Plaintiff The Gables and Villas at River Oaks Homeowners Association hereby submits

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1 A. Richard Vial (10875) Edward W. McBride (08236) Peter H. Harrison (11275) Douglas C. Shumway (13863) VIAL FOTHERINGHAM, LLP 602 East 300 South Salt Lake City, Utah Telephone: Facsimile: Attorneys for Plaintiff IN THE THIRD JUDICIAL DISTRICT COURT OF SALT LAKECOUNTY SALT LAKE CITY DEPARTMENT, STATE OF UTAH THE GABLES AND VILLAS AT RIVER OAKS HOMEOWNERS ASSOCIATION, a Utah non-profit corporation, Plaintiff, vs. CASTLEWOOD RIVER OAKS, LLC; CASTLEWOOD DEVELOPMENT, LLC; CASTLEWOOD, INC; JEFFREY A. DUKE; LANCE MAY; CASTLEWOOD BUILDERS, LLC, and JOHN DOES 2-30, Defendants. (PROPOSED) FIRST AMENDED COMPLAINT Civil No Judge Trease Plaintiff The Gables and Villas at River Oaks Homeowners Association hereby submits this First Amended Complaint, and alleges as follows: 1

2 PARTIES 1. Plaintiff The Gables and Villas at River Oaks Homeowners Association ( Plaintiff or Association ) is a Utah nonprofit corporation organized under the Utah Revised Nonprofit Corporation Act. 2. Defendant Castlewood River Oaks, LLC ( Developer or Castlewood River Oaks ) is a Utah limited liability company and the co-developer of The Gables and Villas at River Oaks Homeowners Association planned unit development. ( Project ). 3. Defendant Castlewood Development, LLC was a Utah limited liability company and the manager of Castlewood River Oaks. 4. Defendant Castlewood Development, Inc, is a Utah corporation and was converted from Castlewood Development, LLC. 5. Defendant Castlewood Builders, LLC is a Utah limited liability company, and is an entity which provided materials or services incorporated into the construction of The Gables and Villas at River Oaks in Sandy, Utah, (herein referred to as the Project ). 6. Defendant Jeffrey A. Duke ( Duke ) was and is an individual resident of the State of Utah, the member/manager of Developer and manager of Castlewood Development Inc, and at times relevant to this lawsuit a Trustee and officer of the Association. 7. Lance May ( May ) was and is a resident of Utah and served as a Trustee of the Association at times relevant to this lawsuit. 8. Defendants Doe 2-30 are entities and/or individuals who are related to or associated with transactions and events herein, whose identities are presently unknown and who may have contributed to the Association s losses alleged herein. Plaintiff Association reserves 2

3 the right to amend this Complaint to substitute Defendants Doe and join the actual individuals when the identities of these Defendants are established. JURISDICTION AND VENUE 9. This action involves written contracts to be performed in Salt Lake County; and therefore jurisdiction and venue are properly before this court pursuant to UCA 78A-5-102(1) and 78B and 307. GENERAL ALLEGATIONS 10. The Gables and Villas at River Oaks ( Project ) is a planned unit development located in the City of Sandy, Salt Lake County, Utah. The Association consists of 74 Townhomes ( Units ) and appurtenant common areas. 11. Every Lot and home thereon ( Unit ) is owned separately by an Owner. 12. In the course of developing the Project, Duke and River Oaks Estates organized development entities and through these entities created the Association under the Declaration of Covenants, Conditions and Restrictions for River Oaks Estates Planned Development, recorded June 29, 2005, Book 9152, Pages 596-et seq., in the records of Salt Lake County, Utah. ( Declaration or CCR s ). 13. Subsequent amendments to the Declaration have been recorded which do not substantively amend any of the maintenance obligations of the Association. 14. Acting as the Manager of Developer, Duke caused the Declaration to be drafted, executed and recorded, and thereafter Duke controlled the Association as manager of Developer appointing himself, and Defendant May as trustees of the Association. 15. At all times relevant to this lawsuit Defendants Duke and May were real estate managers as they participated in the management of the Association. 3

4 16. Under the Declaration and Utah law, the Association is authorized to institute this litigation on its own behalf and on behalf of the Owners, because the matters alleged herein relate to and affect the common areas and/or areas of the Lots and Units which the Association owns or has the sole duty under the Declaration to maintain, repair and replace. 17. At times in the early stages of development, Duke and/or Castlewood River Oaks, were owners of all the Lots and Units in the Project. 18. Notwithstanding the creation of Developer, at all times relevant to this lawsuit, Duke conducted, supervised, and otherwise controlled the development and construction activities and property management and sales of the Gables and Villas at River Oaks Project, personally or through Developer, and/or Castlewood Inc, and/or their agents. 19. In the earliest stage of the Project, Duke retained engineers to conduct a geo technical study ( Geo Report ) of the soil and subsurface soils of the Project. The Geo Report concluded that the soils and subsurface soils were collapsible and warned that significant soil subsidence was certain without proper precautions and preparations. 20. Duke, Castlewood Inc., and Developer ignored the warnings and started to develop and construct the Project without proper precautions or soil preparations prior to construction of the Units. 21. In or about 2006, Developer contracted with Castlewood Builders to provide services with respect to the preparation and building of the Project, a planned unit development located in the City of Sandy, Salt Lake County, Utah. 22. Specifically, Developer contracted with Castlewood Builders to be the general contractor for the Project s 74 Townhomes. 4

5 23. Castlewood Builders performed the work for which it had contracted with Developer. 24. In this lawsuit, Plaintiff alleges that faulty design, defective workmanship, and/or improper or defective materials has resulted in cement and stone cladding cracking, water intrusion, and related damages to the townhomes exterior features. 25. As construction of the Units in each phase of the Project was completed, Developer, Castlewood Inc., Duke, and/or Defendants Doe marketed and sold Units in the project to private purchasers. 26. After Owners moved into their Units, the Owners and Association observed problems associated with concrete cracking and water intrusion in the common area improvements and Units. 27. The Association has retained building envelope specialists to inspect and identify the scope of concrete cracking and the source(s) and extent of the water intrusion. During the investigation, the building envelope specialist discovered cracking in stucco and concrete and evidence of water intrusion into the foundations, floors, porches, hardiplank, sidewalls, exterior walls, doors, windows, window boxes, and roofs. 28. The Building Envelope Specialists identified the following non-exhaustive list of items of faulty design, defective workmanship, and/or improper or defective materials throughout the Project: a) exposed fasteners on the roof; b) failed/improperly applied sealant; c) improper fasteners through the roof; d) improperly positioned fasteners; 5

6 e) shingle/penetration flashing integration; f) cap flashing; g) ice dam protection; h) plumbing vent flashing; i) satellite dish penetrations; j) omitted sealant at kick outs; k) voids in flashing; l) hump in roof; m) wood clearance to roof; n) improperly lapped flashing; o) improper kick out flashing; p) inadequate siding clearance on hardiplank; q) omitted window and door head flashing; r) sealed window and door head flashing; s) omitted metal flashing at horizontal wood surfaces t) improper siding installations at butt joints; u) improper siding fastening; v) rain gutter terminations; w) exposed structural wood and sheathing; x) omitted ledger flashing at open trellises; y) omitted weepholes; z) loose stone veneer and de-bonded mortar; aa) negatively sloped decks; 6

7 ab) ac) ad) deck membrane failure; deck edge metal transitions; and concrete cracking. 29. The concrete cracking, water intrusion, and construction defects have caused and will continue to cause injury, including, but not limited to: damaged hardiplank, cracked cement; steps, landings, porches, patios, and decks pulling from the buildings; door and window frames becoming uneven and unsealed; and significant gaps in wall foundation junctions, and roof junctions; dryrot, water staining, and elevated moisture levels throughout the Units; and loss of use of the Units and personal property within Units. 30. As a result of Duke s direct control and involvement with the day to day construction of the Project, Duke, Developer and/or Defendants Doe and the other principals of Developer should have known of the defects, and problems outlined in paragraph 26-28, at a time when the Association and the Owners could not reasonably know of the defects and before the Gables and Villas at River Oaks Owners assumed control of the Association. 31. Duke and Developer should have known of the construction defects before and/or during the sales to individual Owners and before turnover of the management of the Association to the Gables and Villas at River Oaks Owners. ( Association Turnover ) 32. Prior to the Association Turnover, Duke and Developer should have known, of the defects and the costs to repair and/or remediate the defects; and that the failure to disclose the defects would result in substantial damages and liabilities to the Association and the Owners 33. Despite repeated requests, Duke and Developer, and/or Castlewood Development Inc. have failed and refused to repair and correct the defects and problems outlined in paragraph above. 7

8 34. As a result of the defects described herein, the Association has incurred inspection fees, repair costs, and legal fees. 35. At the time the Gables and Villas at River Oaks Owners assumed control of the Association there were insufficient Association funds on hand or in reserve to pay for complete repair, replacement and/or remediation of the defects outlined in paragraph above. FIRST CAUSE OF ACTION (Negligence) 36. Plaintiff incorporates the allegations plead in paragraphs 1-35 herein by this reference. 37. During all times relevant to this lawsuit, Developer was the controlling member of the Association. During the same period, Duke was the managing member of Developer, and exercised majority control of and managed and directed the day to day affairs of the Association. 38. During the period of Duke s control and management of Developer, Duke and Developer owed certain duties to all existing and future Owners and to the Association itself in the management and control of the Association. These duties included, without limitation: a) to use reasonable care and prudence in managing and maintaining the common property; b) to establish a sound fiscal basis for the Association by imposing and collecting assessments and establishing reserves for the maintenance and replacement of common properties; c) to disclose the amount by which Developer was providing or subsidizing services that the Association is or will be obligated to provide; d) to maintain records and account for the financial affairs of the Association 8

9 from its inception; e) to comply with and enforce the terms of the governing documents including design controls, land-use restrictions, and the payment of assessments; f) to disclose all material facts and circumstances affecting the conditions of the property that the Association is responsible for maintaining; and g) to disclose all material facts and circumstances affecting the financial conditions of the Association including the interests of developer and the developers affiliates in any contract, lease, or other agreement entered into by the Association. 39. Implicit in the duty to use reasonable care and prudence in managing and maintaining the common property is a duty for Developer to construct the common property and improvements in a workmanlike manner in the first instance. 40. Duke and Developer breached their duty to use reasonable care and prudence in constructing, managing and maintaining the common property and those Unit elements (roof, exterior walls, windows) the Association has the duty to maintain, repair and replace, in one or more of the following particulars, without limitation: a) failed to hire a general contractor that would adequately inspect and supervise construction to insure all the recommendations outlined in the Geo Report were completely and adequately implemented; and all construction work on the project was completed in a workman like manner and complied with accepted industry standards applicable to each subcontractors area of work and responsibility; b) failed to inspect or otherwise insure all work covered under each progress payment/pay request was completed as designed, in a workmanlike manner and complied with the applicable industry standards before approving each pay request; 9

10 c) failed to do a project wide inspection and assessment of construction defects and problems after they should have known of the defects and damages outlined in paragraph above; d) failed to take all reasonable steps to remedy and repair all defects and all problems in paragraph above; e) failed to act on and preserve the rights of the Association and the Owners against the Developer, general contractors, and subcontractors to remedy all problems and damages outlined in paragraph above. 41. As a result of the defects described herein, the Association has incurred inspection fees, repair costs, and legal fees. 42. Duke s and Developer s conduct and omissions described above, constitute negligence, which was the direct and proximate cause of injury and damages to the Association in an amount to be proven at trial. 43. Duke and Developer breached their duty to establish a sound fiscal basis for the Association by imposing and collecting assessments and establishing adequate reserves for the maintenance and replacement of common properties and those Unit elements (roof, exterior walls, windows, fences) the Association has the duty to maintain, repair and replace, in one or more of the following particulars, without limitation: a) failed to establish assessments at an adequate level to meet the operating, maintenance, and other common expenditures; b) Failed to establish and collect assessments for reserves, in an amount sufficient to provide for the repair and replacement of common area improvements and Unit elements that the Association is charged to repair and replace under the terms of the Declaration; 10

11 c) failed to do any investigation of the defects and other problems outlined in paragraphs after they should have known of the defects, to use as a basis for establishing an adequate reserve or modifying the established reserves to provide for repair and replacement costs of the Association; d) Duke, together with other members of Developer approved and distributed income and profits from the development and sale of the Project Lots and Units at times when they should have known of the defects and other problems outlined in paragraph without establishing adequate reserves in the Association to pay for repairs and replacement. These distributions were in amounts that finally rendered Developer insolvent, while there were still substantial and foreseeable contingent liabilities for of construction defects in the Gables and Villas at River Oaks Project. 44. As a result of the defects described herein, the Association has incurred inspection fees, repair costs, and legal fees. 45. Duke and Developer s conduct and omissions described in paragraph 40 above constitute negligence, which was the direct and proximate cause of injury and damages to the Association in an amount to be proven at trial. SECOND CAUSE OF ACTION (Negligent Misrepresentation) 46. Plaintiff incorporates the allegations plead in paragraphs 1-45 above, herein by this reference. 47. Duke and Developer breached their duty to disclose all material facts and circumstances affecting the condition of the common area property and Unit elements that the Association is responsible for maintaining for the following reasons and in one or more of the following particulars, without limitation: 11

12 a) as a result of their intimate involvement in the development and construction, the supervision of contractors, the inspection of construction progress, and the marketing and sales of Units and property management in the Project after construction was completed in each phase, Duke and Developer, should have known: i. the construction defects and other problems described in paragraph 26-28, above, existed; ii. the Project had not been and was not being constructed in compliance with the Geo-Report, Project plans and specifications applicable building code standards, accepted industry standards, manufacturer s specifications, and otherwise in accord with workman like standards; iii. Units and common areas had suffered concrete cracking, water intrusion, described in paragraph above and were not fit for habitation; b) Duke and Developer, should have known the defects and other problems outlined in paragraph would remain undetected by the Association and Owners for a substantial period of time, thereby increasing the damages and cost of repairing or remedying the damages. c) Duke and Developer failed to investigate, inspect and assess the construction defect issues and problems outlined in paragraph d) Duke and Developer failed to disclose to the Association any of the defects and other problems outlined in paragraphs at the time of the Association turnover. e) Duke and Developer should have known the Association and Owners would rely on their negligent misrepresentations and/or their negligent non-disclosures. 12

13 48. Duke s and Developer s failure to disclose material facts as outlined above, to Association officers at the time of Association Turnover constitutes negligent misrepresentation. 49. At all times while Duke served as manager of Developer and controlled the Association; he put his economic interest in Developer ahead of his fiduciary duties to the Association and withheld and failed to disclose to the Association and the Owners the true facts about the condition of the Project. 50. Duke, individually and as manager of Developer was a knowing participant in the breach of duties described herein. 51. By virtue of his conflict and participation in the breach of duties, Duke should be precluded from indemnification for his wrongful conduct under any provisions of the Utah Nonprofit Corporation Act that might otherwise apply. 52. Duke s, and Developer s, conduct and omissions described herein were grossly negligent and/or in reckless disregard of Plaintiff s rights and vested interests. 53. As a result of the defects described herein, the Association has incurred inspection fees, repair costs, and legal fees. 54. Defendant s conduct and omissions described herein constitute breach of duty owed to the Association and Owners. As a direct, natural, and proximate result of Duke s and Developer s negligent misrepresentation and breach of duty, Plaintiff has suffered compensatory and consequential damages in an amount to be proven at trial, together with punitive damages for Defendants reckless conduct. THIRD CAUSE OF ACTION (Breach of Contract / Implied Warranties) 13

14 55. Plaintiff incorporates the allegations plead in paragraphs 1-54 herein by this reference. 56. The Amended Declaration of Easements, Covenants, Conditions and Restrictions for the Gables and Villas at River Oaks were drafted and recorded by the Developer/ Vendor. 57. The Declaration conveys title of the common areas to the Association under Article II and thereby creates privity between Developer and the Association. Under the terms of the Declaration, the recording of the plat for each subsequent phase, conveys to the Association all common areas and Unit elements in that subsequent phase which the Association is responsible to maintain, repair and replace. 58. The duty to maintain, repair or replace all common areas and to maintain, repair, and replace the exterior surfaces, window casings and roofs of all units and/or the Unit buildings, and other exterior improvements was expressly reserved to the Association under Article II. 59. The Owners rights and estate in their respective Units were conveyed under the Real Estate Purchase Contracts between Owners and Developer/Vendor subject to the Gables and Villas at River Oaks Declaration and CC&R s. 60. As a contract between Developer and the Association, the Declaration includes the implied warranty of construction in a workmanlike manner and the warranty of habitability recognized under Utah law as to the common areas and unit elements conveyed to the Association. 61. Plaintiff Association has performed and continues to perform all of the duties, and covenants and conditions required under the Declaration. 62. Developer contracted with Castlewood Builders under which Castlewood Builders promised and agreed to perform specified services and/or to furnish specified goods or 14

15 products in connection with the construction of the Project according to the terms, specifications and drawings governing said performance. 63. At the time of the construction agreement between Developer and Castlewood Builders, it was foreseeable and/or within the contemplation of the parties, that if Castlewood Builders failed in any of their individual responsibilities to perform their work in a good and workmanlike manner, such failure could result in a cause of action for damages against Developer, as well as litigation costs and fees. 64. To the extent any of the workmanship or materials provided by Castlewood Builders are found to be defective, Castlewood Builders have breached contractual obligations to Developer by providing materials or workmanship that was defective or deficient or otherwise failed to conform to contract requirements and standards. 65. Developer materially breached the terms of the Declaration and has materially breached the implied warranties of workmanlike construction and habitability in one or more of the following particulars, without limitation: failed to hire a general contractor that would adequately inspect that all construction work on the project was completed in accord with the Project plans and specifications in a workman like manner and complied with accepted industry standards applicable to each subcontractors area of work and responsibility; a) failed to inspect or otherwise insure all work covered under each progress payment/ pay request was completed according to Project plans and specifications and in a workmanlike manner and complied with the applicable industry standards before approving each pay request; b) failed to do a project wide inspection and assessment of construction defects and problems after Developer known of the defects outlined in paragraph above; 15

16 c) failed to take all reasonable steps to remedy and repair the defects and problems outlined in paragraph above; f) failed to act on and preserve the rights of the Association and the Owners against the Developer, general contractors, and subcontractors to remedy all defects and problems outlined in paragraph above. 66. The common areas and Unit elements conveyed to the Association by Developer/Vendor with the recording of each new phase plat, contained construction defects which the Association could not reasonably discover prior to the conveyance under each subsequent plat. 67. The defects outlined in paragraph were caused by improper design, improper materials, and/ or defective workmanship. 68. The defects described herein have and allowed water penetration into walls for which the Association is responsible to repair and replace, resulting in high moisture content, that if not abated and repaired will make the Units unfit for habitation. 69. Defendants conduct and omissions outlined in paragraph 58 above constitute breach of the implied warranties of construction in a workman like manner and habitability and have caused ongoing injury and damages to Plaintiff in an amount to proven at trial. FOURTH CAUSE OF ACTION (Breach of Contract/ Declaration of Covenants, Conditions and Restrictions) 70. Plaintiff incorporates the allegations plead in Paragraphs 1-69 herein by this reference. 16

17 71. At all relevant times after the Declaration was recorded, Developer, was legally bound by the obligations, covenants, conditions, and restrictions set forth in the Declaration for the benefit for the Association and its members. 72. From June 29, 2005, the date of filing the Articles of Incorporation of the Gables and Villas at River Oaks Homeowners Association, Defendants Duke, Castlewood Development, Inc, and May managed and controlled the Association until the Association Turnover. 73. During this management period, Defendants also acted as real estate managers. 74. At all times relevant to this lawsuit, after the Association Turnover, the Association has performed all covenants and conditions required to be performed on its part under the Declaration. 75. Article 5 of the Declaration requires the Association to maintain, repair, and replace all common areas and to repair, and replace the Unit exterior surfaces. 76. The duties to maintain, repair, and replace improvements set forth under Article 5 of the Declaration were expressly assumed by Developer upon signing and recording the Declaration. 77. In addition to duties outlined in Article 5of the Declaration, under Utah law Developer has the duty to comply with and enforce the terms of the Association s governing documents, including the Declaration during the periods the Developer controls and manages the Association. 78. At some point during Developer s operation and control of the Association, in the discharge of duties outlined herein, Developer should have known of the defects set forth under paragraph above. 17

18 79. During the timeframe Developer controlled and managed the Association, Developer failed and refused to make the necessary repairs and remedy the defects outlined in paragraph 26-28, above. 80. By failing to identify and/or repair the construction defects outlined in paragraph above, Developer breached the duties and covenants set forth in the Declaration, and the duty to comply with and enforce the Declaration. 81. Developer s and Defendants Duke and May s conduct and omissions as alleged herein constituting the breach of contract and breach of duty were the direct and proximate cause of injury and damages to Plaintiff in an amount to be proven at trial. 82. Developer s and Defendants Duke, and May s conduct and omissions in failing to comply with and enforce the Declaration and in refusing or neglecting to repair and remedy the defects outlined in paragraph were done with a reckless disregard for Plaintiff s rights and benefits under the Declaration. FIFTH CAUSE OF ACTION (Breach of Covenant of Good Faith and Fair Dealing) 83. Plaintiff incorporates the allegations plead in paragraphs 1-82 herein by this reference. 84. Under Utah law every contract contains an implied covenant of good faith and fair dealing. Developer was obligated under these covenants to discharge its duties, covenants and performance under the Declaration and under the warranties of workman like manner and habitability during operation and control of the Association in good faith and in such a way as to avoid interfering with or impairing Plaintiff s performance and benefits under the Declaration. Developer s conduct and omissions herein, were performed in such a way as to put Duke s economic interests ahead of the best interest of the Association, and with a reckless disregard for 18

19 Plaintiff s rights under the Declaration and implied warranties, and constitute a breach of the covenant of good faith and fair dealing. 85. Developer s reckless conduct outlined herein was the direct and proximate cause of injury and damages to Plaintiff in an amount to be proven at trial. SIXTH CAUSE OF ACTION (Piercing the Corporate Veil) 86. Plaintiff incorporates allegations plead in paragraphs 1-85 herein by this reference. 87. From the earliest stages of the development of the Project in 2005 until the Association Turnover to the Unit owners, Defendant Duke individually or through his entity Castlewood Development Inc, supervised and controlled every aspect of the Project development, including design, construction, property management, and sales activities. 88. Notwithstanding the creation of the Castlewood River Oaks, LLC, Duke effectively controlled all aspects of the operations and decision-making in the development and construction of the Project and the operation and management of the Association without regard to any limited liability company or corporate formalities and without regard or input from any other individuals or entities involved with Developer. 89. At all times relevant to this lawsuit there was in fact a complete unity of interest and ownership between Duke, and Developer such that the Developer was nothing more than the alter ego of Duke. 90. From the earliest development activities until turnover of the Association, Duke was so intimately involved in the design and construction of the Project that he should have known of the defects described in paragraphs above. 19

20 91. As set forth under the allegations above, Duke s conduct and omissions establish that Duke personally participated in Developer s breach of duties owed the Association. 92. Based on Duke s unity of interest, complete control and his disregard of the Developer s LLC form and formalities, together with his personal participation in and direction of the breach of duties alleged herein, the Castlewood River Oaks LLC should be set aside and Duke should be held personally liable for any and all conduct and/or omission allegedly performed by Castlewood LLC under all Plaintiff s Causes of Action as alleged herein. SEVENTH CAUSE OF ACTION (Fraudulent Transfer) 93. Plaintiff incorporates the allegations plead in paragraphs 1-92 herein by this reference. At relevant times during development, construction, and sales of the Project, Defendant Duke should have known that defective conditions existed unrepaired, and that the Association assessments and reserves while under Duke s and Developer s, control had not been calculated to provide for the unrepaired conditions. 94. As manager of Developer, Defendant Duke directed the distribution of revenues and profits from business activities of Developer, to himself and other members of Developer that rendered Developer insolvent. 95. These distributions were approved by Duke when he should have known of the substantial defects throughout the Project. These defects outlined under paragraphs continue to worsen as a result of unrepaired water intrusion and construction defects and constitute known present and future liabilities of which Duke should have known which remained unpaid at the time final distributions from Developer were approved which rendered Developer insolvent. 20

21 96. The final distributions described above were made at times when Duke should have known of unpaid present and future liabilities and with the intent to avoid these liabilities. 97. Such transfers and distributions violate the Utah Fraudulent Transfers Act and are void and should be set aside. 98. To the extent Developer is insolvent and unable to pay damages for judgment rendered to Plaintiff under any Causes of Action herein, Plaintiff will be damaged by Duke s fraudulent transfers. 99. Plaintiff is entitled to an order declaring as fraudulent transfers, any distributions and transfers of revenue or profit out of Developer at any time when construction defects and damages were apparent and should have been known to Duke and/or other members of the Developer and order restitution to Developer of all such amounts. EIGHTH CAUSE OF ACTION (Joint Venture Liability by Developer and Castlewood Inc) 100. Plaintiff incorporates the allegations plead in paragraphs 1-99 herein by this reference At all times relevant to this lawsuit, Defendant Duke was the Manger of both Developer and Castlewood Inc; and Castlewood Inc was also a member of Developer At all times relevant to this lawsuit, Developer shared a community of interest and a common purpose with Castlewood Inc in the Gables and Villas at River Oaks Project, in that Developer and Castlewood Inc jointly profited from the development of the Project and the sales of Lots and Units therein; and therefore Castlewood Inc and Developer were Co-Developers of this project. 21

22 103. Developer and Castlewood Inc. provided the other substantial and necessary assistance in the development, construction, and property management and sale of the Lots and Units For purposes of the development and sale of the Lots and Units of the Project, Developer and Castlewood Inc were joint venturers, partners and persons acting in concert. Accordingly, each is vicariously and jointly liable for the other s wrongful acts and breaches of duties, and each allegation of wrongdoing against either of them as alleged herein Plaintiff is entitled to an order from the court declaring Developer s and Castlewood Inc s joint venture status and joint liability for each other s wrongful acts and breaches of duty as alleged herein. NINTH CAUSE OF ACTION (Breach of Trustees Duties) 106. Plaintiff incorporates the allegations plead in paragraphs above herein by this reference On June 29, 2005 Defendant Duke incorporated the Association pursuant to the provisions to the Utah Non-Profit Corporation In-Cooperative Association Act ( The Act ) At all times relevant to this action, Defendant s Duke and Lance May served as trustees on the Board of Trustees of the Association ( Defendant Trustees ) and also acted in the capacity of real estate managers for the Project properties Under section 16-6A-822 of the Act, Defendants Duke and May were required to discharge their duties as Trustees in good faith, and in a manner that served the best interests of the Association At all times relevant to this lawsuit, Defendant Trustees were charged with the duties outlined above as Trustees of the Association. 22

23 111. During the term of their service as Trustees and in their capacities as real estate managers for the Project, Defendant Trustees should of known of the defects and damages outlined in paragraph above Defendant Trustees breached their duties to the Association one or more of the following particulars without limitation: a. Defendant Trustees failed to take reasonable steps to remedy and repair the defects, breaches, and other problems outlined above; b. Failed to act on and preserve the rights of the Association and Owners against the Developers, General Contractors and/or, sub contractors to remedy all the defects and problems, outlined above; c. Failed to establish assessments of an adequate level to meet the operating costs, maintenance, and other expenditures of the Association. d. Failed to establish and collect assessments for reserves, in an amount sufficient to provide for the repair and replacement of common area improvements and Unit elements that the Association is charged to repair and replace under the terms of the Declaration; e. Failed to do any investigation of defects and damages outlined in paragraphs above after Defendant Trustees should have known of the defects, and use investigation as a basis for establishing an adequate reserve or to amend the existing reserves for repair and replacement costs for the Association and as a basis to prepare a plan to accomplish needed repairs and/or replacement of common areas and Unit elements the Association would be required to repair and replace under the terms of the Declaration At all times relevant to this lawsuit, Defendant Trustees were legally bound by the obligations, covenants, conditions and restrictions set forth in the Declaration and were charged 23

24 with the duty to comply with and enforce the terms of the Declaration. Defendant Trustees breached the duties and covenants set forth under the Declaration as detailed under the First, Second, Third, and Fourth Causes of Action Defendant Trustees conduct and omissions set forth in this Eighth Cause of Action constitute gross negligence and a breach of duties under the Act, and a breach of duties under the Declaration; which breaches were grossly negligent and/or in reckless disregard of the rights and benefits of the Association and Owners Defendant Trustee s conduct and omissions constituting the breach of duties outlined above were the direct and proximate cause of injury and damages to Plaintiff in an amount to be proven at trial. WHEREFORE, PLAINTIFF REQUESTS THE FOLLOWING RELIEF: 1. The Court enter joint and several judgment in favor of Plaintiff against all Defendants for liability as set forth in all Causes of Action alleged herein; 2. The Court enter its order declaring Castlewood River Oaks, LLC to be the alter ego of Jeffrey Duke and Castlewood Development, Inc at all times relevant to this lawsuit; and to further set aside Castlewood River Oaks as to any shielding effect for liability claimed against Jeffrey Duke and/or Castlewood Development Inc under all Causes Of Action alleged herein; 3. The Court order restitution of all funds distributed to members of Castlewood River Oaks, LLC that rendered the LLC insolvent at times when there remained unpaid present and future liabilities of the LLC; 3. The Court enter its order declaring Developer s and Castlewood Inc s joint venture status and joint liability for each other s wrongful acts and breaches of duty. 24

25 4. For compensatory damages in amount to be proven at trial; 5. For consequential damages in an amount the be proven at trial; 6. For punitive damages in an amount to be proven at trial; 7. For Attorney s fees and costs incurred herein; and 8. For such other further relief as the Court deems appropriate under the circumstances. PLAINTIFF HEREBY DEMANDS A JURY TRIAL DATED this 26th day of July, VIAL FOTHERINGHAM LLP By: PETER H. HARRISON EDWARD W. MCBRIDE, JR. DOUGLAS C. SHUMWAY Attorneys for Plaintiff Plaintiffs Address: c/o Vial Fotheringham, LLP 602 East 300 South Salt Lake City, UT