Brown v. Spring Valley Homeowners Association, Inc.

S. Coley Brown, Appellant, v. Spring Valley Homeowners Association, Inc., Respondent.

Appellate Case No. 2014-002587

No. 2016-UP-343

Court of Appeals of South Carolina

June 29, 2016

UNPUBLISHED OPINION

Heard April 19, 2016

Appeal From Richland County Eugene C. Griffith, Jr., Circuit Court Judge.

Andrew Sims Radeker, of Harrison & Radeker, P.A., of Columbia for Appellant.

Charles A. Krawczyk, of Finkel Law Firm LLC, and Ely Owen Grote, of Brown & Brehmer, both of Columbia, for Respondent.

PER CURIAM.

In this declaratory judgment action, Appellant S. Coley Brown (Homeowner) seeks review of the circuit court's order granting summary judgment to Respondent Spring Valley Homeowners Association, Inc. (the Association) on Homeowner's claims and the Association's counterclaim. Homeowner argues (1) the circuit court should have declared the Association did not have the authority to impose a $500 fine against him for violating a restrictive covenant prohibiting "For Sale" signs; (2) this restrictive covenant is void as a restraint on alienation of property; (3) the circuit court erred in granting summary judgment to the Association on the slander of title claim because the Association did not have the authority to record a lien against his property for unpaid fines; and (4) the Association was involved in trade or commerce for purposes of the South Carolina Unfair Trade Practices Act (UTPA). We affirm.

I. Authority to Impose Fines

Homeowner contends the circuit court erred in concluding the Association could lawfully impose fines on its members. He argues (1) only a government can impose fines; (2) the restrictive covenants do not authorize the imposition of fines;^[1](3) the bylaws' provisions concerning fines are not the equivalent of a liquidated damages provision in a contract but rather constitute unenforceable contractual penalties; and (4) the Association's imposition of fines violates public policy. We disagree.

Homeowner first argues there is no statute authorizing the Association to impose fines on its members and "[a]t common law, the power to fine is vested solely in the sovereign." We disagree. The Association was incorporated as a nonprofit corporation on May 6, 1976, and it has been subject to the South Carolina Nonprofit Corporation Act, SC Code Ann §§ 33-31-101 to -1708 (2006 & Supp. 2015) since its enactment in 1994. See Act No. 384, 1994 S.C. Acts 4126. Section 33-31-206 requires nonprofit corporations to adopt bylaws and provides that the bylaws "may contain any provision for regulating and managing the affairs of the corporation that is not inconsistent with law or the articles of incorporation." Currently, there are no South Carolina statutes or appellate opinions prohibiting nonprofit corporations from fining their members.^[2] Further, the imposition of fines does not conflict with the Association's governing documents.

Homeowner cites opinions from other jurisdictions to support the proposition that absent statutory authority, HOAs may not levy fines against their members. However, the cited opinions either do not support such a proposition or concern HOAs for condominium communities or "planned communities, " which are regulated by state statutes. Likewise, the statutes from other jurisdictions cited by Homeowner govern condominiums. Unlike a house in a subdivision, a condominium is created and regulated by statute as a hybrid form of shared and individual ownership of apartments.^[3] Therefore, the cited authorities are not persuasive.

Rather, secondary sources concerning associations in general are instructive on this question.

An association may provide penalties by way of fines for the derelictions of its members. Such penalties must, however, be determined according to some method to which the member has agreed, at least impliedly, by joining the association, not only as to the imposition of the fine but also as to the maximum amount thereof.

6 Am.Jur.2d Associations and Clubs § 31 (2008). In other words, "[t]he liability of a member of an association for . . . fines and penalties[] depends on his or her contract with the association as embodied in its articles of association or constitution and bylaws." 7 C.J.S. Associations § 62 (2015) (footnote omitted).

"The relationship of a voluntary association with its members is governed by contract law[, ] and it makes no difference whether the articles of association are called a constitution, charter, bylaws, or any other name." 7 C.J.S. Associations § 14 (2015) (footnote omitted). "The constitution, bylaws, and regulations of an association create a legally enforceable agreement in the nature of a contract between the organization and the member because of corresponding mutual obligations by the member to follow the rules of the organization and by the organization to fairly apply those rules." Id. (footnotes omitted). "Any dispute between a voluntary association and one of its members concerning the validity of an association's constitution, bylaws, rules and regulations constitutes a dispute as to the validity of a written contract." Id. (footnote omitted).

Further, those jurisdictions considering the authority of associations to impose fines have confirmed the existence of this authority. See Multiple Listing Serv. of Jackson, Inc. v. Century 21 Cantrell Real Estate, Inc., 390 So.2d 982, 986 (Miss. 1980) ("[I]t is highly desirable that private organizations . . . have the right to discipline members for violations of standards of professional conduct as set out by the constitution, bylaws, rules and regulations of the respective organizations. However, . . . before a fine can be imposed[, ] a private association must have a schedule of maximum fines that may be imposed[, ] to which schedule each member has agreed to be bound by joining the association."); Jackson v. S. Omaha Live-Stock Exch., 68 N.W. 1051, 1053 (Neb. 1896) (holding the rights and liabilities of the members of a livestock exchange were dependent on their contract and upholding the exchange's imposition of a fine against one of its members); see also Louisiana High Sch. Athletic Ass'n v. St. Augustine High Sch., 396 F.2d 224, 227 (5th Cir. 1968) (dictum) (noting a high school athletic association had "the power to investigate, discipline and punish member schools by fine and otherwise"); Multiple Listing Serv. of Jackson, Inc., 390 So.2d at 986 (dictum) (stating a "fixed, reasonable fine, in the nature of liquidated damages" for damages sustained by a professional association due to "unprofessional or unethical conduct would be sustained").

Here, Homeowner's deed to his property was made subject to any recorded restrictions, such as the Association's restrictive covenants appearing in the 1979 deed conveying the property to Homeowner's predecessor in title. The 1979 deed states, in pertinent part, "This conveyance is made subject to the following conditions, covenants and restrictions: (1) By acceptance of this deed, the GRANTEE covenants and agrees that GRANTEE will become a member of [the Association] and will abide by its duly enacted rules, regulations and by-laws . . . ." Therefore, Homeowner entered into a contractual relationship with the Association when he executed and accepted the deed to his property in 2007. By accepting his deed, Homeowner agreed to be bound by the Association's "duly enacted rules, regulations and by-laws." Our case law confirms the contractual nature of the relationship between HOAs and their members. See Queen's Grant II Horizontal Prop. Regime v. Greenwood Dev. Corp., 368 S.C. 342, 361, 628 S.E.2d 902, 913 (Ct. App. 2006) (holding real covenants are "'agreement[s] . . . to do, or refrain from doing, certain things with respect to real property'" (alteration in original) (quoting 20 Am.Jur.2d Covenants, Conditions, and Restrictions § 1 (2005))); id. ("[C]ovenants, 'in a sense are contractual in nature and bind the parties thereto in the same manner as would any other contract.'" (quoting 20 Am.Jur.2d Covenants, Conditions, and Restrictions § 1 (2005))).

Further, the bylaws, as amended in 2004, authorize the Association to impose fines on members for covenant violations.^[4] Moreover, the Association's "Rules and Regulations, " as amended, notify members of the procedures for imposition of fines and the maximum fine that may be imposed. See 6 Am.Jur.2d Associations and Clubs § 31 (2008) (stating that association fines for member violations "must . . . be determined according to some method to which the member has agreed, at least impliedly, by joining the association, not only as to the imposition of the fine but also as to the maximum amount thereof"); 7 C.J.S. Associations § 62 (2015) (footnote omitted) ("The liability of a member of an association for . . . fines and penalties[] depends on his or her contract with the association as embodied in its articles of association or constitution and bylaws."). Therefore, the Association had the contractual authority to fine Homeowner.

We find no merit to Homeowner's argument that the restrictive covenants do not authorize the imposition of fines. The restrictive covenants require Homeowner to become a member of the Association and to abide by the Association's rules, regulations, and bylaws. These rules, regulations, and bylaws, which in turn authorize the imposition of fines, also constitute the contract between the Association and its members. Therefore, the restrictive covenants indirectly authorize the imposition of fines.

Homeowner also argues the fines were unenforceable contractual penalties because they were not "based upon contemplated actual damages" and they were intended to provide punishment for the breach. We disagree.

"Parties to a contract may stipulate as to the amount of...