NEWS

New Decision: Derivative Claims (Iezzi Family v. Edgewater Beach)
August 06, 2018

A unit owner’s claim for damages suffered by a condominium association must comply with the derivative action procedure in the Florida Not for Profit Corporation Act, §617.07401, Fla. Stat., however, in seeking to reinforce a bright line test, the First District Court of Appeal may have blurred that line in the context of equitable actions in Iezzi Family LP v. Edgewater Beach Owners Ass’n., Inc., Case No. 1D16-5878 (Fla. 1st DCA August 1, 2018). Compliance with derivative action notice, independent investigation and court fact finding requirements can add substantial complexity, time, and expense to what an owner may consider is a routine straight forward claim.

The decision did not identify the underlying facts or even the claims in the owner’s 27 count complaint seeking legal and equitable relief against the Condominium Association and seven current or former officers and directors, perhaps because of the unit owner’s critical “acknowledgment” that his 27-count complaint fit within the description of a derivative action!

The court emphasized that the description of a derivative claim encompasses claims “existing in the corporation, the injury sustained … is basically the same as the injury sustained by others…” citing Leppert v. Lakebreeze HOA Inc., 500 So.2d 252 (Fla. 1st DCA 1986) (emphasis in original).

Proceeding with the owner’s concession acknowledgement, the appellate court addressed whether the Condominium Act’s private cause of action in §718.303(1), Fla. Stat. conflicts with the Not for Profit Corporate Act’s derivative action procedures. The court noted that neither statute has been substantially amended since 1976 which explains why the decision does not identify a particular year for the statutes cited.

The court began its analysis reminding that statutory interpretation begins with reading “related statutory provisions in harmony with one another….” Thus, the court held that the two statutes do not conflict.

The threshold for which statute applies turns upon the basis of the claim. If the one owner plaintiff’s claim is “… not distinct from any other unit owner, and seeks legal damages for its exclusive benefit…” then that claim would be a derivative action. The court appeared to distinguish a derivative action seek damages for a loss suffered by all owners from a claim based on a loss suffered just by an individual owner.

The courts approach to legal claims for damages may be well understood. After all, it would not seem “right” for one owner to sue for damages that were incurred, or damages that are the right of, all owners while the suing owner kept all the funds.

The court’s discussion strove to differentiate a claim for equitable relief as opposed to a claim for legal money damages. This is an important distinction because equity has traditionally allowed injunctive relief to address common element issues. For example, consider a claim for injunctive relief to repair a roof or wall, or to address an improper alteration.

The court cited three decisions from other District Courts of Appeal allowing the owner of one unit to seek equitable relief concerning common elements. Unfortunately, these favorable citations, though including parenthetical notes, did not explain why one unit owner would have a claim for equitable relief regarding common elements that all owners own, as differentiated from an owner’s claim for legal damages from a claim seeking equitable relief.

By contrasting the legal and equitable actions, it appears that the court was concerned with an individual unit owner seeking money for legal damages suffered by all owners, but still desired to allow one owner to seek equitable relief against an association for failing to comply with common element maintenance duties. In the later equitable claim, repairs to the roof or wall would not inure to the single claimant, but would benefit all owners indivisibly. Further that claims would not bar another owner from seeking relief.

Unfortunately, the decision may have created more issues by its focus on “legal” verses “equitable” claims, especially in the context of a breach of fiduciary duty claim for damages. While a claim for damages may be assumed by many to be a legal claim, a fiduciary duty claim has been seen as different. It is an “ambiguous expression”, and “…whether the action will lie at law, in equity, or both depends on the nature of the breach and the remedy sought.” King Mountain Cd’m. Ass’n., Inc. v. Gundlach, 425 So. 2d 569, 571 (Fla. 4th DCA 1982).

The court sought to differentiate a more traditional carveout for a unit owner seeking legal damages in Rogers & Fords Const. Corp. v. Carlandia Corp., 626 So.2d 1350, 1354 (Fla. 1993). In Carlandia one unit owner was able to claim damages for construction defects to common elements; however, other unit owners’ rights must be protected. The Iezzy court appears to conclude that the 2009 enactment of the Not for Profit Corp. Act Derivative Action statue “resolves the representation issues discussed in Rogers.” It is suggested that the court’s write off of Rogers may be too quick, at least to the extent that a unit owner seeks damages only that the unit owner incurred; thought it is recognized that usually all unit owners would be an indispensable party.

Touching on representative claims, the court largely sidesteps a closely related concept, the community association as class action representative provisions of Fla.R.Civ.P Rule 1.221. While the Rule is procedural, a question may be asked: does standing mandate compliance with the statutory derivative action substantive requirements in the class action context for a unit owner bringing a claim held by all owners? Perhaps because the claims were not brought as a derivative action, the court believed it did not have to reach the issue.

In conclusion, legal claims for money damages not differentiated from the same claim held by all unit owners requires a derivative action. An equitable claim seeking injunctive relief that does not award one unit owner relief to the exclusion of other owners may be able to be filed. The distinction is between claims benefiting just the plaintiff owner and claims that would ostensibly benefit the association and all owners

Michael J. Gelfand

Past Chair

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

© 2018 Michael J. Gelfand

Michael J. Gelfand

Florida Bar Board Certified:

Real Estate Attorney

Condominium & Planned Development Law

Florida Supreme Court Certified Mediator:

Civil Circuit Court & Civil County Court

Fellow, American College of Real Estate Attorneys

The only thing necessary for the triumph of evil is for good men to do nothing.

- Edmund Burke


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