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Tort/Negligence – Breach of Fiduciary Duty – Real Property – Developer’s Board Appointees

North Carolina Lawyers Weekly Staff//September 11, 2023//

Tort/Negligence – Breach of Fiduciary Duty – Real Property – Developer’s Board Appointees

North Carolina Lawyers Weekly Staff//September 11, 2023//

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As members of the board of directors of the plaintiff-homeowners’ association (HOA), the defendant-developer’s appointees owed fiduciary duties to the HOA. In this action arising from the alleged negligent construction of the development’s common areas, the complaint alleges that the defendant-appointees made decisions favoring the developer’s interests over the interests of the HOA. The complaint’s allegations sufficiently state a claim of breach of fiduciary duty against the appointees.

The court grants the developer’s motion to dismiss the HOA’s claims for breach of contract and for the proceeds of a temporary easement over the development’s recreation area. Otherwise, defendants’ motions to dismiss are denied.

According to the complaint, the developer retained the authority, not only to appoint members to the HOA board, but also to exercise the duties of the HOA board. The complaint sufficiently alleges that the developer owed a fiduciary duty to the HOA.

The HOA’s breach of contract claim against the developer fails because the contract at issue – the developer’s declaration – does not govern the developer’s alleged acts. At no point does the complaint identify which provisions of the declaration the developer supposedly breached.

Despite the fact that the developer hired independent contractors to build the elements of the development that the HOA claims are defective, the HOA’s negligence claim against the developer survives because the complaint is replete with allegations that the developer “had a duty to design, construct, supervise the construction of, [and] inspect the construction of” common areas; that it “was negligent . . . in designing, constructing, supervising the construction of, [and] inspecting the construction of” the common areas; and that it failed to adequately supervise their construction. These allegations support inferences that the developer participated in the construction of certain common elements and that it retained the right to supervise its contractors.

The developer contends that plaintiff’s claims are barred by the six-year statute of repose. However, a plaintiff has no burden at the pleading stage to allege facts showing that its complaint was filed within the applicable statute of repose. And nothing in the complaint conclusively shows that the improvements at issue – roads, pickleball courts, and the stormwater system – were substantially complete more than six years before the HOA filed this lawsuit.

Even though the HOA is responsible for the maintenance of the development’s recreation area and expects that the developer will eventually transfer title to the recreation area to the HOA, since the developer still holds title to the recreation area, the HOA has no claim to funds the developer was paid for a temporary easement over the recreation area.

Motions granted in part, denied in part.

Village at Motts Landing Homeowners’ Association v. Aftew Properties, LLC (Lawyers Weekly No. 020-057-23, 16 pp.) (Adam Conrad, J.) 2023 NCBC 57. Cory Reiss and Kyle Nutt for plaintiff; Gary Shipman, James Moore, Thomas Harvey, Clay Allen Collier, Norwood Blanchard, Rebecca Knudson and Melanie Huffines for defendants. North Carolina Business Court

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