Covenant Clearinghouse LLC v. D.R. Horton, Inc.

Covenant Clearinghouse LLC v. D.R. Horton, Inc., 2026 NCBC 56.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
GUILFORD COUNTY 25CV018285-400

COVENANT CLEARINGHOUSE
LLC, a Nevada limited liability
company,

Plaintiff,
ORDER AND OPINION
v. DEFENDANT’S MOTION TO DISMISS
D.R. HORTON, INC., a Delaware
Corporation,

Defendant.

1. This matter is before the Court on the Rule 12(b)(6) and Rule 12(b)(7)

motion to dismiss filed by defendant D.R. Horton, Inc. (ECF No. 21).

2. Having considered the complaint, the motion, and the arguments of

counsel, the Court hereby GRANTS IN PART and DENIES IN PART the motion

to dismiss as set forth below.

Clyde & Co US LLP, by Janice Holmes and Matthew J. Obiala, and
Gallivan, White, & Boyd, P.A., by Christopher M. Kelly, for Plaintiff
Covenant Clearinghouse LLC.

Blanco, Tackabery & Matamoros, P.A., by Chad A. Archer and Ryan
Dovel, for Defendant D.R. Horton, Inc.

Houston, Judge.

I. BACKGROUND

3. The Court does not make findings of fact when ruling on a Rule 12(b)(6)

motion and may, but is not required to do so, in resolving a Rule 12(b)(7) motion to

dismiss. See Brewster v. Powell Bail Bonding, Inc., 2018 NCBC LEXIS 76, at *2 (N.C.

Super. Ct. July 26, 2018); see N.C. R. Civ. P. 52(a). Accordingly, for purposes of
context only, the Court summarizes the relevant allegations of the complaint.

4. Plaintiff Covenant Clearinghouse LLC is a Nevada limited liability

company. (ECF No. 2, ¶ 1).

5. Defendant D.R. Horton is a Delaware corporation engaged in the

business of real estate development. (ECF No. 2, ¶ 2).

6. Around 10 February 2010, John W. Johnson, Jr. and Billie Johnson (the

“Johnsons” and, with their successors, the “Declarants”) recorded a Declaration of

Covenant (the “Declaration”) with respect to certain real property that they owned

in Guilford County, North Carolina, as described in Exhibit A and Schedule A to the

Declaration and to which Plaintiff now contends the Declaration applies (the

“Property”). (ECF No. 2, ¶ 5 & Ex. 1 (Ex. A at Book 7099, Page 1463)).

7. The Declaration contains various economic provisions that Plaintiff

contends were designed to permit developers of the Property “to recoup development

and infrastructure costs over time, rather than passing all those costs along to the

first purchasers,” purportedly entitling the Declarants (and their assignees or other

successors) to a capital recovery fee equal to 1% of the sales price for each transfer

of any parcel of the Property for a 99-year term. (ECF No. 2, ¶¶ 5–6).

8. The Johnsons ultimately assigned their alleged rights to receive the

capital recovery fee to numerous third parties, including Gantwood, LLC; FCP

Realty Interests III, LLC; First Strategic Capital NC, LLC; Allan Irwin; Michael

Kahn; and Buckingham Trading, LLC (the “Beneficiaries”). (ECF No. 2, ¶ 7).

However, Plaintiff does not allege that the Johnsons assigned or otherwise
transferred their remaining contractual rights or interests under the Declaration or

that they no longer own parcels within the larger Property. (See generally ECF No.

2).

9. Plaintiff is the designated trustee under the Declaration to act on

behalf of the Beneficiaries and is compensated based on a percentage of the capital

recovery fees that it recovers for the Beneficiaries. (ECF No. 2, ¶ 7).

10. Under § 25 of the Declaration, the Declarants are permitted to

terminate the Declaration under certain circumstances, as follows:

Notwithstanding any provision or term to the contrary herein, this
Declaration shall terminate and be rendered null, void and of no force
and effect in its entirety with respect to any portion of the Property that
is the subject of a Termination (hereinafter defined). As used herein, a
“Termination” shall refer to a written document that (i) describes the
portion of the Property to be Released and Exonerated from this
Declaration (the “Released Property”); (ii) contains the following
statement made under oath by the Party signing the Termination on
behalf of the Declarant: “Undersigned does swear and affirm upon
personal knowledge that neither the Released Property, nor Declarant’s
Beneficial Interest, nor a Controlling Interest in Declarant, has been sold,
conveyed or assigned since the date of filing the Declaration recorded in
[insert recording information of this Declaration]”; and (iii) is recorded in
the OPR. Upon the sale, conveyance or assignment of the Released
Property, Declarant’s Beneficial Interest, or a Controlling Interest in
Declarant, this Article 25 shall become void. A Termination shall be
effective without the necessity of joinder of the Beneficiary(ies), the
Trustee, an Owner, any non-profit designated in this Declaration, or any
other party affected by this Declaration (jointly and severally the
“Affected Parties”). Declarant shall be free to record a Termination
notwithstanding any duty or obligation to the Affected Parties and
regardless of any financial or legal effect such Termination may have on
Affected Parties. Within ten (10) days from the date of filing a
Termination, Declarant shall provide a copy of the filed Termination to
the Trustee. If a valid Termination is recorded as provided above, the
legal description of the Property, for purposes of this Declaration, shall
be deemed amended, effective as of the date of recordation of the
Termination, to exclude the Released Property. Upon Declarant’s
written request, the Trustee and Affected Parties shall execute any
document(s) necessary to effectuate this provision. This right to
terminate is personal to the Declarant, and cannot be conveyed, assigned
or otherwise exercised by another party (including, but not limited to, by
any successor, heir or assign of Declarant).

(ECF No. 2, Ex. 1, § 25 (emphasis in original)).

11. On 4 October 2012, the Johnsons executed a “Termination of

Declaration of Covenant,” which was recorded with the Guilford County Register of

Deeds on 14 November 2012 (the “Termination”). (ECF No. 2, ¶ 9 & Ex. 2).

12. In relevant part, the Termination provides as follows:

Further as required by Section 25 of the Declaration, the undersigned
does swear and affirm, upon personal knowledge, that neither the
Released Property, nor Declarant’s Beneficial Interest, nor a
Controlling Interest in Declarant (all as defined in the Declaration), has
been sold, conveyed or assigned since February 10, 2010, the date of
filing of the Declaration as recorded in the office of the Register of Deeds
of Guilford County, North Carolina in Book 7099, Page 1452.

(ECF No. 2, Ex. 2 at 1). 1

13. The Termination is signed and stamped by notary Bettye B. Howard as

of 4 October 2012 and, as to both John W. Johnson, Jr. and Billie Johnson, contains

a certification by the notary that each person “personally appeared before me this

day, acknowledging to me that he or she signed the foregoing document[.]” (ECF No.

2, Ex. 2 at 2).

14. While the Termination contains a representation by the Johnsons that

they “swear and affirm” to the information therein, the notarial certificate and the

Termination lack any indication that the Johnsons were affirmatively sworn under

1 The Termination attaches as an exhibit a description of the portion of the Property as to

which it purports to terminate the Declaration.
oath or affirmed under penalty of perjury by the notary. (See generally ECF No. 2,

Ex. 2).

15. Indeed, according to Plaintiff, “the Declarants did not swear under oath

that none of the extinguishing events had occurred. Nor did Covenant Clearinghouse

receive a copy of the Termination within ten days as required.” (ECF No. 2, ¶ 9).

16. On 21 September 2018, Plaintiff recorded a “Notice of Assessment

Obligation,” which Plaintiff contends outlined the “most relevant terms of the capital

recovery fee covenant.” (ECF No. 2, ¶ 10).

17. On 12 December 2018, Plaintiff signed a “Correction Affidavit,” which

references the Termination and asserts that the Notice of Assessment Obligation

was filed in error. (ECF No. 2, ¶ 10).

18. In 2021, Defendant began purchasing lots within the Property. Plaintiff

alleges that Defendant built homes on these lots and sold them without disclosing

the Declaration and without remitting the capital recovery fee contemplated by the

Declaration. (ECF No. 2, ¶ 13).

19. In addition to Defendant, as alleged in the complaint, there is at least

one other owner of lots within the Property: Stoney Creek Partners, LLC. (ECF No.

2, ¶¶ 10, 13).

20. Starting in April 2025, Plaintiff began recording a “Notice to

Purchasers” on individual lots within the Property, informing prospective

purchasers of the capital recovery fee under the Declaration. (ECF No. 2, ¶ 12).
21. Thereafter, in July 2025, Defendant demanded that Plaintiff cancel the

Declaration, insisting that it had previously been terminated by the Johnsons. (ECF

No. 2, ¶ 14).

22. Among other things, according to Plaintiff, Defendant affirmatively

asserted that it “believes the Declaration violates North Carolina General Statutes

section 93A-88.1, et seq., and North Carolina General Statutes Chapter 39A, and

that North Carolina courts generally disfavor these Declarations.” (ECF No. 2, ¶ 15).

23. Plaintiff, on the other hand, contends that the Declaration is valid.

(ECF No. 2, ¶¶ 16–26).

24. Conversely, while Defendant contends that the Termination was valid

and effective, (ECF No. 2, ¶ 14), Plaintiff asserts that the Termination was

ineffective and void, (ECF No. 2, ¶¶ 27–32).

25. In sum, the parties take differing views of certain statutory definitions

and other provisions and their application under the circumstances of this case.

(ECF No. 2, ¶¶ 19–26).

26. According to Plaintiff, the parties have exchanged various

communications concerning these positions, with no resolution, and there is an

actual, active, and genuine controversy between the parties as to these issues. (See

generally ECF No. 2).

27. Plaintiff filed this suit on 15 August 2025, asserting causes of action for

(i) a declaratory judgment that the Declaration is not void under N.C. Gen. Stat.

§§ 93A-88.1 et seq., (ii) a declaratory judgment that the Declaration is not void under
N.C. Gen. Stat. §§ 39A–1 et seq., (iii) a declaratory judgment that the Termination

filed by the Johnsons in 2012 was invalid and void ab initio, and (iv) breach of the

Declaration for non-payment of capital recovery fees (i.e., breach of contract). (See

generally ECF No. 2).

28. Defendant then moved to dismiss under Rule 12(b)(6) and Rule 12(b)(7)

of the North Carolina Rules of Civil Procedure. (ECF No. 21).

29. The motion is fully briefed and ripe for resolution, and the Court

resolves the motion on the briefing pursuant to Rule 7.4 of the Business Court Rules.

II. ANALYSIS

a. Rule 12(b)(6) Motion to Dismiss

30. When considering a Rule 12(b)(6) motion, the Court must determine

“whether the allegations of the complaint, if treated as true, are sufficient to state a

claim upon which relief can be granted under some legal theory.” Corwin v. Brit. Am.

Tobacco PLC, 371 N.C. 605, 615 (2018) (citation omitted); Forsyth Mem’l Hosp., Inc.

v. Armstrong World Indus., 336 N.C. 438, 442 (1994) (quoting Lynn v. Overlook Dev.,

328 N.C. 689, 692 (1991)).

31. The Court treats the well-pleaded factual allegations as true and views

them “in the light most favorable to the non-moving party.” Sykes v. Health Network

Sols., Inc., 372 N.C. 326, 332 (2019) (citation omitted); Christenbury Eye Ctr., P.A. v.

Medflow, Inc., 370 N.C. 1, 5 (2017).

32. Further, the Court “may properly consider documents which are the

subject of a plaintiff’s complaint and to which the complaint specifically refers”
regardless of the party that presents them. Oberlin Cap., L.P. v. Slavin, 147 N.C.

App. 52, 60 (2001) (citation omitted). The Court “can reject allegations that are

contradicted by the documents attached, specifically referred to, or incorporated by

reference in the complaint.” Moch v. A.M. Pappas & Assocs., LLC, 251 N.C. App. 198,

206 (2016) (citations omitted).

33. Dismissal on a Rule 12(b)(6) motion is proper if “(1) the complaint on

its face reveals that no law supports the plaintiff’s claim; (2) the complaint on its face

reveals the absence of facts sufficient to make a good claim; or (3) the complaint

discloses some fact that necessarily defeats the plaintiff’s claim.” Corwin, 371 N.C.

at 615 (citations omitted).

i. Plaintiff’s Declaratory Judgment Causes of Action

34. A motion to dismiss for failure to state a claim is seldom appropriate

“‘in actions for declaratory judgments, and will not be allowed simply because the

plaintiff may not be able to prevail.’” Morris v. Plyler Paper Stock Co., 89 N.C. App.

555, 557 (1988) (quoting N.C. Consumers Power, Inc. v. Duke Power Co., 285 N.C.

434, 439 (1974)).

35. “Rather, a motion to dismiss a declaratory-judgment claim is

appropriate only when the complaint does not allege an actual, genuine existing

controversy, which prevents a court from entering a purely advisory opinion.”

Bennett v. Bennett, 2019 NCBC LEXIS 19, at *30–31 (N.C. Super. Ct. Mar. 15, 2019)

(internal quotation marks and citations omitted). The issue is not whether the
plaintiffs will prevail on their cause of action but, rather, “is only whether they have

identified an actual, genuine controversy.” Id. at *32 (citations omitted).

36. Here, Plaintiff asserts three declaratory judgment causes of action: one

seeking a determination that the Declaration is not void under N.C. Gen. Stat.

§§ 93A-88.1 et seq., one seeking confirmation that the Declaration is not void under

N.C. Gen. Stat. §§ 39A–1 et seq., and one seeking a determination that the

Termination is and was invalid and void. (See generally ECF No. 2).

37. Defendant makes myriad substantive arguments about why Plaintiff’s

causes of action fail, including that provisions of the Declaration are unenforceable

or against public policy, that the Declaration lacks horizontal privity or does not

touch and concern the land, or that the Declaration is not binding on Defendant.

(ECF No. 22 at 11–17).

38. Those arguments, however, go to the merits of whether Plaintiff is

entitled to the specific declaratory relief that it seeks—not whether Plaintiff has

stated a claim upon which relief can be granted for a declaratory judgment.

39. For each of its causes of action, Plaintiff alleges facts sufficient to

demonstrate an “actual genuine controversy” between Plaintiff and Defendant—

namely, the parties’ diametrically opposed positions.

40. As to the Declaration, Plaintiff pleads facts reflecting its contention

that the Declaration is valid or at least “not void” and Defendant’s position that the

Declaration violates both N.C. Gen. Stat. §§ 93A-88.1 et seq. and N.C. Gen. Stat. §§

39A–1 et seq. (ECF No. 2, ¶¶ 15–26).
41. Further, as to the Termination, Plaintiff has pleaded facts adequately

alleging an actual and active controversy between the parties, with Defendant

contending that the Termination was valid and effective, (ECF No. 2, ¶ 14), and

Plaintiff asserting that the Termination was ineffective and void, (ECF No. 2, ¶¶ 27–

32).

42. Considering the well-pleaded allegations of the complaint in the light

most favorable to Plaintiff, the Court determines that Plaintiff adequately states

claims for declaratory relief. Bennett, 2019 NCBC LEXIS 19, at *30–32. The Court

therefore DENIES Defendant’s Rule 12(b)(6) motion to dismiss as to these causes of

action.

ii. Plaintiff’s Breach of Declaration Cause of Action

43. For its final cause of action, Plaintiff asserts that Defendant has

breached the terms of the Declaration by failing to remit to Plaintiff a percentage of

Defendant’s sales of parcels of the Property for capital recovery fees over the course

of its ownership. (ECF No. 2, ¶¶ 33–42).

44. In support of its motion to dismiss, Defendant does not tailor its

argument to the breach of declaration cause of action but instead contends that all

of Plaintiff’s causes of action are barred for the same reasons noted above. (ECF No.

22 at 10–17). 2 Defendant also argues that the Court should dismiss Plaintiff’s causes

of action because the Termination terminated the Declaration and any obligation to

pay capital recovery fees under the Declaration. (ECF No. 22 at 17–23).

2 Defendant’s lone apparent reference to “breach” is its recitation of the existence of
Plaintiff’s cause of action. (ECF No. 22 at 8).
1. Applicability of N.C. Gen. Stat. § 39A–1 et seq.

45. Defendant first contends that the Declaration “is invalid and

unenforceable as a violation of North Carolina public policy” (i) because the General

Assembly prohibited transfer fee covenants under N.C. Gen. Stat. § 39A–1 et seq.,

thereby reflecting that such covenants are against public policy, and (ii) because the

Declaration is an unreasonable restraint on alienation of property interests. (ECF

No. 22 at 10–14).

46. State law defines a “[t]ransfer fee covenant” to mean “a declaration or

covenant purporting to affect real property that requires or purports to require the

payment of a transfer fee to the declarant or other person specified in the declaration

or covenant or to their successors or assigns, upon a subsequent transfer of an

interest in the real property.” N.C. Gen. Stat. § 39A–2(3).

47. Under N.C. Gen. Stat. § 39A–3, “[a]ny transfer fee covenant . . . shall

not run with the title to real property and is not binding on or enforceable at law or

in equity against any subsequent owner, purchaser, or mortgagee of any interest in

real property as an equitable servitude or otherwise.” N.C. Gen. Stat. § 39A–3(a).

48. However, Chapter 39A applies only “to (i) any transfer fee covenant

that is recorded after July 1, 2010; (ii) any lien that is filed to enforce a transfer fee

covenant that is recorded after July 1, 2010, or purports to secure payment of a

transfer fee that is recorded after July 1, 2010; and (iii) any agreement imposing a

private transfer fee obligation entered into after July 1, 2010.” N.C. Gen. Stat.

§ 39A–4(a).
49. While the General Assembly clarified that nothing in the statute should

“be interpreted to mean that a transfer fee covenant recorded prior to July 1, 2010,

is valid or enforceable,” it also did not endeavor to retroactively declare such

provisions invalid. N.C. Gen. Stat. § 39A–4(b).

50. Here, Plaintiff alleges (and the Declaration itself reflects) that the

Declaration was recorded on 10 February 2010, months before the 1 July 2010

trigger date invalidating transfer fee covenants against subsequent purchasers. N.C.

Gen. Stat. § 39A–3(a), § 39A–4(a); (ECF No. 2, ¶ 5 & Ex. 1).

51. Thus, on its face, Chapter 39A is not applicable to the Declaration.

While Defendant attempts to analogize the circumstances of Chapter 39A to the

1973 Real Property Marketable Title Act, N.C. Gen. Stat. § 47B–1 et seq., the Court

does not at this time conclude “beyond a doubt that the plaintiff could not prove any

set of facts to support [its] claim which would entitle [it] to relief.” Hunter v.

Guardian Life Ins. Co. of Am., 162 N.C. App. 477, 480 (2004) (citation omitted). The

Court thus DENIES Defendant’s Rule 12(b)(6) motion to dismiss to the extent the

motion is premised on its public policy argument.

2. Horizontal Privity and Touching and Concerning the
Land

52. Defendant next argues that the Declaration is unenforceable (and,

presumably, that Declarant therefore cannot have breached its terms) “for lack of

horizontal privity between the original covenanting parties, and because the transfer

fee provision does not ‘touch and concern’ the land.” (ECF No. 22 at 14–17).
53. As the parties both acknowledge in briefing, a “restrictive covenant is

a real covenant that runs with the land of the dominant and servient estates only if

(1) the subject of the covenant touches and concerns the land, (2) there is privity of

estate between the party enforcing the covenant and the party against whom the

covenant is being enforced, and (3) the original covenanting parties intended the

benefits and the burdens of the covenant to run with the land.” Runyon v. Paley, 331

N.C. 293, 299-300 (1992) (citations omitted).

54. Considering the allegations of the complaint and the language of the

Declaration in the light most favorable to the non-moving Plaintiff, while Defendant

raises potentially viable arguments, the Court is again unable to conclude at the

pleading stage “beyond a doubt that the plaintiff could not prove any set of facts to

support [its] claim which would entitle [it] to relief.” Hunter, 162 N.C. App. at 480

(2004) (citation omitted). The Court therefore DENIES Defendant’s Rule 12(b)(6)

motion to dismiss to the extent the motion is premised on Defendant’s arguments

concerning horizontal privity and touching and concerning the land at issue.

3. Validity of the Termination

55. As its final Rule 12(b)(6) argument, Defendant asserts that the

Termination was valid and properly terminated any obligations Defendant might

otherwise have under the Declaration. (ECF No. 22 at 17–23).

56. Plaintiff alleges in the complaint that the Johnsons signed and recorded

the Termination. (ECF No. 2, ¶ 9). The Termination, as incorporated into and relied

upon in the complaint, reflects on its face that the Johnsons did affirmatively “swear
and affirm, upon personal knowledge, that neither the Released Property, nor

Declarant’s Beneficial Interest, nor a Controlling Interest in Declarant (all as

defined in the Declaration), ha[d] been sold, conveyed or assigned since” the

Declaration was recorded. (ECF No. 2, ¶ 9 & Ex. 2 at 1).

57. Under the Declaration, any such termination must be “made under

oath,” (ECF No. 2, Ex. 1, ¶ 25), and the parties devote much of their briefing to the

issue of whether the Termination was signed under oath.

58. In common usage, the phrase “under oath” means “having made a

formal promise to tell the truth in a court of law.” UNDER OATH, Merriam-Webster

(last visited 18 June 2026), https://www.merriam-

webster.com/dictionary/under%20oath; see also OATH, Black’s Law Dictionary (12th

ed. 2024) (defining “oath” as “[a] solemn declaration that one’s statement is true or

that one will be bound to a promise, usu[ally] incorporating a swearing to God or to

some other revered person or thing. The person making the oath implicitly invites

punishment if the statement is untrue or the promise is broken. The legal effect of

an oath is to subject the person to penalties for perjury if the testimony is false.”

(emphasis added)).

59. Under North Carolina law, an “oath” is defined as follows:

A notarial act which is legally equivalent to an affirmation and
in which a notary certifies that at a single time and place all of
the following occurred:

a. An individual appeared in person before the notary.
b. The individual was personally known to the notary or
identified by the notary through satisfactory evidence.
c. The individual made a vow of truthfulness on penalty
of perjury while invoking a deity or using any form of the
word swear.

N.C. Gen. Stat. § 10B-3(14).

60. Thus, the mere fact that a statement is unilaterally sworn does not

render it one made under oath. Rather, both state law and common linguistic usage

contemplate that oaths will be administered by an officer or other person with

authority to administer oaths. This is most commonly reflected in case law

addressing affidavits. See, e.g., In re S.E.T., 375 N.C. 665, 672 (2020) (“An affidavit

is ‘(a) written or printed declaration or statement of facts, made voluntarily, and

confirmed by the oath or affirmation of the party making it, taken before an officer

having authority to administer such oath.’” (citations omitted) (emphasis added)); In

re Ingram, 74 N.C. App. 579, 580–81 (1985) (“Documents which are not under oath

may not be considered as affidavits. The requirements of G.S. 122–58.3 must be

followed diligently . . . . Where an involuntary commitment statute requires an oath

and the requirement is not complied with, the person involuntarily committed is

deprived of liberty without legal process. The petition for involuntary commitment

could not be treated as an affidavit because it was not confirmed by oath or

affirmation before a duly authorized certifying officer.” (internal citations omitted)

(emphasis added)).

61. Historically, North Carolina courts have strictly construed the

requirements for properly making affidavits and other sworn statements under oath.

Cf. Burgess v. Vitola, 2008 NCBC LEXIS 7, at *16 (N.C. Super. Ct. Mar. 26, 2008)
(citing First Citizens Bank & Trust Co. v. Nw. Ins. Co., 44 N.C. App. 414, 420

(1980); Short v. City of Greensboro, 15 N.C. App. 135, 138 (1972)). 3

62. Indeed, state law has long set forth specific requirements for the

administration of oaths. N.C. Gen. Stat. § 11–2 (requiring “the party to be sworn to

lay his hand upon the Holy Scriptures, in token of his engagement to speak the truth

and in further token that, if he should swerve from the truth, he may be justly

deprived of all the blessings of that holy book and made liable to that vengeance

which he has imprecated on his own head”); see also N.C. Gen. Stat. § 11–3 (providing

an alternative method for administration of oaths for individuals who are

“conscientiously scrupulous of taking a book oath”); ACLU of N.C., Inc. v. State, 181

N.C. App. 430, 431 (2007) (explaining that N.C. Gen. Stat. § 11–2 is “the statute that

describes the procedure for the administration of oaths”).

63. As a result, for at least a century and a half, North Carolina law has

generally recognized that, to be made “under oath,” a statement or writing should be

made before, and administered by, an officer properly authorized to take oaths and

in a manner reflecting the intended solemnity and legal enforceability of an oath.

See, e.g., State v. Hollis, 295 N.C. App. 224, 232 (2024) (explaining that “[t]he purpose

of an oath before a notary is to impart to the affiant the importance of stating the

3 While Burgess more specifically addresses the issue of whether an unsworn declaration

could be treated as an affidavit, that specific issue was recently remedied by the North
Carolina General Assembly. N.C. Gen. Stat. § 7A–98 (permitting the use of unsworn
declarations made under penalty of perjury in certain circumstances). North Carolina law
has also long permitted the use of an affirmation in lieu of an oath when the “person to be
sworn shall have conscientious scruples against taking an oath” as otherwise prescribed by
law. N.C. Gen. Stat. § 11–4.
truth, and explicit acknowledgement of the penalty of perjury evinces a similar level

of credibility”); 4 Schoolfield v. Collins, 281 N.C. 604, 612 (1972) (determining that a

pleading was appropriately verified and under oath where it was “sworn to and

subscribed before a notary public,” as “an officer having authority to administer such

oath” (citations and quotation marks omitted)); cf. Craver v. Zoning Bd. of

Adjustment, 267 N.C. 40, 42 (1966) (determining that a board chairman was

authorized to administer oaths and that statements made by witnesses without

administration of a formal oath ordinarily would not have been competent evidence

absent waiver); Pearre v. Folb, 123 N.C. 239, 239 (1898) (determining that a

“proceeding did not constitute a valid oath, under the laws of North Carolina” where

the formalities of an oath were not observed); Morgan v. Hubbard, 66 N.C. 394, 395

(1872) (concluding that “the simple declaration of the defendant . . . was not under

oath” and could not appropriately be considered as evidence where it “had neither

the solemnity of an oath, nor the test of a cross-examination”); Carr v. Stanley, 52

N.C. 131, 132 (1859) (concluding that a person’s written certificate “was nothing

more than a written declaration, made by him, not under oath”); see also N.C. Gen.

Stat. § 11–2.

64. Here, as noted above, while the Johnsons unilaterally “swear and

affirm” to the information in the Termination, the document does not contain

4 In Hollis, the Court of Appeals affirmed the trial court’s admission of statements “made

under penalty of perjury” in lieu of sworn affidavits under oath. In doing so, the Court of
Appeals nonetheless reiterated the general expectation that oaths should be made before a
person duly authorized to administer oaths and that proper oaths carry consequences, such
as the penalty of perjury, if they are untrue. See Hollis, 295 N.C. App. at 229, 232.
language indicating that notary Bettye B. Howard administered a formal oath or

affirmation to the Johnsons as required by statute for a notarial oath or affirmation

or as otherwise contemplated by common usage of the term “under oath.” See N.C.

Gen. Stat. § 10B-43(a) (requiring notarial certificates for oaths and affirmations to

contain a statement substantially in the form of “Signed and sworn to before me this

day . . .” or “Sworn to and subscribed before me this day . . .”); N.C. Gen. Stat. § 10B-

43(d) (permitting similar language for affirmations); (see generally ECF No. 2, Ex. 2

at 2).

65. Though it is possible that the notary did actively administer an oath

and that Defendant will be able to prove as much following discovery, no such

notarial oath administration is apparent from the complaint or the face of the

Termination. (ECF No. 2, Ex. 2 at 2).

66. In fact, Plaintiff affirmatively alleges that the Termination was not

signed under oath. (ECF No. 2, ¶ 9).

67. Thus, again construing the well-pleaded factual allegations of the

complaint in the light most favorable to Plaintiff, the Court DENIES Defendant’s

Rule 12(b)(6) motion to dismiss to the extent it is premised upon the effectiveness of

the Termination. Hunter, 162 N.C. App. 477, 480 (2004) (citation omitted).

b. Rule 12(b)(7) Motion to Dismiss

68. Having addressed Defendant’s Rule 12(b)(6) motion to dismiss, the

Court turns to its Rule 12(b)(7) motion to dismiss for failure to join necessary parties,

which Defendant also frames in its briefing as a request for the alternative relief of
the joinder of proper (even if not necessary) parties. 5 (ECF No. 37 at 13–14).

69. Under Rule 19(b) of the North Carolina Rules of Civil Procedure, “when

a complete determination of [a] claim cannot be made without the presence of other

parties, the court shall order such other parties summoned to appear in the action.”

N.C. R. Civ. P. 19(b). Further, under N.C. Gen. Stat. § 1–260, “[w]hen declaratory

relief is sought, all persons shall be made parties who have or claim any interest

which would be affected by the declaration.” N.C. Gen. Stat. § 1-260.

70. “A necessary party is one who is so vitally interested in the controversy

that a valid judgment cannot be rendered in the action completely and finally

determining the controversy without his presence.” Crosrol Carding Devs., Inc. v.

Gunter & Cooke, Inc., 12 N.C. App. 448, 452 (1971) (citing Strickland v. Hughes, 273

N.C. 481 (1968)).

71. Thus, for a party to be necessary, its “interest must be such that no

decree can be rendered which will not affect” the party. Wall v. Sneed, 13 N.C. App.

719, 724 (1972) (citing Gaither Corp. v. Skinner, 238 N.C. 254 (1953)). “The term

‘necessary parties’ embraces all persons who have or claim material interests in the

subject matter of a controversy, which interests will be directly affected by an

adjudication of the controversy.” Id. (quoting Equitable Life Assurance Soc’y v.

Basnight, 234 N.C. 347, 352 (1951)).

5 Though Defendant’s motion does not expressly seek the relief of joinder of proper parties

as an alternative to its motion to dismiss for failure to join necessary parties under Rule
12(b)(7), inasmuch as (i) the Court has discretion to join proper parties on its own motion at
any time and (ii) Defendant has requested that relief in its briefing, the Court addresses the
joinder of proper parties in the exercise of judicial discretion. See, e.g., Colbert v. Collins, 227
N.C. 395, 396 (1947) (per curiam).
72. Conversely, a “proper party is one whose interest may be affected by a

decree, but whose presence is not essential in order for the court to adjudicate the

rights of others.” Crosrol Carding, 12 N.C. App. at 451–52; N.C. R. Civ. P. 20. While

a case may be resolved on the merits without the presence of a proper party, in its

discretion, a court may require the joinder of such a party. Id. (citation omitted);

N.C. Rule Civ. P. 21 (“[P]arties may be dropped or added by order of the court on

motion of any party or on its own initiative at any stage of the action.”); see High

Point Bank & Trust Co. v. Highmark Props., LLC, 368 N.C. 301, 303 (2015).

73. For example, a person owning real property burdened by a restrictive

covenant may be a necessary party if the covenant is mutually enforceable or if a

court’s resolution of an action involving the covenant would otherwise “extinguish[]

property rights without giving the property owner an opportunity to be heard.”

Karner v. Roy White Flowers, Inc., 351 N.C. 433, 440 (2000). However, the

assessment of monetary fees does not inherently extinguish a property right

sufficient to make the owner a necessary party, even when the court’s determination

of the merits might affect potential, unfiled suits for monetary damages by absent

parties. Compare Midsouth Golf, LLC v. Fairfield Harbourside Condo. Ass’n, 187

N.C. App. 22, 27–30 (2007), and Wallach v. Linville Owners Ass’n, 234 N.C. App.

632, 638–39 (2014), with Karner, 351 N.C. at 440, and Page v. Bald Head Ass’n, 170

N.C. App. 151 (2005).

74. “Whenever . . . a fatal defect of parties is disclosed, the Court should

refuse to deal with the merits of the case until the absent parties are brought into
the action[.]” Wall, 13 N.C. App. at 723 (quoting Morganton v. Hutton & Bourbonnais

Co., 247 N.C. 666, 668 (1958)). However, “dismissal under Rule 12(b)(7) is proper

only when the defect cannot be cured, and the court ordinarily should order a

continuance for the absent party to be brought into the action and plead.” Howell v.

Fisher, 49 N.C. App. 488, 491 (1980) (citations omitted); see Presnell v. Trollinger

Inv. Co., 20 N.C. App. 722, 725–726 (1974).

75. In its briefing, Defendant contends that there are three groups of

necessary parties to this action: the “multiple” unnamed owners of other lots within

the Property that would be burdened by the Declaration, the Beneficiaries, and the

Declarants. (ECF No. 22 at 24–25). The Court addresses each in turn.

i. Other Lot Owners Within the Property

76. Defendant first contends that owners of other lots within the Property

are necessary parties because a determination as to the validity of the Declaration

would affect their property rights.

77. While disputing whether they are necessary parties, Plaintiff concedes

that “other homeowners [within the Property] might be considered proper parties—

those whose interests are separable and may be affected by a judgment in this suit.”

(ECF No. 31 at 27). Defendant likewise agrees that it would be appropriate to join

“all other potentially impacted lot owners as proper parties.” (ECF No. 37 at 14).

78. Though it is unclear from the complaint how many other persons or

entities own lots within the Property, the complaint identifies at least one other such

owner as Stoney Creek Partners, LLC. (ECF No. 2, ¶ 10).
79. According to the allegations in Plaintiff’s complaint and the language

of the Declaration, under Plaintiff’s theory, lot owners within the Property are

generally required “to pay the Declarants (and/or their assignees) a capital recovery

fee of 1% of the sales price on each transfer of the property for 99 years.” (ECF No.

2, ¶ 6; see also ECF No. 2, Ex. 1, ¶ 5).

80. Plaintiff’s request is largely one that the Court declare that the

Declaration and covenants therein are valid––or at least not void. Conversely, most

prior appellate case law on this subject was in the context of declaring covenants

invalid, with courts analyzing whether nonparties might be at risk of losing property

rights. Compare, e.g., Karner, 351 N.C. at 440 (explaining that a party may be a

necessary party if resolution of a real property covenant would otherwise

“extinguish[] property rights without giving the property owner an opportunity to be

heard”), with Midsouth Golf, 187 N.C. App. at 29–30 (“While invalidation of the

covenant in the present case could have some effect on nonparty property owners in

Fairfield Harbor, invalidation of the covenant would not deprive them of any

property right, which is required under Karner to make them necessary parties.”).

81. Here, the Court need not determine whether the non-party property

owners are necessary parties, as the Court determines that they are at least proper

parties whom the Court will order joined as parties in the exercise of the Court’s

judicial discretion. Wallach, 234 N.C. App. at 637 (“Whether proper parties will be

ordered joined rests within the sound discretion of the trial court.” (citation and

internal quotation marks omitted)); Colbert, 227 N.C. at 396 (“[I]f the parties sought
to be made parties defendant are proper parties the order was within the discretion

of the Court and not subject to review, or if, on the other hand, such parties are

necessary parties, without whose presence a complete determination of the

controversy could not be had, the Court was required to have them brought in as

parties defendant.”).

82. The Declaration purports to bind all lot owners within the Property and

to require those parties to pay a fee upon the transfer of their respective lots. (ECF

No. 2, Ex. 1, ¶ 5).

83. Plaintiff seeks to have the Declaration declared “not void” on several

bases, (see generally ECF No. 2), and the Court’s resolution of Plaintiff’s request for

declaratory relief is likely to affect those property owners by determining their

obligations, if any, under the Declaration. See Crosrol Carding, 12 N.C. App. at 451

(explaining that a “proper party is one whose interest may be affected by a decree”).

For example, if the Court determined that the Declaration was valid or otherwise

“not void,” the Court would be ruling on bases for invalidation that those property

owners might otherwise raise in separate litigation and that could result in a

determination that those owners’ interests are subject to the Declaration. Such

circumstances warrant joining those property owners as parties in this action.

84. As a result, in its discretion, the Court determines that the other

owners of lots or parcels within the Property are, at a minimum, proper parties to

this action and that it is appropriate to order those lot owners joined as parties in

this action.
85. Thus, to the extent that the Court orders Plaintiff to join as proper

parties to this action all owners of lots or other parcels within the Property who are

not otherwise parties to this action, the Court GRANTS IN PART Defendant’s

motion.

ii. Beneficiaries

86. Defendant also contends that the Beneficiaries are necessary parties

because trust beneficiaries are necessary parties to trust disputes.

87. “When dealing with a trust, the general rule in suits, respecting the

trust property, brought either by or against the trustees, [is that] the . . .

beneficiaries as well as the trustees also, are necessary parties.” Hasselmann v.

Barnes, 207 N.C. App. 373, 374 (2010) (quoting Dunn v. Cook, 204 N.C. App. 332,

337 (2010) (internal quotation marks omitted)); First Nat’l Bank v. Thomas, 204 N.C.

599, 602 (1933) (“It is a general and well-established rule that, in suits by or against

a trustee for the recovery or defense of property, the beneficiaries are necessary

parties.” (citation and internal punctuation omitted)).

88. Plaintiff argues that, because § 12 of the Declaration grants it a general

right “to undertake on behalf of Beneficiaries, as agent thereof, any action [that

Plaintiff] deems reasonably necessary or appropriate to prosecute, defend,

administer and exercise rights and obligations arising out of or related to th[e]

Declaration,” it therefore has the right as trustee to bring this suit without joining

the Beneficiaries. (ECF No. 2, Ex. 1, ¶ 12).
89. Section 9 of the Declaration, however, imposes a specific restraint on

Plaintiff’s ability to bring suit to recover “Unpaid Reconveyance Fees.” (ECF No. 2,

Ex. 1, ¶ 9). Specifically, Plaintiff is required to have “prior written consent of the

Beneficiaries then holding 51% or more of the Beneficial Interests (which consent

shall include instructions pertaining to payment of enforcement costs and

disposition of Lien Property ultimately acquired at any foreclosure)” before bringing

an action to recover unpaid reconveyance fees. (ECF No. 2, Ex. 1, ¶ 9(f)).

90. On its face, this requirement would apply then to at least Plaintiff’s

breach of contract cause of action, which seeks to recover allegedly unpaid

reconveyance fees. (ECF No. 2, ¶¶ 33–42 (alleging non-payment of capital fees); ECF

No. 2 at 9 (seeking recovery of unpaid capital recovery fees); ECF No. 2, Ex. 1, ¶ 9(f)).

91. Plaintiff has not alleged (and there is no indication) that Plaintiff

obtained such prior written permission from the Beneficiaries. (See generally ECF

No. 2). Thus, even if Plaintiff were otherwise permitted to bring suit without the

Beneficiaries based on the general grant of authority under the Declaration, there is

currently no basis on which the Court could reasonably conclude that Plaintiff has

obtained the Beneficiaries’ approval to proceed with this litigation without their

presence as parties. 6

6 Defendant does not argue that the lack of such an allegation deprives Plaintiff of standing

under Rule 12(b)(1), nor does Defendant argue that it provides a basis for dismissal under
Rule 12(b)(6). Accordingly, the Court does not address any such arguments at this time.
However, inasmuch as the Court requires Plaintiff to file an amended complaint to join
additional parties, Plaintiff is DIRECTED to state in its amended complaint whether it has
obtained prior written approval for this action.
92. Further, even if they were not necessary parties, the Beneficiaries

would be proper parties, and the Court would join them as parties to the action in

its discretion on that basis. See N.C. R. Civ. P. 21 (permitting the Court to order

joinder of a proper party on its own motion); Colbert, 227 N.C. at 396; see also N.C.

R. Civ. P. 20.

93. To the extent that it requires Plaintiff to join the Beneficiaries as

parties to this action, the Court therefore GRANTS Defendant’s motion.

iii. The Johnsons

94. Defendant further contends that the Johnsons, as the initial

Declarants, are necessary parties to the action because they “executed both the

Declaration and the Termination.” (ECF No. 22 at 25).

95. Though Plaintiff alleges that the Johnsons assigned their rights to the

capital recovery fees to the Beneficiaries, there are no allegations that the Johnsons

have assigned their entire contractual interest or other interests under the

Declaration to the Beneficiaries, nor (aside from the Termination) is there any

indication that the Johnsons are otherwise no longer parties to the Declaration. (See

generally ECF No. 2).

96. Accordingly, it appears that the Johnsons remain parties to the

Declaration and Termination with a material interest in the subject matter of this

controversy and that the Court’s resolution of the outstanding causes of action in

this case would directly affect the Johnsons’ interests, such that they are necessary

parties to this action. See N.C. Monroe Constr. Co. v. Guilford Cnty. Bd. of Ed., 278
N.C. 633, 640 (1971). This is particularly the case with respect to the Court’s

potential determinations of whether the Declaration and Termination are valid or

void and whether there has been a breach of the Declaration.

97. Further, even if the Johnsons were not necessary parties, the Court

determines that they are proper parties whose interests at least may be affected by

the Court’s resolution of this action and that it is appropriate to join them on that

alternative basis in the Court’s discretion. See id. at 639–40 (addressing proper

parties).

98. Thus, inasmuch as it requires Plaintiff to join the Johnsons as parties

to this action, the Court GRANTS Defendant’s motion.

III. CONCLUSION

99. Therefore, the Court GRANTS IN PART and DENIES IN PART

Defendant’s motion as set forth above.

100. In the exercise of judicial discretion, the Court ORDERS that, within

thirty (30) days of entry of this Order and Opinion, Plaintiff shall file an amended

complaint and join as parties to this action (i) all current owners of lots or other

parcels of real property within the Property who are not otherwise parties to this

action, (ii) the Johnsons, and (iii) the Beneficiaries.

SO ORDERED, this 19th day of June 2026.

/s/ Matthew T. Houston
Matthew T. Houston
Special Superior Court Judge
for Complex Business Cases