Condominium association directors generally owe a fiduciary duty to the association they serve. As a fiduciary, a director owes grave duties of loyalty and good faith to the association. This relationship is one of trust that finds its roots in contract, statute, and the common law. While directors owe this high duty of care to the association, under the right circumstances, a director may seek to have the association cover any liability or expense incurred to defend the director against accusations of wrongdoing. This is the principle of indemnity.
A logical indemnity hypothetical would involve a defendant being accused of some wrongdoing, and the defendant would seek to have a third party, the party who is really responsible for the wrong, compensate the accuser. What happens when a defendant seeks indemnification from the plaintiff? While this might seem to create a vicious circle, the Florida Supreme Court recently permitted this type of indemnification in a suit where a condominium association sued its own directors, who, in turn, sought indemnification from the association for the costs of their defense.
In Wendt, et al. v. La Costa Beach Resort Condo. Ass’n., Inc., SC09-1914, 2011 WL 2224761 (Fla. Jun 9, 2011), the directors of a condominium association had been accused of breaching their fiduciary duties to the association by allegedly misappropriating condominium association income for the directors’ own personal benefit. The association sued the directors and obtained a jury verdict against the directors from the trial court. For various reasons, the trial court granted a new trial, and the directors sought indemnification against the association for their legal bills incurred during the first trial. The indemnification count was dismissed with prejudice by the trial court, and the directors appealed. The appellate court affirmed the trial court’s dismissal on the basis that the association was not really the party at fault and interpreted the directors’ indemnification action as one that willfully ignored the definition of indemnification and improperly attempted to turn indemnification into a vehicle to recover attorney’s fees from the opposing party. In doing so, the appellate court relied on a common law definition of indemnity that implied that the party seeking indemnification must allege some responsibility or fault on the party from which indemnification is sought. This appellate court’s decision directly conflicted with another appellate court decision, and the case was accepted by the Florida Supreme Court.
The Florida Supreme Court looked to the plain language of Florida’s corporate indemnification statute, Fla. Stat. § 607.0850, to determine whether there was any limitation in the statute prohibiting a corporate director from seeking indemnification from the corporation in an action brought against the director by the corporation. The Supreme Court found that a plain reading of the statute did not prohibit indemnification from a corporation when a corporation sued its own directors. The Supreme Court cited five other appellate decisions that also held Florida Statute § 607.0850 included no such limitation. The Court held that the appellate court’s reasoning in Wendt was at odds with the plain language of the statute. The express holding of the Supreme Court was, “that section 607.0850 authorizes corporate directors to seek indemnification from the corporation for actions brought against the directors by the corporation itself.”