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Ironman Medical Properties, LLC v. Chodri

Court of Appeals of North Carolina

December 3, 2019

BETH HODGES, M.D. and FRANCISCO HODGES, M.D., Third-Party Defendants.

          Heard in the Court of Appeals 6 September 2018.

          Appeal by plaintiffs and third-party defendants from judgment entered 20 December 2016 and cross-appeal by defendants from order entered 2 December 2016, both entered by Judge Eric C. Morgan in Randolph County No. 15 CVS 527 Superior Court.

          Nelson Mullins Riley & Scarborough LLP, by Lorin J. Lapidus and G. Gray Wilson; Allman Spry Davis Leggett & Crumpler, P.A., by D. Marsh Prause and Jodi D. Hildebran and; and Yates, McLamb & Weyher, LLP, by Rodney E. Pettey and Brian M. Williams, for plaintiffs and third-party defendants.

          Rossabi Reardon Klein Spivey PLLC, by Gavin J. Reardon and Amiel J. Rossabi, for defendant Premier Medical Center Condominium Association, Inc.

          TYSON, JUDGE.

         I. Procedural Background

         Ironman Medical Properties, LLC ("Ironman") and Hodges Family Practices, Inc. ("HFP") (collectively, "Plaintiffs"), as well as Drs. Beth and Francisco Hodges (the "Hodges") as third-party defendants, appeal from a 2 December 2016 order granting a motion for a directed verdict made by Dr. Tanvir Chodri ("Dr. Chodri"), Premier Medical Center Condominium Association, Inc. ("Premier") and White Oak Medical Properties, LLC ("White Oak") (collectively, "Defendants"). These parties also appeal the 20 December 2016 judgment entered following a jury's verdict. Premier cross-appeals from a separate order denying its motion for attorney's fees and its motion to tax costs to Plaintiffs entered on 2 December 2016.

         We find no error in the jury's verdict and the judgment entered thereon. We affirm the trial court's entry of directed verdict dismissing all claims asserted by the tenant, HFP, the Hodges and dismissing Ironman's punitive damage claims. We reverse and remand for trial on Ironman's claim for breach of fiduciary duty against Premier and Dr. Chodri and for the trial court to address Defendant Premier's motion for costs and attorney's fees.

         II. Factual Background

         Ironman and HFP are separate and distinct legal entities chartered as a North Carolina Limited Liability Company and corporation, respectively. The Hodges, as individuals, hold ownership interests in both these entities.

         White Oak developed Premier Medical Center as a ten-unit condominium complex located ("Condominium") in Asheboro, North Carolina. Ironman is the record owner of one condominium unit in the Premier Medical Center. In June 2010, Ironman leased its unit to HFP.

         White Oak is a North Carolina Limited Liability Company, which owns and maintains the other nine units located in Premier Medical Center. Premier is a chartered North Carolina not-for-profit condominium association corporation. Dr. Chodri serves as the sole officer of Premier and is a co-owner of White Oak. Neither White Oak, Premier, nor Dr. Chodri is a party to Ironman's lease to HFP nor have any other connection to the Hodges on these issues, except through Ironman.

         The voting interests in Premier were divided twenty-six percent (26%) to Ironman and seventy-four percent (74%) to White Oak. The common areas were allocated as twenty-one percent (21%) to Ironman and seventy-nine percent (79%) to White Oak.

         White Oak was developed and initially owned by Dr. Chodri, his wife and a development partner. They managed Premier for approximately one year before their partner declared bankruptcy. Dr. Chodri had no prior experience managing investment properties or condominium associations.

         Dr. Chodri practiced medicine and relied upon his medical practice office manager, Julie Trollinger ("Trollinger") to handle the financial affairs of White Oak and the Premier condominium complex. The parties agree that the office manager was "inexperienced, unsophisticated, and not particularly knowledgeable about such matters" involving managing condominium property.

         Ironman quit paying its condominium dues in June 2012, despite repeated demands from Premier. On 4 December 2012, Ironman's unit's tenant, HFP, requested a breakdown of expenses for 2011 and 2012. The parties dispute whether Premier failed to timely provide the summaries of a budget and whether the budget summaries it provided were correct.

         Plaintiffs alleged, despite HFP's multiple verbal and written requests, they were not furnished with income, expense, balance, or bank statements for the Condominium until after the lawsuit was filed in 2015.

         Ironman also sent to Premier a written request for statements after Premier had responded to HFP's prior request by sending Ironman allegedly all financial documentation Premier had at the time. Plaintiffs were unsatisfied with these responses from Premier, claiming they were limited and entirely devoid of the requested financial information they were entitled to receive.

         Plaintiffs' inquiry into Premier's finances revealed that the Condominium's assets had not been managed in accordance with the Declaration's bylaws. Under the bylaws, Premier had the authority and power to, inter alia, levy and to collect assessments. Assessments for the benefit of all the unit owners should have been levied in the same ratio as the percentage ownership interests.

         The Declaration also provided that Premier was to treat all monies collected on its behalf as the separate property of Premier. All unit owner's assessments were to be paid monthly. The failure to enforce any right, provision, or covenant within the Declaration did not constitute a waiver of the right to seek enforcement in the future, within the applicable statute of limitations.

         Premier's assets were allegedly commingled with those of White Oak and all Premier unit owners were allegedly charged an invalidly-calculated assessment fee. Improper assessments and account management allegedly allowed White Oak to underpay condominium dues to Premier by over $200, 000.00 since 2010.

         No annual meetings of Premier's shareholders to elect officers and directors to the Association were conducted, as is required by the bylaws. Premier sought no federal or state tax ID number until 2015, maintained no separate corporate records, and never conducted audits of its finances.

         Prior to the filing of this lawsuit, Premier, as an entity, had never generated profit and loss statements or balance sheets and had never sent required notices of annual reserve balances to its unit owners. Starting in 2010 when Ironman bought its unit, dues it paid were deposited into White Oak's bank account, rather than into a separate Premier account. White Oak never paid its required unit dues to Premier.

         Rather, Trollinger would collect rent from tenants of White Oak's units and deposit them into a White Oak account. She also paid Premier's operating expenses from that account. After Ironman quit paying its required dues in 2012, Dr. Chodri would move funds from his other accounts to cover Premier's expenses, if the White Oak account was close to being overdrawn.

         Premier's assessments to the unit owners were invalidly calculated based upon the occupied square footage, rather than the total project square footage, as is required by the Declaration. Consequently, no separate or earmarked payments were made by White Oak to Premier for its vacant units. The improper account ...

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