SCV: Owner could claim breach for condo’s incorporation

The owner of one unit in a condominium development stated a breach-of-contract claim against the Condominium Council, based on allegations that its Board unilaterally incorporated it into a non-stock corporation.

Background

According to her pleadings, Appellant Pammalla Uplinger is a unit owner in what is known as the “Alexandria Overlook” residential condominium development. Overlook’s Master Deed and Amended Bylaws, attached to and incorporated into Uplinger’s amended complaint, identify Uplinger and the other unit owners as “Co-Owners.”

Under the bylaws, the Co-Owners comprise the membership of Appellee Alexandria Overlook Condominium Council, Overlook’s governing association. The bylaws also provide for a Board of Directors, elected by the Council’s members.

In December 2013, the Board allegedly decided – with assistance from LeClairRyan as its legal counsel – to incorporate the Council into a non-stock corporation without the Co-Owners’ approval. Based on this action, Uplinger sued the Council for breach of contract and breach of fiduciary duty, and LeClairRyan for aiding and abetting breach of fiduciary duty.

On the Appellees’ demurrer, the circuit court dismissed with prejudice all three counts, finding “no basis” for them, and awarded the Appellees $7,500 in attorneys’ fees as a sanction. Uplinger appealed.

Breach of contract

Contrary to the circuit court’s ruling, Uplinger sufficiently stated a claim for breach of contract. The amended complaint sets forth provisions from the Master Deed and bylaws, as well as the Virginia Condominium Act, that support Uplinger’s breach of contract action.

The Council was established as an unincorporated, nonprofit association – a formation that the Co-Owners agreed to when they purchased their units. The Board exceeded its authority when it allegedly proceeded unilaterally to incorporate the Council, fundamentally changing its legal status from an unincorporated association to a non-stock corporation. This would have subjected the Council to an additional detailed statutory scheme in the form of the Virginia Nonstock Corporation Act, imposing numerous requirements upon the Council including fees, membership, officers, directors, meetings, indemnification, sale of assets and record-keeping, separate from the requirements imposed by the Condominium Act.

Therefore, the Board’s alleged decision cannot reasonably be viewed as merely an administrative act that was “necessary for the administration” of the Council’s affairs. The Council had been functioning as an unincorporated association for over 40 years. Only through an amendment to the Bylaws could incorporation occur, requiring agreement by two-thirds of the Co-Owners.

The circuit court thus erred in granting the Appellees’ demurrer to Uplinger’s Count 1.

Breach of fiduciary duty

However, the circuit court did not err in granting the demurrer as to Counts 2 and 3.

The threshold problem with this claim is that the named defendant, the Council, was the victim of the alleged breach of fiduciary duty, not the perpetrator of it. Uplinger cites no authority as a basis to hold the Council vicariously liable for the Board’s actions. Because Uplinger fails to state a claim for breach of fiduciary duty, her claim of aiding and abetting against LeClairRyan also must fail.

Sanctions

Because Uplinger stated a cause of action in Count 1, this court reverses the circuit court’s award of sanctions against her and remands for reconsideration.

Affirmed in part, reversed in part, and remanded.

Uplinger v. Alexandria Overlook Condo. Council of Co-owners, Record No. 170871, June 21, 2018. SCV (per curiam order), from Alexandria Cir. Ct. VLW No. 018-6-046, 8 pp.