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Reserves Mgmt., LLC v. American Acquisition Prop. I, LLC

Supreme Court of Delaware

February 28, 2014

RESERVES MANAGEMENT, LLC, f/k/a THE RESERVES MANAGEMENT CORPORATION, Plaintiff-Below-Appellant/Cross-Appellee,
v.
AMERICAN ACQUISITION PROPERTY I, LLC, Defendant-Below-Appellee/Cross-Appellant

Submitted December 18, 2013.

Case Closed March 19, 2014.

Editorial Note:

This decision has been designated as "Table of Decisions Without Published Opinions." in the Atlantic Reporter.

Court Below: Superior Court of the State of Delaware in and for Sussex County. No. 10C-03-006 ESB.

Before HOLLAND, JACOBS, and RIDGELY, Justices.

OPINION

Henry duPont Ridgely Justice.

ORDER

On this 28th day of February 2014, it appears to the Court that:

(1) Plaintiff-Below-Appellant/Cross-Appellee, Reserves Management, LLC,[1] formerly known as The Reserves Management Corporation (" Reserves" ), appeals from a final judgment in the Superior Court in favor of Defendant-Below-Appellees/Cross-Appellants American Acquisition Property I, LLC (" American" ). American cross-appeals from the same final judgment. Each of the claims and cross-claims arises from the interpretation of a real estate development agreement between the parties. The agreement provided for various assessments to be paid by all lot owners in the development.[2] It is the assessments that form the basis of this appeal.

(2) Reserves raises four claims on appeal. Reserves contends that the trial court erred when it decided that (1) the award of annual assessments should be allocated on a per-lot basis, (2) Reserves had no claim against American for capital assessments, (3) Reserves had no claim against American for first-year assessments, and (4) Reserves' recovery of attorneys' fees was limited to 43% of the total fees incurred by Reserves. American raises two claims on its cross-appeal. American contends that the trial court erred in finding (1) that American was liable for initial assessments, and (2) that American was required to deposit $80,000 into the site improvement escrow account. We find that both Reserves' and American's claims lack merit. Accordingly, we affirm the judgment in all respects.

(3) The Reserves Management Corporation, now known as Reserves Management, LLC, was created by the Reserves Development Corporation in August 2001, under the Declaration of Restrictions of the Reserves Resort Spa and Country Club (the " Declaration" ). Abraham Korotki is the sole shareholder of Reserves and acts as director and officer of the company. The Declaration consisted of a plan to develop a residential community together with various facilities for recreational uses (the " Reserves Development" ). The Reserves Development consists of 179 lots,[3] divided into four separate phases.

(4) In March 2004, Stover Homes, LLC (" Stover" ) agreed to purchase fifteen undeveloped lots in the Reserves Development. At some point thereafter, Stover breached the agreement and went out of business. In August 2009, American acquired seven lots in Phase 2 of the Reserves Development from Stover pursuant to a deed in lieu of foreclosure.

(5) In addition to describing the purpose and structure of the Reserves Development, the Declaration also subjects lot holders to various restrictive covenants. Specifically, Article VII of the Declaration established a variety of assessments to be paid by every lot holder in the Reserves Development. Under Article VII, Section 1, Reserves and each lot holder agreed to pay the following assessments and charges: " (1) annual assessments or charges; (2) liquidated damage assessments . . . ; " (3) an initial assessment of $5,000 " due upon the conveyance of any Lot or Condominium Unit from the Declarant to a third party purchaser for value to help capitalize the Association . . . ; " and (4) " a maintenance element for individual lots to cover landscaping maintenance and repair." [4] In addition, each assessment--including interest, costs, and reasonable attorneys' fees for the collection thereof--is agreed to be " the personal obligation of the person who was the Owner of such property at the time when the assessment was due. A personal obligation for delinquent assessment shall not pass to the Owner's successor in title (other than as a lien on the land), unless expressly assumed by them." [5] Section 3 of Article VII provided that assessments would be " fixed annually to cover on a prorata basis, the projected annual cost of the Association to properly discharge its maintenance, repair, improvement and other responsibilities and obligations as set forth in this Declaration." [6] The same section further provided that annual assessments " shall be charged or assessed in equal proportions against each lot or Condominium Unit within the Reserves [Development]." [7] Section 4 of Article VII also established an initial assessment of $5,000 " to be paid by the purchaser upon the conveyance of each Lot . . . to a third party purchaser." [8]

(6) In May 2008, before American acquired its seven lots from Stover, Korotki amended the Declaration (the " Amendment" ). This amendment changed the terms of the Declaration in a number of ways. Primarily, the Amendment added assessments that did not exist when Stover purchased its fifteen lots. First, the altered language of Article VII, Section 4, required that the initial assessment be " due upon conveyance of any Lot or Condominium Unit from Declarant to a third party purchaser for value, or such later time as may be agreed by the Declarant in a second writing, to help pay for the construction of the Club House and other recreational amenities." [9] Second, the Amendment created a capital assessment in the amount of $5,000 " due upon the conveyance of any Lot or Condominium Unit from the Declarant to a third party purchaser for value, or such later time as may be agreed upon by the Declarant in a separate writing, to help capitalize the Association." [10] Third, the Amendment added a first year assessment in an amount equal to the full assessment for the year in which a lot holder made settlement. Fourth, the Amendment added Section 9 to the Declaration.

(7) Subsection 9(a) requires any third party buyer who takes title to a lot before site improvements to pay Reserves the lot's pro-rata share of the costs to install improvements until the entire development has been completed. Section 9 also provides that the deposit will be held in an interest bearing account and that the work will be done " in the sole discretion of the Reserves Management Corporation," who retains the ability to make additional assessments against a lot for any shortfalls.[11] Subsection 9(b) estimates the per-lot pro rata share of the cost to install and complete the site work to be $80,000, " subject to increase or decrease as determined by The Reserves Management Corporation." [12] Subsection 9(c) makes the deposit a personal obligation of " each Owner who takes title to a Lot or Condominium Unit for which an escrow had not been established by such Owner's grantor." [13] It further states:

Each deed conveying a Lot without establishing such an escrow account shall expressly impose such an obligation upon the grantee-Owner, and shall be signed by the grantee-Owner to accept such personal obligation; otherwise, the grantor of the Lot who fails to establish such an escrow and fails to impose such personal obligation upon the grantee-Owner, shall be and remain personally obligated for such Lot's future ...

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