THE FLORIDA BUSINESS JUDGMENT RULE

Last  week, we spoke about how difficult it is to obtain personal liability against an individual director of a community association.  The plaintiff would basically need to show a crime, fraud or self-dealing.  What about when the directors make decisions that may ultimately be incorrect but were made in good faith at the time?  Can a director be faced with individual liability simply because they made a bad or wrong decision?

 

Let’s talk about a case called, Hollywood Towers Condominium Association v. Hampton 40 So.3d 784 (4th DCA, 2010).  In that case, the Board wanted to make balcony repairs that would require tearing up the floor inside the owner’s unit.  The unit owner said such a repair was not necessary.  Each side had their own experts.  The trial court thought the association did not meet its burden of proving that it was necessary to enter the owner’s unit and denied the  association’s request for an injunction which would have allowed the association  to enter the unit.    The association then appealed.

 

The 4th District Court of Appeal looked to a California case for help and  held that Where a duly constituted community association board, upon reasonable investigation, in good faith and with regard for the best interests of the community association and its members, exercises discretion within the scope of its authority under relevant statutes, covenants and restrictions to select among means for discharging an obligation to maintain and repair a development’s common areas, courts should defer to the board’s authority and presumed expertise.  Lamden v. La Jolla Shores Clubdominium Homeowners Ass’n, 21 Cal.4th 249, 87 Cal.Rptr.2d 237, 980 P.2d 940, 942 (1999). We adopt the test set forth in Lamden, and hold that courts must give deference to a condominium association’s decision if that decision is within the scope of the association’s authority and is reasonable—that is, not arbitrary, capricious, or in bad faith.

In the instant case, there was no dispute that the association had the authority to repair the concrete on Hampton’s balcony, which is a common element under the declaration of condominium. See § 718.113(1), Fla. Stat. (2009) (“Maintenance of the common elements is the responsibility of the association.”). The association may repair and maintain common elements as long as its decision to do so is reasonable. Thus, the trial court’s focus was misplaced when it denied the injunction because there was a question as to whether the excavation and rebar work was necessary.

However, in order to access Hampton’s unit to perform the repairs, Hollywood Towers was obligated to show that such access was necessary. See § 718.111(5), Fla. Stat. (2009) (“The association has the irrevocable right of access to each unit during reasonable hours, when necessary for the maintenance, repair, or replacement of any common elements or of any portion of a unit to be maintained by the association pursuant to the declaration or as necessary to prevent damage to the common elements or to a unit or units.”).1 The trial court, on remand, must perform the Lamden test and determine whether the association had the authority to access Hampton’s unit to repair her balcony, and, if so, whether it acted reasonably—that is, not arbitrarily, capriciously, or in bad faith—in choosing to perform the repair work from inside Hampton’s unit.

Courts don’t want to get into the business of in effect, managing corporations and second guessing the decisions of their Boards of Directors.  Therefore, courts will yield to the business judgment of these directors, as long as their decisions are made in good faith.

 

One again…..if you’re a director on a Florida community association Board, it will be difficult to ever get a judgment against you individually, as long as you’re not stealing, taking kick backs, acting maliciously toward a fellow owner, or deliberately disregarding life safety issues.  Keep your nose clean and you’re good.

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