By Lindsey Thurswell Lehr, Esq. / Published December 2018
A recent appellate decision appears to have solidified the mandatory pre-suit requirements Florida condominium unit owners must follow prior to initiating lawsuits against their associations concerning matters of common interest. The appellate court concluded that condominium unit owners, as members of a Florida not-for-profit corporation, must comply with the pre-suit notice and investigation requirements of derivative lawsuits (a lawsuit brought by a shareholder on behalf of a corporation).
The ruling by the Florida First District Court of Appeal in Iezzi v. Edgewater Beach has created significant hurdles for unit owners asserting claims against condominium associations when the damages being sought concern injuries that are common to the association’s similarly situated unit owners.
The unit owner’s lawsuit in Iezzi alleged that the condominium association, through its former and current board of directors, acted improperly and breached their fiduciary duties. Specifically, the plaintiff claims that the association and the board members approved various illegal expenditures that resulted in increased assessments and losses for the association and its members.
Based upon the plaintiff’s acknowledgment that its 27-count complaint, which sought both legal and equit-able relief, was derivative in nature, the association filed a motion to dismiss on the grounds that the plaintiff was required to follow the pre-suit notice requirements of the Florida derivative statute prior to filing suit. The trial court granted the association’s motion, disagreeing with the plaintiff’s response that a direct statutory cause of action against the association and its directors was permissible under the Condominium Act notwithstanding the derivative statutory requirements.
Ultimately, the appellate court agreed with the lower court’s decision in favor of the association. The First District Court of Appeal found that the procedures in Florida Statute Section 617.07401 did indeed apply to the plaintiff’s claims, requiring that prior to filing suit the plaintiff was required to send a demand for action by the board. Under the derivative statute, the board of directors then would have the option to commence an investigation and seek a stay of court proceedings until the investigation was complete. The court, which has the authority to dismiss the suit if the plaintiff fails to comply with these pre-suit notice requirements, could then dismiss the action if it determined that litigation was not in the best interest of the corporate defendant (as determined by a post-investigation vote of a majority of independent directors).
Traditionally, the derivative lawsuits governed by this statute are brought by shareholders to enforce a claim belonging to their corporation. They allege damages directly suffered by the corporation and only indirectly suffered by the shareholder.
The appellate panel based its analysis on the principle of statutory interpretation holding that, absent a clear inconsistency, courts must “construe related statutory provisions in harmony with one another.” The court further concluded that the determination of which statute applies depends on the basis of the claim being alleged. In Iezzi, because the plaintiff’s claim was “. . . not distinct from any other unit owner, and seeks legal damages for its exclusive benefit,” the court held that the plaintiff’s claims were derivative and not based on a loss suffered by an individual owner but rather by the corporate membership as a whole.
The appellate opinion also specifically distinguished claims for equitable relief, which allow for injunctive relief to address common-element issues such as repairs and alterations, from the ones at issue in Iezzi. Such claims seeking injunctions that do not reward one unit owner to the exclusion of other owners need not comply with the derivative pre-suit notice requirements.
The precedent set by Florida’s First District Court of Appeal signals the beginning of important changes for derivative lawsuits brought by condominium unit owners against their associations. Based upon this ruling, the associations would now be given ample time to investigate and resolve the alleged complaints, potentially defusing costly and prolonged litigation.
In order for associations to benefit from these new notice requirements, they must ensure that the independence and integrity of ensuing investigations and decisions are beyond reproach. As such, associations will need to consult and work closely with highly qualified and experienced condominium law attorneys from the very beginning.
Lindsey Thurswell Lehr
Attorney, Siegfried, Rivera, Hyman, Lerner, De La Torre, Mars & Sobel P.A.
Lindsey Thurswell Lehr is an attorney with the South Florida law firm Siegfried, Rivera, Hyman, Lerner, De La Torre, Mars & Sobel P.A. who is based at the firm’s Coral Gables office and focuses on construction, real estate, and community association law. The law firm also maintains offices in Broward and Palm Beach counties. For more information, visit www.srhl-law.com, www.FloridaHOALawyerBlog.com, or call (305) 442-3334.