Arbors At Sugar Creek Homeowners Ass'n, Inc. v. Jefferson Bank & Trust Co.

• Decision Date: 28 October 2014
• Docket Number: No. ED99730,ED99730
• Court: Missouri Court of Appeals
• Parties: THE ARBORS AT SUGAR CREEK HOMEOWNERS ASSOCIATION, INC., ET AL., Plaintiffs/Appellants, v. JEFFERSON BANK & TRUST COMPANY, INC., Defendant/Respondent/Cross-Appellant, AND MCKELVEY HOMES, LLC, Defendant/Respondent.

THE ARBORS AT SUGAR CREEK HOMEOWNERS ASSOCIATION, INC., ET AL., Plaintiffs/Appellants, v. JEFFERSON BANK & TRUST COMPANY, INC., Defendant/Respondent/Cross-Appellant,ANDMCKELVEY HOMES, LLC, Defendant/Respondent.

No. ED99730

Missouri Court of Appeals Eastern District DIVISION FOUR

October 28, 2014

Appeal from the Circuit Court of St. Louis County

Honorable Gloria Clark Reno

I. INTRODUCTION

Ten residents and homeowners of a subdivision located in St. Louis County ("Homeowners") appeal the trial court's judgment dismissing their petition for declaratory judgment and claims for damages, and granting declaratory relief in favor of Jefferson Bank & Trust Co., Inc. ("Bank") and McKelvey Homes, L.L.C. ("McKelvey").¹ Homeowners raise six points. Their first point challenges the trial court'sruling on partial summary judgment that the neighborhood association Bank formed is authorized to govern the subdivision. Homeowners' remaining points challenge the court's entry of final judgment, contending the trial court erred in: (2) finding that Bank did not violate the subdivision's covenants when it appointed its own executives—nonresidents of the subdivision—to the neighborhood association's board of directors; (3) finding that Bank's executives acted reasonably and not in bad faith when, in their capacity as directors, they approved McKelvey's plans to develop houses in the subdivision; (4) finding McKelvey's construction plans do not violate the subdivision's architectural covenants; (5) ordering Homeowners to reimburse Bank for certain subdivision maintenance costs allegedly incurred by Bank; and (6) entering judgment in favor of Bank and McKelvey on Homeowners' remaining claims for damages. Bank raises two points on cross-appeal, arguing the trial court erred in dismissing on summary judgment its counterclaims for slander of title and abuse of process. We affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.

II. FACTUAL AND PROCEDURAL BACKGROUND

The events giving rise to this appeal continued to unfold even after Homeowners filed their initial petition for injunctive relief in St. Louis County Circuit Court. Accordingly, there were a number of amended pleadings and pre-trial proceedings. The facts pertinent to this case are therefore somewhat dense and difficult to follow. We do our best to summarize them here.

In 2005 and 2006, Evolution Developments L.L.C. ("Developer") received two loans from Bank, secured by deeds of trust, to purchase and develop "The Arbors at Sugar Creek Subdivision," an eighteen-lot residential subdivision in St. Louis County(the "Subdivision"). By end of 2009, Developer had built and sold to Homeowners the first five homes in the Subdivision.

The parties agree all eighteen lots are subject to an indenture recorded in May 2006 with the St. Louis County Recorder of Deeds, entitled, "The Declaration of Covenants, Conditions and Restrictions" (the "Declaration"). The Declaration controls "the general plan of development . . . [for] all [eighteen lots] . . . for the mutual benefit of [Developer] and all persons who may purchase, hold or own . . . the [lots]." It lays out rules for governance of the Subdivision and provides for the creation of a neighborhood association to enforce its covenants and restrictions. The Declaration originally called for creation of a neighborhood association called "The Arbors at Sugar Creek Homeowners' Association," ("Arbors Association") and required that the association be "organized . . . not later than the first conveyance of title to a Lot." The Declaration describes various covenants and restrictions, including architectural design criteria for the construction of new houses. The architectural covenants also provide that no owner shall construct any "new Unit" on a Lot "without prior written consent of the Board." In approving or rejecting any proposed construction, "the Board shall consider harmony of exterior appearance with the existing improvements in the Subdivision, including architectural design, height, grade, topography, drainage . . . , color and quality of exterior materials and detail, location, construction standards, and other such criteria." As Developer's lender, Bank consented by affidavit to the terms of the Declaration and recorded with the St. Louis County Recorder of Deeds its agreement to subordinate the deeds of trust to the Declaration.

Consistent with the Declaration, Developer created the original neighborhood association, Arbors Association, in 2005. However, Developer failed to appoint officers or directors to Arbors Association's board, conduct any meetings, or file with the Missouri Secretary of State the annual registration reports required by law. Consequently, the Secretary of State administratively dissolved Arbors Association in 2006.²

In March 2010, Developer defaulted on Bank's loans, and Bank acquired the Subdivision's remaining thirteen undeveloped lots through foreclosure. Bank then entered into discussions with various developers regarding the future of the unsold lots before executing an option agreement with McKelvey for the purchase of the unsold lots. The agreement granted McKelvey the option to purchase, build upon and sell the remaining lots. Under the terms of the agreement, Bank agreed to "designate and appoint" directors to the Subdivision's neighborhood association. Bank would then "cause" the Subdivision's neighborhood association "to review" a master set of McKelvey's architectural plans for homes that "McKelvey intends to construct," and "either approve such plans . . . or advise [McKelvey] with reasonable specificity of any objections" and propose revisions that would then cause the plans to be approved. Defendants agreed to split the profits (25% to Bank and 75% to McKelvey). When McKelvey began advertising its construction plans, however, Homeowners formed their own neighborhood association and appointed a "Design Review Committee" to review the plans depicted in McKelvey's marketing materials. Following the Committee's review of the plans, Homeowners notified Defendants that the Design Review Committee had determined the construction plans were in violation of the Declaration's architecturalcovenants. In May 2010, having failed to persuade Defendants to alter the construction plans, Homeowners brought suit.

In their initial petition, Homeowners sought only declaratory judgment against Defendants. They alleged that Bank and McKelvey planned to build "tract homes" that violated the Declaration's architectural covenants and restrictions, "in numerous respects including, but not limited to: architectural style; height; exterior construction materials, including . . . vinyl siding . . . roofing shingles; location of the home on the lots; and value." Homeowners requested, in relevant part, a declaratory judgment from the court as to "whether the plans of the Bank and McKelvey for construction of new homes in the Subdivision violate the [architectural] Covenants." At the same time, Homeowners also recorded with the St. Louis County Recorder of Deeds a notice of lis pendens, providing notice to third parties that a lawsuit affecting the unsold lots was pending.

In June 2010, before answering Homeowners' petition, Defendants obtained a building permit to construct a model home in the Subdivision. Consequently, Homeowners filed a motion for a temporary restraining order to enjoin Defendants "from initiating or continuing any construction" during the pendency of the action. After a hearing, the trial court denied Homeowners' motion for a temporary restraining order. Without elaboration, the court also ruled that Homeowners could "refile" their motion for a temporary restraining order "at a future date."

Thereafter, Defendants filed their answers to Homeowners' petition for declaratory judgment. Bank's answer included counterclaims that, later amended, sought a declaratory judgment against Homeowners on the same issues presented, as well asdamages for: (1) slander of title and (2) abuse of process, due to the notice of lis pendens that Homeowners had filed with their petition.

After Homeowners filed their petition for declaratory judgment, Bank acquired from Developer an assignment of "all of" Developer's "rights, title and obligations . . . under the Declaration." In September 2010, because the Subdivision's original neighborhood association had been dissolved, Bank formed the ASC Homeowners' Association, Inc. ("ASC HOA"), and called a meeting of lot owners. At this meeting, Bank exercised its bloc of thirteen lot-ownership votes (or 72% of the total lot-owner votes)³ to amend the Declaration, replacing the name Arbors Association with the name ASC HOA.⁴ Bank elected three of its executives to serve on the board of directors for ASC HOA. In November 2010, these three directors approved McKelvey's plans for construction of houses on the Subdivision's lots.

Bank also filed a motion for partial summary judgment "with respect to the issue of whether [ASC HOA] is the duly authorized successor homeowners' association of [the Subdivision]."⁵ Homeowners opposed the motion. After an evidentiary hearing, the trial court granted Bank's motion for partial summary judgment, ruling that ASC HOA is the Subdivision's "duly authorized homeowners association."⁶

After the court granted partial summary judgment to Bank, Homeowners called an ASC HOA meeting in early 2011, to elect three Subdivision residents to ASC HOA'sboard of directors. Bank attended the meeting, and exercised its majority bloc of thirteen lot-ownership votes to reject Homeowners' three nominees. Bank then voted to amend the Declaration a second time, removing language in the Declaration that stated only residents could serve on ASC HOA's board of directors.⁷ Following this second amendment to the Declaration, Bank voted to "ratify" its executives' prior actions, approving McKelvey's development plans, including its plans to...