Conroad Assocs. v. Castleton Corner Owners Ass'n

1

CONROAD ASSOCIATES, L.P., Plaintiff, v. CASTLETON CORNER OWNERS ASSOCIATION, INC., AT CASTLETON IN OWNER, LLC, AT CASTLETON IN ASSOCIATION MANAGER, LLC, ARCITERRA COMPANIES, LLC, JONATHAN M. LARMORE, CRYSTAL SCUDDER, and JAMES C. SHOOK, JR., Defendants.

CASTLETON CORNER OWNERS ASSOCIATION, INC., Counter Claimant, v. CONROAD ASSOCIATES, L.P., Counter Defendant.

No. 1:22-cv-00750-JMS-MKK

United States District Court, S.D. Indiana, Indianapolis Division

August 4, 2023

ORDER

HON JANE MAGNUS-STINSON, JUDGE

Plaintiff Conroad Associates, L.P. ("Conroad") initiated this litigation against Defendants Castleton Corner Owners Association, Inc. (the "Association"), AT Castleton IN Owner LLC, AT Castleton IN Association Manager, LLC, Arciterra Companies, LLC ("Arciterra"), Jonathan M Larmore, Crystal Scudder, and James C. Shook, Jr. asserting claims for breach of the Association's governing documents, fraud, and breach of fiduciary duty, among other claims. [Filing No. 29.] Defendants have filed a Motion for Judgment on the Pleadings, [Filing No 54], which is now ripe for the Court's review.

I. Motion for Judgment on the Pleadings Standard

Federal Rule of Civil Procedure 12(c) provides that "[a]fter the pleadings are closed-but early enough not to delay trial-a party may move for judgment on the pleadings." Pleadings include "the complaint, the answer, and any written instruments attached as exhibits." Federated Mut. Ins. Co. v. Coyle Mech. Supply Inc., 983 F.3d 307, 312 (7th Cir. 2020) (quoting N. Ind. Gun& Outdoor Shows, Inc. v. City of S. Bend, 163 F.3d 449, 452 (7th Cir. 1998)). "The district court may also take judicial notice of matters of public record." United States v. Wood, 925 F.2d 1580, 1582 (7th Cir. 1991).

"Judgment on the pleadings is appropriate when there are no disputed issues of material fact and it is clear that the moving party . . . is entitled to judgment as a matter of law." Unite HereLoc. 1 v. Hyatt Corp., 862 F.3d 588, 595 (7th Cir. 2017). In considering a motion for judgment on the pleadings, the Court must "view[] all facts and inferences in the light most favorable to the non-moving party." Federated Mut. Ins. Co., 983 F.3d at 313.

II. Background

The following are the factual allegations set forth in the Second Amended Complaint, [Filing No. 29] - the operative complaint in this case - which the Court must accept as true at this time. Where necessary to provide relevant background information, the Court also cites to Defendants' Answer. [Filing No. 53.]

A. The Parties

Conroad owns property at a shopping center located at 5602 Castleton Corner Lane in Indianapolis, Indiana ("the Conroad Property"). [Filing No. 29 at 2.] The Association, a nonprofit corporation, owns and manages property located at the Castleton Corner Shopping Plaza ("Castleton Corner"). [Filing No. 29 at 2.] Conroad is a 1.73% shareholder in the Association. [Filing No. 29-8 at 28.] The Association was formed to provide for the continuing maintenance and administration of various shopping centers and stand-alone buildings that make up Castleton Corner, including the Conroad Property. [Filing No. 53 at 73.] Mr. Larmore is the Association's President, Mr. Shook is the Association's Vice President, and Ms. Scudder is the Association's former Secretary. [Filing No. 29 at 5.] Defendant AT Castleton IN Owner, LLC is the current owner of Castleton Corner. [Filing No. 29 at 2-3.] Defendant AT Castleton IN Association Manager, LLC is the current property manager of Castleton Corner. [Filing No. 29 at 3.] Arciterra is the parent company or an affiliate of the Association, AT Castleton IN Owner, LLC, and AT Castleton IN Association Manager, LLC. [Filing No. 29 at 4-5.]

B. The Governing Documents

The Association is governed by three documents: the Declaration, filed when the Association formed in 1981; the Association's Articles of Incorporation (the "Articles"); and the Association's By-Laws, agreed to when the Association was incorporated as a nonprofit in 1987 (collectively, the "Governing Documents"). [Filing No. 29 at 6.]

The Declaration states that the Association was formed for the purpose of developing, using, and maintaining commercial development at Castleton Corner. [Filing No. 29 at 6.] Under the terms of the Declaration, the Association is responsible for ensuring payment of maintenance costs for common property at Castleton Corner, including roads, drainage ditches, and sewers, and property owners at Castleton Corner are proportionately responsible to the Association for those costs. [Filing No. 29 at 7.]

The Articles establish that Class A Members are entitled to one vote per acre of real estate owned by that member. [Filing No. 29 at 9.] The Articles also state that the purpose of the Association is to provide for "ownership, operation, maintenance, repair, replacement and administration of drainage ditches, utility strips and sewers, including a sanitary sewer lift station [(the "Lift Station")] in Castleton Corner." [Filing No. 29-3 at 4.]

The By-Laws require that the Association meet at least annually and at "other necessary times, for the purpose of electing the Board of Directors, approving the annual budget, and for such other purposes as may be required by the Articles or [the] By-Laws." [Filing No. 29 at 10 (quotation omitted).] The By-Laws also require that the Association's Board have three Directors who each serve a term of one year or until their successors have been elected. [Filing No. 29 at 11.] Under the By-Laws, the Board is required to provide maintenance, repair, and preservation of Castleton Corner infrastructure, including the Lift Station. [Filing No. 29 at 11.] Further, the Board is required to prepare a budget for the Association and distribute it to members. [Filing No. 29 at 12.] The By-Laws also require members to pay an annual assessment. [Filing No. 29 at 13.] Under the By-Laws, the Board is responsible for electing officers, including a President, Vice President, Secretary, and Treasurer. [Filing No. 29 at 13.]

C. The Lift Station and the Flood

Between 2002 and 2005, the Lift Station malfunctioned on several occasions. [Filing No. 29 at 13-14.] The Association was aware of these malfunctions as well as other persistent problems with the Lift Station. [Filing No. 29 at 14.] On February 15, 2015, the Lift Station failed, causing a large amount of sewage to flood the Conroad Property ("the Flood"). [Filing No. 29 at 13.] The Flood forced Conroad's tenant to cease business operations at the Conroad Property and resulted in a termination of the lease between Conroad and its tenant. [Filing No. 29 at 13-14.] The Conroad Property was heavily damaged, and Conroad was required to undertake remediation measures. [Filing No. 29 at 14.] After the Flood occurred, the Lift Station continued to have problems which have not been remedied and continue to affect the Conroad Property. [Filing No. 29 at 14.]

D. The Association's Status

Meanwhile, although the Association was administratively dissolved by the State of Indiana on April 14, 2005, the Association told its members at a meeting in 2016 that "all necessary documents [had] been filed to bring [the Association] into good standing and will be maintained [going] forward with annual filing as necessary." [Filing No. 29 at 20.] No filings were made to reinstate the Association until July 23, 2020, when the Association applied for reinstatement under Indiana's COVID-19 Executive Order 20-23, which allowed for reinstatement of corporations without regard to a statutory five-year limitation on reinstatement after administrative dissolution. [Filing No. 29 at 22.] The Association held four meetings during the period of administrative dissolution - on December 14, 2005, December 17, 2015, July 26, 2016, and December 15, 2016 - which gave the appearance that the Association was lawfully operating. [Filing No. 29 at 20.]

The Association also received a $54,000 loan from Arciterra on February 21, 2020 and continued to spend money between January 2020 and March 2020. [Filing No. 29 at 21.] From 2005 to 2020, the Association took numerous actions that did not constitute "wind-down" activities under Indiana law, including collecting dues and levying assessments against Association members, using those dues and assessments, hosting Association meetings, naming new Association officers, entering into various agreements on behalf of the Association (including agreements relating to the Lift Station), and taking out loans on behalf of the Association. [Filing No. 29 at 21.]

Conroad alleges that the Association or its officers breached the Governing Documents by: (1) improperly allowing the Association to be administratively dissolved; (2) misrepresenting to members that the Association was in good standing; (3) not properly electing a Board of Directors; (4) improperly electing Mr. Larmore, Ms. Scudder, and Mr. Shook as officers of the Association; (5) even if Ms. Scudder was properly elected as Secretary of the Association, not properly electing a Secretary before she took the position in 2015; (6) not having a treasurer, as required under the By-Laws; (7) failing to maintain a Board-designated bank account monitored and used by a properly elected treasurer; (8) failing to conduct required annual meetings; (9) failing to provide requisite notice to members regarding the four meetings that were held; (10) failing to properly disseminate the budget to Association members or seek members' approval; (11) taking actions, through Mr. Larmore, without members' approval and to their detriment, including filing for bankruptcy and entering into contracts worth more than $3,000; and (12) changing the Association's principal place of business to a location...