In February 2015, a group of seven (along with three of their spouses) property and homeowners of Mystic Lands — a gated community development along the Nantahala River, Mystic River, and two neighborhoods up by Queens Lake, Mystic Forest and Mystic Ridge — filed a lawsuit on behalf of the Property Owners Association against Shinitzky and his development company. The plaintiffs made 10 claims against the developer, but nine out of 10 have been dismissed and only one of the claims was appealed. The plaintiffs also initiated another lawsuit — called the Taylor lawsuit — making additional allegations, but that was also dismissed.
“We held court several hearings where they (plaintiffs) brought up all the arguments about maintaining their multiple claims of financial wrongdoing,” said Craig Justus, Shinitzky’s attorney. “The court wasn’t convinced — the court entered an order allowing the Property Owners Association to dismiss these claims due to there being an absence of proof of financial malfeasance.”
The plaintiffs have only appealed one claim out of the nine dismissed related to the developer rights as declarant to appoint directors to the Property Owners Association, while the remaining tenth claim, the developer’s alleged failure to build an astronomical observatory and lay asphalt on the Mystic Ridge roads was heard in the recent Swain County trial.
The nine dismissed claims and various allegations fell into four categories:
The first, financial misappropriations such as the developer using POA funds for a water system for his use, cashing a check belonging to the POA, withdrawing POA funds for his personal use, and otherwise interfering with the proper management of the POA’s financial affairs.
Secondly, Justus said the plaintiffs were unable to prove that Shinitzky used POA funds for his own benefit. He said the only thing they could point to was a $1,600 bookkeeping error where the time for developer work was mistakenly allocated on the time sheets and not accounted for on POA records. It was later discovered and corrected.
“That’s not misappropriation — that’s just a bookkeeping error,” Justus said.
Plaintiffs’ claim that the POA board did not approve advances Shinitzky made to the POA, in accordance with the provisions of Mystic Lands’ Covenants and Restrictions, in an amount exceeding $260,000 to make up shortfalls mostly during the recession years, and therefore was not valid and refundable.
In the third claim, the plaintiffs claimed that Shinitzky’s right as the declarant of the development had expired. These rights, laid out in the N.C. Planned Community Act, grants the developer — who takes a substantial risk in his development investment — the right for a certain number of years, or until 95 percent of his inventory has been conveyed to buyers, to appoint the members of the POA board and to not be liable for the payment of assessments.
Justus said it’s common for developers to have this type of declarant control outlined in a POA covenants. However, he denies the plaintiffs’ claims that Shinitzky abused his power by appointing and dismissing specific members to the board that would vote the way he wanted them to vote.
“The POA has always operated the community and the appointees don’t owe Ami (Shinitzky) a dime. Everyone has large investments in this community,” he said. “And Ami appointed only property owners to the Board of Directors even though the bylaws do not require it.”
None of these allegations survived prior courts’ hearing. In spite of the objections by the plaintiffs, they are all dismissed, and Justus said Shinitzky and his development company were exonerated.
As to the voluntary advances the developer made to the POA in the difficult times when many lots remained unsold and many others were in distress and not paying their assessments, Justus said Shinitzky never confronted the property owners regarding the $260,000 liability on the POA books or demanded prompt repayment.
The plaintiffs claimed that this matter first came to their attention in an October 2014 annual meeting after Greg Diehl, the POA director at the time, had spread the word around the neighborhood. In fact, Justus said the debt had accumulated over several years and was always recorded in the POA accounting records. There were also multiple written communications to the POA membership that developer advances to cover shortfalls had accumulated over $200,000. In other words, Justus says it was never hidden.
“My client even acknowledged he didn’t know whether it would get paid back,” Justus said, not an unlikely possibility in case the development was to fail as so many others did during that time.
Lastly, lots purchased at Mystic River were supposed to include a septic system, but the system envisioned turned out to be impractical and far pricier to owners in the long run. By 2009, Justus said property owners were aware of the situation, were presented with another option and agreed to it.
In July 2016, Superior Court Judge Marvin Pope Jr. ruled that the claims on behalf of the POA could be dismissed with prejudice, and that the POA did owe Shinitzky — $256,244 — with a resolution but did not address how the debt would be repaid. Judge Pope separately dismissed the claims related to the expiration of declarant rights as well as the Taylor lawsuit.
The recent trial
Two matters were before the jury in January: the remaining un-dismissed tenth claim for the paved roads and observatory and Shinitzky’s counterclaim for damages he suffered as result of the plaintiffs’ alleged defamatory statements and actions.
According to plaintiffs, to entice people to purchase lots in Mystic Lands, the developer agreed in writing that he would complete and pave all roadways. Once Mystic Ridge came into being a year or so after Mystic River, he would build a rotating dome astronomical observatory there.
Plaintiffs claimed that they fulfilled their part of the contract but Shinitzky did not complete the amenities within a reasonable time. They asked the judge to order Shinitzky to pave the roads and build the rotating dome observatory at Mystic Ridge.
While it’s true that the roads at Mystic Ridge lots have not yet been paved, as it became apparent to Shinitzky that paved roads in the mountains are a hazard in winter conditions and a liability not an asset. Justus said the $1 million clubhouse — at a far higher cost than was required — was completed in 2011 despite being in the middle of the recession, no lots selling and no revenue generated.
This happened long before the plaintiffs filed suit against his client. The boathouse at Mystic Ridge, which was envisioned as only a simple wooden shed, was built at 10 times the cost as a second clubhouse. Justus said that his client’s decision to not pave some of the roads was not a financial decision to try to save money.
Pointing to a wonderful sense of community at Mystic Lands, now lost because of these lawsuits and the public allegations made, Justus said, “Banks had shut down and you couldn’t get a loan, so a number of folks (Mystic Lands property owners) worked together to get it done [the completion of the clubhouse].”
The property owners worked cooperatively to lend their own money to the developer in the amount of $550,000 to help fund the capital project knowing it could attract more people to invest in Mystic Lands and support property values. They were repaid over the ensuing years. Two of the plaintiffs were part of this group too, and were paid back at above market interest rates.
“And those property owners got paid back 8 and 10 percent or better — they got almost double what the market rate was,” Justus said. “My client put in much more money to finish it, and if you take a look at the drawing compared to what’s there it’s better than what that drawing showed.”
As for the observatory, Justus said many of the plaintiffs had already purchased their lots before having any concept of what the observatory would look like or even that one would be built. The artist rendering, which was just an early idea, was done in 2009 while most property owners purchased land before 2007. Justus said that the observatory was built to be able to accommodate more people at once, and built with blueprints provided by the dome maker — a national expert in astronomical observatories.
Justus added that during the recession the current property owners understood it wasn’t a good time to build the observatory — hardly any homes built for owners to be there to enjoy it, but yet another expense for the POA to maintain.
“Everyone in the community knew it was not a good time to build — the board of directors, which later also included (plaintiffs) Fred Yates and Tom Anderson, made the decision not to have the developer construct the observatory yet because there weren’t enough homes to use it.” However, now with the observatory complete prior to the end of the trial, it has become a moot point.
As for Shinitzky’s counterclaims, he did not prevail. The jury found that he did not meet the level of proof required by the jury instructions.
There are still legal issues to be addressed after the verdict, which will come before the court in the coming days.