Many lawsuits pertaining to community associations involve unit owners who disagree with the actions of their Community Association’s Board of Directors. In the recent case Iezzi Family Limited P’Ship v. Edgewater Beach Owners Ass’n, Inc., 254 So.3d 584 (Fla. 1st DCA 2018), the First District Court of Appeals held that in certain derivative lawsuits brought by unit owners against their condominium association and its board of directors, the unit owner must comply with the statutory pre-suit requirements outlined in Fla. Stat. § 617.07401, which is Florida’s Not-For-Profit Corporation Statute. All condominium associations (and homeowner) associations are Not-For-Profit Corporations and are subject to both Chapter 718 and Chapter 617, Florida Statutes.
Derivative lawsuits are primarily seen in corporate disputes. A derivative claim generally is a claim brought by a shareholder on behalf of the corporation normally against the directors and/or officers of the corporation for mismanagement. In the context of a Florida not-for-profit corporation, prior to bringing a derivative lawsuit, a shareholder (known as “member”) of the corporation must comply with the statutory pre-suit requirements outlined in Fla. Stat. § 617.07401. Fla. Stat. § 617.07401(2) provides:
A complaint in a proceeding brought in the right of a domestic or foreign corporation must be verified and allege with particularity the demand made to obtain action by the board of directors and that the demand was refused or ignored by the board of directors for at least 90 days after the date of the first demand unless, before the expiration of the 90 days, the person was notified in writing that the corporation rejected the demand, or unless irreparable injury to the corporation would result by waiting for the expiration of the 90-day period. If the corporation commences an investigation of the charges made in the demand or complaint, the court may stay any proceeding until the investigation is completed.
Under the statute, members of non-profit corporations must bring their complaints to the board of directors to allow the corporation to conduct an investigation and if it deems appropriate, initiate a lawsuit. If the not-for-profit corporation proves that it has conducted an independent and reasonable investigation and determines in good faith that lawsuit is not in the best interest of the corporation, a court may dismiss the proceeding. Fla. Stat. § 617.07401(3).
In Iezzi, the unit owner brought a 27-count complaint against the condominium association and seven current and former directors and/or officers of the association seeking both legal and equitable relief. The complaint alleged that the association acted improperly, and the directors breached their fiduciary duties, resulting in various illegal expenditures and assessments, as well as losses in association funds. The trial court dismissed the unit owner’s complaint, finding that the claims were derivative in nature, and did not comply with the pre-suit requirements proscribed in Fla. Stat. § 617.07401.
In Iezzi, the Court distinguishes between two types of common injury claims in the community association realm: claims seeking equitable relief and claims brought in a representative capacity. The Court addresses the various claims a unit owner may bring addressing injury to the common areas of the condominium or arising from a breach of the declaration of condominium/governing documents. The Court holds that those types of common injuries fall under the “those seeking equitable relief” basket and are not subject to the statutory pre-suit requirements of a derivative claim.[1] “Many courts have permitted condominium unit owners to seek equitable relief from their associations and directors, especially when the alleged injury is to the common areas of the condominium.” Iezzi, 254 So.3d at 587. The Court then cites to three cases as examples of equitable relief suits:
- Owners could seek equitable relief based on association’s failure to comply with statutory accounting requirements. Hobbs v. Weinkauf, 940 So.2d 1151 (Fla. 2d DCA 2006);
- Owners could seek equitable relief based on other owners erecting non-compliant screen enclosures on the limited common elements. Sheoah Highlands, Inc. v. Daugherty, 837 So.2d 579 (Fla. 5th DCA 2003);
- Owners could seek equitable relief based upon association’s unauthorized repainting of buildings as it required a unit owner vote under the governing documents. Islandia Condo. Ass’n, Inc. v. Vermut. 501 So.2d 741 (Fla. 4th DCA 1987);
- Owner could seek equitable relief from the developer (at that time in control of the association) alleging that the developer failed to make statutorily required monetary contributions to the association. MacKenzie v. Centex Homes, 208 So.3d 790 (Fla 5th DCA 2016).
The court infers that although there are various causes of action for unit owners against an association and its directors for breach of fiduciary duty due to mismanagement, those claims would most likely be subject to the statutory pre-suit derivative requirements of Fla. Stat. § 617.07401 prior to bringing a lawsuit. Furthermore, the Court infers that claims by unit owners requesting monetary damages from the association are most likely derivative. In this context, the Court distinguished this case from MacKenzie: “Where the declaratory action was brought individually, its success would benefit the entire class; the plaintiff’s success in MacKenzie would result in an influx of funds for the association, giving every homeowners potential relief in the form of reduced assessments. In contrast, here, success against the association and/or directors would only result in relief for [Plaintiff].”
In affirming dismissal of the case, the Iezzi Court doesn’t exactly provide what types of community association related claims would be considered derivative claims subject to Fla. Stat. § 617.07401 pre-suit requirements. No cases have since interpreted the holding in Iezzi and further fleshed what types of community association claims are derivative and subject to Fla. Stat. § 617.07401. However, when analyzing a potential claim, both unit owners and community associations alike should be cognizant who the claim benefits, how the owner and/or association benefits from the claim, and what source of authority the claim arises from.
[1] Although pending on the type of claim may be subject to other pre-suit requirements such as mandatory pre-suit mediation. See Fla. Stat. § 718.1255.