D. Clarence Unrau, et al. v. Kidron Bethel Retirement Services, Inc.

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.

* * *

Click the case caption above for the full text
of the Court's opinion.

We affirm the following trial court rulings: The Association Board must be elected exclusively by the condominium owners. Although Board members must be elected by unit owners, Board members do not have to be unit owners. The Association Board owes a fiduciary duty to the unit owners. Past acts and decisions of the Association Board are not invalid for lack of authority.

The declarations are binding on the Owners. The amendment to the original management agreement is not void. As to damages, we affirm the trial court's order that common expenses must be apportioned on a unit basis rather than a per person basis. However, because the Owners failed to provide evidence proving the actual damages for the improper assessment, the trial court's refusal to award damages is affirmed. If properly assessed, charges for the recuperative care benefit, the Wellness Center, debt service charges, street assessments, and the Harvest Room are reasonable and proper as common expenses. Claims for breach of fiduciary duty for failure to keep separate books and accounts and for failure to distribute profits from carport rents is denied for failure to prove damages. The trial court's denial of the Owners' marketing fee claim is reversed because a marketing fee is not authorized as a common expense under the Act.

Affirmed in part, reversed in part, and remanded for further proceedings.

Unknown

Unknown

Reported by Kent Morlan