The Supreme Court has recently held that a default judgment in favor of an owner against a general contractor cannot form the basis for extinguishing a subcontractor’s lien on property under N.C.G.S. §44A-23.

In the case of Carolina Building Services v. Boardwalk, LLC, the Supreme Court was faced with this issue after a general contractor abandoned a job project before completion of the project.  An unpaid subcontractor filed a lien on the project after the abandonment by the general contractor.  The subcontractor filed suit against the general contractor and owner to perfect the lien and the owner asserted a claim against the general contractor.  The owner moved for default judgment against the general contractor and presented affidavits that the cost to complete the project exceeded the balance of contract owed to the general contractor, effectively nullifying the subcontractor’s lien on funds.  The subcontractor presented competing affidavits showing the owner completed the project for less than the balance of contract, thus preserving the subcontractor’s lien rights.  The trial court indicated the subcontractor did not have standing to challenge the default judgment against the general contractor on the owner’s claim and entered judgment in favor of the owner, effectively cutting off the subcontractor’s subrogation lien rights.  On appeal, the Court of Appeals affirmed the trial court’s ruling.  However, on discretionary review, the Supreme Court held that the general contractor’s default on the owner’s crossclaim was an “action” prejudicing the subcontractor’s lien rights under the mechanics lien statute and the subcontractor should have had an opportunity to prove its entitlement to a lien on funds owed to the general contractor.  Writing for the Supreme Court, Justice Newby indicated, “[subcontractor] presented an affidavit that raised a genuine issue of material fact concerning [the owner’s] liability to [the general contractor] based on a lien against [the owner’s] real property. Rather than consider this affidavit, the trial court focused on the default judgment for [the owner] against [the general contractor]. By its plain meaning, an action is ‘[a] thing done.’  Thus, [the general contractor’s] choice not to defend [the owner’s] claims constituted an “action” which prejudiced the rights of [subcontractor] contrary to the statutory mandate of N.C.G.S. § 44A-23.  [Subcontractor] should have an opportunity to present its evidence concerning the merits of recovery under its lien on real property.”

The Supreme Court recently ruled in the case of Winding Ridge v. Joffe that a single family use restriction in a set of restrictive covenants was a structural limitation as opposed to a restriction on the type of occupancy permitted within a dwelling.  The Supreme Court ruling overturns a July 2007 Court of Appeals case which had held that a group of baseball players were in violation of the usage restriction and prohibited the students from occupying the residence unless they were related by blood or marriage or otherwise structured in the same way as a traditional view of an American family.  Judge Geer dissented in the Court of Appeals case and maintained that the restriction was instead, a structural limitation, as opposed to a usage limitation.  In her dissent, Judge Geer wrote, “I would hold in this case that the restrictive covenant, as drafted, is only a limitation on the type of structure that may be placed on the property and not a restriction on the type of occupancy permitted within the dwelling.”  The case was appealed to the Supreme Court where the Supreme Court reversed the Court of Appeals majority decision and adopted Judge Geer’s dissent.

An article written by Joe Wall was recently featured in the Winter 2007 quarterly publication of the North Carolina Association of Defense Attorneys and in the December 17, 2007 edition of North Carolina Lawyers Weekly. The article examines recently enacted legislation that changed the common law rule regarding the admissibility of expert testimony concerning vehicular speed. For many years, the common law rule in North Carolina was that no one, including experts, could testify concerning the speed of a motor vehicle unless he or she had actually observed the vehicle in motion. The article explains the history of the common law rule, discusses the new legislation, and cites a 2007 Court of Appeals decision that deals with the issue of whether or not the rule change applies to accidents that occur prior to December 1, 2006. Joe Wall practices in the area of civil litigation with an emphasis on insurance defense and trucking law. You may read the article here.

The Court of Appeals has overturned a judgment in favor of a Haywood County developer who sued property owners for collection of assessments. The plaintiff was a developer in the Lake Junaluska development and brought suit against certain individual lot owners within the Lake Junaluska development. Some of the defendant lot owners’ deeds contained restrictive covenants which granted the developer the right to assess for certain service charges. When the defendants refused to pay the relevant assessments, plaintiff brought suit. The defendant owners argued that the restrictive covenants did not specifically set out an affirmative obligation to pay any money to the developer or anyone else. The trial court disagreed and entered judgment in favor of the developer.

On appeal, the Court of Appeals cited a line of appellate cases dating back to 1980 which held that covenants that impose affirmative obligations on property owners are strictly construed and unenforceable unless the obligations imposed are “in clear and unambiguous language” and “sufficiently definite” to assist courts in their application. Applying this line of cases, the Court of Appeals ruled that the restrictions in this case were not “reasonable” and “sufficiently definite.” As a result, the Court of Appeals reversed the trial court’s ruling in favor of the developer. Unique to this decision was the fact that this case involved a developer and not a homeowners’ association seeking to use the assessments sought to be collected.

The North Carolina legislature has recently enacted N.C.G.S. §22B-20, effective October 1, 2007, which has a limited effect on a homeowners association’s authority to regulate placement of solar panels on single family dwellings. The intent of the statute, generally, is to encourage the use of solar resources and to discourage homeowners associations from making the installation of solar technologies so cost prohibitive as to effectively discourage homeowners from using this alternate form of energy. The new law applies only to detached single-family residences - there are no restrictions on how a townhome or condominium association can regulate the installation of solar panels (including disallowing same). Generally speaking, a homeowners association may prohibit solar panels completely if they are visible on the house’s facade or slope of roof that is facing any area open to common or public access. The new law also provides that if not visible from the street of common areas, the homeowners association may still regulate the location and screening of the solar panels, as long as reasonable use of the solar panels can be made.

Community Association Practice Group

The Court of Appeals has recently ruled that the application of the Planned Community Act, specifically, the fining provisions in G.S. §47F-3-107.1, can be constitutionally applied to pre-1999 communities, and such application is not a violation of the contracts clause of the constitution. In the case of Reidy v. Whitehart Association, 648 S.E.2d 265 (N.C. App. 2007), a homeowner brought suit against his homeowners association contending that the fines imposed by the association on the homeowner for the homeowner’s failure to follow the architectural approval process, was an unconstitutional violation of the contracts clause and a deprivation of the homeowners procedural and substantive due process rights. The Court of Appeals rejected all the homeowners’ arguments and affirmed the trial court’s order granting injunctive relief to the association and imposing fines of $25 per day against the homeowner.

Community Association Practice

On July 31, 2007 the North Carolina General Assembly ratified Senate Bill 1245 (A Act to Amend the Laws Relating to Retainage Payments on Public Construction Contracts), which will significantly change the law of public construction in North Carolina. The legislation will become effective on January 1, 2008.

New Requirements For Retainage

The legislation divides public construction projects into two types: (1) projects where the total project costs are less than $100,000.00, and (2) projects where the total project costs are equal to or greater than $100,000.00. No retainage may be held on projects less than $100,000.00. With regard to the larger projects, retainage is still allowed, but will now be subject to statutory requirements. The most important statutory rules, generally, are that: (1) no more than 5% retainage may be withheld from any payment, and (2) no further retainage may be withheld when the project is 50% complete. (more…)

On 17 July 2007 the North Carolina Court of Appeals handed down two decisions dealing with the interpretation of single family use restrictions found in community restrictive covenants.

In the case of Danaher v. Joffee and Winding Ridge Homeowners Association v. Joffe, the Court of Appeals held that certain university students encouraged to live together by their baseball coach were not a single familyfor purposes of the restrictive covenants governing the community. The restrictive covenants of the community in the Joffe cases provided, in part, no building shall be erected, altered, placed or permitted to remain on any lot other than one single family residence and its customarily accessory buildings and uses. (more…)