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Jeremy discussed the court’s ruling on some of the issues involving the allegations of breach of fiduciary duties and the claims not subject to mandatory non-binding arbitration before the lawsuit. There were two additional claims in the lawsuit on which the trial court entered a judgment in favor of the association/directors. This post will discuss those two additional claims by the unit owners and the fact that those disputes were not subject to non-binding arbitration before the lawsuit.

The lawsuit was filed by a group of unit owners against the association and individual members of the board of directors. The unit owners were concerned with the way the association and board members addressed the damage and repairs in the aftermath of Hurricane Wilma.

First, the unit owners sought to enjoin or stop the association/directors from holding “secret meetings” without notice and involvement of the unit owners. This count of their lawsuit asked for a permanent injunction, which is an extraordinary remedy where a court can order a party to stop engaging in a certain type of activity. A party seeking a permanent injunction in Florida has a very high burden to prove that they are entitled to that extraordinary relief.

The unit owners did not submit any evidence to the court to establish a present, existing violation of the Florida Condominium Act by the current board of directors. The only evidence presented by the unit owners involved action taken and “secret meetings” held by past board members. The appellate court noted that:

[I]t is difficult to discern how the unit owners’ would continue to suffer the ‘irreparable harm’ necessary to obtain injunctive relief in that the association’s board of directors had experienced an almost complete turnover in membership since the [lawsuit was filed.]

The unit owners’ failure to demonstrate a current dispute with the association and board of directors over these “secret meetings” was fatal to that part of the lawsuit. The court could not enjoin or stop “secret meetings” that were not even taking place with the current board of directors. The appellate court affirmed the trial court’s disposition.

Second, the unit owners asserted that the association/directors misallocated Hurricane Wilma insurance proceeds that “belonged” to building five in the twelve building complex. The unit owners in Gomez alleged that building five residents suffered damages as a result of their potential exposure to future claims by the insurance carrier because the claim payment was used to repair buildings other than building five. The association/directors submitted affidavits that building five suffered minimal damage and that the insurance carrier was insolvent and already liquidated. The insurance carrier had not filed any action to recover any insurance payment specifically related to building five.

The unit owners acknowledged in court that their claim in this area of the lawsuit was speculative in nature. The appellate court affirmed the trial court’s ruling in favor of the association/directors on this claim since it was “a theoretical, speculative claim lacking in merit and unsubstantiated by any type of proof.”

It is important to note for purposes of this post that the two counts of the lawsuit, (1) seeking to enjoin the directors’ “secret meetings,” and (2) accusing the board of directors of misallocating Hurricane Wilma insurance proceeds, involved claims that are not subject to pre-suit arbitration. Generally, these types of disputes are likely to be litigated and not referred to arbitration first since they often require extensive discovery, testimony and legal assistance to resolve.

According to Fla. Stat. § 718.1255(1), a “dispute” in this context is a disagreement involving the condominium association’s authority to (1) require or prevent a unit owner from doing something with his or her unit, or (2) modify a common area. A “dispute” also arises with allegations that the board has failed to: (3) properly conduct elections, (4) give notice of meetings or actions, (5) conduct meetings, or (6) allow inspection of books and records.

According to the same statute, a “dispute” is NOT a disagreement involving: (1) title to units and common areas; (2) warranties; (3) fees or assessments; (4) collection of assessments; (5) eviction of tenants; (6) fiduciary duties; or (7) claims for damages to a unit from the association’s failure to maintain common areas. These claims are not required to go through non-binding arbitration before a lawsuit may be filed.

In practical terms, when does Fla. Stat. § 718.1255(4) apply to require arbitration first? In Carlandia Corp. v. Obernauer, 695 So. 2d 408, 410 (Fla. 4th DCA 1997), the court stated:

“The nonbinding arbitration required by section 718.1255(4) is well suited to deal with everyday condominium disputes such as keys, pets, proxies, renters, election violations and offensive exterior decoration or maintenance of a unit. These types of cases are factually simple. They can be presented to an arbitrator without extensive discovery, expert testimony or sophisticated legal assistance.”

The Florida Fourth District Court of Appeal recently affirmed this interpretation of Fla. Stat. § 718.1255 in Gomez v. Lakes of Carriage Hills Condo. Assoc., Inc., No. 4D09-1338, 35 Fla. L. Weekly D1822a (Fla. 4th DCA Aug. 11, 2010). In Gomez, nineteen condominium unit owners sued the condominium association board over a disagreement in how insurance proceeds from Hurricane Wilma damage were spent.

The unit owners alleged several complaints against the board, but, for the most part, they centered on allegations that the board members breached their fiduciary duties to unit owners. A fiduciary duty requires that one act in the best interest of another, and Fla. Stat. § 718.111(1)(a) imposes a fiduciary duty that requires association directors and officers act in the best interest of unit owners. The unit owners alleged that the condominium association board members did not appropriately use insurance benefits to make necessary repairs to property damage from Hurricane Wilma.

The Fourth District Court of Appeal held that these allegations were not “arbitrable disputes” as contemplated by the Florida Legislature, and allowed the lawsuit to proceed without arbitration. The Court clearly thought that issues surrounding fiduciary duties could not easily be “presented to an arbitrator without extensive discovery, expert testimony or sophisticated legal assistance.”

There were also other counts against the condominium association that were dismissed by the trial court in summary judgment. Those counts involved different issues that will be discussed in an upcoming post.