Corporate – Authority to Sue – HOA – Third-Party Claim

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The declaration that governs the defendant-association requires the association to get the approval of 75 percent of its members before initiating court proceedings. While the association did not initiate this litigation, third-party defendant Rankin was not a party to the litigation until the association filed its third-party complaint against him. The declaration’s pre-suit membership approval requirement is broad enough to cover this situation. Since the association did not obtain the approval of 75 percent of its members before filing the third-party complaint, the association lacked the authority to sue Rankin.

Rankin’s motion to dismiss is granted without prejudice.

It is true that a stranger to an association may not invoke the association’s own internal governance procedures as an absolute defense to claims asserted by the association against that defendant. However, a member of the association (such as Rankin) is entitled to raise the association’s failure to comply with a provision requiring pre-suit membership approval as a bar to the association’s suit.

Pre-suit membership approval is not required for claims to enforce the provisions of the declaration. But the claims against Rankin, which are for breach of fiduciary duty, do not fit within this exception. Although the association’s bylaws have provisions dealing with duties owed by officers and directors, the declaration does not.

Without citation, the association argues that the bylaws are part of the declaration so that a claim to enforce the bylaws is a claim to enforce the declaration. That interpretation finds no support in the text. When the declaration means to refer to the bylaws, it does so expressly. Reading “Declaration” to mean “Declaration and Bylaws” would render the express references to the bylaws superfluous and, worse yet, could introduce conflicts where none exist.

Motion granted.

Atkinson v. Lexington Community Association, Inc. (Lawyers Weekly No. 020-058-23, 9 pp.) (Adam Conrad, J.) 2023 NCBC 58. Harmony Taylor and Jeremy Foster for third-party plaintiff; Bo Caudill, Garry Davis, Michele Eagle and Bridget Baranyai for third-party defendants. North Carolina Business Court