In re Council of Unit Owners of the 100 Harborview Drive Condo.

584 B.R. 639

IN RE: COUNCIL OF UNIT OWNERS OF the 100 HARBORVIEW DRIVE CONDOMINIUM, Debtor.

Case No. 16–13049–MMH

United States Bankruptcy Court, D. Maryland, at Baltimore.

Signed January 18, 2018

Lisa Yonka Stevens, Paul Sweeney, Yumkas, Vidmar, Sweeney & Mulrenin, LLC, Craig B. Zaller, Nagle & Zaller, P.C., Columbia, MD, for Debtor.

MEMORANDUM OPINION

MICHELLE M. HARNER, U.S. BANKRUPTCY JUDGE

The claims at issue in this adversary proceeding have spawned years of litigation between the parties. Although the claims are multifaceted, those addressed by this Memorandum Opinion focus on alleged damage to, and a failure to repair and maintain, a condominium unit owned by Dr. Paul C. Clark. Dr. Clark and his family, Ms. Rebecca Delorme and Paul Clark, Jr. (collectively with Dr. Clark, the "Creditors"), moved into the unit in November 2009, and moved out of the unit in March 2010. The Creditors allege that the damage to the unit remains and that the unit has not been inhabitable since March 2010. The above-captioned Debtor disputes that the unit is uninhabitable and that it has failed to repair and maintain the unit as required by applicable law and the Debtor's governing documents.

The parties have each filed motions for partial summary judgment on claims relating to the alleged damage to the unit. The Debtor filed its third Motion for Summary Judgment (the "Debtor's Third Motion") [ECF 568], and the Creditors filed a Motion for Partial Summary Judgment, Memorandum of Law in Support, and a Line attaching Affidavits (collectively, the "Creditors' Motion") [ECF 595, 596 and 597].^* The parties also filed opposition papers to each motion [the "Debtor's Opposition" at ECF 620; the "Creditors' Third Opposition" at ECF 621], and the Creditors filed a Reply in Support of their Motion for Partial Summary Judgment (the "Creditors' Reply") [ECF 632].

The Court finds that the record shows no genuine issue of material fact with respect to the following: (i) the Creditors' breach of fiduciary duty and breach of contract claims, and any related damages, based on facts, allegations, or conduct arising on or prior to February 23, 2012, are barred under the doctrine of res judicata by a 2012 decision of the Baltimore City Circuit Court; (ii) the Debtor breached its duty to maintain and repair the unit, but only as to facts and conduct occurring after February 23, 2012; and (iii) the Creditors do not have sustainable claims for attorney's fees or punitive damages. The Court thus will grant summary judgment on this specific and limited relief requested in the respective motions. The Court is not granting summary judgment or any relief on the remaining aspects of the motions, including whether Ms. Delorme or Paul Clark, Jr. is a third party beneficiary of the contract, or whether the Debtor has any valid defenses to the breach of contract claim or, if no comprehensive defense, the amount of the Creditors' damages. Those issues will proceed to trial as previously scheduled in this contested matter.

I. Relevant Background on Chapter 11 Case

The Debtor is an unincorporated condominium association, comprising "any person, firm, corporation, trust, or other legal entity ... holding legal title to a condominium unit" in the building located at 100 Harborview Drive (the "Building"). Creditors' Motion Ex. 2, Art. I (q). The Building "is a 29–story luxury residential high rise that stands on the shore of Baltimore's Inner Harbor." In re Council of Unit Owners of the 100 Harborview Drive Condominium , 572 B.R. 131, 135 (Bankr. D. Md. 2017) (J. Schneider). It "was established in 1993 as a condominium regime and contains 249 units and a health club." Id.

On March 9, 2016, the Debtor filed this chapter 11 case. The Debtor seeks to, among other things, reorganize its financial affairs and resolve years of litigation with the owners of two different units in the Building through a chapter 11 plan. Dr. Clark owns one of the units involved in this litigation—penthouse 4A ("Unit PH4A"). The Creditors' proofs of claim, at Claim Nos. 46, 47, and 48 (the "Claims"), collectively assert in excess of $25 million in damages against the Debtor. The Claims are based on alleged violations of the Fair Housing Act ("FHA"), 42 U.S.C. §§ 3604 (the "FHA Claims"), alleged property damage to Unit PH4A, and consequential and other damages allegedly arising from those claims. On January 24, 2017, the Debtor filed objections to the Claims [ECF 264–266]. On February 23, 2017, the Creditors each filed an opposition to the Debtor's objections [ECF 316–318].

On May 18, 2017, Judge Schneider entered a Scheduling Order [ECF 393] with respect to the contested matter involving the Claims (the "Contested Matter"). The Court and the parties have subsequently amended that Scheduling Order several times. [ECF 474, 514, 618, 640]. The parties have conducted discovery and filed a total of four different dispositive motions in the Contested Matter. The Court held a hearing for purposes of oral argument on three of these dispositive motions, including the Debtor's Third Motion and the Creditors' Motion, on January 5, 2018 (the "Hearing").¹ (The transcript of the Hearing is at ECF 643 (the "Transcript").) A trial on the Contested Matter is set to begin on February 6, 2018.

II. Relevant Background of Prior Administrative and Judicial Proceedings

The Creditors and the Debtor have been litigating various issues relating to Unit PH4A for several years. The Maryland Court of Special Appeals summarized "the multiplex of administrative and trial court actions and appeals involving" the Creditors and the Debtor in a 2015 reported decision. See 100 Harborview Drive Condominium v. Clark , 224 Md.App. 13, 119 A.3d 87, 93 (2015). The Court recounts only those aspects of this litigation history relevant to the pending motions. A more detailed account, including litigation relating to the FHA Claims, is set forth in the Court's Memorandum Opinion addressing the FHA Claims and entered simultaneously with this decision (the "FHA Memorandum Opinion").

On October 20, 2010, Dr. Clark filed a lawsuit against the Debtor and its professional property management company, Zalco Reality, Inc. ("Zalco"), in the Circuit Court for Baltimore City. Clark v. Zalco Realty, Inc., et al. , 24–C–10–007236 (Circ. Ct. Balt. City) (the "First State Court Action"). In the First State Court Action, Dr. Clark asserted a fraudulent misrepresentation claim and violations of the Maryland Consumer Protection Act against the Debtor and Zalco. These claims involved Dr. Clark's purchase of Unit PH4A in October 2009 and the resale disclosure certificate issued by the Debtor and Zalco in connection with that transaction. The Circuit Court granted summary judgment in favor of the Debtor and Zalco in the First State Court Action, which decision was subsequently affirmed by the Maryland Court of Special Appeals. See 100 Harborview Drive , 119 A.3d at 95 (describing result of this particular action).

On January 14, 2013, Dr. Clark filed a lawsuit in the Circuit Court for Baltimore City under the Maryland Condominium Act, seeking the production of certain documents from the Debtor and monetary damages. Clark v. 100 Harborview Drive Council of Unit Owners, et al. , 24–C–13–000322 (Circ. Ct. Balt. City) (the "Second State Court Action"). In the Second State Court Action, the Circuit Court held that the Debtor was not required to produce written legal advice provided to the Debtor or those documents already produced concerning the Debtor's financial affairs, but that it was required to produce certain legal invoices. See 100 Harborview Drive Council of Unit Owners v. Clark , 224 Md.App. 13, 119 A.3d 87 (Md. App. 2015) (describing the Circuit Court's decision and affirming in part, and vacating in part, that decision).

On May 8, 2013, Dr. Clark filed a lawsuit against the Debtor in the Circuit Court for Baltimore City, alleging that the common elements of the condominium were defective, causing mold and water infiltration into Unit PH4A. Clark v. 100 Harborview Drive Council of Unit Owners , 24–C–13–002770 (Circ. Ct. Balt. City) (the "Third State Court Action"). In the Third State Court Action, Dr. Clark asserted various causes of action, including breach of contract, negligence, and breach of fiduciary duty. The Third State Court Action is pending in the Circuit Court, but is stayed as a result of the Debtor's chapter 11 case.

On March 24, 2014, Dr. Clark filed a lawsuit against the Debtor in the Circuit Court for Baltimore City, seeking a temporary restraining order and preliminary and permanent injunctive relief that would allow Dr. Clark to send his lawyers to the Debtor's Board and committee meetings. Clark v. 100 Harborview Drive Council of Unit Owners , 24–C–14–001537 (Circ. Ct. Balt. City) (the "Fourth State Court Action"). On October 31, 2014, the Circuit Court awarded summary judgment to the Debtor, ruling that the Debtor's policy resolution barring Dr. Clark's lawyers from the Debtor's meetings "is lawful and proper." See Debtor's Second Motion for Partial Summary Judgment ("Debtor's Second Motion") [ECF 545] Ex. I. Additionally, in the Fourth State Court Action, the Debtor counterclaimed for injunctive relief, seeking access to Unit PH4A to perform necessary maintenance and repairs on common elements affecting water infiltration into the condominium building and its units. See Debtor's Second Motion Exs. K, L.²

The Circuit Court entered a Permanent Injunction against the Clarks on February 18, 2015, which prevented the Clarks from denying the Debtor access to Unit PH4A. Id.

III. Summary of Facts Relating to Pending Motion³

Dr. Clark is the owner of Unit PH4A. Ms. Delorme is Dr. Clark's wife, and was formerly a resident of Unit PH4A. Paul C. Clark, Jr., is the minor son of Dr. Clark and Ms. Delorme, and was formerly a resident of Unit PH4A.

In early November, 2009, the Creditors moved into their new home located at Unit PH4A. Just prior to...