The S.C. Supreme Court today reinstated a $1.75 million jury verdict for the homeowners association of I’On, the Mount Pleasant neighborhood, against the companies that developed it.
“This case involves promises made and broken to homeowners by a developer and its affiliated entities,” Justice Kaye G. Hearn wrote for a unanimous court.
The ruling largely reverses the S.C. Court of Appeals, which in 2019 threw out the jury’s verdicts. The Supreme Court restored the association’s award for breach of fiduciary duty, a verdict for homeowner Brad Walbeck and $225,500 in attorney’s fees for Walbeck.
The appeal names The I’On Company LLC, The I’On Club LLC, The I’On Group LLC, formerly Civitas LLC, and I’On Realty LLC. The opinion describes Thomas Graham as one of I’On’s two primary developers, along with his son. Thomas Graham and Vince Graham were sued individually but were dismissed from the case before trial.
What was promised
The case centers on a civic-use lot along Hobcaw Creek that holds an event facility called the Creek Club, a community dock and a boat ramp, along with part of a parking lot. Homeowners said the developers promised to give those amenities to the homeowners association, the I’On Assembly.
In 1998, to comply with the federal Interstate Land Sales Full Disclosure Act, the developers filed a property report with the U.S. Department of Housing and Urban Development. It said the recreational facilities listed in it would be conveyed to the association upon completion at no cost. The list included a “Community Dock” and a “Creekside Park.” Walbeck received a copy when he bought his lot in November 1999.
The Creek Club and nearby docks were finished in 2001. By then the plan had changed, according to the opinion. In 2000, the developers gave the association an easement to use the amenities and share their costs, and amended the property report to drop the promise to convey a “Creekside Park” and “Community Dock.” Later that year, the company deeded two docks and a 2.86-acre tract that became Marshwalk Park to the association.
A sale kept quiet
The developers later weighed other uses for the property, the court said. In 2007, the developers’ manager, Chad Besenfelder, tabled any plan for the time being, writing, “The docks are too controversial and taking away even part of this community amenity would cause trouble.”
In 2008, Mike Russo proposed that his company, 148 Civitas, buy the lots. Russo withdrew that offer in March 2009. Afterward, Besenfelder sent an email, copied to board members, saying the I’On Company was preparing to deed the community dock to the association. Within hours, the court said, “secret negotiations resumed” with Russo, and the sale closed Aug. 5, 2009.
When the association’s president, Bruce Kinney, asked Thomas Graham about a pending sale in July 2009, Graham told him the Creek Club was undergoing a “management change,” according to the opinion. Kinney learned of the sale from Graham on Aug. 11, 2009.
The verdicts
Walbeck sued in December 2010, and Lea Ann Adkins later joined him. At trial, the jury found for the association on claims including breach of contract, negligent misrepresentation and breach of fiduciary duty. The association chose its $1.75 million fiduciary duty award, and Walbeck chose a $20,000 negligent misrepresentation award. The jury found for the developers on all of Adkins’s claims, and although it found their conduct reckless, willful or wanton, it declined to award punitive damages.
A Court of Appeals panel first upheld the fiduciary verdict. On rehearing, it reversed itself, throwing out the homeowners’ claims as a matter of law except for one contract claim by Walbeck, which it sent back for a new trial.
What the justices held
The Supreme Court said when the homeowners should have known the promises would not be kept was a question for the jury, which found the clock started with the Aug. 5, 2009, sale. The Court of Appeals had pointed to 2005 instead.
The justices said the lower court looked too narrowly at the failure to convey the property, “ignoring the plethora of other evidence presented of the Developers’ bad faith, broken promises, and self-dealing.” They also upheld the trial court’s decision to treat the developer entities as one business, pointing to evidence that included the secret sale and $5 transfers of the lots among the companies and their owners.
“While it is true that courts should be hesitant to invade the corporate form, here there is more than enough evidence that the creation of various entities furthered Developers’ abilities to refrain from doing that which they repeatedly told the HOA and the residents they would do,” Hearn wrote.
The court agreed with the Court of Appeals that the 2000 easement was invalid. It also noted that the trial court had held the developers in contempt for destroying evidence and ordered more than $23,000 in sanctions, citing a forensic report that showed Besenfelder deleted about 51,527 files and folders.
Acting Chief Justice John W. Kittredge, Justices John Cannon Few and George C. James Jr., and Acting Justice Jan B. Bromell Holmes joined the opinion. Stephanie P. McDonald, then a circuit judge and now a judge on the S.C. Court of Appeals, presided over the trial.
