M4 Holdings, LLC v. Lake Harmony Estates Prop. Owners' Ass'n

237 A.3d 1208

M4 HOLDINGS, LLC, a New Jersey limited liability company and Boulderview Properties, LLC, a Pennsylvania limited liability company

v.LAKE HARMONY ESTATES PROPERTY OWNERS’ ASSOCIATION, a Pennsylvania non-profit corporation, Appellant

M4 Holdings, LLC, a New Jersey limited liability company and Ledgestone Properties, LLC, a Pennsylvania limited liability company

v.Lake Harmony Estates Property Owners’ Association, a Pennsylvania non-profit corporation, Appellant

M4 Holdings, LLC, a New Jersey limited liability company and Boulderview Properties, LLC, a Pennsylvania limited liability company

v.Lake Harmony Estates Property Owners’ Association, a Pennsylvania non-profit corporation

Appeal of: M4 Holdings, LLC, Boulderview Properties, LLC, and Ledgestone Properties, LLC

No. 902 C.D. 2019

No. 1197 C.D. 2019

No. 1424 C.D. 2019

Commonwealth Court of Pennsylvania.

Argued May 11, 2020

Decided August 14, 2020

Steven L. Sugarman, Berwyn, for Appellant Lake Harmony Estates Property Owners’ Association.

James R. Nanovic, Jim Thorpe, for Appellees M4 Holdings, LLC and Boulderview Properties, LLC and Ledgestone Properties, LLC.

BEFORE: HONORABLE RENÉE COHN JUBELIRER, Judge, HONORABLE CHRISTINE FIZZANO CANNON, Judge, HONORABLE BONNIE BRIGANCE LEADBETTER, Senior Judge

OPINION BY JUDGE COHN JUBELIRER

Presently before this Court is Lake Harmony Estates Property Owners’ Association's (Association) interlocutory appeal from the June 24, 2019 Amended Order of the Court of Common Pleas of Carbon County (common pleas) finding in favor of M4 Holdings, LLC (M4 Holdings) on all counts of its declaratory judgment actions. At issue in this case is whether a rule limiting the size of new construction in Lake Harmony Estates was validly adopted by the Association's Board of Directors (Board) at a purported meeting conducted through a series of email correspondence exchanged between the members of the Board over a period of two days. On appeal, the Association argues it validly adopted the rule. Alternatively, the Association contends that even if it did not validly adopt the rule, it subsequently ratified the rule. Also before this Court is a Notice of Cross Appeal filed by M4 Holdings, Ledgestone Properties, LLC (Ledgestone Properties), and Boulderview Properties, LLC (Boulderview Properties) (collectively, Developers). For the reasons that follow, we affirm common pleas’ Amended Order finding in favor of M4 Holdings and dismiss Developers’ Notice of Cross Appeal as moot.

I. Factual Background

This case arises out of the Board's efforts to regulate new construction in Lake Harmony Estates, a planned community in Kidder Township, Carbon County. The salient facts are not in dispute. The Association is a not-for-profit corporation incorporated under the Nonprofit Corporation Law of 1988 (NPCL), 15 Pa.C.S. §§ 5101 - 5997, and its Board is charged with managing the business of the Association. (Bylaws, Section IV, Article VII, ¶ 1, Reproduced Record (R.R.) at 1243a.) On April 10 and 11, 2013, the members of the Board exchanged a series of email correspondence in which board members discussed whether to exercise a right of first refusal (ROFR) related to the properties at issue and the adoption of a rule limiting construction of new residences to homes no larger than 2,500 square feet, with no more than 5 bedrooms and 3 bathrooms (2,500 Square Foot Rule). (Revised Decision, Findings of Fact (FOF) ¶¶ 15-16; R.R. 792a-834a.) Specifically, on April 10, 2013, at approximately 12:29 p.m., Larry Gould, vice-president of the Board at that time, sent the following email to the other six members with the subject line "Re: R[OF]R":

Let it be confirmed that the first clock date and time that this has been presented to the Board ... today Wednesday April 10TH 2013 [sic], at 11:23 AM .... As per our existing [Bylaws] ... Lake Harmony Estates, its successors and assigns, which shall have the right within 30 days of receipt of such [ ] written notice of purchasing said premises at the price and the same terms offered by such party. As such, the Board ... ha[s] 30 days to act on our [ROFR] starting from the exact clock date and time indicated therein. This ROFR is for 2 lots, 2 adjacent lots on Skye Drive. The purchaser is M4 Holdings .... It is readily apparent that [M4 Holdings] will be desiring to build 2 large commercial rentals on these lots. We have been talking about placing controls on such buildings for five months now; five months! In light of this fact, I propose an[ ] amendment to our existing [Bylaws], effective immediately, which limits the size of all new construction, to 5 bedrooms, 3 bathrooms, and no larger than 2500 square feet. This is a fair and equitable approach, as the Township has a 10[-]person maximum occupancy rule, and our own [Bylaws] indicate that a reasonable rule of thumb in regards to occupancy shall be 2 persons per bedroom, hence, a 5[-]bedroom maximum. 3 bathrooms are more than enough to serve that size structure, and limits water consumption with our water conservation policy. 2500 square feet is between the basic large home (2000 square feet), and a larger one (3000 [s]quare feet). This is all in line with the Township's ideals and fits well into the general philosophy of the Estates, and covers us from an ecological "footprint" standpoint, as well as many other factors. Furthermore, it does not discriminate against any one type of home.

We need to vote YES on this right now, effective immediately.

(R.R. at 798a (quotation marks omitted).)

Over the course of the next roughly 22 hours, 5 members of the Board exchanged a series of email correspondence. (Id. at 796a-99a.) Common pleas summarized their response with regard to the 2,500 Square Foot Rule, in relevant part, as follows:

Jessie Smiley – Seconded Mr. Gould's "motion" on two occasions; did not render a subsequent "vote."^[1]

John Con[a]way – Indicated support for the 2,500 Square Foot Rule proposal.^[2]

Russell Ferretti – Indicated support for the 2,500 Square Foot Rule proposal.^[3]

Kellie Melba – Indicated support for the 2,500 Square Foot Rule proposal.^[4] Bob Haeseker – Indicated conditional support for the 2,500 Square Foot Rule proposal.^{[5 ]}

(Memorandum Opinion (Op.) at 5-6 (emphasis omitted).) Common pleas found that one member of the Board, Barry Scholtz, "did not participate in the" series of email correspondence at issue.⁶ (Id. at 6.) The Board purports to have adopted the 2,500 Square Foot Rule proposal as an amendment to the Bylaws in the series of email correspondence exchanged on April 10 and 11, 2013, by a majority vote. (Revised Decision, FOF ¶ 15.) On May 2, 2013, the Board issued a notice to the members of the Association that it had "approved" the following addition to the Bylaws: "new construction homes or new construction residences shall be limited to [5] bedrooms and [3] bathrooms, and a maximum of 2,500 square feet." (Revised Decision, FOF ¶¶ 16, 20; R.R. at 781a.)

On April 23, 2013, M4 Holdings closed on the purchase of 713 and 714 Skye Drive, two lots located within Lake Harmony Estates. (Revised Decision, FOF ¶ 9; R.R. at 1142a-43a.) On June 18, 2013, M4 Holdings submitted a building application to the Board seeking approval to construct a 3,715-square-foot residence, consisting of 6 bedrooms and 5 bathrooms, at 713 Skye Drive.⁷ (Revised Decision, FOF ¶¶ 21-22; R.R. at 982a-85a.) The Board denied this application, stating, in relevant part, that the proposed residence "failed to conform to the [A]ssociation's [Bylaws] regarding square footage, number of bedrooms[,] and number of bathrooms." (Revised Decision, FOF ¶ 24; R.R. at 1021a-22a.)

On September 9, 2013, M4 Holdings submitted an additional building application to the Board with respect to 714 Skye Drive. (Revised Decision, FOF ¶ 25; R.R. at 991a-97a.) This application proposed to construct a 4,494-square-foot residence consisting of 7 bedrooms and 4 bathrooms. (Id. ) The Board denied this application as well, again stating, in relevant part, that the proposed residence violated the 2,500 Square Foot Rule. (Revised Decision, FOF ¶ 26; R.R. at 1026a-27a.)

After the Board denied M4 Holdings’ building applications with respect to 713 and 714 Skye Drive, M4 Holdings conveyed a one-half interest in 713 Skye Drive to Ledgestone Properties and a one-half interest in 714 Skye Drive to Boulderview Properties. (Revised Decision, FOF ¶ 28; R.R. at 1162a-66a, 1169a-73a.) Thereafter, on March 5, 2014, M4 Holdings submitted supplemental information to the Board, therein addressing the other reasons for the Board's denial of the above building applications, upon which the Board did not act. (Revised Decision, FOF ¶ 29; R.R. at 1034a-35a.)

Sometime before January 2015, a new Board was elected to govern the Association. (Revised Decision, FOF ¶ 31.) On February 21, 2015, the Board voted upon and unanimously approved a resolution rescinding the 2,500 Square Foot Rule. (Id. , FOF ¶ 32; R.R. at 1083a.) As a result, the Board issued permits dated January 6, 2015, which were not received by M4 Holdings until March 2015, allowing M4 Holdings to construct the previously proposed residences at 713 and 714 Skye Drive.⁸ (Revised Decision, FOF ¶ 32; R.R. at 1060a, 1069a-70a.) Since receiving the building permits, M4 Holdings has constructed a residence at 713 Skye Drive. (Revised Decision, FOF ¶ 33.) However, as of October 31, 2017, no residence has been built at 714 Skye Drive. (Id. ¶ 34.)

II. Proceedings before Common Pleas

On January 24, 2014, after the Board denied M4 Holdings’ building applications with respect to 713 and 714 Skye Drive, but before those applications were ultimately approved in 2015, M4 Holdings and Boulderview Properties initiated a declaratory judgment action against the Association challenging the denial of M4 Holdings’ building applications with respect to 714 Skye Drive. Relevant to this appeal, M4 Holdings and Boulderview Properties’ Complaint challenged the enforceability of the 2,500 Square Foot...