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Council of Association of Unit Owners of Pelican Cove Condominium v. Yeilding

Court of Chancery of Delaware

June 3, 2019


          Date Submitted: February 13, 2019

          Richard E. Berl, Jr., of HUDSON, JONES, JAYWORK & FISHER, LLC, Lewes, Delaware, Attorney for Petitioner and Third-Party Respondents (except Sherry Greth).

          Dean A. Campbell, of LAW OFFICE OF DEAN A. CAMPBELL, P.A., Georgetown, Delaware, Attorney for Respondents.

          Blake W. Carey, of THE SMITH FIRM, LLC, Rehoboth Beach, Delaware, Attorney for Third-Party Respondent Sherry Greth.



         This matter involves a request by a condominium owners' association, the Council for the Association of Unit Owners of Pelican Cove Condominium (the "Council"), to enforce a six-person per unit maximum occupancy limitation, located in the declaration of the condominium (the "Declaration"), recorded in the chain of title to the property. The condominium, named Pelican Cove Condominium (the "Condominium" or "Pelican Cove"), itself is an old former motel property located just south of Head of Bay Cove in Dewey Beach.[1] The Respondents (the "Yeildings") are owners of a unit in the Condominium who advertise their unit as a vacation rental for groups of up to ten persons.

         The matter is before me on what the parties describe as full (not partial) Cross-Motions for Summary Judgment. The Yeildings make numerous arguments as to why the limitation is illegal or otherwise unenforceable; none has merit. Therefore, I find that the Yeildings are in breach of the occupancy limits of the Declaration. The Council's briefing is conspicuously silent on its entitlement to injunctive relief, so the issue of remedy remains, and the Cross-Motions for Summary Judgment are denied. The Yeildings also argue that they did not receive required notice of the Council meeting at which this litigation was authorized. To the extent this is a claim for relief, I find it unripe, as the Yeildings' potential remedy would be to avoid a unit owners' surcharge for litigation expense, if any, about which the record (as disclosed through briefing) is also silent.[2]

         In addition, the Yeildings bring claims against the former unit owner from whom they purchased their unit in Pelican Cove, Sherry Greth, alleging breach of contract and fraud in the inducement of the sale. This matter is also subject to Cross-Motions for Summary Judgment. However, I find issues of fact remain, including matters of intent and reasonable reliance, that would benefit from live testimony. Moreover, the Yeildings concede that their Motion cannot resolve damages issues, which would remain for trial. Accordingly, the Cross-Motions on these claims are denied. My reasoning follows.

         As the reader who perseveres will discover, in addition to the matters just listed, there are other issues, tit-for-tat claims, and motions, which I also address and attempt to resolve, below.

         I. BACKGROUND

         This matter is before me on the parties' Cross-Motions for Summary Judgment; as a result, the following facts are not in dispute and are drawn from the stipulated record.

         A. Pelican Cove Before the Yeildings

         In 1978, the owners of a small motel located in Dewey Beach, Delaware converted their motel into a condominium, Pelican Cove.[3] Pelican Cove was established by recording the Declaration[4] and a Code of Regulations (the "Code of Regulations")[5] with the office of the Recorder of Deeds in and for Sussex County, Delaware.[6] No party disputes that Pelican Cove was formed in compliance with the Unit Property Act of the State of Delaware.[7]

         The Declaration has been amended on several occasions, but at all times has included a provision, titled "Restriction on Use," which provides that:

Each unit shall be used exclusively for residential purposes as a single-family dwelling, and each unit shall not be occupied by more than 6 persons. No unit shall be used for any business or commercial or other purposes, except that units may be leased for single-family occupancy of not more than 6 persons by the owners, any unit owner, or any unit mortgagee in possession; . . .[8]

         According to the Declaration, Pelican Cove contains seven units.[9] Six units are former motel rooms ("Units 1-6"), and are now one- or two-bedroom condominium units.[10] The seventh unit ("Unit 7"), which was the former motel owners' quarters, is now a three-bedroom condominium unit.[11]

         The Council, the Petitioner here, comprises a representative from each of Pelican Cove's seven units.[12] The Council is tasked in the Declaration with managing Pelican Cove.[13] The Declaration sets each unit's ownership interest in the common elements of Pelican Cove.[14] Units 1-6 each have an eleven percent ownership interest;[15] Unit 7 has a thirty-four percent ownership interest.[16] Pelican Cove assesses fees to each unit in the same proportion as the unit's ownership interest.[17] Each unit's voting interest is also the same as their ownership interest.[18]The Third-Party Respondents in this action, with the exception of Sherry Greth, are the current owners of Units 1-6.[19] Sherry Greth, who is a Third-Party Respondent, purchased Unit 7 in 1997, [20] but is no longer a current Pelican Cove unit owner, having sold Unit 7 in 2015 to the Yeildings.[21] Prior to selling Unit 7, Greth served as the Council's treasurer.[22]

         At issue in this litigation is Unit 7 of Pelican Cove and the Declaration's restriction of occupancy per unit to six persons. Before Greth sold Unit 7 in 2015, only twice did the Council have the opportunity to enforce the six-person occupancy limit.[23] In neither instance did the Council take formal action against the unit owners.[24] After Pelican Cove was formed, the Town of Dewey Beach adopted an ordinance (the "Dewey Beach Ordinance") on overcrowding, according to Section 112-4, titled "Dwelling Occupancy," "[a]ny dwelling unit used for residential purposes shall be overcrowded if the number of person sleeping or living in said dwelling exceeds two persons per bedroom."[25]

         B. The Yeildings Purchase a Condominium in Pelican Cove

         Dale and Sandra Yeilding, the Respondents in this action, purchased Unit 7 from Greth in 2015.[26] The Yeildings had previously vacationed in Dewey Beach and wished to purchase a vacation property in that area, [27] specifically a property that could generate rental income.[28] The Yeildings, who were represented by a real estate agent, [29] found Unit 7 listed for sale and inquired further.[30] Greth, who owned Unit 7, was also represented by a real estate agent.[31] The Yeildings asked to rent Unit 7 for a week in August 2014, ahead of a prospective purchase.[32] Greth had only rented Unit 7 once before, but agreed.[33] The Yeildings subsequently asked for a rental agreement to sign.[34] After doing some online research, Greth then created a rental agreement.[35] The rental agreement Greth prepared contained the provision: "Occupancy. Tenants agree that no more than eight (8) people will occupy the Unit overnight."[36] The rental agreement also contained a set of Greth's "policies" for "Pelican Cove - Unit 7," which included, under the title "Occupancy," a policy that "[n]o more than eight (8) persons are permitted to stay overnight in the unit."[37]Greth's real estate agent thereafter e-mailed the rental agreement to the Yeildings, which they then signed, in addition to making a rental payment.[38]

         The Yeildings rented Unit 7 from August 16 to August 23, 2014.[39] On August 28, five days later, the Yeildings made an offer to purchase Unit 7.[40] Greth agreed.[41]Closing, however, took several months.[42] On October 2, 2014, the Yeildings' real estate agent e-mailed certain documents to the Yeildings, including, at least, a Resale Certificate prepared by Greth (the "Resale Certificate") and the Code of Regulations.[43] The e-mail and attached documents referenced other documents for the Yeildings to review, [44] including the Declaration containing the restriction that "each unit shall not be occupied by more than 6 persons."[45] In particular, the Resale Certificate noted that the Declaration had been provided to the Yeildings.[46] The Yeildings' real estate agent wrote in the e-mail that if the Yeildings objected to anything in the documents, they could, within five days, cancel the purchase.[47] The Yeildings printed their real estate agent's e-mail, handwrote "Documents received and acceptable," and signed their names.[48] Nonetheless, Dale Yeilding now avers that he read only the Code of Regulations, and not the Declaration.[49] The Yeildings both signed the Resale Certificate.[50] The sale of Unit 7 closed on March 12, 2015.[51]

         C. Pelican Cove After the Yeildings Purchase Unit 7

         After their purchase of Unit 7 closed, the Yeildings hired a property manager.[52] The property manager was responsible for finding tenants, checking tenants in, and responding to tenant concerns.[53] Consistent with the Yeildings' instructions, the property manager has advertised and leased Unit 7 for rent with an occupancy limit of ten people.[54] Other unit owners have complained that Unit 7 has been rented to groups of more than six persons.[55]

         The Yeildings' property manager spoke at a Council meeting in May 2016, where he provided his contact information to the Council members and instructed them to call him if they had complaints about Unit 7 rental tenants.[56] The Council's meeting minutes from the May 2016 meeting note at least three occasions when Unit 7 renters were allegedly unruly during the prior year.[57] The Yeildings' property manager has been contacted "five (5) or six (6) times by other Pelican Cove owners and asked to address the number of tenants in Unit 7."[58]

         D. Procedural History

         The Petitioner filed its Complaint on October 2, 2016. The Respondents filed their Answer on November 14, 2016, and also filed a Counterclaim and a Third-Party Complaint. Third-Party Respondent Sherry Greth filed her Answer to the Respondents' Third-Party Complaint on December 27, 2016. The Petitioner and the other Third-Party Respondents filed their Answer on January 3, 2017. On April 20, 2018, the Petitioner filed a Motion for Summary Judgment. The Respondents filed a Cross-Motion for Summary Judgment on June 21, 2018 on their Counterclaim against the Petitioner and their Third-Party Complaint against the Third-Party Respondents. Third-Party Respondent Sherry Greth, in turn, filed a Cross-Motion for Summary Judgment against the Respondents on August 16, 2018. I heard Oral Argument on the three Cross-Motions for Summary Judgment on February 13, 2019.

         II. ANALYSIS

         The Council (the Petitioner) initiated this action seeking permanent mandatory injunctive relief requiring the Yeildings (the Respondents) to comply with the Declaration, specifically the per unit occupancy limit. The Yeildings filed a Counterclaim and a Third-Party Complaint, alleging, in part, that the Council- and the individual unit owners of Pelican Cove-are in violation of the Federal Fair Housing Act (the "FHA"), the Delaware Fair Housing Act (the "DFHA"), and the Federal Civil Rights Act. The Yeildings further claim that the Council meeting authorizing this litigation should be invalidated, and they bring a claim for nuisance against Third-Party Respondent Robert Langdon. Additionally, the Yeildings seek declaratory judgment that the Declaration's six-person per unit occupancy limit is unenforceable. The Yeildings also, in the event that I do not find the six-person occupancy limit unenforceable, bring a claim for breach of contract against Third-Party Respondent Greth and a claim for fraud and misrepresentation against Greth and the Council.

         The Council, the Yeildings, and the Third-Party Respondents have all filed Cross-Motions for Summary Judgment. Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law."[59] Where parties have filed cross-motions for summary judgment, the motions are deemed "to be the equivalent of a stipulation for decision on the merits based on the record submitted with the motions," if the parties have not "presented argument to the Court that there is an issue of fact material to the disposition of either motion."[60] The parties do not contend that material factual disputes exist.[61] I begin with the core issue of this litigation, the Declaration's occupancy limit.

         A. The Cross-Motions/The Council's Claims

         1. The Occupancy Claim

         a. The Yeildings Are in Breach of the Declaration

         The Declaration states that "each unit shall not be occupied by more than 6 persons" and that "that units may be leased for single-family occupancy of not more than 6 persons by the owners."[62] The parties argue, considerably, over the definition of "occupy" in this context. The Yeildings submit that "occupy" is ambiguous and therefore the limitation is unenforceable. It is, however, unnecessary to supply a definition. The plain language of the Declaration prohibits the leasing of any unit in Pelican Cove to groups of more than six persons. The Yeildings advertise and lease Unit 7 to groups as large as ten persons. Such advertisement and leasing is in clear violation of the Declaration.

         The Yeildings seek a declaratory judgment that the six-person occupancy limit is unenforceable, and that a limit on occupancy (regardless of definition) should instead be set by local or state ordinance, in particular the Dewey Beach Ordinance. The Yeildings proffer several arguments to support their claim that the Declaration's occupancy limit is invalid. The Yeildings claim that the occupancy limit is a deed restriction, which has lost its force because it is either unreasonable or serves no legitimate purpose. I need not examine the reasonability or legitimacy of purpose of the occupancy limit because it is not a deed restriction. Deed restrictions are reciprocal covenants that run with property, and they are indeed construed narrowly.[63] This, however, is a pure contract case; "a condominium declaration and its accompanying code of regulations together form no more than an ordinary contract between the unit owners."[64] Given the purely contractual nature of the Declaration, it is not appropriate for me to now second guess the reasonability or "legitimacy" of purpose of the bargain struck. Similarly, the Yeildings' argument that that the passage of Dewey Beach's Ordinance on occupancy was a "changed circumstance" that negated enforcement of the "deed restriction" is misplaced, given the purely contractual nature of the Declaration. Furthermore, the Yeildings do not argue that the Dewey Beach Ordinance supersedes the contractual limits on occupancy in the Declaration; I note that the Ordinance sets occupancy maximums, and the occupancy restriction in the Declaration allows no greater occupancy than does the Ordinance. In, other words, the Declaration and the Ordinance are not in conflict.

         The Yeildings entered into a contract to purchase Unit 7. As part of the bargain struck, they agreed to abide by the Declaration, including the occupancy limit. The Yeildings assert that they did not read the Declaration before the purchase and, despite contrary evidence in the record, [65] aver that the Declaration was not provided to them. The Yeildings' ignorance of the Declaration, whether it is inadvertent or stems from a lack of initiative, does not, here, raise a genuine issue of material fact. The Yeildings had, at least, constructive notice of the Declaration because it was recorded with the Recorder of Deeds in and for Sussex County.[66] Furthermore, the Yeildings signed the Resale Certificate, which stated that they have been provided with the Declaration. The Yeildings cannot claim ignorance as a defense, at least as to the Council's claim.

         For the foregoing reasons, I find the Yeildings in ongoing breach of the Declaration.

         b. The Yeildings' Defenses to Enforcement of the Occupancy Limit

         The Yeildings argue that enforcement of the occupancy limit would be unlawful, on various grounds. They assert these arguments both as defenses and counterclaims. I find them without merit, as discussed below.

         i. The Federal Civil Rights Act

         In their Counterclaim, the Yeildings allege that the Council and the current owners of Units 1-6 have, through the six-persons occupancy limit, violated the Federal Civil Rights Act. The Yeildings, however, make no mention of the Civil Rights Act in their Cross-Motion for Summary Judgment and subsequent briefing, and I consider the defense based on this Act (if any) waived.

         ii. The Federal Fair Housing Act and the Delaware Fair Housing Act

         In their Counterclaim, the Yeildings allege that the Council and the current owners of Units 1-6 are discriminating on the basis of age and familial status, in violation of the FHA and the DFHA. The FHA and DFHA operate similarly.[67] A prima facie case for discrimination under the DFHA can be made by showing either discriminatory treatment or discriminatory effect (without proof of discriminatory intent).[68] The Yeildings' argument, as I understand it, is that according to deposition testimony, certain unit owners believe the purpose of the occupancy limit is to prevent overcrowding and to stop large groups from staying at Pelican Cove. The result of this limitation, per the Yeildings, is that families with up to six members can stay at Pelican Cove, and families with over six members cannot. This, the Yeildings contend, constitutes discrimination based on "family size."[69] The Yeildings then suggest that discrimination based on "family size" is a type of "familial status" discrimination, illegal under the FHA[70] and the DFHA.[71] The Yeildings argue that, having demonstrated that families of seven to infinite members are excluded from renting a single unit in Pelican Cove, they have alleged a prima facie case of disparate or discriminatory treatment, and the burden to demonstrate compliance with the Acts now shifts to the Council.[72]

         Using the Yeildings' standard, any limitation on occupancy would be impermissibly discriminatory, because a family of a larger size would be excluded thereby. This argument is frivolous. The language of the occupancy limit does not differentiate based on-and it in fact says nothing about-any renting family's characteristics, [73] only group size.[74] In other words, the Declaration's occupancy limit is facially neutral, and the Yeildings have pointed to no evidence of discrimination against families at Pelican Cove (in fact, the record suggests that the various units of Pelican Cove have been the home of or rented to many families without issue).[75] Furthermore, the Yeildings, I note, provide no statutory or case support for their argument that "family size" is protected under either the FHA[76] or the DFHA.[77]

         The Yeildings also aver that the limitation improperly discriminates on the basis of age. The Yeildings' rationale-to the extent I understand it-is that the Council's complaints against rental tenants of Unit 7 include, primarily, complaints against large groups of young people. Additionally, according to the Yeildings, large families (presumably families of over six members) are "typically younger adults with multiple children," and the occupancy limit, therefore, discriminates on the basis of age.[78] This argument, I note, is unsupported in the record and is inconsistent with common sense. The argument is insufficient for a facial showing of discrimination; furthermore, the Council does not seek to (nor does the plain language of the occupancy limitation) prevent the Yeildings from renting to certain age groups. The argument that the Council has discriminated based on age, in violation of the DFHA, is frivolous.

         I conclude that none of the Yeildings' defenses to enforcement of ...

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