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Davis v. Lakewood Property Owners Association, Inc.

Court of Appeals of Missouri, Western District, First Division

September 19, 2017

ROGER J. DAVIS, et al., Appellants,
v.
LAKEWOOD PROPERTY OWNERS ASSOCIATION, INC., Respondent.

         APPEAL FROM THE CIRCUIT COURT OF JACKSON COUNTY The Honorable Jack R. Grate, Judge.

          Before: James E. Welsh, Presiding Judge, Lisa White Hardwick and Anthony Rex Gabbert, Judges.

          LISA WHITE HARDWICK, JUDGE.

         Roger J. Davis, Robert Kronschnabel, and Timothy McCraw (collectively, "Appellants") appeal from the circuit court's judgment declaring that the calculation of assessments by the Lakewood Property Owners Association, Inc.'s ("Lakewood") Board of Directors ("Board") is protected by the business judgment rule. Appellants contend that the Board's calculation of assessments is ultra vires and, therefore, not protected by the business judgment rule. For reasons explained herein, we reverse and remand the cause for entry of judgment in accordance with this opinion.

         FACTUAL AND PROCEDURAL HISTORY

         Lakewood subdivision is a real estate development in Lee's Summit. In August 1973, a Declaration of Covenants, Conditions, and Restrictions ("the Declaration") pertaining to the development was filed. Article VI, Section 4 of the Declaration provides for annual assessments on lots and sets out a procedure for determining the amount to assess. Specifically, the Declaration provides for the Board to calculate a maximum annual assessment amount and then to set an actual annual assessment in an amount not in excess of the maximum annual assessment. After stating that the initial maximum annual assessment through January 1, 1974, would be $200 for each lot, the Declaration explains how to calculate the maximum annual assessment and the actual annual assessment going forward:

(a) From and after January 1, 1974, the maximum annual assessment in each of the heretofore enumerated categories may be increased effective January 1 of each year without a vote of the membership in an amount equal to 150% of the rise, if any, of the Consumer Price Index (published by the Department of Labor, Washington, D.C.) for the preceding month of July.
(b) From and after January 1, 1974, the maximum annual assessment for any or all categories may be increased without regard to the Consumer Price Index formula by a vote of the members for the next succeeding year, and at the end of each such period of one year, for each succeeding year, provided that any such change shall have the assent of a majority of the votes of Class A, B and D members and the approval of all Class D members who are voting in person or by proxy at a meeting duly called for this purpose, written notice of which shall be sent to all members not less than 30 days nor more than 60 days in advance of the meeting setting forth the purpose of the meeting. The limitations hereof shall not apply to any change in the maximum and basis of the assessments undertaken as an incident to a merger or consolidation in which the Association is authorized to participate under its Articles of Incorporation.
(c) After consideration of current maintenance costs and future needs of the Association, the Board of Directors may fix the annual assessment at any amount not in excess of the maximum, provided, however, the actual assessments for each of the heretofore identified categories must bear the same ratio to the assessments imposed in other categories as the maximum annual assessment for each such category bears to the maximum annual assessments for other categories.

         Under these provisions, the Board is permitted to increase the maximum annual assessment in an amount equal to 150% of the rise, if any, of the Consumer Price Index ("CPI") for the preceding month of July without a vote of the membership. If the Board wishes to increase the maximum annual assessment without regard to the CPI, it must obtain a vote of the membership. After calculating the maximum annual assessment and considering the current maintenance costs and future needs, the Board may then fix the actual annual assessment in an amount that does not exceed the maximum annual assessment.

         The Board held its first meeting in September 1973. During that meeting, the Board adopted Bylaws. The Bylaws address many of the topics set forth in the Declaration, including the calculation of assessments. The Bylaws specifically state, however, that, in the case of conflict between the Declaration and the Bylaws, the Declaration controls.

         Article XI, Section 5 of the Bylaws explains how to calculate the increase in the maximum annual assessment subject to the "applicable provision of the Declaration:"

The Consumer Price Index for All Urban Consumers, U.S. City Average for July 1967 (U.S. Department of Labor, Bureau of Labor Statistics) was 125.5; this will be the base rating. To determine the maximum annual assessment for each ...

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