Arbors at Sugar Creek Homeowners Ass'n v. Jefferson Bank & Trust Co.

• Decision Date: 30 June 2015
• Docket Number: No. SC 94693,SC 94693
• Citation: 464 S.W.3d 177
• Court: Missouri Supreme Court
• Parties: The Arbors at Sugar Creek Homeowners Association, et al., Appellants/Cross–Respondents, v. Jefferson Bank & Trust Co., Inc., Respondent/Cross–Appellant, and McKelvey Homes, LLC, Respondent.

464 S.W.3d 177

The Arbors at Sugar Creek Homeowners Association, et al., Appellants/Cross–Respondents

v. Jefferson Bank & Trust Co., Inc., Respondent/Cross–AppellantandMcKelvey Homes, LLC, Respondent.

No. SC 94693

Supreme Court of Missouri, en banc .

Opinion issued June 30, 2015

The homeowners were represented by Mark B. Leadlove, Daniel M. O'Keefe and Christopher M. Blaesing of Bryan Cave LLP in St. Louis, (314) 259–2000.

Jefferson Bank was represented by Richard A. Ahrens of Lewis Rice LLC in St. Louis, (314) 444–7600.

McKelvey was represented by J. Vincent Keady Jr. of Stinson Leonard Street LLP in St. Louis, (314) 719–3050.

The Missouri Bankers Association, which submitted a filing as a friend of the Court, was represented by Keith A. Thornburg of Jefferson City, (573) 636–8151.

Opinion

Zel M. Fischer, Judge

The Arbors at Sugar Creek (“the Arbors”) is a subdivision in Des Peres, Missouri. Evolution Development LLC (“Evolution”) purchased the land to create the Arbors through loans provided by Jefferson Bank & Trust Company (“Jefferson Bank”). Evolution built and sold homes on five of the 18 lots in the Arbors. Prior to building the first home, Evolution recorded a Declaration of Covenants, Conditions and Restrictions (“Indenture”) to run with the land. Pursuant to that Indenture, Evolution also established a homeowners association to govern the Arbors. Part of the homeowners association's responsibility was ensuring that homes built in the Arbors met certain standards, described in the Indenture.

During the financial crisis, Evolution declared bankruptcy and Jefferson Bank foreclosed. Prior to the bankruptcy, Evolution had failed to file the proper paperwork with the Missouri Secretary of State, and the homeowners association was administratively dissolved. After the foreclosure, Jefferson Bank partnered with McKelvey Homes, LLC (“McKelvey”) to finish building homes on the remaining 13 lots in the Arbors. The existing homeowners deemed those building plans in violation of the Indenture and established a replacement homeowners association, The Arbors at Sugar Creek Homeowners Association (“plaintiffs' HOA”), in an effort to stop McKelvey from building. Once created, the homeowners expelled Jefferson Bank from the association, and issued a statement to McKelvey that its homes were not in compliance with the Indenture.

After being expelled from the plaintiffs' HOA, and obtaining the declarant rights from Evolution, Jefferson Bank sent notice to all the lot owners of the Arbors and called a meeting to establish a separate homeowners association, The ASC Homeowners Association, Inc. (“ASC HOA”). Jefferson Bank, as owner of 13 of 18 lots, used its majority position to make ASC HOA the authorized homeowners association of the Arbors and elect its board. The homeowners refused to participate in the authorization or election. Jefferson Bank also used its majority share to amend the requirements of board membership of the ASC HOA, and the board approved McKelvey's building plans, as required by the Indenture.

The homeowners filed suit against McKelvey and Jefferson Bank seeking declaratory and injunctive relief as well as alleging claims of damages against Jefferson Bank and McKelvey.¹ Jefferson Bank filed a three-count counterclaim petition also seeking declaratory relief and damages against the homeowners.² The plaintiffs and Jefferson Bank filed motions for summary judgment. The circuit court granted summary judgment in favor of the plaintiffs on Counts II and III of Jefferson Bank's counterclaim petition, and in favor of Jefferson Bank and McKelvey on Counts II–V of plaintiffs' petition. The circuit court then held a trial on the issue of declaratory relief. After trial, the circuit court granted declaratory relief in favor of Jefferson Bank and McKelvey. Jefferson Bank also filed a motion for reimbursement for expenses it had incurred in upkeep of the Arbors, which the circuit court sustained.

The homeowners appealed, and Jefferson Bank cross-appealed. The circuit court did not err in its grant of summary judgment in favor of plaintiffs on Counts II and III of Jefferson Bank's counterclaim petition. Nor did the circuit court err in granting summary judgment in favor of Jefferson Bank and McKelvey on counts II–V of plaintiffs' petition. However, the circuit court did err in sustaining Jefferson Bank's motion for reimbursement. The circuit court's judgment granting declaratory relief in favor of Jefferson Bank is based on substantial evidence, was not against the weight of the evidence, and did not err in applying or declaring the law. The judgment is affirmed in part and reversed in part.

Factual Background

The Arbors consists of 18 lots and common ground located in Des Peres, St. Louis County, Missouri. Evolution began its work in the Arbors in late 2005. Jefferson Bank loaned money to Evolution to develop the Arbors and secured those loans by a deed of trust. The Arbors is governed by an Indenture that was recorded by Evolution, with the consent of Jefferson Bank, and that runs with the land. The Indenture required the creation of a homeowners association. Evolution created The Arbors at Sugar Creek Homeowners Association, Inc., (“original HOA”) and initially filed the proper paperwork with the Secretary of State of Missouri. However, Evolution never appointed board members or had any meetings of the original HOA. Later, the original HOA was administratively dissolved by the Secretary of State for failure to file its annual statements.

After the administrative dissolution of the original HOA, Evolution went bankrupt as a result of the financial crisis. Jefferson Bank foreclosed and took control of the remaining 13 undeveloped lots in the Arbors. Jefferson Bank then sought bids from multiple developers to complete the Arbors. Jefferson Bank's primary focus was to find a financially sound developer that would purchase all 13 lots. Jefferson Bank eventually agreed to terms with McKelvey, and the two entered into an option agreement for the purchase of the 13 lots.

The plaintiffs disagreed with the selection of McKelvey as the developer. Recognizing the Indenture required the homeowners association to approve McKelvey's plans before building could begin, the plaintiffs established plaintiffs' HOA. Prior to submission of any home plans, the plaintiffs objected generally to any home that McKelvey might build in the Arbors and filed their original petition for declaratory and injunctive relief. The plaintiffs also filed a lis pendens to notify the public of the pending suit.

Meanwhile, Jefferson Bank obtained an assignment of rights from Evolution and called a meeting of all the lot owners. The Indenture provided, in article 6.1(c), that “Each Owner's vote in the Association for all purposes shall be allocated on an equal basis, i.e., the Owner of each Lot having one vote.” At the meeting, Jefferson Bank voted its 13 shares in favor of creating ASC HOA, and authorized it to be the official homeowners association for the Arbors. The plaintiffs refused to participate in the vote. Jefferson Bank then voted to appoint members to the board of ASC HOA. After offering one of the three positions to the plaintiffs, which was refused, Jefferson Bank appointed three of its employees to the ASC HOA board. Jefferson Bank later voted its shares to amend the Indenture to remove the requirement that only residents of the Arbors could serve on the board of ASC HOA. Jefferson Bank then filed a motion for partial summary judgment that ASC HOA was the authorized homeowners association for the Arbors. The circuit court granted that motion for summary judgment.

Pursuant to the Indenture, all new homes had to be approved by the board of the ASC HOA to ensure that those homes were in compliance with Article X of the Indenture. Article X of the Indenture is titled, “Architectural Covenants and Design Review.” Its purpose statement provides, “This Article contains a procedure for review and approval of exterior alterations of the original design of the buildings and Units. The purpose of this review is to maintain the uniform quality and aesthetics of exterior architectural design for the best interests of the Community as a whole.” After hiring an independent architect to review McKelvey's home plans for compliance with Article X, and reviewing McKelvey's home plans itself, the ASC HOA approved McKelvey's home plans.

The plaintiffs then filed their fourth-amended petition. Plaintiffs' petition sought declaratory and injunctive relief that the Indenture, and specifically Article X, had been violated. They also sought damages against Jefferson Bank and McKelvey for breach of fiduciary duty, civil conspiracy, tortious interference, and nuisance. Jefferson Bank filed a three-count counterclaim petition seeking a declaratory judgment in its favor and damages against the plaintiffs for slander of title and abuse of process because of the lis pendens filed by plaintiffs. The circuit court granted summary judgment in favor of plaintiffs on counts II and III of Jefferson Bank's counterclaim petition and in favor of Jefferson Bank on counts II–V of plaintiffs' petition. The circuit court also held a trial on the issue of which party was entitled to declaratory relief. After trial, the circuit court entered judgment in favor of Jefferson Bank and McKelvey. Jefferson Bank also filed a motion for reimbursement after trial that was sustained by the circuit court. The motion sought reimbursement in the amount of $418.27 from McKelvey and each of the plaintiffs.

The plaintiffs appealed both summary judgments in favor of Jefferson Bank and McKelvey and the circuit court's entry of judgment granting declaratory judgment to Jefferson Bank and McKelvey. Jefferson Bank cross-appealed the circuit court's grant of summary judgment in favor of the plaintiffs on its claims for slander of title and abuse of process. After opinion by the court of appeals, this Court granted transfer....