By Michael J. Gelfand, Esq. / Published March 2020
Can a manager subject a Florida community association to punitive damages? Over landscaping? For $15 million?
Because an association normally is a corporation, the purpose of punitive damages, to punish, is not always clear cut, and thankfully, instances are few and far between. But, bad things do happen! Because there have not been a large number of association situations, the courts frequently look to business corporation disputes to provide guidance.
In a recent decision, a Florida appellate court addressed whether a regional maintenance supervisor was a managing agent creating corporate liability for overgrown bamboo. The dispute was set out in Florida Power & Light Co. v. Dominguez, Fla. L. Weekly D 2619 (Fla. 2nd DCA, October 25, 2019). The court summarized the facts: Justin Dominguez, a 15-year-old, was climbing a stalk of bamboo in his neighbor’s backyard when the stalk bent into a power line resulting in his death. A wrongful death lawsuit alleged FPL was negligent because FPL failed to follow FPL’s own maintenance and safety standards by not removing the bamboo from the area around its power line.
How could lack of maintenance create a $27 million liability? FPL’s vegetation maintenance procedures designated bamboo as a “critical removal” species that should be removed instead of trimmed when growing around power lines. It was alleged FPL violated its own vegetation maintenance policy by failing to remove the bamboo, warranting punitive damages because the violation was alleged to be the direct result of a corporate policy prioritizing corporate greed over safety. It was argued that punitive liability attached through the behavior of FPL’s regional head of vegetation management where the accident occurred. The jury agreed and awarded $12.5 million in noneconomic damages, plus $15 million in punitive damages! The Florida appellate court did not disturb the $12.5 million award but focused on the larger punitive damages award. The court explained that a corporation can be held liable for punitive damages for gross negligence of a “managing agent” of the corporation. The test is whether the managing agent’s conduct was so reckless or wanting in care that it constituted a conscious disregard or indifference to the life, safety, or rights of persons exposed to such conduct.
Applying this somewhat strict test can provide a bit of a benefit of a doubt to Florida corporations generally, and particularly to Florida community associations.
In the end, the appellate court was not prepared to take FPL to task for conduct of a maintenance supervisor who did not qualify as a managing agent of FPL, only being a mid-level employee, more akin to a bank vice president or hotel manager rather than a corporate officer. Therefore, FPL was not held liable for punitive damages.
Importantly, a Florida association can be held liable for its conduct. Causing a death or serious injury may result in a multi-million-dollar claim, even over something that seems so minor, such as trimming trees.
Punishment in the form of punitive damages may be triggered by a manager’s gross negligence. Associations must follow their checklists carefully and look out for dangers.
A volunteer officer or director’s conduct may also be a trigger. It is one thing to make decisions at a meeting in a board room. It is another when volunteers become managers outside their board rooms, literally taking matters into their own hands!
This decision reminds associations to evaluate who is managing, and whether care is taken to protect life, safety, and the rights of persons!
You think you can just sell your home? A quick “No” is the response in many homeowners associations and nearly all condominium and cooperative associations. The “governing documents” for these Florida communities nearly always have a process involving a “right of first refusal.”
If the association desires to block the sale, then triggering the right of first refusal means the sale cannot be consummated. When this occurs, it usually is because the sale would violate the governing documents, such as the buyer’s ownership would violate a valid restriction. But, and this is a big but, if the sale is blocked for another reason, then the association must normally provide an alternative buyer, or the association must purchase the property!
How many times can this happen? Recently, a Florida appellate court addressed a repetitive situation.
In The Allegro at Boynton Beach v. Pearson, 44 Fla. L. Weekly D 2851 (Fla. 4th DCA, November 27, 2019), the facts indicated that Allegro, the operator of a senior housing community, had a right of first refusal concerning adjacent land. In summary, the right of first refusal provided that before a transfer, the seller had to deliver a copy of the sales contract to Allegro, which had 10 days to decide to purchase the property.
The first planned sale occurred in September 2013, and Allegro exercised its right of first refusal to buy. How-ever, nearly a year later, Allegro terminated its contract to purchase the property. Apparently, this meant that the property was not sold. Then, a year and a half later, the seller found another buyer. The seller refused to provide Allegro the new, second contract because the seller determined Allegro’s failure to close the first contract terminated any of Allegro’s future rights of first refusal.
Allegro sued, seeking a copy of the second contract to enforce the right to sell and to recover damages. Perhaps as expected, the seller counterclaimed. During the proceedings the second buyer provided Allegro a copy of the new second contract. The trial court granted judgment for the seller, finding that Allegro failed to purchase the property after receiving a copy of the contract, and that the seller fully complied with the right of first refusal.
The Florida appellate court agreed with the decision of the trial court finding that the seller fully complied with his obligations under the right of first refusal and that Allegro failed to elect to purchase the property in a timely manner. The court determined that under the terms of the right of first refusal, Allegro obtaining a copy of the second contract triggered the time period for Allegro to exercise the right of first refusal, even though the seller did not “deliver” the contract.
There are a number of lessons in this decision for Florida community associations. The first is that the specific terms of rights of first refusal vary from document to document. It is important for an association to clearly understand what triggers are present, including dates and methods of acceptance and communication. Another important point is that frequently the manner in which a sales contract is received by an association may not make a difference. Further, timing is almost always important.
Often complaints are heard that the association cannot do anything about controlling who lives in the community. This is not necessarily true. Most Florida associations have broad powers, but planning in advance is critical.
Especially with the rise in short-term rental investors and other non-resident landlord owners, the need to review sale and leasing restrictions with counsel becomes important. This is especially so with the Florida Legislature’s pre-emption of many county and municipal short-term leasing ordinances, meaning that the only protection a community has will usually be that community’s documents.
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, Certified Circuit and County Civil Court Mediator, 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 firstname.lastname@example.org or (561) 655-6224.