Running
a community association can be a frustrating experience – especially
collecting past due assessments from your members – but a recent opinion
by the North Carolina Court of Appeals underscores how important it is
to “play by the rules” or potentially suffer dire consequences.
In a case arising out of Mecklenburg County,
Faucette v. 6303 Carmel Rd., LLC,
775 S.E.2d 316 (Ct. App. 2015), the president of a commercial
condominium association had a longstanding dispute with one of the
owners, a dentist, over past due assessments.
The president himself owned several units in the
condominium including one adjacent to the dentist. Coincidentally,
a water pipe burst in the adjacent unit, causing extensive damage to
the dentist’s unit.
The dentist’s insurance policy paid for all of the
damages to his unit but for the $5,000 deductible on the policy.
The president’s insurance company also covered the loss and part of the
claim proceeds it paid to the president included a reimbursement to the
dentist for the $5,000 deductible he had paid. The insurance
company assumed the association president would in turn pay over to the
Dentist.
Unfortunately, that did not happen. Instead,
the president unabashedly withheld making the $5,000 payment until the
Dentist agreed to pay the alleged past due assessments. After a
great deal of back-and-forth wrangling, the dentist sued the president
individually (rather than as president of the association) for
Conversion (essentially theft) and for violating North Carolina’s Unfair
and Deceptive Trade Practice Act (“UDTPA”).
N.C. Gen. Stat. §75-1.1 et seq. (Notably, the Association itself was not sued.)
The president defended the suit on the theory that
his actions were neither “unfair and deceptive” nor “in or affecting
commerce” – two essential elements of a UDTPA claim – arguing that
this was simply a "private and personal dispute” between two
individuals or, alternatively, an “intra-corporate dispute among and
between members of the condominium association.”
The trial court disagreed with his analysis, ruling
that the president’s conversion of the $5,000 amounted to an unfair and
deceptive trade practice. Pursuant to the remedies afforded
successful plaintiffs in UDTPA claims, the court then trebled the
dentist’s damages to $15,000 and further ordered the president to
reimburse the dentist for $27,000 in attorneys’ fees and costs,
rendering final judgment in the case
personally against the president to the tune of $42,000.
The Court of Appeals affirmed the trial court’s
judgment. Noting that an “inequitable assertion of power or
position” can amount to an unfair trade practice for purposes of Chapter
75, the appellate court held that the president “abused [his] position
of power to withhold payment of the money [the dentist] legally was
owed, solely to pressure [the dentist] to resolve . . . an ongoing
dispute involving payment of condominium association dues. This wrongful
conduct is unfair or deceptive within the meaning of the statute.”
Although the
Faucette case involves facts
that are not likely to recur anytime soon, it does nonetheless serve as a
cautionary tale for community association directors and officers.
What might sound like a good idea at the time in terms of putting
pressure on a deadbeat owner to pay up can result in unanticipated and
fairly catastrophic personal liability.
As we have stated in a
past article,
it is important to follow the dictates both of your community
association’s governing documents and North Carolina law governing your
association, be it a condominium or homeowners association.
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