Yesterday the Fourth District Court of Appeal applied the business judgment rule in the context of an HOA’s approval of an alteration to an owner’s lot in Miller v. Homeland POA, Inc., Case No. 4D18-1647, (Fla. 4th DCA July 31, 2019).
Homeland community lot owner Miller sued Llano and the Association asserting that the Association did not properly enforce the Association’s architectural review requirements concerning lot owner Llano’s new garage, including height and roof type. Llano obtained approval for a new garage. After completion the Association discovered that the garage differed from the approved plans and required Llano to submit new plans. Relying upon statements of compliance from Llano’s engineering and construction firm and from the Association’s counsel, the Association approved the garage as constructed.
Relying upon Hollywood Towers Condo Cd’m Ass’n, Inc. v. Hampton, 40 So. 3d 784, 787 (Fla. 4th DCA 2010), the business judgment rule may be utilized to “evaluate the management discussions of property associations and to avoid to second guessing those decisions.” The two point Hollywood Towers business judgment rule test applied in this case is:
1) Whether the association had the contractual or statutory authority to perform the relevant acts; and,
2) If so, whether the board acted reasonably.
Courts provide deference to action that is reasonable, not arbitrary capricious or in bad faith.
Reasonableness is a question of fact. Normally reasonableness is an issue for trial; however, the summary judgment was nevertheless affirmed. It appears that Llano did not offer evidence of supporting his allegations of improper influence. Miller’s allegations that there were “cut deals” or “improper influence” were conclusory and not sufficient. Thus, as a matter of law the Association’s exercise of its business judgment including reliance on the engineer, contractor and Association counsel was held to be reasonable.
Furthermore, when analyzing the exercise of business judgment, the court is to view the circumstances at the time of the decision, not at the time of litigation years later. A “long after the fact challenge… through the use of an expert who simply expressed a different opinion cannot upend the Board’s decision to approve….”
This decision will likely be of assistance to the practitioner. First, is the general holding allowing for application of the business judgment rule. Second, for the litigator noting that while exercise of the business judgment rule is a question of fact, that does not mandate a trial when there is sufficient evidence supporting the board of directors’ decision making process. The holding shifted the burden to the property owner to show factual instances or unreasonableness once the Association provided a rational for the Association’s decision.
There is a procedural caution in this multi-party dispute. The judgment was in favor of the neighboring owner; thus, as the court noted, the Association was not a real party to the appeal.
Many thanks to Dan Kaskel and Doug Christy for swiftly providing the decision.
Good seeing everyone at the meeting last week!
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
© 2019 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