Wilner v. The Cedars of Chapel Hill, LLC

IN THE COURT OF APPEALS OF NORTH CAROLINA

No. COA14-380

Filed: 2 June 2015

Orange County, No. 11 CVS 1428

JONATHAN WILNER, et. al., and ALL OTHERS SIMILARLY SITUATED,
Plaintiffs,

v.

THE CEDARS OF CHAPEL HILL, LLC, et. al., Defendants.

Appeal by defendants from order entered 10 January 2014 by Judge William

R. Pittman in Orange County Superior Court. Heard in the Court of Appeals 20

November 2014.

Ragsdale Liggett PLLC, by Benjamin R. Kuhn, Amie C. Sivon, and R. Michael
Pipkin, for plaintiff-appellees.

Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., by James T.
Williams, Jr., Jennifer K. Van Zant, and D.J. O’Brien III, for defendant-
appellants.

Wyrick Robbins Yates & Ponton LLP, by K. Edward Greene and Tobias S.
Hampson, and Barringer & Sasser, LLP, by Brent D. Barringer and Robert H.
Sasser, III, for amici curiae The Cypress of Charlotte and The Cypress of
Raleigh.

STEELMAN, Judge.

Where the provisions of an agreement between condominium residents and a

continuing care retirement community were not unconscionable, and did not violate

the prohibition against transfer fees in Chapter 39A of the North Carolina General
 WILNER V. THE CEDARS OF CHAPEL HILL, LLC

Opinion of the Court

Statutes, or the provisions of the Marketable Title Act, Chapter 47B of the North

Carolina General Statutes, the trial court erred in finding the agreements

unenforceable. Where plaintiffs agreed to the payment of fees in a contract, the trial

court erred in holding them unenforceable pursuant to an analysis of covenants

running with the land. The trial court erred in entering an injunction without

describing with particularity the acts being enjoined.

I. Factual and Procedural Background

The Cedars of Chapel Hill, LLC (the Cedars) is a continuing care retirement

community (CCRC) located in Chapel Hill, North Carolina. Residents at the Cedars

purchase individual condominium units within the community, and pay an additional

membership fee. This fee is calculated as ten percent of the gross purchase price of a

housing unit, and is paid at closing as part of the purchase price. If a resident inherits

the unit or receives it as a gift, the resident pays the fee, calculated as ten percent of

the unit’s fair market value. If the unit is resold, the ten percent fee is deducted from

the gross sales price and paid at closing. The payment of this fee is clearly set forth

in the membership agreement. Membership entitles residents to access to the

common property of the Cedars, including a clubhouse and health center. Residents

who become incapable of independent living may move into the health center, and

remain eligible to use the facilities for the remainder of their lives.

-2-
 WILNER V. THE CEDARS OF CHAPEL HILL, LLC

Opinion of the Court

In addition to the initial membership fee, members make monthly payments

to the Cedars Club (the Club), which cover the cost of various amenities. These

monthly payments include a payment to the Cedars for overhead expenses, which is

described in the membership agreement, disclosure statements, declaration, and

bylaws of the condominium association.

On 29 June 2011, Jonathan Wilner and Diane Wilner filed this lawsuit

seeking: (1) a declaratory judgment that the covenants requiring membership and a

membership fee, and requiring payment of an overhead fee, do not run with the land,

and are therefore unenforceable; (2) a declaratory judgment that the preliminary

membership fee is a “transfer fee” prohibited under N.C. Gen. Stat. § 39A-3; (3) a

judgment that the preliminary membership fee violates the Marketable Title Act,

N.C. Gen. Stat. § 47B; and (4) a temporary restraining order and preliminary

injunction to prohibit the collection of the membership fee and overhead payment.1

On 23 August 2011, the Wilners filed an amended complaint, joining as plaintiffs

Edwin B. Hoel, Per Ole Hoel, and Linda Leekley (with Jonathan Wilner and Diane

Wilner, plaintiffs). Plaintiffs’ amended complaint included additional factual

allegations, and an additional cause of action for breach of the declaration and bylaws

of the condominium association. On 7 November 2011, plaintiffs filed a motion for

1 Plaintiffs brought additional claims, but dismissed them two days before the hearing on their
motion for class certification.

-3-
 WILNER V. THE CEDARS OF CHAPEL HILL, LLC

Opinion of the Court

class certification. On 24 August 2012, the trial court granted plaintiffs’ motion to

certify a class.2

The parties each filed motions for summary judgment. Plaintiffs’ summary

judgment motion also included new language not previously used in their complaint,

alleging that the membership agreements were unconscionable, and seeking a

permanent injunction.

On 10 January 2014, the trial court granted summary judgment in favor of

plaintiffs as to plaintiffs’ claims asserting that the covenants were unenforceable,

that they violated Chapter 39A of the North Carolina General Statutes, and that they

violated N.C. Gen. Stat. § 47B, the Real Property Marketable Title Act, and plaintiffs’

request for a temporary restraining order and preliminary injunction. The trial court

denied defendants’ motions for summary judgment. This order did not address the

unconscionability language contained in plaintiffs’ motion for summary judgment.

Defendants appeal. On 28 January 2014, the trial court granted defendants’

motion to stay judgment pending appeal, and certified its order to this Court

pursuant to Rules 54 and 62 of the North Carolina Rules of Civil Procedure.

II. Standard of Review

“Our standard of review of an appeal from summary judgment is de novo; such

judgment is appropriate only when the record shows that ‘there is no genuine issue

2 The class action is not the subject of this appeal.

-4-
 WILNER V. THE CEDARS OF CHAPEL HILL, LLC

Opinion of the Court

as to any material fact and that any party is entitled to a judgment as a matter of

law.’” In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572, 576 (2008) (quoting

Forbis v. Neal, 361 N.C. 519, 524, 649 S.E.2d 382, 385 (2007)).

III. Enforceability of Membership Agreement

In their first argument, defendants contend that the trial court erred in ruling

that the membership fee and overhead payments were unenforceable. We agree.

Because the order did not specify the basis by which the trial court held the fee

and payments unenforceable, we examine in turn each of the various arguments

made by plaintiffs at the summary judgment hearing before the trial court.

A. Unconscionability

Plaintiffs alleged in their motion for summary judgment that the contracts

they signed were unconscionable. In order to establish unconscionability, plaintiffs

had to show both procedural unconscionability and substantive unconscionability.

Westmoreland v. High Point Healthcare Inc., 218 N.C. App. 76, 80, 721 S.E.2d 712,

717 (2012).

Procedural unconscionability involves “bargaining naughtiness in the form of

unfair surprise, lack of meaningful choice, and an inequality of bargaining power.”

Id. at 81, 721 S.E.2d at 717 (quotations and citations omitted). Plaintiffs, raising this

argument in their motion for summary judgment, contended that:

[T]he bargaining power between the Plaintiffs and
Defendants . . . was unquestionably unequal in that the

-5-
 WILNER V. THE CEDARS OF CHAPEL HILL, LLC

Opinion of the Court

Plaintiffs as a whole are relatively unsophisticated in
terms of the complex real estate and financial
machinations at play while contracting with the
Defendants who engaged counsel experienced in complex
real property transactions and condominium governance to
draft the covenant clauses requiring payment of the
Challenged Fees, along with the numerous other
documents such as Condo Bylaws, Membership
Agreements, Purchase and Sale Agreements, Resale
Purchase and Sale Agreements, Guarantees, Indemnities,
each of which include detailed provisions as to the payment
and collection of the Challenged Fees.

We find that these contentions were insufficient to establish procedural

unconscionability. The contracts at issue were signed at a real estate closing,

meaning that plaintiffs had counsel present. The contracts had detailed, bolded notes

in the margins, explaining what each contract provision entailed. Plaintiffs did not

allege that they were rushed through the process, nor that they were tricked or

deprived of opportunity to speak with counsel or consider their options; plaintiffs

alleged only that defendants were more sophisticated and drafted the contracts to

their own benefit. This alone does not rise to the level of procedural

unconscionability. We held in Westmoreland that “bargaining inequality alone

generally cannot establish procedural unconscionability. Otherwise, procedural

unconscionability would exist in most contracts between corporations and

consumers.” Id.

Substantive unconscionability “refers to harsh, one-sided, and oppressive

contract terms.” Id. at 84, 721 S.E.2d at 719 (quotations and citations omitted). The

-6-
 WILNER V. THE CEDARS OF CHAPEL HILL, LLC

Opinion of the Court

terms must be “so oppressive that no reasonable person would make them on the one

hand, and no honest and fair person would accept them on the other.” Brenner v.

Little Red Sch. House Ltd., 302 N.C. 207, 213, 274 S.E.2d 206, 210 (1981). Plaintiffs,

in raising this issue, contended that the fees in question were “exorbitantly high,”

that the documents at issue were “decidedly one-sided in favor of the Company,” and

that plaintiffs lacked “ability . . . to negotiate any of the terms of the covenants and

conditions in question in this case.” Plaintiffs further noted that the market for

CCRCs in Chapel Hill is very small, leaving few alternatives.

Again, we find plaintiffs’ arguments unavailing. We recently held that “the

times in which consumer contracts were anything other than adhesive are long past.”

Torrence v. Nationwide Budget Fin., ___ N.C. App. ___, ___, 753 S.E.2d 802, 812

(quoting AT&T Mobility LLC v. Concepcion, ___ U.S. ___, ___, 179 L.Ed.2d 742, 755

(2011)), review denied, cert. denied, ___ N.C. ___, 759 S.E.2d 88 (2014). The mere fact

that plaintiffs lacked the ability to negotiate contract terms does not create

substantive unconscionability, nor does the fact that defendants were among the only

providers of CCRC facilities. We hold that plaintiffs did not adequately demonstrate

unconscionability as a matter of law, and that a genuine issue of material fact existed

as to unconscionability, which precluded summary judgment.

B. Transfer Fees

-7-
 WILNER V. THE CEDARS OF CHAPEL HILL, LLC

Opinion of the Court

Plaintiffs also alleged that the membership fee constituted an unlawful

transfer fee. Chapter 39A of the North Carolina General Statutes provides that a

transfer fee violates North Carolina’s public policy in favor of the alienability of real

property “by impairing the marketability of title to the affected real property and

constitutes an unreasonable restraint on alienation and transferability of property,

regardless of the duration of the covenant or the amount of the transfer fee set forth

in the covenant.” N.C. Gen. Stat. § 39A-1(b) (2013). Chapter 39A defines a transfer

fee as “a fee or charge payable upon the transfer of an interest in real property or

payable for the right to make or accept such transfer, regardless of whether the fee

or charge is a fixed amount or is determined as a percentage of the value of the

property, the purchase price, or other consideration given for the transfer.” N.C. Gen.

Stat. § 39A-2(2).

However, there exists an exception to the provisions in Chapter 39A. Chapter

58, Article 64 of the North Carolina General Statutes deals with CCRCs. According

to N.C. Gen. Stat. § 58-64-85:

Facilities and providers licensed under this Article that
also are subject to the provisions of the North Carolina
Condominium Act under Chapter 47C of the General
Statutes shall not be subject to the provisions of Chapter
39A of the General Statutes, provided that the facility's
declaration of condominium does not require the payment
of any fee or charge not otherwise provided for in a
resident's contract for continuing care, or other separate
contract for the provisions of membership or services.

-8-
 WILNER V. THE CEDARS OF CHAPEL HILL, LLC

Opinion of the Court

N.C. Gen. Stat. § 58-64-85(b) (2013) (emphasis added). The specific provision of this

statute overrules the general provision of Chapter 39A. Provided that the

condominium declaration requires only fees outlined in other contracts signed by the

resident, those fees are not barred by the provisions of Chapter 39A, even though they

might otherwise be considered transfer fees.

In the instant case, all fees, including the membership fee, were described in

detail in contracts and agreements signed by all residents of the Cedars. Because the

declaration required only those fees which were provided for in contracts signed by

the residents, they are exempt from the provisions of Chapter 39A prohibiting

transfer fees.

C. Marketable Title Act

Plaintiffs also alleged that the agreements at issue violate the Marketable

Title Act. Chapter 47B of the North Carolina General Statutes codifies North

Carolina policy in favor of quieting title when a person can demonstrate 30 years of

continuous ownership of real property. See N.C. Gen. Stat. § 47B-1 et seq (2013).

The Marketable Title Act deals with actions to quiet title. In the instant case,

there is no issue as to who owns the various units and common elements of the Cedars

CCRC; these issues of ownership are explicitly detailed in the ownership agreements

signed by the parties. The Act does not authorize a cause of action where, as here,

parties are under a contractual obligation to pay fees pursuant to contract.

-9-
 WILNER V. THE CEDARS OF CHAPEL HILL, LLC

Opinion of the Court

IV. Enforceability of Covenants

In their second argument, defendants contend that the trial court erred in

finding the challenged covenants unenforceable. We agree.

All purchasers of property at the Cedars are required to sign a membership

agreement, a separate document that is part of the purchase and sale agreement, at

the time of closing. This agreement provides that all residents must be members,

that membership is non-transferable, and that the membership fee is included in and

deducted from the purchase price of a unit. Plaintiffs, in their initial complaint,

which was incorporated by reference in their amended complaint, contend that they

represent all persons who purchase, sell, or own a Unit at the Cedars, all who enter

into a membership agreement with the Cedars, and all who are currently or may in

the future enter into a membership agreement with the Cedars. We note that any

such plaintiff, including the named plaintiffs in the instant case, would have in

common the fact that either they or their buyers would have signed the membership

agreement providing for the deduction of membership fees from the purchase price of

a unit.

Plaintiffs contend that the covenants at issue do not run with the land, and are

therefore unenforceable against subsequent purchasers. In Runyon v. Paley, the

seminal case on covenants running with the land in North Carolina, our Supreme

Court held that a party seeking to enforce a covenant as one running with the land

- 10 -
 WILNER V. THE CEDARS OF CHAPEL HILL, LLC

Opinion of the Court

had to prove that the covenant in question “touches and concerns” the land, the

existence of both horizontal and vertical privity of estate, and the intent of the

original parties to create a covenant running with the land. 331 N.C. 293, 416 S.E.2d

177 (1992). Black’s Law Dictionary defines a covenant running with the land as “[a]

covenant ultimately and inherently involved with the land and therefore binding

subsequent owners and successor grantees indefinitely.” Black’s Law Dictionary 421

(9th ed. 2009). It further notes that “[t]he most important consequence of a covenant

running with the land is that its burden or benefit will thereby be imposed or

conferred upon a subsequent owner of the property who never actually agreed to it.

Running covenants thereby achieve the transfer of duties and rights in a way not

permitted by traditional contract law.” Id. (quoting Roger Bernhardt, Real Property

in a Nutshell 212 (3rd ed. 1993)). It is this feature, the fact that a covenant running

with the land can bind subsequent owners who did not agree to it, that distinguishes

this type of covenant from a traditional contract.

Despite plaintiffs’ contentions, the issue in this case is not one of a covenant

running with the land. In the instant case, any potential buyer is required to sign a

contract obligating himself to the payment of membership fees. As a result, this

matter falls within the realm of traditional contract law, not the law of covenants

running with the land. Under traditional contract law, parties that agree to contracts

are bound by them. Plaintiffs, or their buyers, would be obligated to pay the

- 11 -
 WILNER V. THE CEDARS OF CHAPEL HILL, LLC

Opinion of the Court

membership fees, not because of some covenant running with the land, but because

they signed a document agreeing to pay the membership fees. Plaintiffs’ contentions

that the fees, once collected, need not be spent on improving or maintaining the

physical facilities is irrelevant. Plaintiffs’ contentions that these fees do not touch

and concern the land, and that the fees are therefore an unenforceable covenant

running with the land, are without merit.

V. Entry of Injunction

In their third argument, defendants contend that the trial court’s summary

judgment order, which grants an injunction, violated Rule 65(d) of the North Carolina

Rules of Civil Procedure. We agree.

Rule 65 of the North Carolina Rules of Civil Procedure provides, in relevant

part:

Every order granting an injunction and every restraining
order shall set forth the reasons for its issuance; shall be
specific in terms; shall describe in reasonable detail, and
not by reference to the complaint or other document, the
act or acts enjoined or restrained; and is binding only upon
the parties to the action, their officers, agents, servants,
employees, and attorneys, and upon those persons in active
concert or participation with them who receive actual
notice in any manner of the order by personal service or
otherwise.

N.C. R. Civ. P. 65(d). This requirement is explicit and unambiguous; a trial court

may not issue an injunction or restraining order without providing specific terms, “in

reasonable detail, . . . the act or acts enjoined or restrained[.]” In the instant case,

- 12 -
 WILNER V. THE CEDARS OF CHAPEL HILL, LLC

Opinion of the Court

the trial court entered a summary judgment order, granting summary judgment on

four of plaintiff’s claims, including its motion for an injunction, with no further

explanation given. Specifically, the trial court’s order as to plaintiffs’ claims stated:

Plaintiffs' motion for partial summary judgment is, allowed
as to Plaintiffs' First, Third, Eighth and Tenth Claims for
Relief as set forth in paragraphs numbered one through
five in Plaintiff's motion.

In their motion for summary judgment, plaintiffs alleged with respect to their

tenth claim for relief:

Plaintiffs' Tenth Claim for Relief for Permanent Injunction
enjoining and stopping, forever, the Defendants' past,
present, and future efforts to implement and enforce
certain affirmative covenants in the Declaration of
Condominium of The Cedars of Chapel Hill requiring that
Plaintiffs pay Defendants certain Challenged Fees,
including but not limited to a Transfer Fee (aka the
"Membership Fee"), the Corporate Overhead Payment Fee,
and the Litigation Fee, in order that this Court may
prevent the irreparable harm that the Plaintiffs have
suffered, are suffering, and will continue in the future to
suffer if a Permanent Injunction is not entered stopping the
Defendants from collecting and enforcing their claimed
right to such fees[.]

Plaintiffs’ motion for summary judgment sought an expansive injunction, and

the trial court’s cursory handling of that issue did not meet the standard of

“reasonable detail” concerning “the act or acts enjoined or restrained[.]” We hold that

the trial court erred in granting an injunction in such a cursory manner.

VI. Failure to Make Allegations Against Defendants

- 13 -
 WILNER V. THE CEDARS OF CHAPEL HILL, LLC

Opinion of the Court

In their fourth argument, defendants contend that the trial court erred in

entering its summary judgment order where plaintiffs had failed to make allegations

against multiple defendants. Because we have held above that the trial court erred

in entering summary judgment, we need not address this contention.

VII. Conclusion

We hold that the trial court erred in determining, as a matter of law, that the

contracts at issue were unconscionable, and that they violated the provisions of

Chapter 39A and the Marketable Title Act. We further hold that the trial court erred

in finding the covenants unenforceable. The trial court also erred in entering its

injunction in a cursory manner, in violation of Rule 65 of the North Carolina Rules of

Civil Procedure. We vacate the order granting summary judgment and the

injunction, and remand this matter to the trial court for a trial by jury.

VACATED AND REMANDED.

Judges GEER and STEPHENS concur.

- 14 -