Diehl et al v. Rarity Bay Community Association Inc. et al (TV1)

Filing 34

ORDER granting 18 Plaintiffs' Motion for Leave to File a Second Amended Complaint. The Clerk is DIRECTED to file the proposed amended complaint and related exhibits [Docs. 18-1 through 18-32] upon entry of this memorandum opi nion and order. Defendant Sterling P. Owen, IV's, Motion to Dismiss Plaintiffs' Amended Complaint for Failure to State a Claim 3 , the Motion by Rarity Defendants and Defendant James Glasgow to Dismiss Plaintiffs' Amended Complaint fo r Failure to State a Claim 11 , and Plaintiffs' Request for Judicial Notice in Opposition to Defendant Sterling P. Owen's Motion to Dismiss 15 are hereby DENIED AS MOOT. Signed by Chief District Judge Thomas A Varlan on June 12, 2013. (AYB)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
AT KNOXVILLE
BRUCE A. DIEHL and
JULIANNE M. DIEHL,
Plaintiffs,
v.
RARITY BAY COMMUNITY
ASSOCIATION, INC., et al.,
Defendants.

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No.: 3:12-CV-499
(VARLAN/GUYTON)

MEMORANDUM OPINION AND ORDER
This civil action is before the Court on Defendant Sterling P. Owen, IV’s, Motion
to Dismiss Plaintiffs’ Amended Complaint for Failure to State a Claim [Doc. 3],1 the
Motion by Rarity Defendants and Defendant James Glasgow to Dismiss Plaintiffs’
Amended Complaint for Failure to State a Claim [Doc. 11],2 Plaintiffs’ Request for
Judicial Notice in Opposition to Defendant Sterling P. Owen’s Motion to Dismiss [Doc.
15],3 and Plaintiffs’ Motion for Leave to File a Second Amended Complaint [Doc. 18].4

1

Plaintiffs filed a response [Doc. 16], and defendant replied [Doc. 17].

2

Plaintiffs filed a response [Doc. 20], and defendants replied [Doc. 26].

3

No response was filed, and the time for doing so has passed. See E.D. Tenn. L.R.
7.1(a), 7.2.
4

Defendant Sterling P. Owen IV filed a response [Doc. 21], as did defendants Rarity Bay
Community Association, Inc., Carolyn B. Beatty, Duane Baumert, Jack A. Wright, Florence
(Rita) Lemanski, Michael Szilvagyi, Rebecca Rose Ross Jordan, Gregory P. Baker, Gary F.
Consorto, Toni A. Gallelli, Raymond James Smith, and James Glasgow [Doc. 22], and plaintiffs
replied [Docs. 23, 27].

After careful consideration of the motions and the relevant law, the Court will grant
Plaintiffs’ Motion for Leave to File a Second Amended Complaint [Doc. 18], and deny as
moot Defendant Sterling P. Owen, IV’s, Motion to Dismiss Plaintiffs’ Amended
Complaint for Failure to State a Claim [Doc. 3], the Motion by Rarity Defendants and
Defendant James Glasgow to Dismiss Plaintiffs’ Amended Complaint for Failure to State
a Claim [Doc. 11], and Plaintiffs’ Request for Judicial Notice in Opposition to Defendant
Sterling P. Owen’s Motion to Dismiss [Doc. 15].
I.

Background
On August 23, 2013, plaintiffs, who are residents of the Rarity Bay community,

commenced this action in state court, asserting claims for slander of title and breach of
fiduciary duty against James Glasgow (“Glasgow”), Rarity Bay Community Association,
Inc., Carolyn B. Beatty, Duane Baumert, Jack A. Wright, Florence (Rita) Lemanski,
Michael Szilvagyi, Rebecca Rose Ross Jordan, Gregory P. Baker, Gary F. Consorto, Toni
A. Gallelli, and Raymond James Smith (together, the “Rarity Bay Defendants”), and
Sterling P. Owen (the “Receiver”).5 On September 21, 2012, the Receiver removed the
action to this Court pursuant to 28 U.S.C. § 1442(a)(3), which provides that a civil action
commenced in a state court is against “[a]ny officer of the courts of the United States, for
or relating to any Act under color of office or in the performance of his duties” may be
removed to federal court. The Receiver also filed a motion to dismiss [Doc. 3], as did the
Rarity Defendants and Glasgow [Doc. 11].
5

Plaintiff amended the complaint on September 14, 2012 [Doc. 1-3].
2

In response to the motions to dismiss, plaintiffs filed a motion to amend the
complaint [Doc. 18]. Plaintiffs assert that the proposed amended complaint “provides
much more specificity regarding the facts averred and the causes of action alleged against
each Defendant in the Amended Complaint” and substantiates “the factual allegations . . .
with twenty-eight (28) exhibits in addition to those that were included with the Amended
Complaint” [Doc. 18 (emphasis omitted)].
In the proposed amended complaint plaintiffs allege that they purchased a parcel
of land in Monroe County, Tennessee on September 6, 1996, known as Lot 172, Rarity
Bay Subdivision, Phase 1, Section 3 (the “Property”) [Doc. 18-1 ¶ 24]. Further, they
allege that the Warranty Deed for the Property, which is recorded in the Monroe County
Register’s Office, provides that the Property “is ‘subject to all easements restrictions and
covenants of record, including but not limited to Declaration of Covenants, Conditions
and Restrictions of record in Miscellaneous Book 91, Page 58, Monroe County Register
of Deeds’” (the “Phase I Restrictions”), which in turn provides that “additional phases of
land may be brought into the development and such additions shall be made by filing ‘of
record a Supplemental Declaration with respect to the additional property’” [Id. ¶¶ 25, 26
(emphasis omitted)]. The Supplemental Declaration, however, cannot “revoke, modify or
add to the covenants, conditions, and restrictions established by [the Phase I Restrictions]
or any Supplemental Declaration” [Id. ¶ 26 (internal quotation marks omitted)]. The
Phase I Restrictions additionally provide that “the covenants run with the land and are
binding on all parties and all persons claiming under them for twenty-five (25) years from
3

the recording date of the covenants, after which time said covenants shall be
automatically extended for successive ten (10) years unless an instrument signed by two
thirds (2/3rds) of the then owners of the lots have [sic] been recorded, agreeing to change
said covenants in whole or in part” [Id. ¶ 27 (emphasis and internal quotation marks
omitted)].
Two years later, on or about September 28, 1998, plaintiffs aver that three existing
homeowners associations were merged into one association known as the Rarity Bay
Community Association (the “Association”) [Id. ¶ 28]. According to plaintiffs, on or
about the same date, “the Association improperly adopted and/or approved invalid ByLaws” [Id. ¶¶ 29, 30].
Plaintiffs allege that on October 20, 1998, a Master Declaration of Covenants,
Conditions, and Restrictions for Rarity Bay (the “Master Declaration”) was recorded in
the Monroe County Register’s Office “under the supervision of Developer/Declarant
Michael L. Ross and Defendant Carolyn D. Beatty” [Id. ¶ 31]. Plaintiffs allege that the
Master Declaration was not presented to the Association for review and approval [Id. ¶
32]. It provides that “while different phases or subsections of phases may be subject to
differing declarations, all declarations will be administered by a single property owners
association” [Id. ¶ 34 (alteration and emphasis omitted)]. Plaintiffs maintain that the
Master Declaration does not apply to their property given the language set forth in the
Phase I Restrictions [Id. ¶ 36].

4

In or around fall 2003, plaintiffs displayed a “for-sale” sign in the window of their
home [Id. ¶ 37]. Plaintiffs allege that on August 17, 2004, the Association notified
plaintiffs that the placement of the sign violated the Master Declaration and that a $50 per
day fine would be assessed until the sign was removed [Id. ¶ 38]. Thereafter, and
continuing through 2011, plaintiffs state they “sent numerous communications, with
proof, to the Association stating that the Phase I Restrictions were the only restrictions
which applied to the Property” and that “the Association did not have the authority to
assess a monetary fine against them for the display of the sign” [Id. ¶ 41].
According to plaintiffs, in September 2008, defendant Carolyn D. Beatty
responded to a letter dated October 14, 2004, acknowledging that the Phase I Restrictions
were the only restrictions applicable to the Property [Id. ¶¶ 42, 43]. Nevertheless,
plaintiffs received a notice of non-compliance from the Association dated August 19,
2009, asserting plaintiffs were in violation of the Master Declaration [Id. ¶ 43]. A notice
dated September 16, 2009, threatened the imposition of a monetary fine, and the
Association assessed fines against plaintiffs beginning in October 2009 [Id. ¶¶ 43, 44].
The Association assessed a fine again on or around April 30, 2010 [Id. ¶ 45]. Plaintiffs
assert that in assessing the fines, the Association threatened to file a lien against the
Property for noncompliance with the Master Declaration and Association By-Laws [Id. ¶
46]. The Association did not assess fines against other homeowners who displayed signs
on their properties [Id. ¶ 48].

5

On March 15, 2010, plaintiffs assert that a special meeting was held and the
Directors of the Association exceeded the scope of their authority by recommending that
Rarity Management Company, LLC amend the Master Declaration and the By-Laws to
permit an increase of $150 for the General Assessment for 2010 to make up for a shortfall
in cash [Id. ¶¶ 51–56]. On or about May 18, 2010, Rarity Bay Management, LLC filed
an amendment to the Master Declaration and the By-Laws to increase the General
Assessment for all Rarity Bay homeowners for 2010 by $150 [Id. ¶ 57]. Plaintiffs allege
that they were assessed a $150 increase in their General Assessment for 2010 but that this
increase is not applicable to their property because their property is subject only to the
Phase I Restrictions, which provide that the yearly general assessment may be increased
only by 5% per year and their general assessment for 2009 was only $393 [Id. ¶¶ 58, 59].
According to plaintiffs, they “repeatedly communicated to the Association that the
Property is not subject to the increased General Assessment,” but the Association ignored
their communications and continued to demand that plaintiffs pay the increase [Id. ¶ 60].
Also, “[s]ince 2010, the Association has continued to assess the invalid increase in the
General Assessment on Plaintiffs and all residences subject to the Phase I Restrictions”
[Id. ¶ 62]. Plaintiffs received a statement showing the levy of the assessment on their
property on September 1, 2011, and on or around May 31, 2012, and October 22, 2012,
plaintiffs received a statements showing the levy of the assessment on their property for
2012 [Id.].

6

Plaintiffs assert that on or around September 11, 2012, they received a notice that
they owed the Association for the fines and the $150 General Assessments for 2010
through 2012, and that if the account was not paid in full by October 22, 2012, that they
would be ineligible to vote for new Board of Directors at the Association’s Annual
Meeting [Id. ¶¶ 63, 64].
According to plaintiffs, Sterling P. Owen was appointed as a receiver in the matter
of Stooksbury v. Ross, Case No. 3:09-CV-498, and ordered to take “possession of all
assets . . . including . . . all interest in real property, including but not limited to all
membership fees, dues and any other payments due or receivable on account of any
interest in any real estate association,” which includes the Association [Id. ¶¶ 66, 67]. In
addition, the Receiver was ordered to “not only control the Defendants’ assets in a
manner best suited to preserve those assets, but he is to ‘evaluate and operate the business
of each Defendant . . . including . . . any property owners’ association . . . to avoid waste
or dissipation and to protect the value of each business entity and each association’” [Id. ¶
68].
Plaintiffs state that the Receiver appointed himself as Chairman and President of
the Board of Directors for the Association on July 18, 2012, and has actively managed
the Association since that time [Id. ¶ 69]. According to plaintiffs, several homeowners
attempted to communicate with the Receiver about the invalidity of the $150 increase in
the yearly General Assessment, but he “failed to take any action to investigate or
address” and “continued to pursue the collection of the improper $150.00 increase . . .
7

from Plaintiffs and other homeowners who are subject only to the Phase I Restrictions”
[Id. ¶¶ 70, 71]. Plaintiffs allege that the Receiver is thus “perpetuating a fraudulent
scheme to improperly collect revenue,” only furthering the wrongdoing of Michael Ross
and turning the “wrongfully collected money . . . into an asset for Plaintiff Stooksbury”
[Id. ¶ 72].
Plaintiffs further allege that since July 18, 2012, the Receiver has been informed
that plaintiffs have been “defrauded because Association funds have been
misappropriated by [defendants] . . . to maintain common properties that the Association
simply does not own,” including maintenance of a fence and trees along Rarity Bay
Parkway, maintenance of entrance fountains, and a dog park [Id. ¶¶ 73, 76, 77, 78].
Plaintiffs aver that the Receiver has failed to investigate the misappropriation of these
funds [Id. ¶ 74].
Also since July 18, 2012, plaintiffs allege that the Receiver has “unequally
enforced liens against Rarity Bay homeowners” in that he has failed to pursue liens
against some Rarity Bay homeowners for failure to pay the $150 General Assessment and
the lien on plaintiffs’ property “despite having knowledge that it is improper” [Id. ¶¶ 80–
83].
On the basis of these allegations, plaintiffs assert a claim for slander of title
against defendants Carolyn D. Beatty, the Association, James Glasgow, Duane Baumert,
Jack A. Wright, Florence (Rita) Lemanski, Michael Szilvagyi, Rebecca Rose Ross
Jordan, Gregory P. Baker, and Gary F. Consorto (Count I); a claim for breach of
8

fiduciary duty against all defendants (Count II); a claim for aiding and abetting breach of
fiduciary duty against all defendants (Count III); a claim for conversion against the
Receiver (Count IV); and a claim for civil conspiracy against defendants Carolyn D.
Beatty, Duane Baumert, Jack A. Wright, Florence (Rita) Lemanski, Michael Szilvagyi,
Rebecca Rose Ross Jordan, Gregory P. Baker, Gary F. Consorto, Toni A. Gallelli, and
Raymond James Smith (Count V). They seek $60,000 in compensatory damages, special
damages for expenses incurred, punitive damages, and court costs.
II.

Analysis of Motion to Amend6
“[A] party may amend its pleading only with the opposing party’s written consent

or the court’s leave.” Fed. R. Civ. P. 15(a)(2). “The court should freely give leave,”
however, “when justice so requires.” Id. Leave is appropriate “[i]n the absence of . . .
undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to
cure deficiencies by amendments previously allowed, undue prejudice to the opposing
party by virtue of allowance of the amendment, [or] futility of the amendment.” Leary v.
Daeschner, 349 F.3d 888, 905 (6th Cir. 2003) (quoting Foman v. Davis, 371 U.S. 178,
182 (1962)); see also Courie v. Alcoa Wheel & Forged Prods., 577 F.3d 625, 633 (6th
Cir. 2009). “Amendment of a complaint is futile when the proposed amendment would
not permit the complaint to survive a motion to dismiss.” Miller v. Calhoun Cnty., 408

6

While the motions to dismiss were filed before the motion to amend, motions to amend
shall be freely granted. Fed. R. Civ. P. 15. Moreover, granting a motion to dismiss before
addressing a pending motion to amend can be an abuse of discretion. Thompson v. Superior
Fireplace Co., 931 F.2d 372, 374 (6th Cir. 1991).
9

F.3d 803, 807 (6th Cir. 2005) (citing Neighborhood Dev. Corp. v. Advisory Council on
Historic Pres., 632 F.2d 21, 23 (6th Cir. 1980)).
Federal Rule of Civil Procedure 8(a)(2) sets out a liberal pleading standard, Smith
v. City of Salem, 378 F.3d 566, 576 n.1 (6th Cir. 2004), requiring only “‘a short and plain
statement of the claim showing that the pleader is entitled to relief,’ in order to ‘give the
[opposing party] fair notice of what the . . . claim is and the grounds upon which it
rests,’” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson,
355 U.S. 41, 47 (1957)). Detailed factual allegations are not required, but a party’s
“obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than
labels and conclusions.” Twombly, 550 U.S. at 555. “[A] formulaic recitation of the
elements of a cause of action will not do,” nor will “an unadorned, the-defendantunlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
In deciding a Rule 12(b)(6) motion to dismiss, a court must construe the complaint
in the light most favorable to the plaintiff, accept all factual allegations as true, draw all
reasonable inferences in favor of the plaintiff, and determine whether the complaint
contains “enough facts to state a claim to relief that is plausible on its face.” Twombly,
550 U.S. at 570; Directv, Inc. v. Treesh, 487 F.3d 471, 476 (6th Cir. 2007) (citation
omitted). “A claim has facial plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Iqbal, 556 U.S. at 678. “Determining whether a complaint states a

10

plausible claim for relief will [ultimately] . . . be a context-specific task that requires th[is
Court] to draw on its judicial experience and common sense.” Id. at 679.
A.

Proposed Claims Against the Receiver

The proposed amended complaint sets forth the following claims against the
Receiver: conversion (Count IV), breach of fiduciary duty (Count II), and aiding and
abetting breach of fiduciary duty (Count III) [See Doc. 18-1].
1.

Conversion Claim (Count IV)

Plaintiffs’ conversion claim asserts that the Receiver wrongfully pursued the
collection of the $150 increase from plaintiffs and other homeowners who are subject
only to the Phase I Restrictions and converted or identified those funds as an asset for the
benefit of the plaintiff in Stooksbury [Doc. 18-1 ¶¶ 125–128]. Plaintiffs further assert
that the Receiver converted Association funds in that he approved of the misappropriation
of funds to pay for the property taxes of a dog park, even though the Association does not
own the dog park [Id.]. The Receiver argues that the conversion claim is futile because
the Receiver is entitled to absolute immunity.
“Court appointed receivers act as arms of the court and are entitled to share the
appointing judge’s absolute immunity provided that the challenged actions are taken in
good faith and within the scope of the authority granted to the receiver.” Davis v.
Bayless, Bayless & Stokes, 70 F.3d 349, 373 (5th Cir. 1995). The Sixth Circuit has
specifically said that a receiver is entitled to judicial immunity so long as he does “not act

11

outside of his authority under court order or maliciously or corruptly.” Plassman v. City
of Wauseon, 85 F.3d 629, 1996 WL 254662, at *7 (6th Cir. May 14, 1996) (unpublished).
The order appointing the Receiver provides that the Receiver is:
. . . To evaluate and operate the business of each Defendant
corporation, partnership or limited liability company, and each
business entity or association owned and/or controlled by each
Defendant as Mr. Owen deems necessary, including but not limited
to any property owners’ association or entity operating or controlling
any asset, real property or association with any interest in real
property, to avoid waste or dissipation and to protect and to
maximize the value of each business entity and each association
pending sale or other disposition upon approval of this Court . . . .
[Doc. 586 in Case No. 3:09-CV-498 (emphasis added)].7

Accepting plaintiffs’

allegations as true, the Receiver was knowingly wasting assets of the Association. If
true, such conduct would fall outside the scope of his authority as a receiver because he is
to “avoid waste or dissipation and . . . protect and . . . maximize the value of [the
Association]” [Id.]. Accordingly, the Court finds that the Receiver is not entitled to
immunity at this time and that plaintiffs’ conversion claim is therefore not futile.
2.

Breach of Fiduciary Duty Claims (Counts II and III)

Plaintiffs allege that the Receiver is a principal agent of the Association, and as
such owed a fiduciary duty to the Association and its members [Doc. 18-1 ¶¶ 102, 103].
Plaintiffs further allege that as a receiver, the Receiver owed a fiduciary duty to the
members of the Association because he was ordered to protect, investigate, preserve, and

7

The Court takes judicial notice of this record, which it may consider in connection with
a motion to dismiss. New England Health Care Emp. Pension Fund v. Ernst & Young, LLP, 336
F.3d 495, 501 (6th Cir. 2003); Lyons v. Stovall, 188 F.3d 327, 332 n.3 (6th Cir. 1999).
12

control assets subject to the receivership [Id. ¶ 104]. According to plaintiffs, the Receiver
breached his fiduciary duty by agreeing to the levy of the assessment against plaintiffs
and others subject only to the Phase I Restrictions, by preventing plaintiffs from
exercising their right to vote in the election for new Board members, by failing to
investigate the validity of the assessment despite having knowledge that the assessment
was improper, and by converting improperly collected assessments into an asset for the
receivership [Id. ¶¶ 107–12]. Plaintiffs also claim the Receiver breached his fiduciary
duty by approving the allocation of Association funds to maintain properties not owned
by the Association and by treating homeowners who have had monetary fines assessed
against them and who have failed to pay outstanding assessments differently from
plaintiffs [Id. ¶¶ 113–14, 116–18].
The Receiver asserts that plaintiffs’ breach of fiduciary duty claims are futile
because they are barred by the one-year statute of limitations set forth in Tenn. Code
Ann. § 48-18-601. The parties do not dispute that the applicable statute of limitations for
a breach of fiduciary duty claim is one year, although they cite different provisions of the
Tennessee Code. See Tenn. Code Ann. §§ 48-18-601, 48-58-601. Regardless, the
provisions cited by the parties mirror one another and provide:
Any action alleging breach of fiduciary duties by directors or
officers, including alleged violations of the standards established in
§ 48-58-301, § 48-58-302 or § 48-58-403, must be brought within
one (1) year from the date of such breach or violation. In the event
the alleged breach or violation is not discovered nor reasonably
should have been discovered within that one-year period, the period
of limitation shall be one (1) year from the date such was discovered
13

or reasonably should have been discovered. In no event shall any
such action be brought more than three (3) years after the date on
which the breach or violation occurred, except where there is
fraudulent concealment on the part of the defendant, in which case
the action shall be commenced within one (1) year after the alleged
breach or violation is, or should have been, discovered.
Tenn. Code Ann. § 48-58-601.8 See also Tenn. Code Ann. § 48-18-601.
The only argument the Receiver makes with respect to the statute of limitations is
that the claim for breach of fiduciary duty is predicated upon the allegedly invalid 2010
General Assessment that was approved by the Association on May 18, 2010, meaning
any claim had to have been brought on or before May 18, 2011. The Court is perplexed,
however, in determining how the Receiver could have breached a duty before he was
appointed as the receiver in Stooksbury on July 18, 2012. Moreover, the case law cited
by the Receiver, Reid v. Baker, 499 F. App’x 520 (6th Cir. 2012), does not aid his
argument because plaintiffs have not admitted facts in the complaint establishing that the
statute has run; rather, plaintiffs allege that certain conduct underlying the breach of
fiduciary duty claim took place within the statute of limitations period [See, e.g., Doc. 181 ¶¶ 70, 71, 72, 75, 76, 77, 78, 79, 80, 82, 83, 84].
Accordingly, for the reasons discussed, the Court finds that plaintiffs’ breach of
fiduciary duty claims with respect to the Receiver are not futile.

8

The Court cites Tenn. Code Ann. § 48-58-601 because it applies to nonprofit
corporations, and plaintiffs identify the Association as a “non-profit corporation organized and
existing under the laws of the State of Tennessee” [Doc. 18-1 ¶ 11].
14

B.

Proposed Claims Against the Rarity Defendants and Glasgow

The Rarity Defendants and defendant Glasgow9 filed a collective response to the
motion to amend asserting that each claim asserted against them is futile.
1.

Slander of Title Claim (Count I)

Plaintiffs allege that on October 19, 2010, defendant Carolyn D. Beatty, acting on
behalf of the Association, sent plaintiffs a notice of intention to record a lien against the
Property as a result of their failure to pay the 2011 General Assessment and the fines
assessed for failure to remove the for-sale sign, and then, on or about August 26, 2011,
executed a Notice of Lien against the Property for $21,141.20, which was recorded in the
Register’s Office for Monroe County, Tennessee [Doc. 18-1 ¶¶ 86, 87]. Plaintiffs further
allege that defendant James Glasgow caused the Notice of Lien to be published,
communicated, and disseminated via electronic communication in or around September
2011 to one or more members of the Association [Id. ¶ 89]. According to plaintiffs, this
Notice of Lien was false because it stated that the Master Declaration gave the
Association authority to impose a lien against the Property and defendants acted with
malice in publishing it because they knew the Master Declaration did not apply with
respect to the Property [Id. ¶¶ 90–93, 97]. As a result, plaintiffs state the title to the
Property has been slandered and the marketability of the Property has been impaired in
that the fair market value has been diminished [Id. ¶¶ 95–96].

9

For purposes of this section of this memorandum opinion and order, the Court will refer
to the Rarity Defendants and defendant Glasgow together as “defendants.”
15

Defendants argue that the slander of title claim is futile because it is time barred.
More particularly, they assert that the Master Declaration applies to the Property because
it was approved and filed with the register of deeds approximately fourteen years ago and
plaintiffs did not challenge its application within the six-year statute of limitations period
established by Grand Valley Lakes Property Owners Association, Inc. v. Burrow, 376
S.W.3d 66 (Tenn. Ct. App. 2011). Plaintiffs state that the slander of title claim was
brought in response to defendants’ wrongful and malicious publication of an improper
lien that was recorded against the Property on August 26, 2011, not to challenge the
validity of the Master Declaration.
Application of the Master Declaration to the Property is an issue in this case and it
seems that the Court may be called upon to determine whether the Master Declaration
applies to the Property in determining the merits of plaintiffs’ claim, but defendants point
to no case law that suggests the slander of title claim, which is based upon actions that
took place within one year of filing the complaint, is barred because plaintiffs did not
challenge the application of the Master Declaration to their Property within the six-years
after its adoption. The Court therefore declines to find that the slander of title claim is
futile because it is time barred.
2.

Breach of Fiduciary Duty Claims (Counts II and III)

In the proposed amended complaint, plaintiffs allege that defendants Carolyn D.
Beatty, Duane Baumert, Jack A. Wright, Florence (Rita) Lemanski, Michael Szilvagyi,
Rebecca Rose Ross Jordan, Gregory P. Baker, Gary F. Consorto, Toni A. Gallelli, and
16

Raymond James Smith are principle agents of the Association and as such “occupied or
occupy a fiduciary relation towards the Association and its members” [Doc. 18-1 ¶¶ 102,
103]. Plaintiffs further allege that these defendants breached this duty by agreeing to the
levy of the assessment against plaintiffs and others subject only to the Phase I
Restrictions and by preventing plaintiffs from exercising their right to vote in the election
for new Board members [Id. ¶¶ 107–10]. Plaintiffs also claim these defendants breached
their fiduciary duty by approving the allocation of Association funds to maintain
properties not owned by the Association, by publishing the Notice of Lien, and by
treating homeowners who have had monetary fines assessed against them and who have
failed to pay outstanding assessments differently from plaintiffs [Id. ¶¶ 114, 116–18].
Like the Receiver, defendants argue that the breach of fiduciary duty claims are
futile because they are predicated on the allegedly invalid 2010 General Assessment that
was filed on or about May 18, 2010, and claims for breach of fiduciary duty must be
brought within one year of the alleged breach pursuant to Tenn. Code Ann. § 48-16601.10 The Court, however, finds that the breach of fiduciary duty claim is predicated,
not upon the General Assessment that occurred in 2010, but upon other conduct that
occurred within the applicable statute of limitations period, including, for example, that
the Association misappropriated funds on or about October 2012, precluded plaintiffs
from voting for Board members in September 2012, and published the Notice of Lien in
10

While this provision does not exist, the Court presumes that defendants meant to refer
to one of the statutes cited by the Receiver and plaintiffs, either Tenn. Code Ann. § 48-18-601 or
Tenn. Code Ann. § 48-58-601.
17

August 2012 [See, e.g., Doc. 18-1 ¶¶ 62, 63, 80]. For this reason, the Court further finds
that Reid v. Baker, 499 F. App’x 520 (6th Cir. 2012), is inapposite.
3.

Civil Conspiracy Claim (Count V)

Plaintiffs’ proposed amended complaint alleges that “there was a common design
between Defendants Carolyn D. Beatty, Duane Baumert, Jack A. Wright, Florence (Rita)
Lemanski, Michael Szilvagyi, Rebecca Rose Ross Jordan, Gregory P. Baker, Gary F.
Consorto, Toni A. Gallelli, and Raymond James Smith to levy the improper $150.00
increase in the yearly general assessment on all members of the Association to make up
for the unauthorized use of funds by Developer/Declarant Michael L. Ross” [Doc. 18-1 ¶
130]. They further allege that a lien was placed on the Property and that they are being
prevented from voting for new Association Board members because they have refused to
pay the assessment since 2010 [Id. ¶ 132]. Defendants argue this claim “is futile because
it relies on the assumption that the Master Declaration does not apply to the Plaintiffs’
property” and “the Plaintiffs are time-barred to challenge the Master Declaration” [Doc.
22].
The Tennessee statute of limitations for civil conspiracy is one year. Tenn. Code
Ann. § 28-3-104. See Braswell v. Carothers, 863 S.W.2d 722, 725 (Tenn. Ct. App. 1993)
(statute of limitations for tort of civil conspiracy is one year). A cause of action for civil
conspiracy accrues when an overt act in furtherance of an alleged conspiracy causes
damage to the complainant. Withrow v. First Tenn. Bank Nat’l Ass’n, No. 3:04-CV-546,
2006 WL 2981295, at *3 (E.D. Tenn. Oct. 16, 2006) (citing Budget Rent-A-Car v. Car
18

Servs., 469 S.W.2d 360, 362 (Tenn. 1971)). Plaintiffs assert that they were damaged
when the lien was placed on the property, which occurred on August 26, 2011. Because
this date is less than one year before the filing of the original complaint on August 23,
2012, the Court declines to find the civil conspiracy claim is futile because it is time
barred.
For all these reasons, the Court will grant the motion to amend. The Clerk will be
directed to file the proposed amend complaint and related exhibits [Docs. 18-1 through
18-32] upon entry of this memorandum opinion and order.
III.

Analysis of the Motions to Dismiss and Request for Judicial Notice
Because the Court has found that the motion to amend is not futile, the Court will

deny defendants’ previously filed motions to dismiss [Docs. 3, 11] as moot. The Court
will also deny as moot the request of plaintiffs that the Court take judicial notice with
respect to matters relating to the Receiver’s motion to dismiss [Doc. 15]. See Pethtel v.
Wash. Cnty. Sheriff’s Office, No. 2:06-799, 2007 WL 2359765, at *2 (S.D. Ohio Aug. 16,
2007) (“[B]ecause an amended complaint supersedes the original complaint, the filing of
an amended complaint normally moots a motion to dismiss the original complaint.”).
IV.

Conclusion
For the reasons explained, the Court hereby GRANTS Plaintiffs’ Motion for

Leave to File a Second Amended Complaint [Doc. 18]. The Clerk is DIRECTED to file
the proposed amend complaint and related exhibits [Docs. 18-1 through 18-32] upon
entry of this memorandum opinion and order. In light of the Court’s ruling on plaintiff’s
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motion to amend, Defendant Sterling P. Owen, IV’s, Motion to Dismiss Plaintiffs’
Amended Complaint for Failure to State a Claim [Doc. 3], the Motion by Rarity
Defendants and Defendant James Glasgow to Dismiss Plaintiffs’ Amended Complaint for
Failure to State a Claim [Doc. 11], and Plaintiffs’ Request for Judicial Notice in
Opposition to Defendant Sterling P. Owen’s Motion to Dismiss [Doc. 15] are hereby
DENIED AS MOOT.
IT IS SO ORDERED.

s/ Thomas A. Varlan
CHIEF UNITED STATES DISTRICT JUDGE

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