Harper v. Min, Edge Realty

• Court: Superior Court of Guam
• Decided: September 19, 2019
• Docket: CV0041-16
• Status: Unknown

Opinion

I kT

!O:27 CL: ‘ :: . .

IN THE SUPERIOR COURT OF GUAM

FLORENCIO HARPER, Superior Court Case No. CVOO41-16

Plaintiff

VS. DECISION AND ORDER RE THIRD PARTY DEFENDANT ZHONG WON SUN P. MN, EDGE REALTY, NC., YE, INC.’S MOTION TO ALTER OR PACIFIC K&C CORPORATION, and AMEND JUDGMENT ZHONG YE, NC. (GUAM),

Defendants.

WON SUN P. MN, and PACIFIC K&C CORPORATION,

Counterclaim/Plaintiffs,

Vs.

FLORENCIO HARPER,

Counterclaim/Defendant.

Third Party Plaintiffs,

ZHONG YE, NC. (GUAM),

Third Party Defendant. CVOO41-16 . . DECISION A1D ORDER RE THIRD PARTY DEFENDANT ZHONG YE, NC.’S Page 2 MOTION TO ALTER OR AMEND JUDGMENT

This matter came before the Honorable Elyze M. Iriarte on Third Party Defendant Zhong

Ye, Inc.’s Motion to Alter or Amend the Court’s May 1, 2019 Judgment. Having considered the

parties’ arguments and applicable law, the Court DENIES Zhong Ye’s Motion.

I. FACTUAL AND PROCEDURAL HISTORY

The Court’s Judgment found in favor of Won Sun Mm and against Zhong Ye for $20,000.

The Court calculated the Judgment based on Zhong Ye’s failure to maintain Goring Villa Estates’

(“GVE”) common areas for the fifty months Mm owned her unit, which Mm testified lowered

the rental value of her GVE unit by $400 per month. The legal basis for the judgment was that

“[a]s the developer of GVE, Zhong Ye had a responsibility to maintain the common

areas....” Find, of Fact and Concl. of Law at 20 (Mar. 13, 2019). Though Zhong Ye concedes it

took over maintenance of the subdivision in January 2015 from Pacific K&C Corporation

(“PKC”), it claims it did so because it was in its best interest to maintain the condominium as a

majority unit owner, not because it had a duty to do so. Minute Entry (Aug. 7, 2019). It also

claims it provides sufficient maintenance (Minute Entry (Aug. 7, 2019)), though evidence at trial

demonstrated that GVE currently suffers from a lack of maintenance (the playground is in

disrepair, trash bins are full, and the paint on the building is peeling and faded). find, of fact and

Concl. of Law at 19.

II. DISCUSSION

Defendant Zhong Ye claims the Judgment is clearly erroneous and manifestly unjust.

More specifically, Zhong Ye argues that (1) it neither has contractual or statutory obligations to

maintain GVE’s common areas and (2) even if it did have an obligation, Mm presented no

evidence of a maintenance standard at trial and it would be a violation of due process to hold

Zhong Ye to an arbitrary standard.

• CVOO41-16 . DECISION AND ORDER RE THIRD PARTY DEFENDANT ZHONG YE, INC.’S . Page 3 MOTION TO ALTER OR AMEND JUDGMENT

A. Duty to Maintain GVE’s Common Areas

Zhong Ye argues that Guam’s Horizontal Property Act does not impose a duty of

maintenance at any particular level on a developer which retains ownership of some of the units

in a condominium project and that it does not impose requirements for any particular level of

maintenance of the project after the completion of the construction. Zhong Ye also states that

Mm did not testify (1) that Zhong Ye made a promise or representation to her to maintain the

GVE, (2) that she complained to Zhong Ye about the maintenance, or (3) that Zhong Ye agreed

to improve the maintenance of the common areas after construction. Mm does not dispute these

allegations but contends that individual unit owners have a right to enforce the duties prescribed

under Guam’s HPR regime and the condominium’s Declaration and Bylaws.’ Zhong Ye responds

that because no party listed the HPR Declaration or Bylaws as an exhibit for trial, they cannot be

used as evidence to fmd Zhong Ye had a duty to maintain the common areas.

Regardless of Zhong Ye’s contractual and statutory obligations, Zhong Ye had a common

law duty to maintain GVE’s common areas. Guam’s HPR Regime requires a developer to create

an association. See 21 GCA § 45120. Zhong Ye admitted that the development does not have an

association. Minute Entry (Aug. 7, 2019). By failing to create an association, Zhong Ye

maintained control over the development’s operations and governance. This imparts a fiduciary

duty towards the condominium’s unit owners. See, e.g., Richard Gill Co. v. Jackson ‘s Landing

Owners’ Ass ‘n, 758 $.W.2d 921 (Tex. App. 198$) (fiduciary relationship established between

condominium developer and unit owners because developer assumed responsibility for managing

l Mm cites to Nahrstedt v. Lakeside Village Condominium Assn., $ Cal. 4th 361, 368 (Cal. 1994), for support: “central to the concept of condominium ownership is the principle that each owner, in exchange for the benefits of association with other owners, must give up a certain degree of freedom of choice which he or she might otherwise enjoy in separate, privately owned property”. CVOO41-16 . DECISION AND ORDER RE THIRD PARTY DEFENDANT ZHONG YE, INC.’S Page 4 MOTION TO ALTER OR AMEND JUDGMENT

condominium until owners’ association had control; the relationship is established because the

individuals “put their trust in [the developers] and relied upon them to fairly and competently

carry out their duties”); Laurel Rd. Homeowners Ass ‘n, Inc. v. freas, 191 A.3d 938, 950—51 (Pa.

Commw. Ct. 2018), reargument denied (Sept. 6, 2018) (until a developer “relinquishes control to

an association, the developer owes the association and its members a fiduciary duty” and is liable

“for breach of the basic fiduciary duty to act in good faith, exercise proper management, and

avoid conflicts of interest”); Cohen v. S & S Construction Co., 201 Cal. Rptr. 173 (Ct. App.

1983) (developer liable to a homeowner’s association “for breach of the basic fiduciary duty to

act in good faith, exercise proper management, and avoid conflicts of interest.”); Raven ‘s Cove

Thwnhomes, Inc. v. Knuppe Dev. Co., 171 Cal. Rptr. 334 (Ct. App. 1981) (developer liable for

breach of fiduciary duty when initial owners’ association directors failed to exercise supervision

which permitted mismanagement or nonmanagement because developer and its employees

controlled the association.); Seven Bridges Courts Ass ‘n v. Seven Bridges Dev., Inc., 714 N.E.2d

601, 603-604 (Ill. 1999) (a “common-law-based fiduciary relationship between a townhome

developer and a townhome association [exists].. .based upon the general relationship of the

developer to the condominium association, not the specific language of the declaration

involved.”).

The fiduciary duty to act in good faith, exercise proper management, and avoid conflicts

of interest includes a duty to maintain common areas. See 21 GCA § 45102(q) (“[o]peration of

the property means and includes the administration and operation of the property and the

maintenance, repair, and replacement of, and the making of any additions and

improvements to, the common elements”); see also 21 GCA § 45110 (Guam’s HPR regime

presumes common expenses shall be charged: “common expenses shall be charged to, the

L. $ , CVOO41-16 . DECISION AND ORDER RE THIRD PARTY DEFENDANT ZHONG YE, INC.’S Page 5 MOTION TO ALTER OR AMEND JUDGMENT

apartment owners in proportion to the common interests appurtenant to their respective

apartments”); Lisa M. Pardon, Advising Developers in Operating Community Associations, WIS.

L. 12, 15 (2004); Orange Grove Terrace Owners Assn v. Bryant Properties, Inc., 222 Cal. Rptr.

523 (Ct. App. 1926); Goddard v. fairways Dev. Gen. P’s’htp, 426 S.E.2d 828, 832—33 (S.C. Ct.

App. 1993) (developers of a planned unit development had a fiduciary duty to ensure that the

common areas were in good repair at the time they were conveyed to the association and that the

developers breached this duty when they transferred substandard/deteriorated common areas to

the association).

Here, although Mm failed to present evidence of a promise by Zhong Ye to maintain the

common areas and failed to enter GVE’s Declaration and Bylaws into evidence, the Court finds

that a common law based fiduciary relationship existed between Mm and Zhong Ye because

Zhong Ye failed to turn over control of the development to an association. Their fiduciary

relationship obligates Zhong Ye to maintain GVE’s common areas. This common law duty is the

origin of the responsibility from Zhong Ye to Mm that the Court found to exist in its Findings of

Fact and Conclusions of Law.

B. Applicable Maintenance Standard

“Breach of fiduciary duty claims are in some, but not all, contexts basically negligence

claims incorporating particularized and enhanced duty of care concepts often requiring the

plaintiff to establish the identical elements that must be established by a plaintiff in negligence

actions.” Martinez v. Badis, 842 R2d 245, 251—52 (Cob. 1992) (en banc); see also Gables at

Sterling Vilt. Homeowners Ass’n, Inc. v. Castlewood-Sterling Vill. I, LLC, 417 P.3d 95, 109 (Utah

2018). The Third Restatement of Property more specifically states that “until a developer

relinquishes control of a homeowners association to its members, the developer. [must] use . .

fl fl : CVOO41-16 DECISION AND ORDER RE THIRD PARTY DEFENDANT ZHONG YE, INC.’S Page 6 MOTION TO ALTER OR AMEND JUDGMENT

reasonable care and prudence in managing and maintaining the common property.” Restatement

(Third) of Property (Servitudes) § 6.20 (2000); see also Old Port Cove Prop. Owners Ass’n, Inc.

v. Ecclestone, 500 So. 2d 331, 333 (Fla. Dist. Ct. App. 1986) (analyzes developers fiduciary duty

towards associations under corporate law principles, finding that developers actions had to be

reasonable). Other states have held developers must maintain common areas in not substandard

and good repair. Concerned Dunes W. Residents, Inc. v. Georgia-Pac. Corp., 562 S.E.2d 633,

637 (S.C. 2002) (“The developer of a PUB owes a duty to the POA to turn over common areas

that are not substandard and that are in good repair.”)

Mm argues that the applicable standard of care is either good repair or reasonableness

and testified as to how GVE’s lack of maintenance does not reach either standard. Opp’n at 4

(May 31, 2019); Minute Entry (Aug. 7, 2019). Zhong Ye counters that its maintenance of GVE’s

common areas is sufficient but provided no evidence at trial in support. Reply at 3 (June 4,

2019); Minute Entry (Aug. 7, 2019). Zhong Ye also failed to challenge Mm’s testimony at trial

concerning GVE’s dilapidated playground, poor landscaping, the condominium’s peeling paint,

and full trash bins. Under either a reasonableness standard or a good repair standard, the Court

fmds Zhong Ye breached its fiduciary duty to maintain GVE’s common areas.

Finally, Zhong Ye argues that it would be a violation of its due process to hold it to an

arbitrary standard of maintenance without prior evidence or notice of such a standard. To satisfy

the elements of procedural due process, a party must be given reasonable notice and an

opportunity to be heard. Guam Election Comm’n v. Responsible Choices for all Adults Coal.,

2007 Guam 20 ¶ 86 (quoting Quill Corp. v. North Dakota, 504 U.S. 298, 312 (1992)). Here,

Zhong Ye had a duty to maintain GVE’s common areas, either because it assumed that duty or

because it had a fiduciary relationship with GVE’s unit owners. It had an opportunity at trial to CVOO41-16 . . DECISION AND ORDER RE THIRD PARTY DEFENDANT ZHONG YE, INC.’S Page 7 MOTION TO ALTER OR AMEND JUDGMENT

refute Mm’s testimony concerning GVE’s lack of maintenance and how she lost income due to

the lack of maintenance. Zhong Ye cannot now take advantage of shirking its duties by claiming

it did not know what its duties entailed or the standard at which to perform them. Accordingly,

the Court finds its Judgment was not manifestly unjust or in error because there was a legal basis

in which to hold Zhong Ye liable.

III. CONCLUSION

Because the Court did not err in holding Zhong Ye liable for Mm’s lost rental income

based on Zhong Ye’s failure to abide by its common law duty to maintain GVE, the Court

DENIES Zhong Ye’s Motion to Alter or Amend the Court’s May 1, 2019 Judgment.

SO ORDERED this 19th day of September 2019.

HON. I1kZE M. IRIARTE Judge, Superior Court of Guam

of ih o ace in the

•< ueenor Court of

Attorneys: Bill R. Mann, Esq. for Zhong Ye, Inc. Curtis C. Van de veld, Esq. for Won Sun P. Mm and Pacific K&C Corporation Thomas M. Tarpley, Esq. for florencio Harper