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W.H.I., Inc. v. Courter

Superior Court of Rhode Island

July 24, 2017

W.H.I., INC., Plaintiff, Defendant in Counterclaim,
v.
JAMES COURTER; SORGENFREI, LLC, Defendants, Plaintiffs in Counterclaim, and Third Party Plaintiffs, and JVLV REALTY, INC.; HOWARD L. HARONIAN, M.D.; HJM LLC; JAMES & LYNN VALLIDES; and SALLY MERRY, Involuntary Plaintiffs in Counterclaim, and JVLV REALTY, INC.; HOWARD L. HARONIAN, M.D.; HJM LLC; JAMES & LYNN VALLIDES; and SALLY MERRY, Involuntary Third Party Plaintiffs and MERRILL LYNCH CREDIT CORPORATION; DIME BANK; Parties-In-Interest,
v.
PETER V. CATALANO; WATCH HILL INN HOTEL CONDOMINIUM ASSOCIATION (a.k.a. WATCH HILL INN CONDOMINIUM ASSOCIATION); WATCH HILL PROPERTIES, LLC; and WHI PARKING, LLC. Third Party Defendants.

          For Plaintiff: John O. Mancini, Esq.

          For Defendant: Jeffrey H. Gladstone, Esq.; Cale P. Keable, Esq.; John Deacon, Esq.; Americo M. Scungio, Esq.; Catherine V. Eastwood, Esq.; Erich J. Hasselbacher, Esq.

          For Special Master: William M. Russo, Esq. John A. Dorsey, Esq.

          DECISION

          STERN, J.

         Before this Court is a motion for partial summary judgment filed by Defendants/Plaintiffs in Counterclaim/Third Party Plaintiffs James Courter (Courter) and Sorgenfrei, LLC (Sorgenfrei), together with Involuntary Plaintiffs in Counterclaim/Involuntary Third Party Plaintiffs JVLV Realty, Inc. (JVLV), Howard L. Haronian, M.D. (Dr. Haronian), James Vallides and Lynn Vallides (collectively, the Vallideses), and Sally Merry (Merry) (collectively with Courter, Sorgenfrei, and the Vallides, the Unit Owners). The Unit Owners move for partial summary judgment against Plaintiff/Counterclaim-Defendant W.H.I., Inc. (W.H.I., Inc. or Declarant) and Third Party Defendant Peter V. Catalano (Catalano) on their claims seeking a determination that (1) W.H.I., Inc.'s declarant rights under the Condominium Act, G.L. 1956 §§ 34-36.1 et seq., expired and, as such, Declarant's ability to unilaterally control the Watch Hill Inn Condominium Association's (WHICA) executive board expired; (2) the actions of the Declarant in effectuating certain changes to the Amended and Restated Declaration of Condominium were ultra vires and therefore void ab initio; and (3) certain changes to the Amended Declaration were not made in conformance with the Condominium Act and therefore void ab initio. Plaintiff/Counterclaim Defendant W.H.I., Inc.; Third Party Defendant Catalano; Third Party Plaintiff Watch Hill Properties, LLC (WHP); and Involuntary Counterclaim/Third Party Plaintiff HJM, LLC (collectively, WHI) object to the Unit Owners' Motion for Partial Summary Judgment and have filed a cross-motion requesting that partial summary judgment be entered in WHI's favor on the same issues. This Court's jurisdiction is pursuant to Super. R. Civ. P. 56 and G.L. 1956 § 9-30-1.

         I Facts[1] and Travel

         The instant matter involves a historic condominium development located at 38 Bay Street, Westerly, Rhode Island, currently known as Watch Hill Inn Condominium.[2] Watch Hill Inn Condominium was originally built in 1845 under the name Narragansett Inn. See Catalano Aff. ¶¶ 6-7. On December 23, 1985, the property was purchased by W.H.I., Inc. and renamed "Watch Hill Inn." See id. at ¶ 7. Between 1986 and 2005, W.H.I., Inc. renovated and upgraded Watch Hill Inn to include sixteen efficiency hotel units, one residential apartment, a banquet facility, an indoor/outdoor restaurant, and sixteen on-site compact parking spaces primarily for staff use. Id. at ¶ 8. After the Rhode Island Fire Codes were amended as a result of the Station Nightclub fire of 2005 so as to require that structures exceeding twenty-five years of age conform to the new Rhode Island Fire Regulations, Watch Hill Inn was cited with sixty-five violations, forced to shut down, and given a deadline to conform to the new regulations. Id. at ¶ 9. W.H.I., Inc. appealed the violations to the State of Rhode Island Rehab Board for an administrative approval permitting W.H.I., Inc. to perform a complete rehabilitation by granting an approval for a continued, non-conforming "mixed-use status." Id. at ¶ 10. W.H.I., Inc. was eventually approved for eleven units consisting of ten residential dwelling units and one restaurant. Id. at ¶ 11.

         Having been issued the necessary permits, W.H.I., Inc. employed the legal services of Marc Gertsacov, Esq. in January 2006 to draft a public offering statement, a declaration, and bylaws so as to create a condominium complex. Id. at ¶ 15. Pursuant to the Declaration of Condominium Watch Hill Inn Hotel Condominium, recorded at Book 1504, Page 174 (Declaration), Watch Hill Inn Hotel Condominium was created on February 17, 2006, with the Declarant listed as W.H.I., Inc. See W.H.I., Inc., Catalano, WHP and HJM, LLC's Objection to Motion for Partial Summary Judgment and Cross Motion for Summary Judgment, Ex. 3 (hereinafter, WHI Motion).

         On June 1, 2006, Declarant entered into a Management Agreement with WHP, which named WHP as the property manager for WHICA. See WHI Motion, Ex. 5. Thereafter, WHP entered into a Rental Management Agreement with Carmen Courter, Katrina Courter, and Donica Dohrenwend (collectively, the Courter Parties) nine days later, which provided in part:

"The Watch Hill Inn is a commercial hotel and as such is considered to be an income producing property. In order to participate in the [Rental Management] Program and derive rent income from the Unit, the Unit Owner authorizes the Agent to rent the Unit to the general public in accordance with the Watch Hill Inn Rate Schedule and Policies as published in its website and publications." WHI Motion, Ex. 6.

         Subsequently, amendments to the Declaration were formalized in the Amended and Restated Declaration of Condominium, which was recorded in the Town of Westerly Land Records on July 7, 2006 at Book 1550, page 187 (First Amended Declaration). In part, the First Amended Declaration provided:

"ARTICLE VII: RESTRICTIONS ON USE AND ALIENABILITY
"Section 7.1. Commercial Hotel and Restaurant Use.
"The following restrictions shall apply to the use of the Condominium:
"a) The Units in the Condominium (with the exception of any Units during the time period when they are being used by the Declarant as a sample, model or sales office) are restricted to Hotel / Commercial restaurant use and may not be used for any other purpose other than as Hotel Unit with an efficiency kitchen or a restaurant in the case of the Restaurant Unit. . . .
"h) It is intended that the Hotel Units may be used for transient and/or hotel rentals. As such, leasing of Units or portions thereof, shall not be subject to the approval of the Association and/or the Hotel Unit Owner and/or any other limitations, other than as expressly provided herein. However, all leasing of Units or portions thereof shall be made in accordance with any applicable zoning designation and/or state codes, ordinances, and regulations. In no way or fashion may a Unit Owner continually occupy the premises for ten (10) consecutive weeks."[3] WHI Motion, Ex. 7.

         After the First Amended Declaration was put into place, Declarant sold the first unit of the Watch Hill Inn to the Courter Parties on July 17, 2006. See WHI Motion, Ex. 8. Declarant then sold the second unit to Merry on August 11, 2006. See WHI Motion, Ex. 11. In addition, on November 22, 2006, the third unit was sold from Declarant to William and Carol Reudgen (the Reudgens) and, on February 16, 2007, the fourth unit was sold from Declarant to the Vallideses. See WHI Motion, Exs. 13, 16. On August 15, 2007, Dr. Haronian entered into an option to purchase one unit from WHI. See WHI Motion, Ex. 20.

         Over the course of the following two years, the First Amended Declaration was amended four times. See supra note 3. As is relevant to the issues presently before the Court, the Third Amendment to the First Amended Declaration altered the language of § 7.1, and stated in its entirety:

"This Third Amendment to the [First Amended Declaration] . . . is being recorded to remove the word 'Hotel' in all instances with regard to the Declaration of Condominium, and all exhibits thereto. In every instance the words 'Hotel Unit' shall be replaced with 'Residential Unit' in the Declaration, and all exhibits thereto.
"Accordingly, the amended name of the Condominium is now the 'Watch Hill Inn Condominium' and the amended name of the condominium association shall now be 'Watch Hill Inn Condominium Association'.
"Further, the following revisions shall also be made:
"Section 7.1 (a) shall be deleted in its entirety and shall now read:
"The Units in the Condominium (with the exception of any Units during the time period when they are being used by the Declarant as a sample, model or sales office) are restricted to Residential/ Commercial restaurant use and may not be used for any other purpose other than as Residential Unit with an efficiency kitchen or a restaurant in the case of the Restaurant Unit.
"Section 7.1 (h) shall be deleted in its entirety and shall now read:
"It is intended that the Residential Units may be used for transient, hotel rentals and/or as residential dwellings. As such, leasing of Units or portions thereof, shall not be subject to the approval of the Association and/or the Hotel Unit Owner and/or any other limitations, other than as expressly provided herein. However, all leasing of Units or portions thereof shall be made in accordance with any applicable zoning designation and/or state codes, ordinances and regulations." WHI Motion, Ex. 21.[4]

         Subsequently, Declarant sold the fifth unit of the Watch Hill Inn to Watch Hill Design, LLC on July 25, 2008. See WHI Motion, Ex. 31. At that time, Dr. Haronian was the only member of Watch Hill Design, LLC. See WHI Motion, Ex. 32.

         Further amendments to the First Amended Declaration as amended were formalized in the Second Amended and Restated Declaration, which was recorded on October 8, 2009 at Book 1839, Page 24 of the Town of Westerly Land Records Office (Second Amended Declaration). The Second Amended Declaration further revised the language of § 7.1:

"ARTICLE VII: RESTRICTIONS ON USE AND ALIENABILITY
"Section 7.1. Mixed Use.
"The building has a pre-existing non-conforming 'Mixed Use' status, and as contemplated by the Declarant, such Mixed Use shall continue for Residential and Commercial Restaurant. The following restrictions shall apply to the use of the Condominium:
"a) The Units in the Condominium (with the exception of any Units during the time period when they are being used by the Declarant as a sample, model or sales office) are restricted to Residential and Commercial restaurant use; and as such, may not be used for any other purpose other than as Residential Unit with kitchen, or a restaurant in the case of the Restaurant Unit which may be converted to a Residential Unit at a later date. . . .
"(h) Residential Units may be rented to a third party on a monthly basis or through the preapproved Rental Program operated by the Property Management. As such, leasing of Units or portions thereof shall not be subject to the approval of the Association and/or the Unit Owner, and/or any other limitations, other than as expressly provided herein. However, all leasing of Units or portions thereof shall be made in accordance with any applicable zoning designation and/or state codes, ordinances and regulations." WHI Motion, Ex. 44.

         Thereafter, on December 16, 2009, Dr. Haronian purchased Watch Hill Design, LLC's unit directly from Watch Hill Design, LLC. See WHI Motion, Ex. 49. In addition, the unit owned by the Reudgens was foreclosed on by the mortgagee on or about April 5, 2010. See WHI Motion, Ex. 50.

         Subsequent amendments to the Second Amended Declaration were thereafter formalized via the Third Amended and Restated Declaration of Condominium, which was recorded in the Town of Westerly Land Evidence Records on December 14, 2010 at Book 1883, Page 50 (Third Amended Declaration). See WHI Motion, Ex. 62. The Third Amended Declaration converted Unit W204, the restaurant unit owned by Declarant, to a residential unit. See id. In addition, the Third Amended Declaration revised the language of § 7.1 of the Second Amended Declaration to read as follows:

"ARTICLE VII: RESTRICTIONS ON USE AND ALIENABILITY
"Section 7.1. Mixed Use.
"The building has a pre-existing non-conforming 'Mixed Use' status, and as contemplated by the Declarant, such Mixed Use shall continue for Residential and Commercial Restaurant. The following ...

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