Director Retaliation, Contractor’s Conduct Danger, and Arrival of the Corporate Transparency Act

By Michael J. Gelfand, Esq. / Published January 2024

Are directors legally bulletproof? Can an association member sue directors? Though many believe that a director has immunity from lawsuits, are there boundaries?

     A lesson to many that bad faith appears to be beyond that boundary was the message gathered from a recent Florida appellate decision, Dobal v. Villas at South Beach Condominium Association, Inc., 48 Fla. L. Weekly D 1499 (Fla. 3rd DCA, August 2, 2023).

     The complaint included many allegations: While Dobal was a director of his condominium association, he and other unit owners complained about water leaks in their units; the association hired an engineer who determined that the leaks resulted from roof deterioration because of its age; Dobal sought a special assessment to pay for roof repairs, but others disagreed; the objectors were elected and Dobal was voted off the board; these new directors prohibited Dobal from repairing his roof while they repaired other roofs and had a new engineer change his conclusion to report that the leaks were not from the roof; and during this time Dobal’s unit suffered more water intrusion and mold.

     Dobal sued the association and three of the association’s directors for breach of their fiduciary duty to him as a unit owner, alleging that these directors took actions “willfully, intentionally, and in bad faith…and wanted to cause as much damage as possible to [Dobal]” to retaliate against him for identifying the problem in the roof and proposing the special assessment. The trial court dismissed the complaint, finding that the directors had statutory immunity.

     Finding that there are boundaries not to be crossed, the Florida appellate court disagreed and reversed the decision of the trial court. The court pointed out that the statutory immunity for condominium association directors in Section 718.111(1)(d), Fla. Stat., has three significant exceptions:

1. If the breach of duty constitutes a violation of criminal law;
2. If the breach of duty constitutes a transaction from which the officer or director derived an improper personal benefit; or
3. If the breach of duty constitutes recklessness or an act or omission that was in bad faith, with malicious purpose, or in a manner exhibiting wanton and willful disregard of human rights, safety, or property.

     Based on the third exception, the appellate court found that a jury could find that if proven, the directors’ retaliation against Dobal for identifying a problem and advocating for a special assessment was made in bad faith. In other words, the court found that Dobal’s complaint alleged sufficient facts to overcome the directors’ immunity, and he could proceed with his lawsuit against the three directors.

     This decision emphasizes the importance for Florida community association officers and directors to recognize that their authority has practical and legal boundaries. Florida condominium, homeowner, or cooperative associations’ directors have a legal duty to act in good faith toward other members of their associations.

     Although officers and directors are generally granted immunity from lawsuits from other members, the immunity will not apply to protect them if they act in bad faith. As this decision shows, retaliation against a board member—in this case, for trying to fix a problem—may subject you to liability!

General Contractor Deemed Agent of Owner and Not an Independent Contractor

     Did your vendor sell you out? Perhaps inadvertently? How do you know? Can your contractor’s conduct, over which you have no knowledge, bar your association from enforcing legal rights against a manufacturer or supplier of deficient goods or material? How can that be?

     Recently a Florida appellate court ruled that a general contractor hired by a property owner was in fact the property owner’s agent when the contractor purchased material for a construction project and thus could compromise the owner’s rights without a showing that the owner had knowledge.

     What is the difference? Usually an “independent” contractor cannot bind an owner to a contract in the same way that an agent can bind an owner.

     These differences seemed to come to a head in SICIS North America, Inc. v. Sadie’s Hideaway, LLC, 48 Fla. L. Weekly D 1581 (Fla. 1st, DCA, August 9, 2023), where Sadie’s Hideaway hired Galvas Construction for a construction project. Galvas in turn purchased tiles for use around a swimming pool, hot tub, pool deck, and balcony. After the construction was completed, Sadie’s sued Galvas for breach of contract for construction defects. Galvas filed a cross claim against SICIS, the tile manufacturer, for indemnification.

     SICIS sought to block a court trial, moving to compel arbitration, asserting that the owner’s contractor, Galvas, included an arbitration provision in its contract with SICIS. The trial court denied the motion to compel arbitration, finding that Sadie’s was not bound by the arbitration provision in a contract Sadie’s did not sign.

     The Florida appellate court found that Galvas was acting as Sadie’s agent when it purchased tiles from SICIS. The court noted that the elements of an actual agency relationship are as follows: (1) acknowledgement by the principal that the agent will act for him; (2) the agent’s acceptance of the undertaking; and (3) control by the principal over the actions of the agent.

     The appellate court ultimately reversed the decision of the trial court, concluding that the evidence established that Sadie’s authorized Galvas to act as its agent when it purchased tiles. “Because Galvas’s purchase of the tiles was within the scope of work that Sadie’s hired it to do, it was unnecessary for Sadie’s to expressly authorize Galvas to enter into the arbitration agreement with Appellant,” the court stated. “Sadie’s is bound by that agreement by virtue of its agency relationship with Galvas.”

     In other words, the court ruled that the general contractor hired by Sadie’s was in fact an agent of Sadie’s and not an independent contractor.

     How does a Florida association protect itself from its contractor’s contracts? It is important to read the contracts carefully. It may also be necessary to review contractors’ contracts with suppliers. As a backup, insurance may assist.

Prepare to Register: Corporate Transparency Act Arrives!

     Unless Congress acts swiftly, Florida condominium, homeowners’, and cooperative associations will have to register under the Corporate Transparency Act, a law adopted in 2020 at 31 U.S.C. 5336. The Financial Crimes Enforcement Network, frequently referred to as “FinCEN,” which is part of the U.S. Treasury Department, administers this Act to fight undisclosed owners of property that may be used for terrorist or other illegal purposes.

     The reach of the new registration requirements is quite broad. A required “reporting company” appears to be any corporation, including not-for-profit corporations, which include most Florida community associations. There are 24 categories of exemptions, but none appear to apply to the “standard” Florida community association.

     Reporting includes information regarding each association’s “beneficial owner,” which includes someone holding substantial control over an entity. An officer and a director would appear to fall into the category of those to be included in the reporting of name and address.

     FinCEN has not posted a submittal form on its website. It is anticipated that Florida community associations will have to file for each officer and director with their name, address, and birthdate, together with a photograph and identification number of the person’s passport or driver’s license. Look for further information for registration. 

Michael J. Gelfand, Esq.

Senior Partner, Gelfand & Arpe, P.A.

     Michael J. Gelfand, Esq., the senior partner of Gelfand & Arpe, P.A., emphasizes a community association law practice, counseling associations and owners how to set legitimate goals and effectively achieve those goals. Gelfand is a dual Florida Bar board-certified lawyer in condominium and planned development law and in real estate law, a certified circuit and county civil court mediator, a homeowners’ association mediator, an arbitrator, and parliamentarian. He is a past chair of the Real Property Division of the Florida Bar’s Real Property, Probate & Trust Law Section, and a Fellow of the American College of Real Estate Lawyers. Contact him at ga@gelfandarpe.com or 561-655-6224.