Yesterday, the death knell may have been delivered to the mandatory non-binding pre-suit arbitration requirement for a condominium unit owner claims against that owner’s condominium association. The exclusion from mandatory arbitration of a “dispute” including an alleged “breach of fiduciary duty” was addressed in Palisades Owners’ Association, Inc. v. Browning, Case No. 1D17-2129 (Fla. 1st DCA, March 15, 2018),
Reinforcing that bad facts make bad law, as recited in the opinion two Association directors who are unit owners installed a permanent boat lift at the end of the condominium’s boat dock for those two owners’ “exclusive use” without obtaining approval of the unit owners. After unit owner Browning complained, the Association’s Board of Directors, including one of the two directors that installed the lift, voted to amend the “by-laws” to allow “temporary personal boat docks.” The opinion recites that a common element alteration requires super-majority unit owner approval.
Without demanding or undertaking mandatory pre-suit non-binding arbitration pursuant to §718.1255 Fla. Stat., Browning filed a complaint in circuit court. The opinion without indicating all the claims, stated that the complaint “included claims of breach of fiduciary duty by the Association….” The Association’s Motion to Dismiss predicated on the statutory arbitration requirement was denied by the trial court.
The Appellate Court in briefest part, perhaps setting the foundation for a re-hearing, recited that the statutory definition of a “dispute” which triggers mandatory arbitration, excludes “breaches of fiduciary duty”, citing to §718.1255(1) Fla. Stat. (2016). The Court rationalized that:
Browning’s complaint alleges a breach of fiduciary duty by the Association through the action of two of its board members, conflicts of interest, and violations of the Association’s by-laws. As our review is limited to the four corners of the complaint, all well-pleaded allegations must be accepted as true. Gomez v. Fradin, 41 So. 3d 1068, 1070 (Fla. 4th DCA 2010).
Thus, utilizing a binocular view of the recitation of a few seemingly “magical words” from the statute, the trial court’s denial of the Motion to Dismiss for failing to seek mandatory pre-suit non-binding arbitration was affirmed.
It is respectfully submitted that a unit owner’s mere incantation of the four words “breach of fiduciary duty” in a complaint against the owner’s condominium association fails to take into account the statute’s plain language and intent, and further is based upon misperceptions of underlying legal theories.
Starting with the statutory duty to arbitrate, the opinion paraphrased the arbitration statute, apparently overlooking the express predicate for an exclusion from the definition of “dispute,” three significant words. Compare the Court’s recitation of the exclusion to the actual statutory text. The Court’s paraphrase is as follows:
However, the Legislature specifically excluded from the statutory definition of “dispute” several categories of more complex disagreements between unit owners and condominium associations including title claims, interpretation or enforcement of a warranty, fee assessments, evictions, breaches of fiduciary duty, and claims for damages for failure to maintain common areas. § 718.1255(1), Fla. Stat. (2016).
(Emphasis added by Court). Next, compare the above to the actual text of the exclusion:
“Dispute” does not include any disagreement that primarily involves: title to any unit or common element; the interpretation or enforcement of any warranty; the levy of a fee or assessment, or the collection of an assessment levied against a party; the eviction or other removal of a tenant from a unit; alleged breaches of fiduciary duty by one or more directors; or claims for damages to a unit based upon the alleged failure of the association to maintain the common elements or condominium property.
(emphasis added). While the opinion properly states that a statute must be given its plain and obvious meaning when clear and unambiguous, in this circumstance the paraphrasing deleted critical language. The deleted words appear intended to prevent removing from a trial court what otherwise would be a “dispute” subject to mandatory pre-suit non-binding arbitration.
The opinion’s lack of specific identification of the claims and of any discussion of their interrelationship, critical in light of the “primarily involves” statutory text, led this writer to the rare delving into the record for information outside of the opinion. For example, the opinion does not state whether the plaintiff unit owner sought damages or equitable injunctive relief. A review of the Bay County Clerk's docket reveals a Complaint that has but one count entitled “Count I – Injunctive Relief//Specific Performance as to Defendant Palisades Condominium Association [sic.].” The prayer for relief demands:
… any and all immediate and permanent injunctive relief/specific performance to do the allegation in this complaint [sic], plus damages recoverable under law, plus interest and costs and attorneys’ fees together with any all other relief deemed just and appropriate.
Beyond the title of the sole count in the Complaint misnaming the defendant Association and being identified as “Count I” when there is no second count, the single count contains contradictory allegations if the claim is primarily to seek damages for breach of fiduciary duty:
- “this is an action in equity to compel specific performance of a restrictive covenant and to further enjoin… and damages….” (Complaint Paragraph 28).
- “Plaintiff has no adequate remedy at law for breach of the Declaration….” (Complaint Paragraph 32).
- “Plaintiff has suffered and is suffering irreparable injury.” (Complaint Paragraph 36).
As such, pleading claims in equity for injunctive relief would appear to bar a simultaneous claim in the same count for an action at law for damages! It must be stressed that this is not the situation where the Complaint pleads relief in different counts where alternatively may be alleged, more of which is below.
In addition, the opinion appears to take for granted that as a matter of law there are “claims of breach of fiduciary duty against a condominium association….” The Condominium Act clearly states in plain language:
The officers and directors of the association have a fiduciary relationship to the owners.
§718.111(1)(a) Fla. Stat. (2017) and (2016) (emphasis agdded).
Notably, the opinion does not site to the statute quoted above or the decision in Collado v. Baroukh __So.3d __, Case no. 4D16-2075, Fla. 4th DCA August 30, 2017 (Mandate Issued), which conclusively held:
Count one improperly alleged the association breached a fiduciary duty to its unit owners even though as a corporate entity, it does not have a duty to its unit owners. See § 718.111(1), Fla. Stat. (2016) (only officers and directors of a corporate entity have a fiduciary duty, not the corporate entity).
(emphasis added.) Thus, alleging a breach of fiduciary duty by the association does not create a cause of action.
If there was to be a claim for breach of fiduciary duty, then the Complaint would have to comply with the pleading requirements of Perlow v. Goldberg, 700 So. 2d 148 (Fla. 3rd DCA, 1997). While not excusing the conduct as alleged, in order to properly plead a count for breach of fiduciary duty, the Complaint would have to name as defendants the directors whom allegedly breached their duty which the Complaint does not.
Portions of the opinion indicate that there may be some misunderstandings that lead to the result, in addition to the paraphrasing of the arbitration statute. The opinion refers to the “by-laws” regarding amendments concerning common element use rights; however, the Complaint while mentioning the “By-laws” apparently once in the allegations (Complaint Paragraph 8), other references are to the Declaration of Condominium or to Rules. The By-laws at least in the form attached to the Complaint as Exhibit B do not include restrictions on use or changes to common elements or amendments for changes to the common elements.
If this opinion stands it is feared that the opinion would provide a condominium unit owner a unilateral trap door to escape from the Condominium Act’s mandatory non-binding pre-suit arbitration requirement by just incanting the magical words “breach of fiduciary duty” regardless of whether an actual claim was alleged or if it was just a tangential rather than primary focus of a claim. In this case, a decision the issues revolve around use and limitations on change, the vote by one director with a potential conflict of interest and not named as a defendant appears tangential, and not primary to the claim.
You can see how this decision could gut the “mandatory” requirements of the statute because one would expect every unit owner bringing a claim would assert that the failure to follow the “governing documents” would be a breach of fiduciary duty if there was no “primary” involvement. Because a unit owner normally does not owe a fiduciary duty to the owner’s association, this would make the trap door swing in only one direction, relegating only condominium associations to the arbitration program, again, clearly contrary to the legislative intent.
No matter what one may think of the arbitration program as it creaks away a shadow of its former self, this end run around the program’s jurisdiction is not a suitable or efficient method of attacking the process.
Michael J. Gelfand
Real Property, Probate and Trust Law Section of The Florida Bar
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Note: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section. Decisions may not be final.
© 2018 Michael J. Gelfand
Michael J. Gelfand
Florida Bar Board Certified Real Estate Attorney
Florida Supreme Court Certified Mediator:
Civil Circuit Court & Civil County Court
Fellow, American College of Real Estate Attorneys