By PAUL THARP, Staff Writer
A western North Carolina homeowners association has been awarded $2.4 million in compensatory damages in a dispute over defective roads – a verdict that may be the largest ever in Swain County, an attorney associated with the case said.
Jurors returned the verdict on Feb. 17 after a two-week trial.
The Alarka Creek Properties Homeowners Association sued Cane Creek Development Corporation of Bryson City and Charlotte-based W.K. Dickson & Co., alleging breach of express and implied warranties, breach of contract, negligence, fraud and unfair and deceptive trade practices.
W.K. Dickson & Co. was voluntarily dismissed from the case in 2009, according to counsel for the company.
In its complaint, Alarka Creek alleged that Cane Creek “designed, engineered, constructed, marketed and advertised” paved roads in the subdivision that Cane Creek said had “been engineered and have been put in by environmental specifications and approved by the state environmental board.”
A letter Arthur and Anne Williams, agents for Cane Creek, sent to prospective purchasers and members of the association, stated that the roads with their proper drainage measures in place “would hold up for years to come.”
But they didn’t.
A 2008 engineering report concluded that the roads contained insufficient asphalt and aggregate thickness, insufficient asphalt compaction, insufficient drainage or maintenance of drainage and insufficient slope stability.
Raleigh attorney Matthew Lee, who represented Alarka Creek, said the case “was a slopes case more than an access case.” While residents were able in most instances to access their residences, the portions of roadway that were built on slopes were not filled properly.
“They were ticking time bombs,” Lee said. “When the roadbed is not filled properly, the road becomes unstable and can fail at any time.”
He said total slope failures in 2003, 2008 and 2009 had rendered portions of the roads impassable.
In one instance, Alarka Creek had to blast away a portion of the mountain on which the subdivision is built and shift the road by eight feet. Still, “that was only a Band-Aid fix,” Lee said. That repair alone cost the association $20,000, he said.
In calculating damages, Lee said Alarka Creek identified 19 of the worst places on the roadways where stabilization of the fill slope was needed. Those fixes would cost an estimated $1.5 million, he said.
“The association was barely keeping its head above water with having to do all these road repairs,” Lee said.
Cane Creek argued that there were no mandatory standards for road construction in western North Carolina and that Alarka Creek had failed to properly maintain the roads. It moved to dismiss the suit shortly before trial, arguing that the association didn’t have standing.
Raleigh attorney Scott Harris, who also represented the association, said, “We think the association is the proper party because [it was] burdened with maintaining these defective roads and is therefore the best party to bring the lawsuit.”
But, Harris added, “If the Court of Appeals thinks another party is appropriate to bring the action, then under Rule 17, we could amend the complaint at any time to bring other lot owners into the suit.”
But that would not be judicially efficient or reasonable, he said.
“Having 90 different lot owners come to court to testify would be unduly burdensome and would greatly prolong litigation,” Harris said. The trial lasted two weeks with only three homeowners testifying, he added.
Lee said the law regarding the standing of HOAs to sue in such instances is mostly settled. “If you study the practical implications of requiring every homeowner to sue, it makes sense.”
In addition, Lee said the declarations and covenants that created the association vested in it the ability to maintain a suit on behalf of the homeowners.
The association had the standing to represent homeowners in their individual claims regarding the warranties and representations made by Cane Creek, Lee said, and it also had standing to sue on its own behalf on the basis that it had the right to be transferred good roads and common elements.
Harris said it is fairly common for a homeowners or condominium association to bring suit on behalf of individual owners where a defect is pervasive throughout the entire project.
“The association was tasked with maintaining the roads, but when they were not built correctly in the first place by the developer or contractor, the contractor or developer should be liable for improper construction or oversight,” Harris said.
“If the association is burdened with having to maintain defective common areas, the statute provides that it is a proper party, as the court found in this case, under G.S. § 47F-3-102(4),” Harris said.
He said Anne Williams, the president of Cane Creek, testified that she sent out advertisements about the subdivision that she expected people to rely upon. The plaintiff’s complaint alleged that Cane Creek advertised throughout the Southeast that the development had state-approved paved roads. “So far as we know,” one ad read, “we are the only developer in the county offering paved roads.”
Another ad provided that “The large acreage tracts of land are all fronted on paved roads which were engineered by W.K. Dickson Engineering Firm in Asheville and approved by the N.C. Environmental Agency and properly hydro seeded.”
In fact, only a soil and erosion control plan was approved by a state agency before construction began on the roads, and Cane Creek never intended to build the roads to any state standards, the complaint alleged.
That was not something the HOA had bargained for when Cane Creek transferred responsibility for the subdivision to it, Lee said.
“[Williams] also testified that she owed a duty to the association to transfer to it roads that were not defective,” Harris said.
Lee said Cane Creek had been required to disclose at closing on the sale of the lots that the state was not going to maintain the roads in the subdivision. Cane Creek, he said, “attempted to make hay at trial of the fact that the association and homeowners knew the state was not going to maintain the roads,” Lee said.
But, he pointed out, the roads had been advertised as “state approved,” and, he added, “slipping in a document at closing saying the HOA would be responsible for maintaining roads doesn’t divest homeowners or the HOA of their standing to sue the developer for defective construction of the roads.”
Even without the advertisements, Harris said, the association still had a sound case based on implied warranty against the developer. “The developer or contractor should not be allowed to burden an association with common elements that are defective, as was the case here,” he said.
An attorney for Cane Creek did not respond to Lawyers Weekly’s requests for comment.
Injuries alleged: Actual damages
Case name: Alarka Creek Properties Homeowners Association, Inc. v. Cane Creek Development Corporation
Case number: 08 CVS 36
Court: Swain County Superior Court
Judge: Hon. Alan Z. Thornburg
Verdict or settlement: Jury verdict
Date: Feb. 17, 2011
Amount: $2.4 million
Expert: Will Gentry, P.E., senior engineer at Bunnell-Lammons Engineering, Inc. (Asheville)
Plaintiff’s attorneys: Daniel K. Bryson, Scott C. Harris and Matthew E. Lee, all of Lewis & Roberts (Raleigh); Fred Howell Jones of Jones, Key, Melvin & Patton (Franklin)
Editor’s note: The information in Lawyers Weekly’s verdicts and settlements reports was submitted by the counsel for the prevailing party and represents the attorney’s characterization of the case.