declaring that the 1999 Declaration establishes a form of property ownership in the Planned Community's condo units not recognized in North Carolina. Therefore, we reverse the order of the trial court dismissing the Association's counterclaim and remand the matter to enter judgment for the Association on this counterclaim. Such judgment, of course, would not affect the rights of those not parties to this action.

         2. Reformation Claim

         The Association's counterclaim seeking reformation of the 1999 Declaration provisions relating to the condo units was properly dismissed. Any reformation order would necessarily affect the ownership interests of these condo unit owners in certain common areas; and, therefore, they are necessary parties. See NCDOT v. Fernwood Hill, 185 N.C.App. 633, 636-37, 649 S.E.2d 433, 436 (2007); NCDOT v. Stagecoach Village, 174 N.C.App. 825, 622 S.E.2d 142 (2005); N.C. Gen. Stat. § 1A-1, Rule 19(a)(2015). Also, any reformation order would decide whether the condo units would be subject to a single condominium association or whether each condo building would be governed by a separate association. Without all necessary parties, the trial court and this Court lack the authority to decide the reformation claim. See Rice v. Randolph, 96 N.C.App. 112, 113, 384 S.E.2d 295, 297 (1989). Therefore, we affirm Judge Pope's order dismissing the Association's reformation counterclaim.[7]

         We note that the Planned Community Association may own the common elements of the Planned Community at large. The common elements of the condominium portion of the Planned Community, however, may not be owned by the Association but must be held in common by the condo unit owners in common. The condo unit owners are still part of the Planned Community and subject to the 1999 Declaration pertaining to common elements of the Planned Community, see N.C. Gen. Stat. ยง 47F-1-103 (providing that real estate comprising a condominium may be part of a planned community), notwithstanding the fact that they are also ...

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