Unrau v. Kidron Bethel Retirement Services, Inc., 84,171.

• Decision Date: 13 July 2001
• Docket Number: No. 84,171.,84,171.
• Citation: 271 Kan. 743,27 P.3d 1
• Parties: D. CLARENCE UNRAU, LOUISE LANGENWALTER, MARY THIESSEN, F.C. LOGANBILL, and ESTHER STUCKEY, Plaintiffs/ Appellants/Cross-appellees, v. KIDRON BETHEL RETIREMENT SERVICES, INC., and KIDRON BETHEL CONDOMINIUMS, INC., Defendants/Appellees/Cross-appellants.
• Court: Kansas Supreme Court

271 Kan. 743

27 P.3d 1

D. CLARENCE UNRAU, LOUISE LANGENWALTER, MARY THIESSEN, F.C. LOGANBILL, and ESTHER STUCKEY, Plaintiffs/ Appellants/Cross-appellees, v. KIDRON BETHEL RETIREMENT SERVICES, INC., and KIDRON BETHEL CONDOMINIUMS, INC., Defendants/Appellees/Cross-appellants.

No. 84,171.

Supreme Court of Kansas.

Opinion filed July 13, 2001.

Randall E. Fisher, of Law Offices of Randall E. Fisher, of Newton, argued the cause and was on the briefs for appellants and cross-appellees.

Susan R. Schrag, of Morris, Laing, Evans, Brock & Kennedy, Chtd., of Wichita, argued the cause, and Dennis M. Feeney, of the same firm, and David C. Burns, of Sizemore, Burns & Gilmore, P.A., of Newton, were with her on the briefs for appellees and cross-appellants.

The opinion of the court was delivered by

LOCKETT, J.:

Five condominium owners (Owners) brought an action against a condominium developer corporation and operator corporation seeking revision of condominium declarations, bylaws, and related documents. On appeal, Owners argue (1) that past acts of the illegally constituted board of directors of Kidron Bethel Condominium, Inc. (Association) were unlawful and invalid; (2) that persons who are not condominium owners cannot act as members of the board of directors; and (3) various other complaints decided by the district court which are discussed.

Developer corporation cross-appeals, claiming (1) the trial court erred in ordering a method of allocating votes different from the Association's bylaws and (2) funding the project justifies a continuing exercise of developer control over the Association.

The entities involved are:

Village: Kidron Bethel Village, includes residential facilities (nursing home, HUD apartments, and condominium units owned by residents), nonresidential facilities, including health fitness center, kitchen, and dining rooms, arts/crafts facility, and chapel, and services, including access to nursing care at a discounted rate and transportation.

KBRS: Kidron Bethel Retirement Services, Inc., developer and manager, a non-profit corporation. KBRS planned and constructed the independent living housing and nursing home facility at the Village. KBRS owns and provides the noncondominium facilities and services of the Village.

Association: The Association, Kidron Bethel Condominiums, Inc., was incorporated on November 22, 1989. The Association is a nonprofit incorporated homeowners' association for the condominium development. Plaintiffs are members of the homeowners' association. Members of the association's board of directors are referred to in this opinion as the "Board."

Kidron, Inc.: Corporation formed in 1979 to develop and provide Housing and Urban Development (HUD) financed independent living units in the Village. Kidron, Inc., is not a defendant in this action.

Owners' petition alleged that KBRS and the elected Board were guilty of various breaches of fiduciary duties, including mishandling membership money, conversion, and other similar acts. Owners requested that the district court dissolve the Board, remove all control of the Association from KBRS, and reincorporate the Association in compliance with K.S.A. 58-3101 et seq. Owners further requested that KBRS be permanently enjoined from being involved with the Association and its operations and activities; to conduct an accounting to determine the actual losses sustained by the Association by reason of the breach of fiduciary duties of KBRS and the Board; to conduct an accounting to determine the actual amount of unjust enrichment received by the defendants as a result of the breach of fiduciary duties; impose a constructive trust on the defendants until the Association can elect and install a new board of directors; order the defendants to convey possession and title of all the Association's assets to the newly elected board; order all assets of the Association to be held in constructive trust for the sole benefit of the Association; and order the defendants to pay the Association actual damages, attorney fees, and costs.

Many issues presented in this appeal require interpretation of the Kansas Apartment Ownership Act (Act), K.S.A. 58-3101 et seq. Other issues involve a review of the trial court's findings.

Throughout this opinion, the term "apartment owner" refers to the person or persons owning an apartment or condominium unit in fee simple absolute and an undivided interest in the fee simple estate of the common areas and facilities as specified and established in the declaration. K.S.A. 58-3102(b). Under the Act, each apartment owner is entitled to the exclusive ownership and possession of his or her apartment. K.S.A. 58-3105.

Standards of Review

Interpretation of a statute is a question of law, and the Supreme Court's review is unlimited. Hamilton v. State Farm Fire & Cas. Co., 263 Kan. 875, 879, 953 P.2d 1027 (1998). In construing statutes and determining legislative intent, several provisions of an act, in pari materia, must be construed together with a view of reconciling and bringing them into workable harmony, if possible. State v. Bolin, 266 Kan. 18, 24, 968 P.2d 1104 (1998) (citing State v. Vega-Fuentes, 264 Kan. 10, 14, 955 P.2d 1235 [1998]).

Where the trial court has made findings of fact and conclusions of law, the function of an appellate court is to determine whether the findings are supported by substantial competent evidence and whether the findings are sufficient to support the trial court's conclusions of law. Substantial evidence is evidence which possesses both relevance and substance and which furnishes a substantial basis of fact from which the issues can reasonably be resolved. Sampson v. Sampson, 267 Kan. 175, 181, 975 P.2d 1211 (1999).

Acts of an Illegally Constituted Board of Directors

When developing the Village in the late 1980's, KBRS formed the condominium and housing project, drew up bylaws pursuant to K.S.A. 58-3118, created and recorded the Declaration of Kidron Bethel Condominium, a Condominium Development of Kidron Bethel Retirement Services, Inc. (declaration) pursuant to K.S.A. 58-3111 and K.S.A. 58-3115, and incorporated the Association to operate the condominium project. The declaration provided that each condominium owner was a Class A voting member of the association. Each Class A member had one vote. In the event of multiple ownership interests in a condominium unit, each fractional owner had a fractional vote corresponding to his or her ownership interest. KBRS was a Class B member. As a Class B member, under the declaration, KBRS was entitled to one vote for each condominium unit it owned and an additional three votes for each Class A vote.

The original Bylaws of Kidron Bethel Condominiums, Inc. (bylaws) provided that the Board should consist of nine directors. The condominium resident owners, as Class A members, elected two directors. KBRS, the Class B member, elected seven directors. Directors did not need to be resident owners but had to reside in Kansas. Subsequent revisions to the bylaws were made as the Village expanded. The number of directors increased. However, KBRS consistently exercised control over the Board by its weighted Class B voting power.

The district court initially ruled that the election scheme set out in the declaration and the bylaws for electing the Association's directors was legal under Kansas law. In its final order the trial judge reversed that decision, concluding:

"I don't know that I can point to any particular part of the Act, or a particular case that has caused me to change my mind. However, in reading the Act in its entirety and the legislative history behind it, I have come to the conclusion that the provisions of the Act can only be construed to be in harmony with each other and provide equitable management of a condominium association if it embraces the concept of election of the Board of Directors of the association by the condominium owners exclusively. I recognize that defendants have cited to the court numerous jurisdictions that have allowed developers to control condominium associations.

However, none of those cases have allowed the developer to control the association indefinitely, and most of those jurisdictions have specific language in their condominium law that provides for developer control and the length of time it may be maintained. In my own research I have found no cases, and defendants have cited me to none, that have allowed developers to maintain control of an association in perpetuity. On the contrary, all of the cases I have studied require at one point or another for the developer to turn over control to the condominium owners.

"The Kansas Act provides no authority for control of the association by the developer. In fact, it appears that under K.S.A. 58-3119 that the Act contemplates that the Board of Directors of the association would come from the condominium owners themselves. I agree with the defendants that this section is permissive in nature and does not resolve the issue. However, I think the section gives us a strong indication that the Act contemplates that the affairs of the association will be controlled by the condominium owners themselves. In addition, K.S.A. 58-3102 defines "apartment owner" as follows:

"(b) `apartment owner' means the person or persons owning an apartment or condominium unit in fee simple absolute and an undivided interest in the fee simple estate of the common areas and facilities as specified and established in the Declarations.

"And defines `association of apartment owners' as follows:

"(d) `association of apartment owners' means all of the apartment or condominium unit owners acting as a group in accordance with the bylaws and Declarations (emphasis added).

"The definition cited above, especially the definition of `association of apartment owners' leads me to believe that in order for all of the owners to act `as a group' the condominium owners must be in a position to exclusively

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