In Iezzi Family Limited Partnership, v. Edgewater Beach Owners Association, Inc., the owner of a condominium unit filed a 27-count complaint against the condominium’s Association and seven current or former directors or officers of the Association, seeking both equitable and legal relief. The trial court dismissed Iezzi’s action, finding that its claims were derivative and Iezzi did not comply with Florida’s derivative pre-suit requirements. On appeal, the First DCA affirmed.
A derivative suit has been defined as an action in which a stockholder seeks to enforce a right of action existing in the corporation; the injury sustained by the stockholder bringing such suit is basically the same as the injury sustained by other stockholders in the corporation and any harm is primarily against the corporation.
Many courts have permitted condominium unit owners to seek equitable relief (not money) from their associations and directors, especially when the alleged injury is to common areas of the condominium. However, where monetary damages will be sought, and the claims of the plaintiff are no different than a claim that any other unit owner may bring, the pre-suit requirements of the derivative statute must be complied with. Pursuant to Florida Statute 617.07401, those requirements are:
A complaint in a proceeding brought in the right of a domestic or foreign corporation must be verified and allege with particularity the demand made to obtain action by the board of directors and that the demand was refused or ignored by the board of directors for at least 90 days after the date of the first demand unless, before the expiration of the 90 days, the person was notified in writing that the corporation rejected the demand, or unless irreparable injury to the corporation would result by waiting for the expiration of the 90-day period. If the corporation commences an investigation of the charges made in the demand or complaint, the court may stay any proceeding until the investigation is completed.
The court may dismiss a derivative proceeding if, on motion by the corporation, the court finds that one of the groups specified in paragraphs (a)-(c) has made a good faith determination after conducting a reasonable investigation upon which its conclusions are based that the maintenance of the derivative suit is not in the best interests of the corporation. The corporation has the burden of proving the independence and good faith of the group making the determination and the reasonableness of the investigation. The determination shall be made by:
(a) A majority vote of independent directors present at a meeting of the board of directors, if the independent directors constitute a quorum;
(b) A majority vote of a committee consisting of two or more independent directors appointed by a majority vote of independent directors present at a meeting of the board of directors, whether or not such independent directors constitute a quorum; or
(c) A panel of one or more independent persons appointed by the court upon motion by the corporation.
(4) A proceeding commenced under this section may not be discontinued or settled without the approval of the court. If the court determines that a proposed discontinuance or settlement substantially affects the interest of the members of the corporation, or a class, series, or voting group of members, the court shall direct that notice be given to the members affected. The court may determine which party or parties to the proceeding shall bear the expense of giving the notice.
(5) Upon termination of the proceeding, the court may require the plaintiff to pay any defendant’s reasonable expenses, including reasonable attorney’s fees, incurred in defending the proceeding if it finds that the proceeding was commenced without reasonable cause.
(6) The court may award reasonable expenses for maintaining the proceeding, including reasonable attorney’s fees, to a successful plaintiff or to the person commencing the proceeding who receives any relief, whether by judgment, compromise, or settlement, and may require that the person account for the remainder of any proceeds to the corporation; however, this subsection does not apply to any relief rendered for the benefit of injured members only and is limited to a recovery of the loss or damage of the injured members.