Link to original WordPerfect file
Link to PDF file
How to access the above link?
All opinions are subject to modification and technical correction prior to official publication in the North Carolina Reports and North Carolina Court of Appeals Reports. In the event of discrepancies between the electronic version of an opinion and the print version appearing in the North Carolina Reports and North Carolina Court of Appeals Reports, the latest print version is to be considered authoritative.
THE PENINSULA PROPERTY OWNERS ASSOCIATION, INC., Plaintiff, v.
CRESCENT RESOURCES, LLC, Defendant
Filed: 21 June 2005
1. Appeal and Error--standard of review--Rule 12(b)(6) motion
Appellate review of a Rule 12(b)(6) motion to dismiss is de novo.
2. Deeds--property owners association--bylaws and covenants--approval of lawsuit--
Contractual provisions agreed to by members of a property owners association may
provide procedural prerequisites or contractually limit the time, place, or manner of asserting
claims. Here, an association(PPOA) lacked the authority to begin a lawsuit against a developer
(Crescent) and did not have standing where it had not received approval from two thirds of its
members, as required by a valid provision of the by-laws and declaration of covenants.
Appeal by plaintiff from judgment entered 24 February 2004 by
Judge W. Robert Bell in Mecklenburg County Superior Court. Heard
in the Court of Appeals 2 March 2005.
Weaver, Bennett & Bland, P.A., by Michael David Bland and
Benjamin L. Worley, for plaintiff-appellant.
Parker, Poe, Adams & Bernstein, L.L.P., by Irvin W. Hankins,
III, and John W. Francisco, for defendant-appellee.
The Peninsula Property Owners Association, Inc. (the PPOA)
appeals from judgment entered granting Crescent Resources, LLC's
(Crescent) motion to dismiss and motion for summary judgment
based on the PPOA's lack of standing. We affirm.
Beginning in 1989, Crescent, a subsidiary of Duke Power
Company, developed the Peninsula, a planned residential community
on Lake Norman near Charlotte, North Carolina. Crescent sold overnine hundred lots in the Peninsula between 1990 and 1 January 1999.
As part of the development, Crescent established the PPOA as a
North Carolina non-profit corporation. Crescent appointed the
original members of the Board of the PPOA (the Board) and
maintained majority control of the Board until 1 January 1999. The
Declaration of Covenants, Conditions, and Restrictions (the
Declaration) and the Bylaws of the PPOA (Bylaws) were created by
Crescent. Both the Declaration and the Bylaws contain the
the affirmative vote of no less than two-
thirds (2/3) of all votes entitled to be cast
by the Master Association Members shall be
required in order for the Master Association
to (1) file a complaint, on account of an act
or omission of Declarant, with any
governmental agency which has regulatory or
judicial authority over the Project or any
part thereof; or (2) assert a claim against or
In addition, the Declaration and the Bylaws granted authority
to the Board to contract with third parties to install
infrastructure for the Peninsula including streets, sewers,
sidewalks, the golf course, the clubhouse, parking lots, and street
lights. The Board entered into a lease agreement with Duke Power
to install and maintain decorative brass street light poles and
fixtures. The PPOA made lease payments to Duke Power from annual
dues collected from the homeowners.
When Crescent relinquished control of the Board in January
1999, the PPOA's members discovered the lease agreement between
the PPOA and Duke Power. The Board decided to buy the street lightequipment from Duke Power for $1,200,000.00, instead of completing
the remaining lease payments totaling $1,500,000.00.
On 1 September 2000, the PPOA and one of its members filed a
complaint in Mecklenburg County Superior Court against Crescent and
sought certification of the matter as a class action. The PPOA
made no attempt to secure a vote of two-thirds of its members prior
to instituting this action. The complaint alleged constructive
fraud, unfair and deceptive trade practices, and violation of the
Interstate Land Sales Full Disclosure Act. The trial court entered
an order denying the request for class certification on 26 October
2001. The PPOA subsequently filed a voluntary dismissal without
On 30 October 2002, the PPOA filed this action in Mecklenburg
County Superior Court. As with the earlier suit, the PPOA did not
attempt to garner the required two-thirds vote under the Bylaws and
the Declaration. The PPOA asserted claims of constructive fraud
and unfair and deceptive trade practices. These causes of action
were alleged on behalf of the PPOA itself, rather than individual
homeowners. The PPOA filed an amended complaint on 6 January 2003
to correct Crescent's business organization status.
Crescent answered on 24 March 2003 and argued in part that the
PPOA lacked standing to assert its claims. Following discovery by
both parties, Crescent filed a motion for summary judgment on 9
December 2003 claiming: (1) the PPOA did not have the authority or
standing to assert its claims; (2) the PPOA's claims are time
barred by the statute of limitations; and (3) the PPOA has notasserted valid claims. Crescent filed an amended motion to dismiss
combined with a motion for summary judgment on 3 December 2003
arguing: (1) the trial court lacked jurisdiction; (2) allegations
in PPOA's complaint fail to state a claim upon which relief can be
granted; (3) the PPOA does not have authority or capacity to assert
its claims; and (4) there are no genuine issues of material fact.
After submission of affidavits, pleadings, and other documents
and arguments by both parties, the trial court ruled that the PPOA
did not have standing to file and prosecute this action and
granted Crescent's motion to dismiss and motion for summary
judgment. The PPOA appeals.
The issue on appeal is whether the trial court erred in ruling
the PPOA lacked standing and authority to assert its claims against
III. Standard of Review
 Our review of a motion to dismiss under Rule 12(b)(1) of
the North Carolina Rules of Civil Procedure is de novo. Country
Club of Johnson Cty., Inc. v. U.S. Fidelity & Guar. Co., 150 N.C.
App. 231, 238, 563 S.E.2d 269, 274 (2002) (citation omitted); N.C.
Gen. Stat. § 1A-1, Rule 12(b)(1) (2003). Under a de novo review,
the court considers the matter anew and freely substitutes its own
judgment for that of the [trial court]. In re Appeal of the
Greens of Pine Glen Ltd. P'ship, 356 N.C. 642, 647, 576 S.E.2d 316,
319 (2003) (citing Mann Media, Inc. v. Randolph Cty. Planning Bd.,
356 N.C. 1, 13, 565 S.E.2d 9, 17 (2002)).
IV. Subject Matter Jurisdiction
The PPOA argues the trial court erred by: (1) dismissing its
complaint for lack of subject matter jurisdiction; and (2) granting
Crescent's motion for summary judgment. We disagree.
 Standing refers to whether a party has a sufficient stake
in an otherwise justiciable controversy such that he or she may
properly seek adjudication of the matter. American Woodland
Indus., Inc. v. Tolson, 155 N.C. App. 624, 626, 574 S.E.2d 55, 57
(2002) (citations omitted), cert. denied, 357 N.C. 61, 579 S.E.2d
283 (2003). Standing is a necessary prerequisite to a court's
proper exercise of subject matter jurisdiction. Street v. Smart
Corp., 157 N.C. App. 303, 305, 578 S.E.2d 695, 698 (2003) (internal
quotation marks omitted). As the party seeking to invoke
jurisdiction, the PPOA has the burden of proving the elements of
standing. Neuse River Found., Inc. v. Smithfield Foods, Inc., 155
N.C. App. 110, 113, 574 S.E.2d 48, 51 (2002) (citations omitted),
disc. rev. denied, 356 N.C. 675, 577 S.E.2d 628 (2003).
Standing . . . is . . . properly challenged by a Rule
12(b)(1) motion to dismiss, Fuller v. Easley, 145 N.C. App. 391,
395, 553 S.E.2d 43, 46 (2001), and a showing must be made 'that
the plaintiff have been injured or threatened by injury or have a
statutory right to institute an action,' Bruggeman v. Meditrust
Co., LLC, 165 N.C. App. 790, 795, 600 S.E.2d 507, 511 (2004)
(quoting In re Baby Boy Scearce, 81 N.C. App. 531, 541, 345 S.E.2d
404, 410, disc. rev. denied, 318 N.C. 415, 349 S.E.2d 589 (1986)). If a party does not have standing to bring a claim, a court has no
subject matter jurisdiction to hear the claim. Estate of Apple v.
Commer. Courier Express, Inc., ___ N.C. App. ___, ___, 607 S.E.2d
14, 16 (2005) (citations omitted), disc. rev. denied, ___ N.C. ___,
___ S.E.2d ___ (May 4, 2005).
Statutes or contract provisions may also prescribe whether a
court possesses subject matter jurisdiction. See N.C. Gen. Stat.
§ 55-7-42 (2003) (a shareholder may not commence a derivative
action without: (1) written demand . . . upon the corporation to
take suitable action; and (2) 90 days have expired from the date
the demand was made unless, prior to the expiration of the 90 days,
the shareholder was notified that the corporation rejected the
demand, or unless irreparable injury to the corporation would
result by waiting for the expiration of the 90 day period.); see
also Allen v. Ferrera, 141 N.C. App. 284, 287-89, 540 S.E.2d 761,
764-65 (2000) (applying N.C. Gen. Stat. § 55-7-42); Johnston County
v. R. N. Rouse & Co., 331 N.C. 88, 92, 414 S.E.2d 30, 33 (1992)
([P]arties have endeavored to avoid potential litigation
concerning judicial jurisdiction and the governing law by including
in their contracts provisions concerning these matters. Although
the language used may differ from one contract to another, one or
more of three types of provisions (choice of law, consent to
jurisdiction, and forum selection), which have very distinct
purposes, may often be found in the boilerplate language of a
B. Two-Thirds Voting Provision
The North Carolina Nonprofit Corporation Act (the Act) is
found in N.C. Gen. Stat. § 55A-1-01 et seq. Included within the
Act are guidelines for corporations' bylaws, which may contain any
provision for regulating and managing the affairs of the
corporation that is not inconsistent with law or the articles of
incorporation. N.C. Gen. Stat. § 55A-2-06(b) (2003).
Neither party asserts a discrepancy between the Bylaws and the
articles of incorporation. For corporations with members, the
bylaws may include any provisions not inconsistent with law . . .
with respect to: . . . (2) Voting rights and the manner of
exercising voting rights; (3) The relative rights and obligations
of members among themselves, to the corporation, and with respect
to the property of the corporation; . . . (7) Any other matters.
N.C. Gen. Stat. § 55A-6-20 (2003).
Here, Article III, Section 10 of the Bylaws and Article III,
Section 3.3 of the Declaration state, [t]he affirmative vote of no
less than two-thirds (2/3) of all votes entitled to be cast by the
[PPOA] members shall be required in order for the [PPOA] to . . .
assert a claim against or sue [Crescent]. The two-thirds
provision is limited to situations where the PPOA desires to
commence legal action against Crescent directly or complain to a
governmental agency about Crescent's acts or omissions. The PPOA
never attempted to obtain nor actually received the required two-
thirds vote by its members approving its decision to file any
complaint against Crescent. The trial court dismissed the PPOA's
complaint based on the PPOA's lack of authority and standing toassert claims against Crescent without prior approval by two-thirds
of its members.
The PPOA argues the extra majority approval by its members is
in violation to the stated public policy to allow entities free
access to the courts, and asserts the two-thirds vote requirement
directly inhibits [the PPOA's] ability to recover from [Crescent]
for its fraudulent actions by restricting [the PPOA's] access to
the court system. In support of its argument, the PPOA first
cites N.C. Gen. Stat. § 22B-10 (2003) which provides,
[a]ny provision in a contract requiring a
party to the contract to waive his right to a
jury trial is unconscionable as a matter of
law and the provision shall be unenforceable.
This section does not prohibit parties from
entering into agreements to arbitrate or
engage in other forms of alternative dispute
The PPOA contends N.C. Gen. Stat. § 22B-10 embodies North
Carolina's public policy to allow persons and entities to have
their day in court. The PPOA further asserts the two-thirds
provision is an illegal restraint of the right to sue. See Duffy
v. Insurance Company, 142 N.C. 100, 103, 55 S.E. 79, 81 (1906)
(By-laws restricting the right to sue in the courts are generally
void.). Finally, the PPOA argues the two-thirds provision equates
to an exculpatory clause. See Fortson v. McClellan, 131 N.C. App.
635, 636, 508 S.E.2d 549, 551 (1998) (an exculpatory contract will
be enforced unless it violates a statute, is gained through
inequality of bargaining power, or is contrary to a substantial
public interest). Our de novo review of the two-thirds voting provision and the
applicable statutory and case law shows the voting requirement is
valid and enforceable. In re Appeal of the Greens of Pine Glen
Ltd. P'ship, 356 N.C. at 647, 576 S.E.2d at 319. In response to
the PPOA's first two arguments, the PPOA is not prevented from
either obtaining access to the judicial system or asserting its
right to file suit. The Bylaws do not require and the PPOA did not
waive [its] right to a jury trial. N.C. Gen. Stat. § 22B-10.
The two-thirds vote provision in the Bylaws and the
Declaration does not eliminate the PPOA's right to file a legal
action. Both the PPOA and its members enjoy the unlimited ability
to file causes of action against Crescent, subject to the required
approval by its members. The two-thirds voting provision merely
requires the PPOA to garner extra-majority approval from its
members before instituting legal action. Crescent does not control
the required two-thirds majority vote to sue. Crescent owned only
two of the nine hundred lots within the Peninsula at the time the
PPOA filed its complaint, less than one-percent of the voting
Exculpatory clauses contractually limit a party's liability.
Hall v. Refining Co., 242 N.C. 707, 709-10, 89 S.E.2d 396, 398
(1955). The two-thirds provision does not limit Crescent's
liability to the PPOA for any alleged wrongdoing. Rather, the PPOA
must obtain the required approval from its membership prior to
commencing an action against Crescent for alleged wrongdoings. In
addition, the PPOA's individual members are not covered by the two-thirds provision and are not without legal recourse against
Crescent correctly notes that a two-thirds vote, or other pre-
lawsuit requirements, are common. See N.C. Gen. Stat. § 55-7-42 (a
shareholder may not commence a derivative action without: (1)
written demand . . . upon the corporation to take suitable
action; and (2) 90 days have expired from the date the demand was
made unless prior to the expiration of the 90 days, the shareholder
was notified that the corporation rejected the demand, or unless
irreparable injury to the corporation would result by waiting for
the expiration of the 90-day period.); N.C. Gen. Stat. § 47F-1-
102(d) (2003) (a homeowner association formed prior to 1 January
1999 may adopt the provisions of the North Carolina Planned
Community Act with at least two-thirds member support).
As noted, contractual provisions agreed to by members of the
PPOA may provide procedural prerequisites or contractually limit
the time, place, or manner for asserting claims. Johnston County,
331 N.C. at 92-93, 414 S.E.2d at 33 (choice of law, consent to
jurisdiction, and forum selection limitations); Land Co. v. Byrd,
299 N.C. 260, 262, 261 S.E.2d 655, 656 (1980) (where parties to
a contract have agreed that a given jurisdiction's substantive law
shall govern the interpretation of the contract, such a contractual
provision will be given effect); Raspet v. Buck, 147 N.C. App.
133, 135, 554 S.E.2d 676, 678 (2001) (there is a strong public
policy favoring arbitration in North Carolina). Crescent argues prior notice to the PPOA's members shows
knowledge and ratification to uphold the validity of the two-thirds
provision. Crescent began developing the Peninsula in 1989 and
established the PPOA in 1990. The Bylaws were adopted in July
1990. The Declaration was made and entered into in September 1990.
Crescent began selling residential lots later that year. In
connection with each sale of real property by Crescent to
homeowners, the contracts included an express acknowledgment by the
homeowners that they read, understood, and agreed to terms of the
Declaration. Crescent also required prospective lot owners to sign
a separate acknowledgment that they had read and understood a copy
of the PPOA's previous year's budget, which included lease payments
for the street lights.
The PPOA's members also received ample opportunity to review
the two-thirds voting requirement in the Declaration and the Bylaws
prior to purchasing real property within the Peninsula. Both the
Declaration and the Bylaws include provisions permitting review and
inspection of the PPOA's books, records, and papers during
reasonable business hours. See N.C. Gen. Stat. § 55A-16-02
(2003) (A member is entitled to inspect and copy . . . any of the
records of the corporation . . . .). All members were further
provided access to all financial records pertaining to the PPOA's
operating budget, including the lease payments to Duke Power, which
were provided every year during annual meetings. In addition, all
prospective purchasers and lot owners were provided record notice,as both the Bylaws and the Declaration were filed with and are
available in the county register of deeds office.
The trial court did not err in dismissing the PPOA's complaint
for lack of subject matter jurisdiction. The PPOA fails to prove
it has standing. Neuse River Found., Inc., 155 N.C. App. at 113,
574 S.E.2d at 51. Our review of the record and applicable law
indicates the two-thirds vote provision requiring member approval
prior to litigation against Crescent is valid. The PPOA and its
members were on notice of this requirement. The PPOA never
attempted to obtain nor received the required member approval vote
prior to filing this or the previous action. Without the required
vote, the PPOA lacked the authority to commence legal proceedings
against Crescent and does not possess standing. Estate of Apple,
166 N.C. App. at 177, 607 S.E.2d at 16. Without standing, the
trial court could not exercise subject matter jurisdiction over its
claims. Street, 157 N.C. App. at 305, 578 S.E.2d at 698. In light
of our holding, we decline to address the trial court's grant of
summary judgment in Crescent's favor or the PPOA's remaining
assignments of error.
The required two-thirds vote provision is valid and
enforceable as a matter of law. The PPOA never attempted to obtain
nor received the required approval by its members to institute this
action. The trial court properly dismissed the PPOA's complaint
for lack of subject matter jurisdiction. The trial court's order
Judges MCGEE and GEER concur.
*** Converted from WordPerfect ***