Pines Point Marina v. Rehak

HARRELL, Judge. The issue presented to the Court by this case is whether a condominium council of unit owners, which under Md.Code, Real Property Article, § 11-109(d) (2003 & Supp.2008) “may be either incorporated as a nonstock corporation or unincorporated,” has standing to file and maintain a lawsuit during the time its corporate charter was forfeit. The Circuit Court for Worcester County, entering summary judgment in this litigation against Pines Point Marina, A Condominium Council of Unit Owners, Inc. (“Pines Point Marina”), determined that, under Dual Inc. v. Lockheed Martin Corp., 383 Md. 151 , 857 A.2d 1095 (2004), and Stein v. Smith, 358 Md. 670 , 751 A.2d 504 (2000), Pines Point Marina lacked standing to bring this suit because its corporate charter was forfeit at the time the action commenced. Thus, summary judgment in favor of defendants Jim Rehak d/b/a Rehak Floating Docks, M.V. of Ocean Pines Limited Partnership, and Topper Industries Inc. 1 ⁶¹⁷ was appropriate on the ground that the powers of the condominium council of unit owners, as a Maryland corporation, were inoperative, including the power to sue.

According to the trial court, Pines Point Marina could not maintain the suit because it did not revive its corporate charter before the applicable three year statute of limitations ran on its claims against the defendants. Pines Point Marina appealed to the Court of Special Appeals. On our motion, we issued a writ of certiorari to the intermediate appellate court before it decided the appeal. For reasons to be explained, we shall reverse the judgment of the Circuit Court and remand the case for further proceedings not inconsistent with this Opinion.

I. Factual Background The allegations of material fact are not in dispute. On 20 July 1999, Pines Point Marina incorporated under Maryland corporation law as a non-stock, non-close corporation. The condominium is located in Ocean Pines, Maryland, and consists primarily of four dwelling units, two commercial units, and approximately two hundred-eleven boat slips, most of which are owned as common elements by the participating co-owners. Between 1999 and 2005, Pines Point Marina entered into contracts with M.V. Ocean Pines Limited Partnership (“M.V. Ocean Pines”), the developer of the marina, for the installation and acquisition of condominium unit boat slips.

M.V. Ocean Pines employed Jim Rehak d/b/a Rehak Floating Docks (“Rehak”) as a subcontractor to construct floating docks. M.V. Ocean Pines supervised the construction of the docks by Rehak. The flotation devices used for the floating docks were manufactured and supplied by Topper Industries Incorporated (“Topper”), a corporation engaged in that business. Topper ⁶¹⁸ supplied the floating docks directly to Rehak, pursuant to a contract between them.

During September, October, and November 2003, the eastern coast of the United States experienced several strong storms, including Hurricane/Tropical Storm Isabel. As a result of these storms, Pines Point Marina “began to notice [in October 2003] that many of the flotation devices for the floating docks in the Marina had come loose.” On 30 August 2006, Pines Point Marina filed a complaint in the Circuit Court against M.V. Ocean Pines, Rehak, Topper, and the North American Specialty Insurance Company alleging poor workmanship and defective construction of the marina. Discovery responses placed 4 October 2003 as the earliest date of discovery by the plaintiff of the alleged damages giving rise to the claims. The defendants sought summary judgment on the basis that, on 7 October 2005, the Maryland Department of Assessments and Taxation forfeited Pines Point Marina’s corporate charter for failure to file required state tax returns.

It was not until 4 December 2006 that Pines Point Marina revived its corporate status. The Circuit Court granted Appellees’ motions for summary judgment on the ground that Pines Point Marina, as an entity incorporated under Maryland law, failed to bring suit, or amend the complaint, during the time when it was in good corporate standing and before the applicable statute of limitations ran on its claims.

II

Discussion The grant of summary judgment is proper if “there is no genuine dispute as to any material fact and ... the party in whose favor judgment is entered is entitled to judgment as a matter of law.” Md. Rule 2-501(f). On appellate review of the grant of summary judgment, we review the trial court’s conclusions of law under a non-deferential standard. Messing v. Bank of Am., N. A., 373 Md. 672, 684 , 821 A.2d 22, 28 (2003) ⁶¹⁹ (citations omitted). In considering the trial court’s conclusions of law, “we construe the facts properly before the court, and any reasonable inferences that may be drawn from them, in the light most favorable to the non-moving party.” Jurgensen v. New Phoenix Atl.

Condo. Council of Unit Owners, 380 Md. 106, 114 , 843 A.2d 865, 869 (2004) (citations omitted). A. Condominium History & Law in Maryland Development of condominiums in Maryland dates back to the adoption of the first Horizontal Property Act in the State in the early 1960s. See Maryland Commission on Condominiums — Preliminary Report to the 1978 Session 1 (1978) [hereinafter Preliminary Report].

At first, development was slow. Preliminary Report at 1. By the end of the 1960s, however, the State experienced a condominium boom, with intensive development through conversion of existing dwelling units and new construction taking place in Montgomery and Prince George’s Counties, Baltimore City and County, Annapolis, Columbia, and Ocean City. Preliminary Report at 1.

When the general economy slowed in the mid-1970s, an increasing number of condominium projects were handed over to the unit owners, which led to widespread abuse. Preliminary Report at 1. As the Commission Report noted, “[economic difficulties, internal management problems, ‘sweetheart’ contracts, developer ‘lowballing’ and failure to complete amenities, and underfinancing brought many developments to the brink of failure or into bankruptcy.” Preliminary Report at 1. The harsh slowdown in the economy forced out most marginal developers, and also “exacerbated difficulties in solid, well-planned developments by slowing the pace of sales and creating cash-flow difficulties.” Preliminary Report at 1.

Further, in developments where condominiums were sold successfully, a parallel slowdown in resales was experienced. Preliminary Report at 1. The economic instability of the late 1960s and early 1970s, combined with the boom in condominium development, exposed a myriad of flaws in the first Horizontal Property Act. ⁶²⁰ Thus, the General Assembly decided in 1974 to replace it with the Maryland Condominium Act. Preliminary Report at 1.

That Act put in place much of the language and structure of the current Maryland Condominium Act, Md.Code, Real Property § § 11-101 to -143 (2003 & Supp.2008), including the section at the core of the issue in the present case, Md.Code, Real Property § 11-109. B. Section 11-109 Section 11-109(a) of the Real Property Article provides, in part, that “[t]he affairs of the condominium shall be governed by a council of unit owners which, even if unincorporated, is constituted a legal entity for all purposes.” Additionally, § 11—109(d) provides, in pertinent part, that [t]he council of unit owners may be either incorporated as a nonstock corporation or unincorporated and it is subject to those provisions of Title 5, Subtitle 2 of the Corporations and Associations Article which are not inconsistent with this title. The council of unit owners has, subject to any provision of this title, and except as provided in paragraph (22) of this subsection, the declaration, and bylaws, the following powers: (1) To have perpetual existence, subject to the right of the unit owners to terminate the condominium regime as provided in' § 11-123 of this title; (4) To sue and be sued, complain and defend, or intervene in litigation or administrative proceedings in its own name on behalf of itself or two or more unit owners on matters affecting the condominium; (21) Generally, to exercise the powers set forth in this title and the declaration or bylaws and to do every other act not inconsistent with law, which may be appropriate to promote and attain the purposes set forth in this title, the declaration, or bylaws[.] ... ⁶²¹ Pines Point Marina contends that Real Property § 11-109, in essence, creates a “dormant-entity” status for incorporated condominium councils of unit owners. It acknowledges that, under Maryland general corporation law, once a corporation forfeits its corporate charter, the corporation as such ceases to have a legal existence and thus loses the ordinary legal privileges afforded under the law to a corporation, including the right to bring suit.

See Dual Inc. v. Lockheed Martin Corp., 383 Md. 151 , 857 A.2d 1095 (2004); Stein v. Smith, 358 Md. 670 , 751 A.2d 504 (2000). A council of unit owners, however, is to be distinguished from any other entity incorporated under Maryland law, Pines Point posits, because councils of unit owners derive their fundamental legal existence and associated powers/rights not from the act of incorporating as such, but from § 11-109, which provides that a council of unit owners, whether incorporated or not, “is constituted a legal entity for all purposes.” Md.Code, Real Property § 11-109(a). Thus, Appellant argues that, even upon its loss of corporate status and unlike any other type of entity so situated, it became by default an unincorporated association under § 11-109 with the right to sue and be sued, apparently without further ado. Topper, Rehak, and M.V. Ocean Pines take the position that the proper result in this case is governed by Dual Inc., 383 Md. 151 , 857 A.2d 1095 , and Stein v. Smith, 358 Md. 670 , 751 A.2d 504 .

In Dual Inc., we held that a corporation, the charter for which became forfeit, was a legal non-entity; thus, “all powers granted to [the corporation] by law, including the power to sue or be sued, [are] extinguished generally as of and during the forfeiture period.” Dual Inc., 383 Md. at 163 , 857 A.2d at 1101 (citing Md.Code, Corporations & Associations §§ 2-103(2), 3-503(d) (1975, 1999 Repl.Vol.)). The corporation in Dual Inc. brought suit against Lockheed in 2001 during a period in which Dual’s corporate charter was forfeit. Dual Inc., 383 Md. at 166 , 857 A.2d at 1103 . Dual, with assistance of counsel, revived its charter and amended its complaint in 2002, modifying some of the previously pleaded counts and adding additional counts, and sought to relate the amended ⁶²² complaint back to the original complaint because the statute of limitations period otherwise would have expired before the filing of the amended complaint.

Dual Inc., 383 Md. at 157, 166 , 857 A.2d at 1098, 1103 . We held that, because the corporation lost its legal privilege to bring suit upon the forfeiture of its charter, the initial complaint filed in 2001 was a nullity, such that there was nothing to which the 2002 amended complaint could relate back and, therefore, the statute of limitations ran on the claim before the corporation revived its charter in 2002 and filed the amended complaint. Dual Inc., 383 Md. at 166 , 857 A.2d at 1103 (citations omitted). In Stein , we held that “the statute of limitations is not tolled by the filing of an action in the name of a corporation whose charter had been forfeited and never revived. . . .” Stein, 358 Md. at 671 , 751 A.2d at 504 .

Relying on Dual Inc. and Stein , Topper, Rehak, and M.V. Ocean Pines argue that Pines Point Marina’s claim is barred in the present case because the council of unit owners, purporting to act as a corporation, filed the complaint in this litigation at a time when its corporate charter was forfeit and, because the complaint therefore was a nullity, suit was not brought properly within three years of when the council of unit owners knew or reasonably should have known of its claims against the defendants. See Md.Code, Courts & Judicial Proceedings § 5-101 (2006 Repl.Vol. & Supp.2008) (“A civil action at law shall be filed within three years from the date it accrues unless another provision of the Code provides a different period of time within which an action shall be commenced.”); Poffe nberger v. Risser, 290 Md. 631, 636 , 431 A.2d 677, 680 (1981) (holding that the discovery rule is applicable generally in all actions and the “cause of action accrues when the claimant in fact knew or reasonably should have known of the wrong”). Appellees, in their briefs, assert that, § 11-109 notwithstanding, by having chosen to incorporate the council of unit owners, Pines Point Marina elected to be subject to the same regulations, conditions, and penalties imposed on any non-stock corporation under Maryland law. In rejecting the “dormant-entity” interpretation, Appellees interpret the “or” ⁶²³ in § 11-109(d)’s “either incorporated as a nonstock corporation or unincorporated” as a categorical elective choice that a council of unit owners may have only one legal existence— incorporated or unincorporated — with attendant consequences for failure to maintain properly either status. 2 Thus, Appellees argue that because Pines Point Marina chose to incorporate, the council became subject to Maryland general corporation law such that, as interpreted and applied in Dual Inc. and Stein , the failure to maintain corporate status during the time leading up to and at which it filed the complaint means the action in the present case was a nullity and is now barred under Maryland’s three year statute of limitations.

Md.Code, Courts & Judicial Proceedings § 5-101. Appellee Topper highlights the opening sentence of § 11-109(d), which, cross-referencing the Corporations & Associations Article of the Maryland Code, provides that the “council of unit owners may be either incorporated as a nonstock corporation or unincorporated and it is subject to those provisions of Title 5, Subtitle 2 of the Corporations and Associations Article which are not inconsistent with this title.” Md. Code, Real Property § 11-109(d). Topper asserts that, under the applicable provisions of the Corporations & Associations Article, Pines Point Marina, as a non-stock corporation, is subject to the same repercussions suffered by any corporation that fails to comply with statutory filing requirements, including losing the power to bring and maintain suit. C. Corporations and Associations Article Title 5, Subtitle 2 of the Corporations & Associations Article deals specifically with nonstock corporations.

Section 5-201 provides that the “provisions of the Maryland General Corpo ⁶²⁴ ration Law apply to nonstock corporations unless: (1) [t]he context of the provisions clearly requires otherwise; or (2) [sjpecific provisions of this subtitle or other subtitles governing specific classes of corporations provide otherwise.” Md. Code, Corporations & Associations § 5-201 (2007 Repl.Vol. & Supp.2008). Section 5-208(a) provides, in part, that “[ejxcept as otherwise provided in this section, the dissolution or forfeiture of the charter of a nonstock corporation shall be effected as provided in Title 3 of this article.” Md.Code, Corporations & Associations § 5-208(a). Section 3-503 of Title 3 deals with “[fjorfeiture of charter for nonpayment of taxes or failure to file report.” Md.Code, Corporations & Associations § 3-503. Section 3-503 provides for three certifications of all Maryland corporations to be made each year by the State Comptroller, the Secretary of Labor, Licensing, and Regulation, and the Department of Assessments and Taxation.

These three entities, respectively, are responsible for certifying which Maryland corporations have failed to pay a tax, failed to pay an unemployment insurance contribution, or failed to file an annual report within the time due. Section 3-503 provides, once the lists are certified, as the penalty for non-compliance the Department [of Assessments and Taxation] shall issue a proclamation declaring that the charters of the corporations are repealed, annulled, and forfeited, and the powers conferred by law on the corporations are inoperative, null, and void as of the date of the proclamation, without proceedings of any kind either at law or in equity. Md.Code, Corporations & Associations § 3-503(d). Thus, as Topper’s argument goes: (1) Real Property § ll-109(d) invokes Title 5, Subtitle 2 of the Corporations & Associations Article, (2) which, in § 5-208(a), in turn invokes § 3—503(d)(3) which, when applied to the present case, mandates the forfeiture of Pines Point Marina’s corporate status and therefore its ability to sue as a corporation.

There are, however, a number of ambiguities and inconsistencies between the provisions of the Maryland Condominium Act and these provisions of the Corporations & Associations Article that diminish the persuasive force of this argument. ⁶²⁵ Some of the ambiguities and inconsistencies that arise in interpreting the language of Real Property § 11-109 and the embedded, cross-referenced provisions of the Corporations & Associations Article and militate against embracing Topper’s argument are: (1) Section 11-109(a) provides that the council of unit owners “even if unincorporated, is constituted a legal entity for all purposes.” Md.Code, Real Property § ll-109(a). We are unable to find any indication whether the phrase “even if unincorporated” is intended to apply only to councils of unit owners that never incorporated, or to apply as well to those that incorporated, but forfeited that status. Further, there is no indication of how “is constituted a legal entity for all purposes” is to operate with respect to § 3-503(d) of the Corporations & Associations Article’s entity forfeiture. (2) Section 11 — 109(d) provides that the council of unit owners “may be either incorporated as a nonstock corporation or unincorporated.” There is no indication whether the “may be either” language is intended to mandate a choice between mutually exclusive entities or merely reiterates § ll-109(a)’s premise that the council continues to exist whether incorporated or unincorporated.

(3) Section ll-109(d) provides that the council of unit owners “is subject to those provisions of Title 5, Subtitle 2 of the Corporations and Associations Article which are not inconsistent with this title.” Section 3-503(d) of the Corporations & Associations Article, which is made applicable through § 5-208, provides that after the lists of non-complying corporations are certified, the Department is to forfeit the “charters of the corporations” and, consequently, the powers conferred by law “on the corporations” are null and void, including the ability to bring suit “at law or in equity.” This consequence seems at odds with Real Property § 11-109. In two different subsections, § 11-109 provides that the council of unit owners is constituted a legal entity whether incorporated or unincorporated. Md.Code, Real Property § 11-109(a), (d). ⁶²⁶ Because we find that the language of § 11-109 is ambiguous as regards the issue presented in the present case, we shall look to secondary sources in aid of divining the intent of the Legislature. D. Examination of Secondary Sources 1.

Report & Recommendation of the Real Property, Planning & Zoning Section of the Maryland State Bar Association In 1973-74, the Condominium Revision Committee of the Real Property, Planning & Zoning Section of the Maryland State Bar Association produced a recommendation that became the Maryland Condominium Act as adopted by the General Assembly in 1974. In an accompanying Report, the Committee included a “Committee Comments by Section” addendum. The comment on the Committee’s draft of the then § 11-109 3 was as follows: ⁶²⁷ Section 11-109 clarifies and enlarges the powers of the Council of Unit Owners. The Council may be incorporated or unincorporated and the Council shall, in any event, “be a legal entity for all purposes” thereby eliminating the question of whether or not the Council has standing to sue and be sued.

Although previous versions of this Title are silent on the subject of the authority of the Council to incorporate, they did not prohibit incorporation, and Section 11-109 should not be construed to question or adversely characterize the validity of Councils of Unit Owners incorporated prior to the effective date of this Section. Condominium Revision Committee of the Real Property, Planning & Zoning Section of the Maryland State Bar Association, Committee Report at 6 (1974). An analysis of the 1974 Act, written a few years later, similarly opined: In addition to permitting the Council to be incorporated as a membership (“nonstock”) corporation, this Section states that even if the Council is not incorporated, it is subject to certain statutes that regulate such corporations. These statutes will be meaningful only in unusual circumstances and then only to the extent that they are “not inconsistent with” the condominium law.

Because the corporation statute regulating membership corporations, Section 5-201, et seq., of the Corporations and Associations Article of the Annotated Code of Maryland, states that the general corporation law of Maryland applies to membership corporations, the Condominium law, in effect, makes all condominiums subject to the statutes that concern general business corporations, including large, publicly-held ones, unless such law is inconsistent with the Condominium Law. ⁶²⁸ Whether this result is appropriate — or wise — remains to be seen. Under the “old” Condominium Law only a Council that was incorporated was subject to the statutes regulating corporations. Because there has been no significant litigation or experience, it is still uncertain whether the application of these provisions to condominium affairs will cause any serious problems. Robert B. Taylor, Maryland’s New Condominium Law: An Analysis 11 (1981). 2.

Uniform Condominium Act In August 1977, the National Conference of Commissioners on State Laws approved the Uniform Condominium Act (“UCA”). Stephen B. Cohen et al., Condominium Law: A Comparison of the Uniform Act With the Illinois Act, 14 J. Marshall L.Rev. 387, 387 (1981). The Uniform Condominium Act was an attempt by the National Conference to bring state condominium laws up-to-date with the state of affairs spawned by the burgeoning development of condominiums throughout the country. In February 1978, the American Bar Association endorsed the Act, noting: A major accomplishment of the UCA will be to relieve condominium development from outmoded constraints imposed by the common law of real property, and from unintended constraints imposed by inartful first generation condominium legislation.

These constraints have, without logical basis, interfered with the flexibility needed by developers to phase their projects, and even interfere with the flexibility needed by unit owners to make desirable arrangements of project areas after expiration of developer control. Cohen et al., 14 J. Marshall L.Rev. at 387-88 (quoting National Conference of Commissioners on Uniform State Laws, Uniform Law Memo 15 (Winter, 1977)). Thus, the Uniform Act was an attempt to bring a comprehensive and adaptive system to the specific nuances of condominium development projects. ⁶²⁹ The language and history of § 3-101 of the Uniform Condominium Act provides some instruction for the purposes of the issue presently before this Court. Section 3-101 provides: A unit owners’ association must be organized no later than the date the first unit in the condominium is conveyed.

The membership of the association at all times shall consist exclusively of all the unit owners or, following termination of the condominium, of all former unit owners entitled to distributions of proceeds under Section 2-118, or their heirs, successors, or assigns. The association shall be organized as a profit or nonprofit corporation [or as an unincorporated association.] Unif. Condo. Act § 3-101 (1977).

The bracketed phrase was explained by the Commissioners in an accompanying comment as follows: The bracketed language preserves the flexibility existing under the vast majority of present condominium statutes to organize the association as a profit or non-profit corporation or as an unincorporated association. Although at least one state (Georgia) requires the organization of the association in corporate form, it is not desirable to mandate this result in a uniform act. If a state wishes to mandate incorporation, it should delete the bracketed language. Unif.

Condo. Act § 3-101 cmt. 2 (1977). The thrust of § 3-101 of the Uniform Act seems to be that the unit owners’ association is to be “organized,” or established, as one of the statutorily-appropriate entities. Currently, eight states have adopted § 3-101 of the Uniform Condominium Act, including the bracketed language, in their state condominium acts. 4 Another twelve either have adopted § 3-101 without the bracketed language or otherwise ⁶³⁰ mandated that the association be incorporated or organized as some similar entity. 5 Twenty states and the District of Columbia, including Maryland, however, have chosen not to adopt the Uniform Act’s dichotomous approach, instead providing in general language that councils of unit owners in condominium associations may function and possess certain powers as incorporated or unincorporated entities. 6 ⁶³² We find it somewhat instructive that the General Assembly did not follow the “shall be organized” or must-incorporate approaches of the Uniform Condominium Act and twenty states.

The enactment of the Maryland Condominium Act in 1974 pre-dated by approximately three years approval of the Uniform Act by the National Conference, but there is some indication that the General Assembly nonetheless considered provisions of the Uniform Condominium Act thereafter. For instance, as enacted by the General Assembly in 1974, § 11-109(d)(2) of the Maryland Condominium Act stated that the council of unit owners shall have the power “[t]o sue and be sued, complain and defend in any court....” 1974 Md. Laws Ch. 641. That subsection remained unchanged until 1980, when the General Assembly changed the provision to state that the council of unit owners has the power “[t]o sue and be sued, complain and defend, or intervene in litigation or administrative proceedings in its own name on behalf of itself or two or more unit owners on matters affecting the condominium----” 1980 Md. Laws Ch. 681. Three years earlier, in 1977, the Uniform Condominium Act was approved, and its § 3-102(4) provided that the unit owners’ association may “institute, defend, or intervene in litigation or administrative proceedings in its own name on behalf of itself or 2 or more unit owners on matters affecting the condominium____” Unif.

Condo. Act § 3-102 (1977). Thus, it appears that the General Assembly patterned the current version of § ll-109(d)(4) on the Uniform Act. See Anderson v. Council of Unit Owners of the Gables on Tuckerman Condo., 404 Md. 560, 580 , 948 A.2d 11, 24 (2008) (“In 1981, as a result of the criticisms of multistory apartment building conversions, the Commission proposed extensive restructuring and modification of the Condominium Act, which ‘drew from a number of sources including the Uniform Condominium Act,’ in order to abate concerns ⁶³³ regarding apartment-to-condominium conversions and operations.”).

That the General Assembly, however, has not adopted the “shall be organized” or must-incorporate approach of the Uniform Act is illuminating here because § 11-109 has been amended nineteen times since its original enactment in 1974. Twenty other states adopted one or the other of those two approaches, including Alabama, whose Legislature explained its adoption of the must-incorporate approach in 1990 in a commentary section to its statutory provision: The requirement that the