Supreme Court reverses ‘overreaching’ remedy in Baldwin condo fraud case

The Alabama Supreme Court overturned a Baldwin County Circuit Court decision which, upon appeal, was assailed by prominent business and development interests, as well as the Alabama Attorney General’s Office as “overkill,” “draconian” and even “liberal.”

As Lagniappe previously reported, Gulf Shores real estate developer Brett/Robinson initially marketed and built the Phoenix On The Bay II (POTBII) as a 104-unit residential condominium. Defendant Pam Montgomery argued that after she purchased a unit, the condo declaration was amended to introduce four commercial units that Brett/Robinson reserved for an office and reception area, housekeeping and maintenance.

After a bench trial in May 2019, Circuit Court Judge Clark Stankoski stripped Brett/Robinson of its declared ownership of the four units by striking and amending several portions of the declaration, while also redistributing Brett/Robinson’s fractional ownership interest in the four units among the other 104 property owners and declaring the units themselves common areas.

In a 7-1 decision June 30, the Alabama Supreme Court reversed and remanded the case to Stankoski, declaring the commercial units are, in fact, valid and Brett/Robinson’s actions were compliant with the Alabama Uniform Condominium Act (AUCA).

The court acknowledged the inconsistency between Brett/Robsinson’s offering statement and representations and the subsequent creation of the commercial units, but determined “the Second Declaration and its exhibits, when read as a whole, make it clear that POTBII would consist of 104 residential units and the four commercial units.” Further, the court advised AUCA “should be liberally construed to effectuate its purpose of encouraging development and construction of condominium property.”

In a case that clearly ruffled the feathers of some on the court, Justice Kelli Wise concurred specifically, but added the facts of the case were “troubling.”

“I do not wish to be understood as approving the condominium developers’ actions in the case or implying [the defendants] are not entitled to any form of relief,” she wrote. “Rather, I simply believe that the relief granted by the trial court was not appropriate under the specific facts of this case.”

Wise blamed Brett/Robsinson’s “poorly executed” second declaration, a failure to provide purchasers with updated offering statements, and construction shortcomings for creating “unnecessary problems and issues” in the case, “raising questions regarding whether [the defendants] are entitled to the relief they requested.”

Justice Bill Sellers, also concurring specifically, wrote his own opinion to note Stankoski’s trial court “exceeded its discretion,” and the abolishment of the commercial units “amounted to judicial overreaching.”

Sellers further emphasized that Brett/Robinson always “intended to create the commercial units,” and expressed concern that Montgomery’s challenge would negatively affect others in the homeowner’s association (HOA), “many of whom may not be similarly situated.”

Chief Justice Tom Parker was the lone voice of dissent, opening his opinion with a stark assessment and at times, wandering into scripture.

“Today’s result makes one thing clear: law has swallowed equity,” he wrote, adding that reviewing the case’s compliance with the Condo Act or whether the reformation of the declaration was an appropriate remedy “is not the right analytical framework for deciding this case.”

Instead, he lamented the historical merger of law and equity courts.

“Merged courts tend to administer equitable claims according to the proverbial letter of the law and to assume, without further reflection, that they are neither permitted nor required to do more to achieve the goal of equity,” he wrote. “Because this court cannot find this specific remedy in the AUCA, the court concludes that no such remedy is available. If this court had embraced the essential character of equitable power instead of treating equity as merely a subsidiary set of rigid rules, it would not have been so quick to conclude that the circuit court exceeded its considerable discretion by awarding reformation.”

This week, Montgomery told Lagniappe she plans to apply for a rehearing of the case in front of the Alabama Supreme Court.

“They basically just gutted the Condominium Act,” she said. “Every consumer who is buying something that doesn’t exist yet depends on words and documents to reflect and represent what the ultimate product is going to be. That is how they make a determination whether they’re going to invest or not. And if that provision is not upheld and a developer can file a declaration that is different than what the offering statement says, basically that gives all developers a license to steal.”

Montgomery alleges that although Brett/Robinson paid dues and taxes on the four units and exercised its rights as a member of the HOA, it withheld disclosure of the units from investors, insurance companies, appraisal reports and auditors. She said the Supreme Court’s decision puts the burden of proof on purchasers to demonstrate they have not been defrauded in a condo transaction.

On the other hand, appellants’ attorney Marc Ayers believes the Supreme Court got it right.

“It was a very strongly worded opinion that just simply walked through the steps of the way the case really should have been analyzed from the get-go,” he said, adding the remedy reforming the condo declaration “has never been done,” and “simply didn’t match up with the facts.”

“I don’t think [Stankoski] intended to be radical in that way,” Ayers said. “I think he was listening to those in front of them that said this is normal. But the fact is, it’s not. It’s not a remedy that is recognized anywhere, certainly not in Alabama or in any other jurisdiction that we could find.”

Ayers said whether or not there is a rehearing, he expects the Supreme Court’s decision to hold. If the case is remanded to Baldwin County as ordered, Stankoski will likely consider alternate remedies. Ayers characterized the remaining claims as “minor collateral matters.”