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BackerReport is a periodical addressing topics of interest to community associations in South Florida and is provided as a service to the clients and friends of Backer Aboud Poliakoff & Foelster, LLP
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It is important to note that court decisions discussed in this newsletter are sometimes subject to change as the parties pursue further appeals or other remedies. The articles that discuss court cases in this newsletter are based upon the courts' decisions that are released when the newsletter was written.
The Florida First District Court of Appeal ruled in a case on August 1, 2018 in an appeal from a trial court decision in Walton County Circuit Court which will have an effect on the ability of Florida unit owners to sue their condominium and homeowners associations regarding matters of common interest to the members of the community. The issues in this case are certainly likely more easily understood by lawyers who practice in this area of law, but I will make an effort here to avoid getting too deep into the legalese and simply summarize the impact of the case on Florida community associations.
There exists language in the Condominium Act (and HOA Act) which authorizes legal actions for damages or equitable relief against an association or a unit owner. There are provisions which expose associations, unit owners, directors and tenants to legal liability. In Iezzi v. Edgewater Beach Owners' Association, Inc., the First District Court of Appeal ruled that the unit owner's case against his association and its directors was properly dismissed since he had failed to comply with certain pre-suit requirements contained in a portion of the Florida Not For Profit Corporation Act that the Court ruled were required even in a suit by a condominium owner against his Association.
According to the Court's decision, the unit owner's complaint alleged that his condominium association acted improperly and that the individual directors breached their fiduciary duties resulting in various illegal expenditures and assessments and losses of the condominium Association's funds. The lawsuit filed by the unit owner sought recovery of damages from the association based upon his allegations of those improper activities. While the Condo Act does not impose any pre-suit requirements for bringing a lawsuit for such alleged injuries, under Section 617.1703, Fla. Stat. (part of the Not For Profit Corporation Act), a member of a not for profit corporation may not bring a lawsuit on behalf of the corporation until he has brought the complaint to the corporation's board of directors to allow the corporation to conduct investigations and initiate a lawsuit if it so determines. If the corporation proves that it has conducted an independent and reasonable investigation and determines in good faith that a lawsuit is not in the best interests of the corporation, a court may dismiss the member's lawsuit. Since the Condo Act lacked any specific requirement to comply with the other statute's pre-suit requirements, the unit owner simply sued without complying with the other statute's requirements.
Readers of BackerReport may be familiar with many reported Florida appellate cases where unit owners have obtained court orders compelling their associations to cure various violations of the law. There have been cases where courts have ordered associations to comply with statutory accounting requirements, there have been other cases where courts have ordered that associations remove unapproved alterations and there have been still more cases where courts have ordered associations to take action of one sort or another. In the Iezzi case, the court addressed whether the pre-suit requirements of the above-referenced statute applied in the case where the unit owner was seeking only money damages against his Association and not a court order requiring that the association take some particular action. Cases where the unit owner alleges injury to all of the similarly situated unit owners is known as a derivative claim; claims where the unit owner is seeking relief for himself in the form of damages or injunctive relief specific to himself is known as a direct claim. The Iezzi court held that "the injury is the determining factor in deciding whether a claim is direct or derivative; if the injury is to the corporation and only indirectly harms the shareholder, the claim must be pursued as a derivative claim."
The Iezzi Court held that, where a unit owner is seeking damages for injuries that are not distinct from the injuries of all of the other owners, his claim is derivative, not direct. The court held that a derivative claim for damages must comply with the pre-suit requirements of the Not For Profit Corporation Act. If the unit owner had sought injunctive relief requiring that his Association take action rather than just money damages for himself, he would have been able to avoid dismissal of the action since, under the former circumstances, he would not have had to comply with the pre-suit procedures.
As I mentioned earlier in this article, all of these procedural rules may be rather confusing to non-lawyers, but the most important thing to take away from this recent decision is that unit owner claims for damages that are not unique to the unit owner who is suing may not be brought unless the unit owner complies with various pre-suit statutory requirements. By contrast, unit owners who bring suits seeking to compel their associations to take specific action as opposed to paying money will be excused from complying with those same pre-suit statutory requirements. Unit owners who have claims against their associations would be best served seeking legal counsel from practitioners familiar with these issues since dismissal of their claims may expose them to significant attorney fee claims by the prevailing party association.
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