The Reinstatement of and Proposed Merger with the KA Property OA
5-14-23 update: Since the below was originally posted the Board has been quiet regarding this issue. Now that the Texas Supreme Court has ruled against its petition to force Chris Kappmeyer to sue all owners for its misdeeds, it will come as no surprise if they move forward with their “Hail Mary” attempt to negate the lawsuit. Therefore the post is still relevant. The threat has been dormant, not eliminated.
Original Post:
The Key Allegro Board isn’t your friend. At its 4-18-22 meeting the Board approved, with one “no” vote, a motion to hold a June 11, 2022 special meeting to vote on merging the Key Allegro Canal and Property Owners Association (KA Canal and Property OA) with the Key Allegro Property Owners Association (KA Property OA). Confused yet? Never heard of the KA Property OA? If not, read on. I believe this is a misadventure at our expense and legal peril, and that the Board counts on you voting in the dark.
What’s afoot is convoluted but not complicated. Let’s begin with that mystery of an association, the KA Property OA. What was, or is, it?
I. History of the KA Property OA
A. Incorporated in 1969
Carl Krueger and his KA Development and Sales Co. began developing KA in 1962 and finished in 1975. He incorporated the Key Allegro Canal Owners Association (KA Canal OA) in 1962 for the purpose of maintaining the canals and waterways. He incorporated the KA Property OA in 1969 as a voluntary association whose purpose was “Civic and Aesthetic.”
The “Property” in the KA Canal and Property OA name is unrelated to the KA Property OA. It’s the result of an arbitrary name change in 2003.
B. KA Property OA Ceased to Exist in 1982
Though the KA Property OA was voluntary and powerless, it was useful to Krueger while developing KA. It was probably primarily used to maintain the beaches, parks and quasi-public areas of KA at his expense. That would fit nicely with its “Civic and Aesthetic” purpose.
Adrift after Krueger’s company left in 1975, it existed on paper until the Secretary of State forfeited its charter in 1982 for failure to file a franchise tax report, a common end for abandoned corporations.
II. The Board’s Stated Purpose in Reinstating and Merging with the KA Property OA
Why would the Board want to reinstate the 40 years dead KA Property OA and merge with it? In a 5-11-21 mailing it said it was in order to “produce one association that would assume the maintenance of the beaches, parks and quasi-public areas of Key Allegro.”
That’s bogus. If the KA Property OA maintained those areas over 40 years ago, it was by Krueger’s choice, not because the KA Property OA had a right or obligation to do so. A merger today wouldn’t change that.
What’s the Board’s real purpose? It’s a Hail Mary play related to an active lawsuit, Kappmeyer v. KACPOA.
III. The Board’s Real Purpose in Reinstating and Merging with the KA Property OA
In 2017 the Board illicitly filed new deed restrictions for all five KA Units. Chris Kappmeyer called them on it, giving them an opportunity to back out the filings. They didn’t take it. Chris filed a lawsuit,
Kappmeyer v. KACPOA, giving them another opportunity. If they’d retracted the illicit deed restrictions the lawsuit would have gone away. Still no.
Instead, the Association doubled down, asking the judge to force Chris to sue all KA owners individually for the Board’s misdeeds. Amazingly, the judge agreed. Chris doesn’t want to sue us, so he took it to the Texas Supreme Court for a ruling. The Court hasn’t yet ruled. Even at this late date the Board could retract the restrictions and the lawsuit would likely go away. But the Board won’t do it.
Instead, it’s been busy in the background putting together a fanciful Hail Mary play, reinstating and merging with the KA Property OA. Having accomplished the reinstatement, at its 4-18-22 meeting the Board approved the “vote going out to members” for a June 11th merger vote.
The Board President said, “I think that [the merger] can go a long ways towards mitigating this lawsuit…” The reinstatement, he added, “…was pretty expensive, but…I think once we get this vote done, then we can put this behind us and…be on very firm legal footing.”
He couldn’t be more wrong. A merger would have no legitimate effect on the lawsuit. Worse, it would almost certainly generate one or more new lawsuits. With an eye towards that, let’s look at how the KA Property OA’s corporate charter was reinstated, while keeping in mind the President’s statement that the process so far has been “pretty expensive.”
IV. The Reinstatement Process
Since the KA Canal and Property OA’s Articles of Incorporation purpose statement make no provision for either reinstatements or mergers, the entire scheme violates those Articles, the most senior corporate document. Also, since the Association is subject to, not master of, the deed restrictions, merging would create an illicit encumbrance upon our property rights. On this alone, a second suit to quiet title would be in order, and possibly a breach of fiduciary duty lawsuit as well.
The reinstatement process required multiple steps. Let’s look at them.
A. Tax Clearance Letter
The first step was to get a Tax Clearance Letter from the Texas Comptroller, stating the KA Property OA had met all franchise tax requirements and was eligible for reinstatement. It certifies that all back reports have been filed and back taxes, penalty and interest paid.
This, and other related items, have been handled by the Board’s attorney. “Pretty expensive” could be an understatement. In addition to legal fees, back taxes have been at least $6,000. I think of it as the Board doing ultra vires (beyond the powers) legal free-lancing with our money; it’s spent at least $215,000 in legal fees alone since January 2018.
On 7-20-21 the Texas Comptroller’s Office issued a tax clearance letter for the KA Property OA. The address given for the KA Property OA was 29 Mazatlan Dr, the same as the KA Canal and Property OA. Whoever signed the franchise tax reports may have broken the law. The filing instructions include the following:
Signature Block: Report may be signed by an officer, director or other authorized person. This includes a paid preparer authorized to sign the report.
The KA Property OA has been defunct for almost 40 years. It’s unlikely there are any surviving officers, directors or other authorized persons who could either sign the reports or designate a paid preparer. Still, if someone broke the law we can’t expect help from the Comptroller’s office. Its goal is to collect money.
B. Form 801: Application for Reinstatement and Request to Set Aside Tax Forfeiture
The second step was submitting the tax clearance letter to the Secretary of State, along with a Form 801: Application for Reinstatement and Request to Set Aside Tax Forfeiture (see here). The Form 801 was signed by a homeowner on 7-30-21 and filed, with the clearance letter, on 8-4-21. There are two issues regarding the form:
1.) Was the KA Property OA eligible for reinstatement? Form 801 – General Information states:
The request to set aside forfeiture may be submitted at any time after forfeiture so long as the entity would otherwise have continued to exist.
Why would it have continued to exist? It may have served Krueger’s purpose for a while, but it had no reason to continue existing after 1975. It was voluntary, without rights or authority.
2.) Did the homeowner have the authority to sign the form? Form 801- General Information states:
The application must be signed by a person who is authorized to apply for and request a reinstatement of the forfeited entity.
For a nonprofit association that’s a “director, officer, or member at the time of forfeiture.” Was the signing homeowner a member of the voluntary KA Property OA 40 years ago? Possibly, but I know of no existing past member lists.
C. Form 401: Statement of Change of Registered Office/Agent
After reinstating a corporation, filing a Form 401: Statement of Change of Registered Office/Agent might be in order. One was filed for the KA Property OA, signed by a KA Canal and Property OA board member, changing the agent from the original one, Sam Wilcox, a Carl Krueger lawyer, to the KA Canal and Property OA’s agent, Spectrum Association Management (see here).
Form 401 contains this above the signature line:
Execution
…The undersigned signs this document subject to the penalties imposed by law for the submission of a materially false or fraudulent instrument and certifies under penalty of perjury that the undersigned is authorized to execute the filing instrument.
Regarding the execution of the form, Form 401 – General Information states:
Execution: Pursuant to section 4.001 of the BOC [Business Organizations Code], the statement of change must be signed by a person authorized by the BOC to act on behalf of the entity in regard to the filing instrument. Generally, a governing person or managerial official of the entity signs a filing instrument.
and,
A person commits an offense under section 4.008 of the BOC if the person signs or directs the filing of a filing instrument the person knows is materially false with the intent that the instrument be delivered to the secretary of state for filing. The offense is a Class A misdemeanor unless the person’s intent is to harm or defraud another, in which case the offense is a state jail felony.” (red font mine)
The board member signed the Form 401 on 7-30-21, the same day the homeowner signed the Application for Reinstatement. That is, it was signed, with the intent that the instrument be delivered to the secretary of state for filing, when the KA Property OA didn’t exist. Therefore, the board member couldn’t have even been a member, much less “a governing person,” of that then non-existent entity.
Still, like with the Comptroller’s office, if fraud was committed, don’t expect the Secretary of State to prosecute. The Texas Secretary of State is a ministerial filing agency. It files documents submitted as required by statute, but doesn’t have the authority to investigate or adjudicate alleged fraudulent filings.
V. Summary
The Board has reinstated and paid back taxes for an almost 40 years dead insignificant voluntary association. The reinstatement was “pretty expensive,” in violation of the Articles of Incorporation and the Association’s deed restricted role and possibly fraudulently accomplished. On 4-18-22 the Board approved a merger vote for 6-11-22.
Though the KA Property OA is now listed by the state as “active,” it’s a legal illusion. There’s really no such thing as the KA Property OA. It’s simply a name acquired by paying taxes, signing a few forms, possibly fraudulently, and submitting them to a ministerial filing agency.
All this has been in the vain hope that it “…can go a long ways towards mitigating…” the Kappmeyer lawsuit and help “…put this behind us and…be on very firm legal footing.” A fantasy.
I believe the Board’s words and deeds over the past few years can be characterized as ever increasing lawless chaos. It’s cost us untold amounts of money, usurped our property rights and exposed us to legal liability.
This needs to stop. At the very least the Board needs to both abandon this Hail Mary folly and retract its illegitimate 2017 deed restriction filings. There’s been more than enough money wasted and liability created.