Homeowners in the Bayside community near Selbyville have filed a pair of class-action lawsuits in Delaware Court of Chancery against developer Carl M. Freeman Communities alleging the developer withheld information that would have allowed the homeowners to control their own community association.
Judge Sam Glasscock denied the plaintiffs’ request for a status quo order Feb. 15, and ordered a trial to be held in early May.
In a nutshell, the Bayside homeowners who filed suit believe they should have the controlling interest on the board of directors of the Bayside Community Association. Freeman Communities has said the homeowners are misinterpreting the state’s common interest law, and there is an intention to transition the association to the homeowners by 2024. The homeowners believe that isn’t soon enough, and Freeman Communities is obligated by law to make the transition now.
Bayside homeowner Don Picard said, “I have owned a home in Bayside since 2006. I really like Bayside; it’s a wonderful community. But it's been difficult working through the homeowners association with the developer.”
Fellow homeowner Greg Merrill said, “I don’t have a complaint about the community. People support Bayside. But the transition needs to take place. The majority of the board is employed by Freeman. The homeowners do not have control and do not have a say.”
In a statement, Freeman Companies President and CEO Michelle Freeman said, “We will vigorously defend ourselves against these legally and factually baseless lawsuits, which we believe portray the Carl M. Freeman Companies in an unfair and inaccurate light. We take enormous pride in the quality of how we have developed Bayside, how we operate its amenities in a world-class manner, and how our vision to be the premier development in Sussex County and the entire Delmarva has become a reality."
The two suits are related to each other in that they both make allegations that Freeman Communities, the residential real estate development arm of Carl Freeman Companies, did not turn over control of the board of directors of the Bayside Community Association to Bayside residents when more than 75 percent of the lots in Bayside were sold, as required in Delaware’s Uniform Common Interest Ownership Act.
The first suit, filed in November by attorney Robert Valihura on behalf of Bayside resident Nancy Green, asks for Bayside residents to be appointed to the majority of seats on the association board. The Green suit has since been amended to be a class-action suit.
The second suit, filed Jan. 28 by Valihura as a class-action on behalf of Bayside resident David Williams, asks for financial compensation based on disclosure documents for all home sales in Bayside since 2009.
The Green lawsuit says that Bayside, created in 2005, has been a common interest ownership community controlled by Freeman Companies President and CEO Michelle Freeman. The suit says the board of directors members were appointed by Freeman Communities, the property developer.
Plaintiffs argue that according to the state’s uniform common interest law, after 75 percent of the units in a common interest community are sold, the developer’s control period ends, and the majority of the board of directors must consist of homeowners. They say that 83 percent of the lots in Bayside have been sold.
Green’s suit says when she learned in July that control of the board must go to residents, she and other homeowners tried to negotiate a transition, which would include an election of new board members. Green’s suit alleges those attempts were rejected by Freeman Communities. They argue that while Freeman Communities only owns 20 percent of the remaining lots in the development, the developer still controls the finances and has authority over the community.
The Green suit asks for a judgment declaring that Freeman Communities is violating state law and seeks an order directing an election with homeowners holding the majority of the board seats.
In response, Freeman Communities, represented by Rehoboth Beach attorney Mark Dunkle, argued that Green had misread the common interest law and stated that Bayside was a master planned community, which is defined in Delaware law as a community consisting of at least 400 acres with at least 400 units.
In practice, a master planned community usually consists of multiple neighborhoods with shared amenities like a golf course, swimming pool and clubhouse. Dunkle argued that Delaware law allows the developer of a master planned community to set its own terms for how control of a board of directors is conveyed to unit owners, and the MPC is not subject to the 75 percent rule. He argued that Bayside requires 90 percent ownership of the units to be sold before the board can be controlled by the homeowners. Freeman Communities has asked for the Green suit to be dismissed.
In its legal filings, Freeman Communities also argues that while the board of directors is appointed by the developer, the committees, such as the finance committee, which comes up with the community budget, and the grounds and operations committee, which handles much of the day-to-day operation of Bayside, are controlled by homeowners. While the board has the final say, the committees make recommendations on how the community moves forward.
“The current structure of decision-making of the HOA favors the homeowners,” Dunkle wrote. “Opting to turn over control of the HOA board earlier than prescribed in the Delaware Uniform Common Interest Ownership Act and the charter would put the developer and its interests at risk after investment of over 20 years and $100,000,000 in Bayside, its master plan and amenities.”
Dunkle also wrote that a possible motivation behind the Green suit is to prevent completion of the community’s master plan, including the Freeman Arts Pavilion, a planned amphitheater to be located next to the current Freeman Stage.
In response to Dunkle’s motion to dismiss, Valihura filed a second lawsuit, this one a class-action suit with Williams as the lead plaintiff. Valihura argues that if Bayside is a master planned community, it must provide disclosure documents stating such to homeowners when they purchase their homes. He said this was not done. The Williams suit alleges Freeman Communities committed fraud by failing to provide this information, and is seeking damages and attorneys fees.
A response brief to the Williams suit has not yet been filed.