Declarant owned nine of 10 units, controlled the board and association, failed to have an association bank account, intermingled the assessments that were paid into his business account, never held elections or annual meetings and kept no separate corporate records.  Yet, the Court held that these failures could not be used as an excuse for not paying assessments that were due under the condominium documents.  In other words, you bought into an association, pay your assessments.

The Facts

In Ironman Medical Properties, LLC v. Chodri et. al., __ S.E.2d __ (2019), Declarant developed a 10-unit commercial condominium.  Declarant sold one unit to the plaintiff Ironman in June of 2010.  He kept the other nine units in his LLC.  Dr. Chodri, the owner of the Declarant LLC, practiced medicine for a living and relied upon his medical office manager to manage the condominium.  The parties agreed that the office manager was “inexperienced, unsophisticated and not particularly knowledgeable about such matters” involving managing condominium property.  In short, Declarant failed to maintain records, hold elections or have annual meetings.  Consequently, Ironman stopped paying assessments after a little more than two years.  Declarant under the bylaws had the power and authority to levy and collect assessments.

After three years, in 2015, Ironman sued the Declarant and Dr. Chodri.  Ironman alleged a breach of the condominium documents, breach of fiduciary duty and constructive fraud.  Declarant counterclaimed for the unpaid assessments.

Trial Court

Following the jury trial, the court granted Defendants motion for a directed verdict “on all claims except … breach of contract claim…”  The jury returned a verdict finding both parties in breach of the condominium documents and awarded $1.00 in favor of Ironman on its breach claim and $51,472 in favor on Defendants “on their breach of contract claim based on Ironman” stopping paying assessments in 2012.  The trial court denied the associations request for attorney fees.  Both parties appealed.

North Carolina Court of Appeals

Affirmed the decisions of the trial court, except it reversed the decision of the trial court to grant the directed verdict on the constructive fraud claim by the defendants.  It also remanded the decision on attorney fees to the trial court to determine if the association was the prevailing party, which would then require the payment of the attorney fees and costs under the North Carolina statute.

Lessons Learned
  1. Unit Owners should always pay their assessments, because there are almost no cases that support holding your association fees, absent some valid set-off claim;
  2. Failing to abide by various corporate formalities may be wrong, but it provides plaintiffs with limited recovery, probably since the court can order that the association and board comply with their documents and the law, but that their failure to do so usually has limited or no provable damages.