Raven’s Cove Townhome, Inc. v. Knuppe Development Company, Inc.

In April 1972, Knuppe Development Company, which was owned by James Knuppe and his wife, Barbara (collectively, the developers) (defendants), acquired property to develop the Raven’s Cove Townhomes development and incorporated the Raven’s Cove Townhome Association (the association) (plaintiff), which initially consisted of the developers and the developers’ employees (defendants). In November 1972, the developers conveyed the common areas of the development to the association, and the deed was recorded in August 1973. By October 1973, construction at the development had been substantially completed, and sales of individual units commenced. Until May 1974, when the association was turned over to the homeowners, the developers and their employees controlled the association and performed no functions other than signing the association’s bylaws as officers. Under the development’s declaration, the association was responsible for the maintenance and repair of the common areas, and it was empowered to assess and collect funds from the homeowners to create funds to cover those expenses. The assessments were to commence when the common areas were conveyed to the association. No reserve or operating funds were established when the initial directors controlled the association despite their knowledge of substantial defects in the common-area landscaping and in the exterior walls of individual units. The association sued the developers and the association’s initial directors for breach of fiduciary duty for their failure to properly assess operating costs and to fund a maintenance reserve account for the development’s common areas. The trial court found that no fiduciary duty had been breached and dismissed the suit. The association appealed.