Kingwood Services Association Sued for Multiyear Financial Fraud by HOA Subdivision

COMES NOW Plaintiff, Mills Branch Village Community Association, Inc., and files this Original Petition against Defendant, Kingwood Services Association for negligence, breach of contract and fraud, and in support thereof would show unto this Court as follows:

I.                   PARTIES

1.                  Plaintiff Mills Branch Village Community Association, Inc., (hereinafter the “Association”) is a Texas non-profit corporation duly organized and existing under the laws of the State of Texas.

2.                  Defendant, Kingwood Services Association, is a Texas non-profit corporation duly organized and existing under the laws of the State of Texas. This Defendant may be served through its registered agent, Ethel McCormick, at 1075 Kingwood Drive., Suite #100, Kingwood Texas 77339 USA, or by any means authorized under the Texas Rules of Civil Procedure.

II.                JURISDICTION AND VENUE

3.                  Venue is proper in Harris County because all or a substantial part of the events giving rise to the causes of action herein occurred in Harris County, Texas, including both execution and breach.

4.                  Pursuant to TEXAS RULE OF CIVIL PROCEDURE 47, Plaintiff hereby states that it seeks only monetary relief of $250,000.00 or less, including damages of any kind, penalties, costs, expenses pre-judgment interest, and attorney fees.

III.             DISCOVERY

5.                  Plaintiff intends to conduct discovery under Level 2 of Rule 190 of the TEXAS RULES OF CIVIL PROCEDURE.

IV.             INTRODUCTION

6.                  This lawsuit stems from Defendant’s breach of contract concerning the failure to adhere to budget excess provision and arbitration clauses of a contract.

V.                FACTUAL BACKGROUND

7.                  Plaintiff is a property owner’s association located in Harris County, Texas, governing the Mills Branch Subdivision (“the Subdivision”). Defendant serves as an auxiliary community association that provides access and services to other property owner associations and subdivisions within the Kingwood community. Plaintiff is a member of the Association and became a member when they signed a contract titled “Contract of Kingwood Service Association” on February 3rd, 2003 (the “Contract”).

8.                  In the Contract, Article VIII, titled “Budget Excesses”, Defendant is contractually obligated to provide any “remaining unspent” amounts at the end of the fiscal year to the members of its Association, which includes Plaintiff.

9.                  On December 8th, 2022, Plaintiff sent a demand letter requesting excess funds, which are required to be given under the Contract. However, even after receiving the demand letter, Defendant denied to pay this clear contractual obligation.

10.              However, Plaintiff wanted to avoid litigation and resolve this matter through arbitration, and over the course of 2023, sent multiple requests to hold an arbitration to resolve this matter. In July 2023, Plaintiff’s Board President even tried to discuss this at Defendant’s Board Meeting and ask the Defendant’s Board of Directors when they would agree to hold an arbitration with Plaintiff. Article XI of the Contract explicitly states that any controversy or claim over the contract will be resolved through arbitration. However, Defendant willfully and knowingly refused to respond to these requests, which forced Plaintiff to file the lawsuit before the court.

CAUSES OF ACTION BREACH OF CONTRACT

11.              Plaintiff incorporates by reference the preceding paragraphs as if included herein.

12.              The elements of breach of contract are (1) the existence of a valid contract between the plaintiff and defendant; (2) the plaintiff’s performance or tender of performance; (3) the defendant’s breach of the contract; and (4) the plaintiff’s damage as a result of the breach.1

13.              Plaintiff and Defendant entered into the Contract titled “Contract of Kingwood Service Association”, a valid contract signed by two parties where Plaintiff offered to pay Defendant in exchange for access to the Defendant’s facilities and its services. Plaintiff tendered full payment and otherwise performed under the Contract. However, Defendant materially breached the contract, causing Plaintiff to suffer significant damages.

14.              Specifically, Defendant materially breached the Contract by:

1 Prime Prods., Inc. v. S.S.I. Plastics, Inc., 97 S.W.3d 631, 636 (Tex. App.—Houston [1st Dist.] 2002, pet. denied).

a.       Failing to perform, contract, or deliver the required budget excesses;

b.      Failing to perform, contract, or deliver any responses to the requests for arbitrations;

c.       Acting in bad faith by failing to materially perform under the Contract and refusing to cure material breach of the Contract.

FRAUD

15.  Plaintiff incorporates by reference the preceding paragraphs as if included herein.

16.    The elements of fraud are (1) the defendant made a representation to the plaintiff;

(2) the representation was material; (3) the representation was false; (4) when the defendant made the representation, defendant knew the representation was false or made the representation recklessly; (5) the defendant made the representation with the intent that the plaintiff act on it; the plaintiff relied on the representation; and the representation caused the plaintiff injury.2

17.  Defendant made representations that capital project required the budget excesses to carry over for projects and cover the costs. Even though the Defendant’s budget was in excess, and would have given Plaintiff and other members a significant portion of the unspent money, the Defendant made these representations that excess were needed for capital project for every year since 2019. Defendant specifically made representations that the excess budgets for these capital projects needed to be allocated for the amount every year. Defendant knew these representation were false because they were required to allocate from their budget to accommodate for these capital projects. Defendant made these representation in order for them to not issue out as much in budget excesses as they are contractually obligated to do, which the Plaintiff and other members relied on until

2 Zorilla v. Aypco Constr. II, LLC., 469 S.W.3d 143, 153 (Tex. 2015)

Plaintiff investigated the funds more thoroughly. These representations have cost Plaintiff and other members a significant portion of money.

VI.             DAMAGES

18.  As a direct and proximate result of the occurrence made the basis of this suit, Plaintiff is entitled to damages including:

a.       Actual or compensatory damages;

b.      Treble damages;

c.       Consequential and incidental damages; and

d.      Legal costs and attorney’s fees.

VII.          CONDITIONS PRECEDENT

19.  All conditions precedent to Plaintiff recovering on its claims herein have occurred or have been waived by Defendant.

VIII.       ATTORNEYS’ FEES

20.  Pursuant to Texas Civil Practice and Remedies Code Section 38.001, Plaintiff is entitled to recover reasonable attorney’s fees, in addition to the amount of a valid claim and costs.

IX.             PRAYER

21.  Plaintiff prays that Defendant be cited to appear and answer this Petition and that, after hearing, this Court issue judgment in favor of Plaintiff and against Defendant for an amount an amount equal to all economic and actual damages suffered as a result of Defendant’s breach.

22.  The Plaintiff further prays for all other and further relief, at law or in equity, to which the Plaintiff may show itself to be justly entitled.

Respectfully submitted,

HOLTTOLLETT, P.C.

Navin R. Pillai

State Bar No. 24132818
npillai@holttollet.com
courtnotice@holttollett.com
9821 Katy Freeway, Suite 350
Houston, Texas 77024
Phone No. (713) 510-1000
Fax No. (713) 510-1001
ATTORNEYS FOR THE PLAINTIFF